Presenting a live 90-minute webinar with interactive Q&A Construction Payment and Performance Bond Bad Faith Litigation: Bringing or Defending Claims Amid Differing State Standards THURSDAY, JUNE 30, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Patrick R. Kingsley, Chair , Construction, Stradley Ronon Stevens & Young , Philadelphia Marc A. Sanchez, Partner , Frantz Ward , Cleveland The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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BAD BAD FAITH CLAIMS AGAINST FAITH CLAIMS AGAINST SURETIES SURETIES Presented by: Presented by: Patrick Kingsley Patrick Kingsley Marc Sanchez Marc Sanchez Stradley Ronon Stevens & Young, LLP
I. I. The Origin and Evolution The Origin and Evolution of the Bad Faith Claim of the Bad Faith Claim of the Bad Faith Claim of the Bad Faith Claim Against Sureties Against Sureties Patrick R. Kingsley, Esquire Patrick R. Kingsley, Esquire Stradley Ronon Stradley Ronon Stevens & Young, LLP Stevens & Young, LLP 2005 Market Street, Suite 2600 2005 Market Street, Suite 2600 Philadelphia, PA 19103 Philadelphia, PA 19103 (215) 564 (215) 564- -8029 8029 Stradley Ronon Stevens & Young, LLP 6
Origin of the Bad Faith Claim Origin of the Bad Faith Claim English common law has long recognized English common law has long recognized an implied duty of good faith of law dealing in every contract. Stradley Ronon Stevens & Young, LLP 7
Origin of the Bad Faith Claim Origin of the Bad Faith Claim The good faith and fair dealing doctrine protects parties to a contract by prohibiting protects parties to a contract by prohibiting one party from interfering with the other party’s right to receive the benefit of the bargain. Stradley Ronon Stevens & Young, LLP 8
Origin of the Bad Faith Claim Origin of the Bad Faith Claim Insurance contracts, just like other contracts, are covered by this implied duty. contracts, are covered by this implied duty. Brassil v. Md. Cas. Co. (N.Y. 1914) Stradley Ronon Stevens & Young, LLP 9
Origins of the Bad Faith Claim: Origins of the Bad Faith Claim: The general common law duty of good faith and fair dealing was good faith and fair dealing was transformed into an affirmative transformed into an affirmative claim sounding in tort Stradley Ronon Stevens & Young, LLP 10
Origins of the Bad Faith Claim: Origins of the Bad Faith Claim: The new tort was based on the “special relationship” between the insured and its insurer, the insured and its insurer, which arose out of the unequal which arose out of the unequal bargaining power at policy inception and during coverage determination Stradley Ronon Stevens & Young, LLP 11
Origins of the Bad Faith Claim: Origins of the Bad Faith Claim: At policy inception? Stradley Ronon Stevens & Young, LLP 12
Origins of the Bad Faith Claim: Origins of the Bad Faith Claim: Responding to a claim? Stradley Ronon Stevens & Young, LLP 13
Origin of the Bad Faith Claim Origin of the Bad Faith Claim Gruenberg v. Aetna Ins. Co. (1973) • Restaurant owner obtains $35,000 worth of fire insurance • A fire subsequently occurs • A fire subsequently occurs • Insurer’s claims investigator opines that the owner over-insured the restaurant and suspects foul play by the owner in the incident • Criminal changes were initiated but immediately dismissed for lack of probable cause. Stradley Ronon Stevens & Young, LLP 14
Origins of the Bad Faith Claim: Origins of the Bad Faith Claim: Gruenberg v. Aetna Ins. Co. (1973) “It is the obligation, deemed to be imposed by law, under which the insurer must act fairly with its insured by refusing, without proper cause, to its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.” Stradley Ronon Stevens & Young, LLP 15
Lack of Good Faith and Lack of Good Faith and Fair Dealing Fair Dealing - sounds in contract - sounds in contract - is a way of establishing a breach of the contract - contract damages only Stradley Ronon Stevens & Young, LLP 16
Bad Faith Claim Bad Faith Claim - Is a tort - Is a tort - Unique elements (beyond mere breach) - Extra-contractual damages Stradley Ronon Stevens & Young, LLP 17
Origin of the Bad Faith Claim Origin of the Bad Faith Claim Dodge v. F&D Co. of Md. (Ariz. 1989) • Homeowners contracted for the construction of a new residence • The contract required a bond • The contract required a bond • The contractor defaulted but the bond claim was denied • Homeowners sued the surety for bad faith • The trial court dismisses the bad faith claim Stradley Ronon Stevens & Young, LLP 18
Origin of the Bad Faith Claim Origin of the Bad Faith Claim The intermediate court of appeals affirms: “Given the difference in the relationship created by casualty insurance and surety created by casualty insurance and surety insurance, we see no compelling public policy reasons to expand the damages collectible against a surety beyond those traditionally provided for breach of contract.” Stradley Ronon Stevens & Young, LLP 19
Origin of the Bad Faith Claim Origin of the Bad Faith Claim Dodge v. F&D Co. of Md. (Ariz. 1989) • Concluded that the common law insurance bad faith tort covers sureties because sureties are insurers because sureties are insurers • Suretyship was clearly referenced in Arizona’s statutory insurance scheme, thus it is insurance Stradley Ronon Stevens & Young, LLP 20
II. Insurance and Suretyship Marc A. Sanchez, Esq. Marc A. Sanchez, Esq. 200 Public Square, Suite 3000 200 Public Square, Suite 3000 Cleveland, OH 44114 Cleveland, OH 44114 JUNE 30, 2016
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