Alabama Claims Compliance

. Shortly thereafter, the Alabama Supreme Court established the rigid elements of a "normal" bad faith claim in National Security Fire & Casualty Co. v. Bowen (1982) .

The most recent and direct examination of this issue occurred in Goodrich v. Pac. Indem. Co., 2024 U.S. Dist. LEXIS 209005 (N.D. Ala. Nov. 18, 2024) . In this case, the plaintiffs suffered a catastrophic fire in their newly constructed home. The insurer, Pacific Indemnity, paid out over $3,000,000, but a dispute arose regarding additional amounts owed .

Historically, Alabama recognized two forms of bad faith: "normal" bad faith (an intentional refusal to pay a claim without a reasonably legitimate or arguable reason) and "abnormal" bad faith (an intentional failure to properly investigate or cognitively evaluate a claim) . However, in 2013, the Alabama Supreme Court in State Farm Fire & Cas. Co. v.

This is the seminal case governing the modern era of ROR letters in Alabama . In L & S Roofing, the federal district court certified a question to the Alabama Supreme Court regarding whether an insured is entitled to independent counsel at the insurer's expense when a defense is provided under a reservation of rights .

and later in Shelby Steel Fabricators, Inc. v. United States Fidelity & Guaranty Ins. Co. (1990) imposed an "enhanced obligation of good faith" .

In Mooradian, the Alabama Supreme Court established the foundational principle regarding waiver and estoppel in insurance contracts. The court held that an insurer cannot use a non-waiver agreement to reserve its rights if the insured refuses to sign it, but the insurer can still unilaterally reserve its rights through an ROR letter .

To prevail on a standard bad faith claim, the insured must prove:

In Shelby Steel, the insurer (U.S.F. & G.) provided a defense for 29 months but failed to communicate with the insured regarding the status of the case or the potential liability before suddenly issuing an ROR letter denying coverage based on policy exclusions .

reinforced this barrier, stating: "Bad faith... is not simply bad judgment or negligence. It imports a dishonest purpose and means a breach of known duty, i.e., good faith and fair dealing, through some motive of self-interest or ill will" .

Alabama law imposes a duty of ordinary care on the insurer to investigate and determine if a settlement within policy limits is feasible when an opportunity arises .

and reaffirmed in State Farm Mut. Auto. Ins. Co. v. Hollis (1989), Alabama law imposes a duty of ordinary care on the insurer to investigate and determine if a settlement within policy limits is feasible when an opportunity arises .

The Alabama Supreme Court reached a similar conclusion in White v. State Farm Fire & Cas. Co., 953 So. 2d 340 (Ala. 2006) . Following a roof collapse, the insured experienced immense frustration with the insurer's claims adjuster. The factual record showed that the insured attempted to contact the adjuster for status updates regarding payment and contractor estimates but was entirely ignored.