FEDERAL DISTRICT COURT GRANTS SUMMARY JUDGMENT ON CLAIMS OF BAD FAITH AND CHAPTER 541 INSURANCE CODE VIOLATIONS

August 8, 2011

Recently, in Great Am. Ins. Co. v. AFS/IBEX Fin. Servs. Inc., C.A. No. 3:07–CV–924–O, 2011 WL 3163605 (S.D. Tex. July 27, 2011) (O’Connor, J.), U.S. District Court Judge Reed O’Connor granted summary judgment in favor of Great American Insurance Company (“GAIC”) on the claims of bad faith and violations of Chapter 541 of the Texas insurance Code brought by its insured, AFS/IBEX Financial Services, Inc. (“AFS”).  This case arose out of a dispute over insurance coverage under crime insurance policies issued to AFS, which had issued numerous checks for premium financing requested by an insurance agent who was depositing the checks into his personal account.  AFS submitted a claim to GAIC under its crime insurance policies, which denied the claim.

AFS later filed a lawsuit against GAIC.  AFS alleged that GAIC breached the common law duty of good faith and fair dealing because it acted in bad faith in construing the exclusion in its policy with AFS.  AFS also alleged that GAIC violated the Texas Insurance Code through unfair settlement practices.  The court found coverage for the claims in an earlier proceeding.  Now addressing the extra-contractual claims, the court, focusing on whether GAIC’s conduct was reasonable rather than whether the claim was valid or GAIC’s policy construction was proper, found that the case involved a bona fide dispute precluding recovery on common law or statutory bad faith claims.  The court also found AFS’s extra-contractual claims should be dismissed for lack of causation, regardless of there being a finding of a bona fide dispute.  In particular, the court found no injury to AFS independent of what would have resulted from a wrongful denial of policy benefits.