West Virginia

West Virginia has both common law and statutory bad faith claims, but the elements of each overlap so that the Supreme Court has noted that the phrase “bad faith” is used interchangeably to refer to each.[1]  The statutory cause of action is part of the West Virginia Unfair Trade Practices Act, which includes a section on insurance practices.[2]  That portion defines unfair claim settlement practices as including:

(d) Refusing to pay claims without conducting a reasonable investigation based upon all available information;

(f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;

(g) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered;

(h) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;

(k) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;

(m) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;

(n) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.[3]

To bring an action under the statute, the insured must establish that the insurer’s conduct is more than a single violation of the statute, and that the violations arise from a habit, custom, usage, or business policy of the insurer.[4]  The evidence must show that the insurer’s practices are sufficiently pervasive or sufficiently sanctioned by the insurance company so as to constitute a “general business practice” that can be reasonably distinguished from an isolated event.[5]  A claim under the bad faith statute cannot be raised until the underlying claim is settled or resolved via trial.[6]

West Virginia also recognizes an independent common law cause of action for bad faith against a first-party insurer.[7]  In such claims, the duty involved is the duty of good faith and fair dealing.[8]  The court must determine at the outset whether the claim is genuinely classified as a first-party bad faith claim, which “is one wherein the insured sues his/her own insurer for failing to use good faith in settling a claim . . . filed by the insured.”[9]  Meanwhile, "[a] third-party bad faith action is one that is brought against an insurer by a plaintiff who prevailed in a separate action against an insured tort feasor."[10]

The private cause of action for third party claims was expressly abolished by statute in 2005.[11]  The statute provides that “A third-party claimant's sole remedy against a person for an unfair claims settlement practice or the bad faith settlement of a claim is the filing of an administrative complaint with the Commissioner…”[12]  Furthermore, “A third-party claimant may not include allegations of unfair claims settlement practices in any underlying litigation against an insured.”[13]

The third-party administrative claim must be brought within one year of the discovery of the unfair claims settlement practice.[14]  The insurer then has an opportunity to “substantially correct the circumstances that gave rise to the violation” or to otherwise resolve the complaint in a manner satisfactory to the Commissioner.[15]  If that occurs, the Commissioner closes the complaint “and no further action shall lie on the matter, either by the Commissioner or by the third party.”[16]

The West Virginia Supreme Court has acknowledged that some claims may have “characteristics of both a first-party claim and a third-party claim.”[17]  Accordingly, the Court ruled that “when a named policyholder files a claim with his/her insurer, alleging that a non-named insured under the same policy caused him/her injury, the policyholder is a first-party claimant in any subsequent bad faith action against the insurer arising from the handling of the policyholder's claim.”[18]  Accordingly, the ban on third-party claims is not as universal as it may appear, and a claim must be carefully analyzed to ensure that no part of it implicates issues of first-party bad faith.

---

[1] Light v. Allstate Ins. Co., 506 S.E.2d 64, 68 n.5 (W.Va. 1998).

[2] W. Va.Code § 33-11-1 et seq.

[3] W. Va.Code §33-11-4-9.

[4] Mills v. Watkins, 582 S.E.2d 877 (W.Va. 2003).

[5] Id.

[6] Klettner v. State Farm Mut. Auto. Ins. Co., 519 S.E.2d 870 (W. Va 1999).

[7] Loudin v. National Liability & Fire Ins. Co., 716 S.E.2d 696 (W. Va. 2011).

[8] Id.

[9] Id. at 700 (internal citations omitted).

[10] Id.

[11] W. Va. Code §33-11-4a.

[12] Id.

[13] Id.

[14] W. Va. Code §33-11-4a(b).

[15] Id.

[16] Id.

[17] Loudin, supra, at 702.

[18] Id. at 703.