Virginia’s policyholders need better remedies when insurers misbehave

Based on current litigation trends, there is little doubt that insurance coverage disputes between policyholders and their insurers are here to stay.  That is true for first-party and third-party situations.  Policyholders pay premiums for their insurance policies, and they expect the insurers to cover the losses.  Unfortunately, insurers hold the money and can be tight fisted in paying out claims.  Sometimes, an insurer crosses the line and handles a claim in bad faith.

In insurance coverage litigation, a claim for bad faith can prove to be a powerful tool in the dispute or lawsuit.  In Virginia, state law allows a policyholder to recovery its attorneys’ fees and costs in coverage litigation if the insurer acted in bad faith.  While the bar to prove bad faith can often be high, once crossed the award of fees and costs should be nearly automatic.

Attorneys for insureds handling such litigation would very much like to have a jury decide the issue of bad faith.  Juries in most instances are no fans of insurance companies and see through the rhetoric.  The threat of having the bad faith claim heard before a jury can get the insurer’s attention and create a better dynamic to settle the case.  Unfortunately, the Supreme Court of Virginia recently ruled that a trial judge, not the jury, is to decide whether an insurance company acted in bad faith.  Out goes the jury and the importance of such a right.

In REVI, LLC v. Chicago Title Ins. Co., 776 S.E.2d 808 (2015), the case dealt with a landowner bringing a claim against its title insurer.  The trial court allowed the breach of contract claim against the insurer to go to the jury, which awarded REVI more than $1.2 million.  The jury then found that the insurer acted in bad faith and awarded the policyholder an additional $442,000 in attorneys’ fees.  Unfortunately, the victory was short lived as the trial judge vacated the bad faith award and declared that the issue could only be decided by him.  He then determined that the insurance company did not act in bad faith and awarded nothing to the policyholder.  The jury as a fact finding body found bad faith, and then the judge, now acting as finder of fact, went the opposite way.  This demonstrates why a jury can be so important in these types of cases.  On appeal, the Virginia Supreme Court agreed with the trial judge and determined that claims of insurance bad faith must be adjudicated by the trial judge — not a jury.

While the result may be technically correct under Virginia law, although one justice did file a dissent to the ruling, the outcome seems highly unfair to policyholders in the commonwealth.  Virginia’s own constitution states that a right to trial by jury “is preferable to any other, and ought to be held sacred.”  The only reason such right does not apply to bad faith cases is a twist of fate in the Virginia statute and how it is worded.  It is a simple fix; all the General Assembly needs to do is add the word “jury” to the statute in place of the word “court.”  Such a simple edit would bring the statute into line with the guiding principal of the commonwealth’s constitution.  Policyholders who have been wronged by their insurance companies should have the right to a jury trial on the issue of bad faith.  If insurers act in bad faith, then they should have to face a jury of Virginia’s citizens just as they do in the primary cause of action.

In the meantime, policyholders must remain vigilant in protecting their rights to insurance coverage.  Utilizing their insurance brokers and coverage counsel early in the process of a claim can keep the insurer focused on properly and fairly adjusting the claim.  Of course, compliance with the terms and conditions of the insurance policy is required, but all actions should be documented and memorialized throughout the process. 

The current statute still allows the assertion of bad faith in a lawsuit, but without the right to a jury, the force of the law is reduced dramatically.  Hopefully, in light of the outcome of the REVI case the General Assembly will see the error created in the statute and how this policyholder lost a fairly won verdict with the jury.  At the same time, the legislators would be wise to also allow the “Unfair Claims Settlement Practices Act” to provide a private cause of action for specific claims handling misdeeds.  Virginia’s legislature should follow the lead of other states in providing policyholders with better remedies when insurers misbehave.  The insurer in the REVI case should have been forced to face the music for its bad faith actions.  It is time to revise the law and award Virginia’s policyholders a full right to a jury trial and to enhance their remedies. 

Collin Hite is the practice leader of the Insurance Recovery team in Hirschler Fleischer’s Richmond office.  He handles insurance recovery and coverage litigation nationally, as well as providing insurance policy and program audits for policyholders. Contact him at 804-771-9595 or [email protected].