In Roehl Transport v. Liberty Mutual, 2010 WI 49, the Wisconsin Supreme Court significantly expanded the tort of bad faith as it applies against insurance companies.  Insurers can engage in bad faith when improperly handling an insured’s claim or a third party claim against an insured in certain circumstances.  In the past, the bad faith doctrine has been applied in situations where an insured is liable for an excess judgment (one beyond policy limits) due to such mishandling. 

The doctrine has now been extended to circumstances where an insured is forced to forfeit a large deductible.  In Roehl Transport, the deductible was very substantial–$500,000.00.  The insurer settled the matter within its policy limits, but in an amount in excess of the deductible.

Liberty Mutual maintained that it could not be liable for bad faith as it had settled within its policy limits.  Therefore, its insured was not exposed to a judgment in excess of those limits.  Roehl, however, claimed that the insurer’s incompetent handling of the claim and failure to settle at a significantly lower amount caused it damages for which the insurer should be liable under the tort of bad faith.  The court, noting that Liberty Mutual’s policy, like most policies, gave it control of the settlement process, held that its mishandling of a claim which caused its insured to pay its deductible when it need not have done so was actionable.

It isn’t unusual in these times for a business to opt to have a large deductible in lieu of paying substantial insurance premiums.  This case’s expansion of the bad faith doctrine gives insureds additional leverage in negotiation with their insurers to resolve claims when made.