The Sixth District Court of Appeals recently ruled that State Farm Fire and Casualty Co. acted in bad faith when it failed to pay life insurance to a Lucas County woman in a timely manner. The decision reversed a Lucas County Common Pleas Court ruling.

Tiffanie McNair was the primary beneficiary of her boyfriend’s $50,000 life insurance policy issued by State Farm. Christopher Lawrence died from a gunshot wound in August 2011. In September 2011, McNair filled out the claim forms needed to collect the insurance money. State Farm acknowledged her claim but refused to pay the life insurance payment until McNair was ruled out as a suspect in Lawrence’s death.

After multiple phone calls among McNair, State Farm agents, and a Toledo Police detective between September 2011 and January 2012, McNair was told the investigation was still active and that she hadn’t been ruled out as a suspect.

In February 2012, McNair sued State Farm alleging breach of contract and acting in bad faith. After several extensions, State Farm counterclaimed, and in July 2012, the trial court allowed State Farm to deposit the $50,000 life insurance proceeds with the court.

In January 2013, the trial court ordered that McNair should receive the life insurance proceeds because no competing claim against the funds existed. While this resolved McNairs’s breach of contract claim, she still claimed State Farm acted in bad faith because the insurance company only called the police and didn’t follow its own procedures of conducting an investigation of the murder.

McNair submitted an affidavit of attorney John Smalley who had 27 years of experience representing insurance companies and matters involving contracts, claims, and bad faith issues. Smalley said State Farm acted in bad faith for failing to ask additional questions to police and for not conducting an investigation beyond calling police to see if McNair had been ruled out as a suspect.

State Farm argued that it didn’t act in bad faith because it never disputed its liability to pay the policy benefits, and it repeatedly contacted a police detective about Lawrence’s murder. State Farm also argued that it acted properly with Ohio’s slayer statute in handling the claim.

The Lucas County Court of Common Pleas dismissed McNair’s claim stating that McNair had no evidence supporting her bad faith claim.

The Sixth District Court of Appeals reversed the judgment and said the trial court erred in dismissing NcNair’s claim. In the unanimous decision, Judge James D. Jensen said several Ohio courts had addressed bad faith claims including the Supreme Court case Zoppo v. Homestead Ins. Co., where the court considered whether the insurance company had conducted an adequate investigation before denying a claim following a bar fire. 

In Zoppo, the Supreme Court reinstated the trial court’s finding of bad faith because the insurer failed to conduct an adequate investigation. Jensen said the same applied in McNair v. State Farm Fire and Cas. Co.

“The evidence presented by McNair demonstrates that the only steps taken by State Farm to investigate McNair’s claim was to contact the detective in charge of investigating the Lawrence homicide…State Farm never asked any questions or performed even a cursory investigation of its own to determine whether there was any evidence implicating McNair in Lawrence’s murder…On top of this, State Farm failed to follow its own procedures for investigating eligibility for benefits in homicide cases,” Jensen wrote.  

Jensen wrote that the insurance company waited more than 4 months to tell McNair it would need to interview witnesses and Lawrence’s family members.

“Up until that time, the claims file suggests that State Farm intended to simply wait for the police department’s homicide investigation to conclude before it would handle the claim any further,” he wrote. “In our view, the claims file itself and State Farm’s failure to follow its own procedures demonstrate the inadequacy of its investigation.”

The appeals court also said Smalley’s affidavit should have been considered by the trial court.

“We find that McNair presented evidence creating a genuine issue of material fact as to whether State Farm acted in bad faith in investigating her claim,” Jensen wrote.

Judges Thomas J. Osowik and Stephen A. Yarbrough concurred in the December 20 opinion that reversed the trial court’s judgment.

McNair v. State Farm Fire and Cas. Co., 2013-Ohio-5625
Opinion: http://www.sconet.state.oh.us/rod/docs/pdf/6/2013/2013-ohio-5625.pdf
Civil Appeal From: Lucas County Court of Common Pleas
Judgment Appealed From Is: Reversed and Remanded
Date of Judgment Entry on Appeal: December 20, 2013

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