When Is An Insurance Company Liable for “Bad Faith Failure to Pay”?
Ragland v. State Farm Mutual Auto. Ins. Co.: In a UM/UIM context, the validity of a bad faith failure to pay claim against an insurance company may be entirely dependent on the success of an underlying liability claim, and is not be ready for adjudication until after the underlying claim has been decided.
Ragland’s Allegations against State Farm
In July 2016, Lamar Ragland filed a lawsuit against State Farm, seeking punitive damages for State Farm’s alleged bad-faith failure to pay and related failure to subject Ragland’s claim for underinsured motorist (“UIM”) benefits for cognitive review. Ragland made the following allegations:
- He had an automobile liability insurance policy with State Farm that included UIM benefits;
- He had been injured in an automobile accident in January 2012 that was caused by the negligent and wanton conduct of Joshua Clayton Baker;
- He had incurred unquantified damages
- He had settled his claim with Baker, who had paid close to Baker’s policy limits;
- Baker was underinsured;
- Ragland was entitled to recover UIM benefits from State Farm in the same amount he would have been entitled to recover from Baker;
- Counsel for State Farm had admitted in a phone conversation in July 2014 that coverage existed; and
- For more than 2 years, State Farm had not paid any UIM benefits and had not offered a reasonable amount to settle the claim.
State Farm Alleges the Bad Faith Failure to Pay Claim is Collaterally Estopped
One month after suit was filed, State Farm filed a motion to dismiss Ragland’s complaint under Alabama Rules of Civil Procedure 12(b)(1) & (6). State Farm further alleged that the complaint was due to be dismissed under the doctrine of collateral estoppel since Ragland had filed a separate civil suit in May 2014 in which he had named State Farm as a party arising from the January 2012 accident involving Baker in which he suit UIM benefits.
In the 2014 suit, Ragland had amended his complaint in April 2016, realleging his claim for UIM benefits and adding a bad-faith failure to pay claim against state farm. State Farm moved to dismiss the bad faith claim in the 2014 suit as being procedurally improper and for lack of subject matter jurisdiction, and the trial court had in fact dismissed the claim for bad faith failure to pay. At the time of his filing the new suit in July 2016, trial was still pending as to Ragland’s claim for UIM benefits.
State Farm argued the bad faith claim made in the 2016 lawsuit was the same claim that was alleged and dismissed in the 2014 lawsuit. The refilling was premature because trial had not taken place to determine liability on the part of the allegedly underinsured motorist, Baker. State Farm argued that because there had not been a determination that Ragland was legally entitled to recover underinsured motorist benefits from State Farm, he could not maintain the claim for bad faith failure to pay.
Ragland’s 2014 and 2016 lawsuits were consolidated, and the trial court entered an order dismissing without prejudice the bad faith claims made in the 2016 suit. Ragland appealed. Ragland v. State Farm Mutual Auto. Ins. Co. [Ms. 1160140 May 19, 2017], ___ So.3d ___ (Ala. 2017).
Bad Faith on Appeal
Ragland readily admitted that the validity of his bad faith failure to pay claim was entirely dependent on the success of his underlying UIM claim – both as a finding of liability against Baker and a judgment that was greater than Baker’s liability limits (which would entitle Ragland to recover from State Farm under his UIM policy).
In order to prevail on a bad faith claim against an insurance company, a plaintiff must prove (1) the existence of a contract (in this case, an insurance policy with UIM coverage) and a breach of the contract by the insurance company. Therefore, if Ragland is not successful in his pending claim for UIM benefits against State Farm, Ragland would be precluded from making a claim against State Farm for bad faith failure to pay.
When a Judgment is Non-Final under Rule 54
While the matter of the viability of the bad faith claim was undisputed, the larger question before the Supreme Court of Alabama was whether under Alabama Rule of Civil Procedure 54(b) the order dismissing the bad faith claim without prejudice was a final judgment. State Farm argued that because the dismissal was without prejudice it was not a final judgment and would not support an appeal. In order to determine whether the dismissal of Ragland’s claim was ripe for appeal, the Alabama Supreme Court requested the trial court to certify whether its judgment was final, which the trial court affirmed that it was.
Generally, an order dismissing a claim without prejudice will not support an appeal, as it is not a final judgment. But the Alabama appellate courts have extended exceptions in cases where the trial court dismissed claims for lack of subject matter jurisdiction. The present case differs in that the question is not whether Ragland’s bad faith claim can be brought in the circuit court (it can), but rather it is a matter of timing.
Rule 54(b) Certification of a Judgment as Final
The Alabama Supreme Court found that it did not need to decide whether the bad faith claim’s dismissal had the elements to support an appeal, because even assuming so, the order as to final judgment under Rule 54(b) was improper. Rule 54(b) establishes certain criteria allowing a trial court to certify a judgment as final, one of which is a determination that there is no just reason for delay in entering judgment.
State Farm contends that the trial court exceeded its discretion in entering the Rule 54(b) certification because the bad faith and pending UIM claims were “inextricably intertwined.” Furthermore, the dismissal of the bad faith claim could become moot depending on the outcome of the UIM claim. The Supreme Court of Alabama found this to be the correct reasoning, holding that the trial court exceeding its discretion in concluding there was no just reason for delay in entering final judgment, under Rule 54(b), as to the bad faith claim. Therefore the appeal was dismissed as being from a nonfinal judgment.
 Because claims for uninsured/underinsured motorist benefits arise from a contract, there is a 6-year statute of limitations in Alabama. Because the accident happened in 2012 and suit was filed in 2016, the statute of limitations had not run as to Ragland’s claims against State Farm.
 Ala. R. Civ. P. 12(b): Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person, (3) improper venue, (4) insufficiency of process, (5) insufficiency of service of process, (6) failure to state a claim upon which relief can be granted ….
 See LeFevre v. Westberry, 590 So. 2d 154, 158 (Ala. 1991) (“‘[T]here can be no breach of an uninsured motorist contract, and therefore no bad faith, until the insured proves that he is legally entitled to recover.'” (quoting Quick v. State Farm Mut. Auto. Ins. Co., 429 So.2d 1033, 1035 (Ala. 1983))).
 See National Sec. Fire & Cas. Co. v. Bowen, 417 So. 2d 179, 183 (Ala. 1982). See also State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 318 (Ala. 1999) (holding that Alabama law “limit[ed] bad-faith liability to those cases in which the insured is entitled to benefits under the policy”).
 Ala. R. Civ. P. 54(b): Judgment upon multiple claims or involving multiple parties. When more than one claim for relief is presented in an action, … the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. Except where judgment is entered as to defendants who have been served pursuant to Rule 4(f), in the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.
 See Palughi v. Dow, 659 So.2d 112, 113 (Ala. 1995).
 See, e.g., Hutchinson v. Miller, 962 So. 2d 884 (Ala. Civ. App. 2007); Double B Country Store, LLC v. Alabama Dep’t of Transp., 171 So. 3d 28, 30-31 n. 1 (Ala. Civ. App. 2015).
 See Meeks v. Morrow, 151 So. 3d 1069, 1074 (Ala. 2014) (“‘[A] Rule 54(b) certification should not be entered if the issues in the claim being certified and a claim that will remain pending in the trial court “‘are so closely intertwined that separate adjudication would pose an unreasonable risk of inconsistent results.'”‘” (quoting Schlarb v. Lee, 955 So. 2d 418, 419-20 (Ala. 2006))).