Third-Party Bad Faith Returns to West Virginia as a Private Cause of Action

June 24, 2010

Earlier this month, in Doris Michael, et al. v. Appalachian Heating, LLC and State Auto Ins. Co., the West Virginia Supreme Court of Appeals announced that third-party claimants once again have, in at least some situations, a private cause of action for bad faith insurance claim handling. Since 2005, such claims in West Virginia have been statutorily confined to administrative proceedings. According to the pertinent portions of the Michael decision, however:

  1. The West Virginia Human Rights Act prohibits an insurer from discriminating against a claimant based upon race, religion, color, national origin, ancestry, sex, age, blindness, disability or familial status; and
  2. The prohibition of a third-party lawsuit under the Unfair Trade Practices Act [1] does not preclude a third-party cause of action against an insurer under the Human Rights Act. [2]

The Michael decision should not change the way that insurers handle third-party claims.  Presumably, insurers are already ignoring issues of race, religion and the like in making claim-handling decisions. But, the Michael decision may well force insurers to defend a new wave of third-party bad faith suits. 

In his dissent, Justice Ketchum opined: "What I foresee, in the future, is that the Human Rights Act will be subjected to the same abuse that maligned the Unfair Trade Practices Act. A handful of litigators will unleash a flood of lawsuits alleging discrimination in the settlement of third-party property damage claims by insurance companies -- and in most of those cases, the evidence of "discrimination" will be entirely spurious. * * * [M]y years of practicing law has taught me that a mere allegation of unlawful discrimination can be a powerful weapon for negotiation of a spurious claim. Jurors do not like insurance companies."

In Michael, the plaintiffs are African-Americans who live in public housing. Their apartment caught fire and their personal property was destroyed. The cause of the fire is alleged to have been improper work done by Appalachian Heating, which State Auto insures. According to the Complaint, State Auto improperly considered the plaintiffs' race and residence in public housing while evaluating, processing, and adjusting plaintiffs' claim and while compensating them for the same. Despite no more specific allegations being noted, the Supreme Court has re-opened the door to third-party bad faith as a private cause of action in West Virginia.

If you would like to receive a copy of the Michael decision or discuss any issues relating to West Virginia claim handling, please do not hesitate to contact Bill Harter at or any other member of Frost Brown Todd's Tort Defense and Insurance Group.

[1] W.Va. Code §33-11-4a.

[2] W.Va. Code §5-11-9(7)(A).