In Blakely v. USAA, the Blakelys, (Homeowners) sued USAA after a fire damaged their home. USAA had paid the Homeowners nearly $100,000 for the loss. Dissatisfied, the Homeowners invoked the appraisal provision and were awarded nearly $200,000 more. Homeowners then sued USAA for breach of contract, bad faith, and intentional infliction of emotional distress. USAA sought summary judgment on the breach of contract and bad faith claims. It was granted, and the court also dismissed the bad faith claim. The Tenth Circuit affirmed the dismissal of the breach of contract and intentional infliction of emotional distress claims but reversed the dismissal of the bad faith claim.
The breach of contract claim was properly dismissed because by paying all amounts awarded under the appraisal, USAA had fulfilled its contractual obligations to Homeowners. The intentional infliction of emotional distress claim was properly dismissed because the conduct complained of was not outrageous enough. But the bad faith claim was dismissed as frivolous. It was not raised in summary judgment motions. Because the Tenth Circuit did not think the bad faith claim was frivolous, this part of the trial court’s decision was reversed.
It is always interesting when the court finds that the insurance company can be liable for bad faith even where it has fulfilled its contractual obligations to the insured.