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Bad Faith – Another Angle

October 30, 2017

In August 2011, Jeffrey Vanderhall was riding his bicycle when he was hit by a car and seriously injured. It is now six years, three courts and two bad faith attempts later...

To describe the procedural history of this case as anything but torturous would be generous. To those with sufficient interest to read – or write- about bad faith, this was a veritable soap opera. It began when, just two days after the accident, while Vanderhall was still in a coma, his mother retained counsel who made a one-time settlement offer to resolve the case for policy limits. State Farm indicated its willingness to pay policy limits and qualified the settlement as inclusive of all economic damages, liens, assignments or statutory rights of recovery; standard language in covenants not to execute in South Carolina.

Then followed a pattern that is becoming all too familiar. Counsel asserted State Farm’s response was a rejection of Vanderhall’s offer and filed suit in state court. Then came a confession of judgment from the insureds and a covenant not to execute against them in excess of policy limits. Proceeding on behalf of Plaintiff’s assignee, suit was filed against State Farm for bad faith refusal to settle. Following removal, State Farm’s summary judgment was granted. Vanderhall was unconscious when counsel was hired and the settlement offer made. His mother was not his guardian ad litem and thus had no authority to act on his behalf. Consequently, counsel had no authority to act, rendering the settlement offer a nullity. In the absence of a valid offer, there can be no bad faith refusal to settle.

All the while, there were plot twists aplenty in state court against the insureds. Plaintiff moved to set aside the confessed judgment. He also moved for the appointment of a guardian ad litem, offering evidence of extremely low intellectual function. The motions were granted. Following a jury verdict of $75,000,000, Plaintiff once again received an assignment of the insureds’ bad faith claims and once again filed suit against State Farm. This time, however, Plaintiff asserted a new theory; State Farm was negligent in failing to seek appointment of a guardian ad litem for Plaintiff. Marion Fowler, Esq. as Guardian ad Litem for Jeffrey L. Vanderhall, Assignee v State Farm Mutual Automobile Insurance Company, 2017 WL 4737274 (October 20, 2017). In this attempt at bad faith, Plaintiff argued not that State Farm acted inappropriately when it responded to Plaintiff’s settlement offer, but because it failed to seek appointment of a guardian ad litem for Vanderhall before he accepted the earlier confession of judgment.

The court found no merit in Plaintiff’s argument that State Farm breached any duty by failing to investigate Vanderhall’s capacity to contract or in failing to seek the appointment of a guardian ad litem for him. South Carolina law establishes no duty, in negligence or otherwise, to inquire into the competency of an opposing party. Information as to the present mental competency of a party is uniquely available for determination by that party’s counsel. Under normal circumstances, opposing counsel would not have access to the information necessary to assess a party’s capacity. The court reasoned that to find otherwise would effectively impose a duty to have every party to settlement undergo some sort of evaluation. Such a proposition has no precedent, is contrary to existing law and is simply impractical. Absent access to information concerning an opposing party unknown to that party’s counsel, the law creates no duty on an opposing party’s counsel or carrier to seek the appointment of a guardian ad litem.

The opinions resulting from this lone accident are worth the read. They deal with myriad issues including counsel’s curious representations and failure to disclose information to the court. They also provide a look at res judicata and the implicit representation of a party’s competency when suit is filed in the party’s name. Importantly, however, the opinions look at bad faith and certain situations that do not rise to that level. Critically, an offer must be valid; it must be made on behalf of a competent party or by one duly authorized to act on behalf of an incompetent party. Otherwise, the rejection thereof is not a basis for a bad faith claim. Additionally, without some special knowledge of a party’s competency, or lack thereof, there is no duty to assess that party or to seek the appointment of one to act on his or her behalf.

If awards were given for tenacity, or for legal drama, Vanderhall would certainly be a nominee.

Cheryl D. Shoun is a trial attorney and certified mediator whose experience includes construction law, insurance defense, personal injury defense, employment litigation and medical malpractice. As a frequent writer, she serves as editor for Nexsen Pruet's TIPS: Torts, Insurance and Products Blog.