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Court to hear carrier bad faith case

Deborah Elkins//March 24, 2015

Court to hear carrier bad faith case

Deborah Elkins//March 24, 2015

JWhen it comes to calling out an insurance company for bad faith, Virginia law is not clear on who makes the call – judge or jury. That split was dramatized last August in a developer’s suit against a title company, as judges within the same Fairfax County Circuit Court case split on the legal point.

When the developer, REVI LLC, sued Chicago Title Insurance Company, Chief Judge Dennis Smith denied the insurer’s pretrial motion to let the judge decide the bad faith claim, and sent the matter to the jury. In the bifurcated trial before Judge Brett Kassabian, the jury awarded REVI $1.2 million on its title insurance claim and $442,000 in attorney’s fees and costs for bad faith under Virginia Code § 38.2-209.

Kassabian decided sua sponte that in fact the judge should make the bad faith determination. He set aside the award of fees and costs, finding “reasonable people” could differ on how the carrier handled the claim.

Late last month, the Supreme Court granted a writ in REVI LLC v. Chicago Title Insurance Co., Record No. 141562. Still pending is Chicago Title’s separate petition for appeal, Record No. 141616, according to Arlington lawyer Jennifer Brust, who represents Chicago Title.

Potomac ‘gold coast’

The parties’ petition for appeal and brief in opposition in REVI preview the record and the arguments on the bad faith issue.

In 2000, REVI bought a five-acre parcel of real estate in Fairfax County along the Potomac River’s “gold coast.” The parcel was zoned R-1, which allowed one dwelling per acre. REVI bought title insurance from Chicago Title, whose title review disclosed no easements or restrictions encumbering the property, except for routine utility easements.

However, when REVI’s managing member Scott Stupay arranged to have some trees removed from the property, a National Park Service ranger came calling and  notified Stupay that the NPS claimed easement rights over the property. REVI’s own title search revealed a stipulation in a 1965 condemnation suit filed by the federal government that restricted heights on building structures and prohibited removal of trees without NPS permission. REVI made a claim to Chicago Title in June 2004.

Chicago Title initially denied the claim for over eight months, then spent years unsuccessfully trying to convince the NPS to remove the restrictions, REVI alleged.

Ultimately, Chicago Title demanded that REVI enter into an easement agreement that kept most of the restrictions, while purportedly representing it would pay REVI’s insurance claim. Instead, the title insurance company asserted the easement agreement did not diminish the property value at all, REVI recounted.

A Fairfax jury disagreed and awarded REVI $1,241,000, and then set the award for bad faith at $442,000.

Virginia Code § 38.2-209 provides that an insurer who in bad faith denies a claim, or compensation for a claim, can be assessed attorney’s fees and costs incurred by the insured to enforce its rights under the policy.

REVI argues the statute’s designation that “the court may award” costs and fees clearly signals that bad faith claims may be presented to a jury. In fact, the General Assembly dropped the directive that the “trial judge” could award costs and fees under the predecessor bad faith statute, in favor of the broader designation of “the court,” REVI says.

In his pre-trial ruling, Smith reasoned that the retention of the designation of “the judge” in Virginia Code § 8.01-66.1, the statute governing bad faith by auto liability carriers, indicated the legislature intended to draw a distinction in § 38.2-209, REVI argues.

A determination of “bad faith” is a question of reasonableness, REVI contends, which is ripe for determination by a jury.

And Kassabian erred in finding no bad faith by Chicago Title, according to the petition for appeal. The carrier met the test for bad faith, REVI says. It failed to perform a reasonable investigation of the alleged diminution in property value because it relied on an expert report with a conclusion but no analysis.

Chicago Title purportedly spent seven years and $700,000 in its attempt to get the NPS to ease up on the restrictions, which showed recognition of a problem.

This “is not a case where Chicago Title incorrectly determined that the claim was worth $500,000 when the jury found it was worth $1.2 million. Chicago Title’s number was always zero and it never changed – that is unreasonable and constitutes bad faith,” REVI concluded in its petition.

Carrier makes its case

The title insurance company asserts its negotiations with the government were not futile, but in fact removed the requirement that the parcel be developed only in accordance with a government master plan, in favor of development consistent with Fairfax County zoning law.

Chicago Title’s expert said the best use for the land was as a site for a single, ultra-high-end mansion, and the remaining restrictions, including tree removal restraints, did not affect that value, according to the carrier. Although REVI’s expert said the parcel’s best use of the property was as a four-lot subdivision, the carrier countered that REVI did not own all the land needed to subdivide the parcel.

As to statutory interpretation, Chicago Title argues that if the legislature had intended for the jury to decide bad faith, it would have explicitly used words like “jury,” “fact finder” or “trier of fact” in Code § 38.2-209.

“Prior to this case, every court called upon to interpret Virginia Code § 38.2-209 has construed ‘court’ to mean ‘trial judge,’” the insurer contends. Sending the question to the jury hasn’t even been an issue, according to its brief in opposition.

The change in the statute from “trial judge” to court was part of an overall rewrite of Virginia’s Insurance Code, and a Code Commission document did not include that switch among substantive changes, Chicago Title contends.

As a policy matter, REVI’s construction of § 38.2-209 is unreasonable because “it would require the trial court to admit prejudicial evidence against an insurance company defendant prior to a finding of policy liability,” according to Chicago Title.

Evidence clearly supported Kassabian’s decision to set aside the bad-faith fees. Experts consulted by Chicago Title supported its claim evaluation, and “good faith does not require an insurer to pay more than it reasonably believes is owed,” Chicago Title said.

Counsel for REVI, Tillman J. Breckenridge of Richmond and Michael S. Dingman of Falls Church, could not be reached for comment.

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