What does the concept of ‘bad faith’ mean?

A federal court in Louisiana recently dealt with another aspect of the spill — injury sustained in the course of beach cleanup. The court also tackled the familiar concept of “bad faith.”

In the maritime industry, we tend to think in terms of Jones Act benefits if someone is injured in connection with a vessel and the Longshore and Harbor Workers’ Compensation Act (LHWCA) when it involves a shoreside facility. However, the 5th Circuit case Global Management Enterprise LLC v. Commerce and Industry Insurance Co. showed that courts also look closely at the policy when determining available benefits.

In this case, an employee of a temporary employment agency was injured while lifting a bag of oil-laden sand during beach cleanup operations in the wake of the Deepwater Horizon spill. The agency’s workers’ compensation policy excluded bodily injury to employees eligible for coverage under the LHWCA. But the employment agency had also purchased an endorsement extending coverage to street cleaning and drivers.

The insurance carrier refused to provide benefits under the street cleaning endorsement, relying on the LHWCA exclusion. The agency sued the insurance carrier for breach of contract and for violating Louisiana’s bad-faith insurance practices statute. The lower court ruled in favor of the insurance carrier. The higher court reversed and benefits were paid, but the bad-faith issue was still contested.

While bad faith may be defined differently from one statute to another, everyone pretty much knows what it is when they see it. A creditor that doesn’t disclose all the terms of a tricky business loan could be accused of bad faith. So can a car seller who pretends to forget that the car had been involved in an accident.

Louisiana’s bad-faith statute imposes monetary penalties if an insurer fails to pay a claim in a timely manner when that failure is “arbitrary, capricious, and without probable cause.” The employment agency claimed bad faith because the insurance carrier concluded that the street cleaning endorsement should not override the LHWCA exclusion.

The higher court ruled that the carrier did not act in bad faith.

About the author

John K. Fulweiler

John K. Fulweiler is a licensed mariner and experienced admiralty attorney. He represents individuals and companies throughout the East and Gulf Coasts and has recently taken command of his own maritime law firm. He enjoys navigating the choppy waters of the maritime law, but readily admits to missing life on the water. He can be reached at john@fulweilerlaw.com . His website is www.saltwaterlaw.com.

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