Full Faith and Credit Prevents Insured's Bad Faith Forum Shopping- Insurance Law Update

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California Court of Appeal

In R.S. v. PacifiCare Life and Health Ins. Co., 194 Cal.App.4th 192 (April 12, 2011), the California Court of Appeal, Second District, held that the insureds’ California bad faith claims were barred by the full faith and credit clause of the U.S. Constitution because the claims were compulsory counterclaims that should have been asserted in the insurers’ prior declaratory relief action in Missouri.

In 2008, the plaintiffs’ health insurers sought to rescind their policies in a declaratory judgment action in Missouri. The insureds filed counterclaims for breach of contract, but dismissed them without prejudice after the court issued a preliminary injunction requiring the insurers to resume payment of benefits. The insureds, residents of both California and Missouri, then filed an action in California alleging breach of contract, bad faith and statutory claims.

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