In anticipation of his mother’s death, a son called Metropolitan Life Insurance Company (MetLife) to request a copy of his mother’s life insurance policy, which he knew existed, but had never seen. A MetLife representative instructed the son that, in lieu of sending out copies of its policies, for which it charged $25, MetLife normally sent out an “Acknowledgement of Insurance,” or AOI. Wanting to avoid the $25 fee, the son agreed to accept an AOI. The AOI sent by MetLife listed the face amount of the policy as $250,000. While the cover letter accompanying the AOI explained that the AOI served the same legal purpose as the original life insurance policy, the AOI itself stated that the original policy along with the application upon which it was based constituted the entire contract between the policy owner and the insurer, and that the AOI was only a description of the policy.
After his mother died, the son called MetLife to file a claim; a MetLife representative informed the son that the $250,000 face amount contained in the AOI must have been a mistake and that the estimated benefit was approximately $30,000 (the $25,000 face amount policy plus yearly dividends). MetLife subsequently sent the son a letter approving his claim together with a check for just over $30,000. The letter also noted that the AOI incorrectly listed the policy face amount and attached copies of the annual policy statements for the past five years, all showing the $25,000 face amount. Upon receipt of the letter, the son demanded additional payment of $220,000, to which MetLife’s legal department responded that the mistake was a “scriveners error” that was not binding. The son ultimately filed breach of contract and bad faith claims against MetLife for its failure to honor the AOI.
On MetLife’s motion for summary judgment, the District Court for the Northern District of Alabama concluded that the son’s breach of contract claim could not survive summary judgment because, with no consideration or acceptance, no reasonable person could have concluded that the AOI was an offer to amend the policy to provide ten times the coverage originally agreed upon. As to the bad faith claim, the court analyzed two types of bad faith: “normal” and “abnormal.”
The court explained that in Alabama, a “normal” bad faith claim requires proof of: (1) an insurance contract and breach by the defendant; (2) intentional refusal to pay the insured’s claim; (3) absence of any reasonably legitimate or arguable basis for that refusal; and (4) the insurer’s actual knowledge of the absence of any legitimate or arguable reason. Given that the court found no contract existed such that the policy amount was increased to $250,000, the son could not establish “normal” bad faith.
The son’s “abnormal” bad faith claim was based on MetLife’s alleged intentional or reckless failure to investigate his claim. To prevail on an “abnormal” bad faith claim, a plaintiff must prove the absence of a legitimate reason for denial. Where an investigation establishes a legitimate or arguable reason for refusing to pay, the court iterated, a bad faith claim fails. MetLife had investigated the son’s claim and noted in its letter approving the claim that the AOI included an incorrect face amount on the policy, providing the policy statements for the past five years as backup. In light of that evidence, even when viewed most favorably to the son, MetLife had a legitimate reason for denying the claim of an additional $220,000. Thus the court concluded that the “abnormal” bad faith claim also failed.
Patterson v. Metro. Life Ins. Co., No. 3:16-CV-01189-AKK, 2017 WL 6508581 (N.D. Ala. Dec. 20, 2017).
