The West Virginia Supreme Court of Appeals recently closed an avenue for bad faith claims. In this case, the insured, CMD, sued its own liability insurance company, State Auto, for not settling the claims asserted against it by the plaintiffs, Barry Evans and Ann Evans, prior to litigation being filed.

In the underlying case, CMD, a residential construction company, contracted to build a home for Chandrakaut N. and Kimberly S. Shah. During the construction of the home, CMD allegedly caused damage to a neighboring property belonging to Mr. and Mrs. Evans. As a result, Mr. and Mrs. Evans made a claim against CMD and eventually filed suit. 

CMD, in turn, filed a third party complaint against its own liability insurance carrier, State Auto, for breach of contract, common law bad faith, and violations of the West Virginia Unfair Trade Practices Act. Essentially, the allegations against State Auto were that it did not settle the claims against CMD quickly enough and forced CMD to go through litigation that damaged its reputation. 

During the litigation, State Auto defended CMD and eventually settled the underlying claim against it at no cost to CMD. When the trial court denied State Auto's motion for summary judgment, State Auto filed a writ of prohibition with the Supreme Court of Appeals of West Virginia. The Court reversed the trial court, granted State Auto's writ of prohibition, and held as a matter of law that, where an insured is defended and indemnified for a claim against it and does not have to pay any money for its defense or indemnification, an insured cannot maintain a first party action for common law and statutory bad faith and breach of contract against its own liability insurer. 

This case is significant because the lawsuit against State Auto was an attempt by the plaintiff's bar to expand bad faith litigation against insurance companies. With this ruling, the West Virginia Supreme Court of Appeals has shut the door on yet another path for plaintiffs to sue insurance companies in West Virginia.