Insurance Bad Faith Report, July 2026

South Carolina Court Of Appeals Rules Endorsement Covering Theft Did Not Cover Loss Of Money Unwittingly Wired To Hacker
Speights v. Chubb Ltd., No. 2026-UP-194, 2026 S.C. App. Unpub. LEXIS 205 (S.C. Ct. App. Apr. 29, 2026).

An insured attorney filed a claim with the firm’s insurer after a bookkeeper wired money to a hacker posing as the attorney, resulting in a $250,000 loss. After the insurer denied coverage for the loss, the insured sued for negligence, breach of contract, and breach of the implied covenant of good faith and fair dealing. The coverage dispute centered around a Money and Securities endorsement, which covered theft and stealing; a Forgery and Alteration endorsement, which covered forgery or alteration of checks, drafts, and promissory notes; and a false pretenses exclusion on the policy form, which barred coverage for “voluntarily parting” with property under false pretenses or fraudulent inducement. The court found the Forgery and Alteration endorsement inapplicable because the emails were demands for money and not a promise to pay. The court ruled that the false pretenses exclusion did not conflict with the Money and Securities endorsement because the latter expressly incorporated the exclusions listed in the policy form. The court also found the exclusion’s “voluntarily parting” language unambiguous, reasoning that the bookkeeper intended to wire the money and voluntarily did so, even if she did not intend to send the money to a hacker. Read the decision.

New Jersey Appellate Court Says Trial Court Abused Its Discretion In Denying Insurer’s Motion To Sever And Stay Discovery In Bad Faith Claims
Tenenbaum v. Allstate Ins. Co., Nos. A-0742-25, A-0988-25, 2026 N.J. Super. LEXIS 49 (N.J. Super. Ct. App. Div. Apr. 29, 2026).

An insured sued their auto insurer for mishandling an uninsured motorist (“UIM”) claim, alleging declaratory judgment, common law bad faith, and statutory bad faith under New Jersey’s recently enacted Insurance Fair Conduct Act (“IFCA”). The insurer moved to sever the bad faith counts and stay discovery until the UIM claim was resolved. After initially granting the motion, the trial court vacated that decision and permitted the bad faith counts to be prosecuted coextensively with the UIM claim. On appeal, the court ruled that the trial court abused its discretion by not severing and staying discovery on the bad faith counts because it would lead to expensive and inefficient discovery. The court acknowledged that some situations may allow expedited proceedings, but found that where a UIM and common law and statutory bad faith claims are likely to cause discovery disputes, the normal practice of severing and staying the bad faith claim should prevail. Read the decision.

Texas Supreme Court Holds Bad Faith Allegations Insufficient To Defeat Appraisal
In re Ace Am. Ins. Co., 69 Tex. Sup. Ct. J. 659 (2026).

The Texas Supreme Court addressed a dispute arising from a water line rupture at a food distribution warehouse. After the insurers paid $1.2 million for mold remediation, the insured claimed entitlement to the full $10 million mold sublimit. The insurers demanded an appraisal, but the insured resisted, arguing, among other things, that the insurers’ alleged bad faith excused compliance with the appraisal provision. The trial court denied the insurers’ motion to compel appraisal, and the Court of Appeals denied mandamus relief. The Texas Supreme Court took up the case and held that alleged bad faith was not an exception to the general enforceability of an appraisal clause. Read the decision.

New Jersey Supreme Court Finds No Bad Faith For Denial Under D&O Policy’s Capacity Exclusion
Mist Pharm., LLC v. Berkley Ins. Co., 263 N.J. 554 (2026).

Mist Pharmaceuticals, the insured, was sued in underlying actions alleging that its chairman diverted the assets of an uninsured entity to entities he controlled, including Mist Pharmaceuticals. The insurer declined to contribute to a global settlement, citing the D&O policy’s capacity exclusion that barred coverage for claims “in any way involving” wrongful acts by insured persons serving at uninsured entities. After the trial court granted summary judgment to the insured and ruled that the insurer forfeited its right to rely on the exclusion by unreasonably withholding consent to settle, the New Jersey Supreme Court reversed, holding that the insurer’s refusal to contribute to the settlement was reasonable, did not constitute a bad faith breach, and did not result in a forfeiture of the right to rely on the capacity exclusion. Read the decision.

Eighth Circuit Finds Alleged Lack Of Investigation Irrelevant Once Insurer Has Reasonable Basis To Deny Coverage
Child. v. Unum Life Ins. Co. of Am., 174 F.4th 1101 (8th Cir. 2026).

After the insured sought coverage under a long-term care policy, the insurer denied the claim under the policy’s existing-loss provision. The insured sued for breach of contract, fraudulent misrepresentation, and bad faith. The district court granted summary judgment to the insurer, and the Eighth Circuit affirmed, finding no coverage under the policy’s plain language. Regarding the bad faith claim, the Eighth Circuit held that because the insurer had a reasonable basis to deny coverage, any alleged lack of investigation was legally irrelevant, and could not support the bad faith claim. Read the decision.

Florida Northern District Court Chooses Sides On Authority Split Over Premature Statutory Bad Faith Count
Evangel Worship Ctr. Assembly of God, Inc. v. Ohio Sec. Ins. Co., No. 4:25cv538-MW/MAF, 2026 U.S. Dist. LEXIS 125477 (N.D. Fla. June 4, 2026).

The insured property owner alleged underpayment by the insurer following property damage. The insured brought suit for an appraisal, breach of contract, and statutory bad faith. The insurer moved to dismiss the statutory bad faith count on the basis that it had not accrued. In response, the insured argued that the count could be preserved in abatement pending resolution of the breach of contract cause of action. The court acknowledged a split in authority among Florida federal courts over whether a premature statutory bad faith count should be abated or dismissed. The court explained that such counts are either abated to promote judicial economy or dismissed due to jurisdictional deficiencies. The court sided with the latter, granting the motion dismissing the count because no actual controversy existed before the court. Read the decision.

California Central District Clarifies Statute Of Limitations For Bad Faith Claims
Josephs v. Sec. Nat’l Ins. Co., No. 2:26-cv-02394-MWC-KES, 2026 U.S. Dist. LEXIS 133738 (C.D. Cal. June 11, 2026).

The insured contractor was working on a house when one of its subcontractors sustained serious injuries. After the homeowner settled with the subcontractor, the homeowner pursued coverage from the contractor’s liability insurer, which had denied coverage. The homeowner eventually brought suit against the contractor’s insurer for breach of its duty to indemnity and bad faith. The insurer moved to dismiss the bad faith count as barred by the statute of limitations based on its coverage denial from more than two years before suit was brought. The homeowner contended that the statute of limitations should instead run from the insurer’s denial of the homeowner’s post-judgment settlement offer. The court rejected the homeowner’s position, reasoning that similarly situated plaintiffs could simply continue to reassign their claim against the insurer to reset the statute of limitations period. The court clarified that the statute of limitations for bad faith begins to run from final judgment against the insured, which in this case was the date of the stipulated judgment between the homeowner and insured. Even if the court disregarded the stipulated judgment, the court explained that the relevant alternative date would be the denial of coverage. Under either date, the statute of limitations already had run, requiring dismissal of the bad faith count. Read the decision.

Washington Western District Court Narrows Washington Supreme Court Holding, Permits Common Law Bad Faith Count Against Adjuster
Ziwen Li v. Am. Family Mut. Ins. Co. S.I., No. 2:25-cv-01249-TL, 2026 U.S. Dist. LEXIS 136369 (W.D. Wash. June 18, 2026).

The insured brought suit against its insurer and adjuster after the insurer denied coverage. The adjuster moved to dismiss, arguing that Washington prohibits bad faith counts against non-parties to the insurance contract, citing a recent Washington Supreme Court case holding that a plaintiff may not maintain a cause of action for bad faith against “someone outside the quasi-fiduciary relationship” between the insurer and insured. In denying the adjuster’s motion, the court observed that the dissenting opinion in the Washington Supreme Court case distinguished statutory and common law bad faith claims, and that subsequent opinions also cited that distinction. The court therefore found the Washington Supreme Court’s decision inapplicable and instead concluded that the plaintiff had plausibly alleged a common law cause of action for bad faith against the adjuster for allegedly choosing to unreasonably deny payment of benefits. Read the decision.