Insurance Bad Faith Report, October 2026

California Supreme Court Allows Bad Faith Claim Against Excess Insurers Absent Underlying Exhaustion
Fox Paine & Co., LLC v. Twin City Fire Ins. Co., 593 P.3d 832 (Cal. 2026).

After an internal dispute at an investment firm led to litigation among factions, one faction sued three of the firm’s excess insurers. The plaintiffs alleged that the excess insurers breached the excess policies by failing to indemnify them in the underlying litigation, and that the excess insurers acted in bad faith by favoring the other faction. In the operative complaint, plaintiffs alleged exhaustion of the primary policy’s limits but not each of the underlying excess limits, so some of the excess insurers moved to dismiss. The California Supreme Court first held that an insured may bring a declaratory judgment claim under excess policies absent allegations that all underlying limits have been exhausted. The court also held that a claim for breach of the duty of good faith and fair dealing against an excess insurer may withstand dismissal where factual allegations show that excess liability will attach and that the excess insurer’s misconduct has impaired the insured’s recovery of benefits owed to it under the excess policy. Read the decision.

Eighth Circuit Finds Life Insurance Policy Secured By Fraudster Void
Wells Fargo Bank N.A. v. Ameritas Life Ins. Corp., 183 F.4th 1056 (8th Cir. 2026).

Alleged fraudsters created a trust and secured a life insurance policy on a senior citizen who shortly passed. The insurer denied coverage under a New Jersey statute prohibiting stranger-originated life insurance (“STOLI”), which occurs when the procurer does not have an insurable interest or the proceeds are intended to benefit persons who lack an insurable interest. Wells Fargo, a securities intermediary for a party that purchased the policy interests from the fraudsters, filed suit alleging bad faith denial. The trial court affirmed the insurer’s denial, declaring the policy void. The Eighth Circuit Court of Appeals affirmed, even though technically the decedent’s daughter had been the ultimate beneficiary of the life insurance trust, as it was secured to benefit the alleged fraudsters. As the policy was void, the insurer did not act in bad faith. Read the decision.

Eleventh Circuit Finds Lawsuit Concerning Creation Of Competitor Did Not Allege Professional Services
Queen v. Berkley Assurance Co., No. 26-10878, 2026 U.S. App. LEXIS 21996 (11th Cir. July 24, 2026).

A captive insurance agency sued its former directors and officers, alleging they improperly used the agency’s property and engaged in self-dealing to establish a competitor agency. The directors and officers sought coverage under a professional liability policy, which defined professional services as “those services performed by the insured for others in the insured’s capacity as a duly licensed agent, broker or insurance consultant, employee benefits counselor or notary public and as described in the Declarations” and services of “a managing general agency and insurance agent/broker.” The Eleventh Circuit Court of Appeals distinguished between the alleged use of the claimant’s resources to create an insurance brokerage and rendering insurance brokerage services. Because the suit did not allege potential liability for professional services, there was no coverage or bad faith. Read the decision.

Fifth Circuit Grants Mandamus Relief To Protect Disclosure Of Privileged Documents In Bad Faith Case
In re Prime Holdings Ins. Servs., No. 26-30410, 2026 U.S. App. LEXIS 23735 (5th Cir. Aug. 5, 2026).

A multi-vehicle accident resulted in multiple excess judgments and eventual bankruptcy. The bankruptcy trustee filed suit against the insurer, alleging bad faith. The insurer denied liability and asserted several affirmative defenses, none of which involved the advice of counsel. In a subsequent discovery dispute, the district court ordered production of the insurer’s attorney-client communications after concluding that they went to the heart of the trustee’s bad-faith and extra-contractual claims. The Fifth Circuit Court of Appeals granted the insurer’s mandamus petition and vacated the discovery orders, holding that an insurer does not waive attorney-client privilege simply by pleading good-faith defenses, as waiver requires the privilege holder to affirmatively rely on protected communications to prove its case. Read the decision.

Eighth Circuit Affirms No Bad Faith When Insurer’s Payment Was Only Marginally Less Than Verdict And Insurer Had Grounds To Investigate Potential Arson
Falasco v. USAA Cas. Ins. Co., No. 25-2632, 2026 U.S. App. LEXIS 24815 (8th Cir. Aug. 18, 2026).

A partially restored antique car caught fire. Because the local fire department did not issue a report, the insurer conducted its own investigation, ultimately concluding no foul play. In the meantime, the insurer made an initial payment, using imperfect comparables, and rejected the insured’s higher-value marketplace comparables. The insurer then obtained a specialized reappraisal and voluntarily paid the difference. Following a jury verdict for the insured for only $8,043.70 in damages, the Eighth Circuit Court of Appeals affirmed the district court’s summary judgment ruling dismissing the bad faith claim because the insurer’s independent investigation was reasonable given the unknown origin of the fire, the initial reliance on imperfect comparables was a subjective valuation issue, and the marginal difference between the jury’s verdict and the insurer’s total payments demonstrated a reasonable attempt by the insurer to discharge its contractual obligations. Read the decision.

Despite Untimely Response To Policy Limits Demand, District of Nevada Finds No Bad Faith
Esurance Prop. & Cas. Ins. Co. v. Reed, No. 2:25-cv-00698-GMN-DJA, 2026 U.S. Dist. LEXIS 195944 (D. Nev. Aug. 28, 2026).

An underlying plaintiff issued a pre-suit, time-limited, policy-limits demand. Due to staff changes and unintentional inadvertence, the insurer responded twelve weeks later, tendering the limit after the deadline. The underlying plaintiff rejected the untimely tender. When the insurer sought declaratory relief that no amounts in excess of the policy were recoverable, the insureds defaulted. In the resulting default judgment, the district court found no bad faith, concluding that the delay amounted to negligence or poor judgment, rather than unreasonable, knowing conduct required for bad faith. Read the decision.

Sixth Circuit Upholds Policy’s Limitations Provision And Affirms Bad Faith Dismissal Under Ohio Law
Turner v. Liberty Mut. Ins. Co., No. 25-3824, 2026 U.S. App. LEXIS 26988 (6th Cir. Sep. 1, 2026).

Following a fire, the insurer paid a portion of the property owner’s claim. When the insured brought suit for breach of contract and bad faith, the insurer moved to dismiss, arguing that the policy’s limitations provision requiring the insured to bring suit within one year of the claim applied. The district court granted the motion in full. On appeal, the insured argued that the insurer waived the limitations period by negotiating the claim after the one-year mark, and that dismissal of the bad faith count was improper because it was an independent claim. In affirming the dismissal, the Sixth Circuit Court of Appeals rejected both arguments, finding that the insurer did not waive the limitations provision and that, under Ohio law, the bad faith count was premised on the failure to pay such that dismissal of the breach of contract count was fatal to the bad faith count. Read the decision.

Ninth Circuit Reverses Bad Faith Summary Judgment Decision Based On Inapposite Case Law
Quilbillies, LLC v. First Am. Title Ins. Co., No. 25-501, 2026 U.S. App. LEXIS 28773 (9th Cir. Sep. 16, 2026).

Two property owners separately obtained title insurance policies from the same insurer. When the insureds got into a property dispute, they tendered the matter to their insurer, which paid the limits of both policies. The insureds subsequently sued for bad faith, alleging that the insurer had failed to adequately investigate or defend the claim. The insurer moved for summary judgment, contending that its payment of both policy limits extinguished all duties owed under the policies. The district court granted the motion, citing case law holding that payment of a title insurance policy’s limit extinguishes the insurer’s contractual obligations. The Ninth Circuit Court of Appeals partially reversed, finding that the cited case law did not specifically apply to bad faith claims and observing that an insurer can be liable for bad faith beyond its contractual obligations. In the dissenting opinion, one circuit judge reasoned that, because the policies allowed the insurer to pay the policy limits and terminate the policies, a bad faith suit based solely on those actions should fail. Read the decision.