Legal Memorandum: Bad Faith Claim against Insurer

Issue: What are the elements of a claim for bad faith on the part of an insurer under the laws of the Virgin Islands?

Area of Law: Insurance Law, Litigation & Procedure
Keywords: Claim for bad faith; Insurer; Proper investigation
Jurisdiction: Virgin Islands
Cited Cases: 78 F. Supp. 2d 436; 620 P.2d 141
Cited Statutes: Restatement (Second) of Contracts § 205
Date: 03/01/2005

  Every contract contains an implied covenant of good faith and fair dealing. Restatement (Second) of Contracts § 205.  Violation of this covenant constitutes an actionable tort in the Virgin Islands and many other jurisdictions as well.  See Justin v. Guardian Life Ins. Co., 670 F. Supp. 614, 616 (D.V.I. 1987).  In the insurance context, to make out a cause of action for bad faith against the insurer, the insured must show: (1) the existence of an insurance contract and a breach by the insurer;  (2) intentional refusal to pay the claim; (3) the non-existence of any reasonably legitimate or arguable reason for the refusal (debatable reason) either in law or fact; (4) the insurer’s knowledge of the absence of such a debatable reason or (5) when the insured argues that intentional failure results from the failure of the insurer to determine the existence of an arguable basis, the plaintiff must prove the insurer’s intentional failure to determine the existence of such debatable reason.  Charleswell v. Chase Manhattan Bank, N.A., 308 F. Supp. 2d 545, 573-74 (D.V.I. 2004) (quoting Justin, 670 F. Supp. at 617).  “[T]he test laid down in Justin requires not only that plaintiff establish that an insurer lacked even an arguable or debatable reason to deny the claim, but also that the insurer had knowledge or exhibited reckless disregard as to whether it was fairly debatable to deny the claim.”  Charleswell, 308 F. Supp.2d at 574 (quoting Worthington v. Euwema Ins. Agency, Inc., D.V.I. May 2, 2000 […]

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