Old Republic Insurance v. FSR Brokerage, Inc.

Following a bench trial, the trial court concluded that appellant Old Republic Insurance Company (hereafter Old Republic) had not secured a right of reimbursement against respondent FSR Brokerage, Inc., doing business as Fred Sands Realtors (hereafter FSR). Subsequently, a jury found that Old Republic had engaged in bad faith by asserting a claim for fraud against FSR. We reverse the trial court’s ruling on Old Republic’s right of reimbursement, reverse the judgment on FSR’s bad faith claim, and remand for further proceedings. In so ruling, we conclude that a bad faith claim against an insurer for initiating litigation against the insured fails as a matter of law when the insured does not contend that the insurer acted unreasonably in investigating or paying the underlying insurance claim.

Factual Background

FSR, a corporation engaged in the real estate brokerage business, bought errors and omissions indemnity policies from Old Republic from 1985 to 1992. The pertinent policies had a $100,000 deductible, and provided that Old Republic would indemnify “the Insured” for losses in excess of the deductible arising from claims “first made against the Insured during the…