YA Swiftly Forces $8 Million Payment from Chubb Insurance Company for Bad Faith Handling of Claim
Just six months after filing a lawsuit for insurance bad faith against Chubb Insurance in April 2020, Yarborough Applegate attorneys David Yarborough and Reynolds Blankenship successfully settled the case for $8 million in October. Our client, Wendy Wellin, brought the action against Chubb over its mishandling of defamation claims that were covered by her homeowners’ insurance policy with Chubb subsidiary Bankers Standard Insurance Company.
The case involved an unusual set of facts and some complex legal issues of insurance coverage that are not yet settled in South Carolina. At first, the uniqueness and complexity of the case seemed favorable to Chubb, as an insurer’s bad faith is judged by whether the insurer objectively took an unreasonable position or made an unreasonable decision. An insurer’s taking a particular position on a complicated, unsettled legal issue usually does not constitute bad faith. According to Yarborough, “We had to figure out how to simplify our theory of liability and make Chubb understand that those complex legal issues were not critical to our case. We could prove Chubb had acted unreasonably and in bad faith regardless of the answers to those questions.”
Counsel framed their discovery plan around their narrowed theory of the case. When Chubb refused to produce any information or documents on the main topics of focus, Yarborough and Blankenship took it as an early opportunity to present their full theory of liability to the court through a fully briefed motion to compel. How the court resolved the motion would likely give an indication of how the court would ultimately view the merits of the case overall. Confident that the court would grant the motion and that it would blow the case open, counsel also sent a demand that Chubb go ahead and pay the full $8 million before the court heard the motion. “Chubb surrendered and paid every penny of what they owed, before a single deposition was taken,” Yarborough said.
Wellin had previously been involved in litigation against the adult children of her deceased husband, Keith Wellin, who had amassed hundreds of millions of dollars in his lifetime. The children alleged numerous claims against Wellin, including undue influence, coercion, intentional interference with inheritance, defamation, among others. The claims of defamation, which the children alleged Mrs. Wellin had committed over the course of two years, triggered multiple homeowners’ insurance policies that Wellin had with Chubb and AIG, both of which had defamation coverage of more than $20 million per occurrence.
The litigation went on for years, spurring more than fifteen related lawsuits across the country. The will contest in South Carolina state court was the first case called to trial, and was to start in February 2020. That trial would not have resolved the defamation claims, which were to be determined by a jury at a subsequent trial.
On the eve of that first trial, the children sent a final, global settlement demand to Wellin that included a cash component of $36 million. While Wellin’s insurance defense counsel believed that the defamation claims would be highly defensible at the later trial of those claims, a verdict for the children on the defamation claims could have exceeded $300 million, enough to bankrupt Wellin. Based on counsel’s analysis of the overall risk, he advised Wellin she needed to accept the $36 million demand. Because that amount was within the collective coverage of Chubb and AIG, the expectation was that the carriers would pay the $36 million settlement. While AIG agreed to contribute its half, $18 million, Chubb refused to contribute more than $10 million.
Chubb took the position that since Wellin’s overall risk of loss was not posed entirely by the defamation claims that were covered by insurance—but rather was posed by a combination of the covered defamation claims and non-covered claims such as undue influence and intentional interference with inheritance—the $36 million settlement should be apportioned between covered and non-covered risks. Chubb thus insisted that in order for the settlement to happen, Mrs. Wellin needed to personally contribute $8 million. Otherwise, Chubb wanted to see what happened at the numerous trials. With the first trial looming and the risk of a bankruptcy-inducing defamation verdict down the road, Wellin made the settlement happen and personally contributed the $8 million. She immediately thereafter hired Yarborough Applegate who quickly convinced Chubb of its massive error, and forced Chubb to pay back the $8 million.
Read more about Yarborough Applegate’s experience handling insurance bad faith claims here.