Ohio Supreme Court Reaffirms: Insurance Bad Faith Is a Tort, and the Claims File Is Fair Game

Published December 12, 2023 · Ohio Supreme Court

When you buy auto insurance, you are buying a promise: if something bad happens, your company will treat your claim fairly. Most people never think about what happens when it doesn't, until they are hurt by an uninsured or underinsured driver and their own insurer starts behaving like the other side.

On November 1, the Supreme Court of Ohio issued a decision that reinforces two of the most important protections Ohio policyholders have. In Scott Fetzer Co. v. Am. Home Assur. Co., Inc., Slip Opinion No. 2023-Ohio-3921, the Court reaffirmed that an insurance company's bad faith toward its own insured is a tort, a civil wrong that exists independently of the contract, and it upheld the application of Ohio law that allows an insured to see the insurer's claims file.

A big-company dispute with a lesson for everyone

The case itself has nothing to do with car crashes. The Scott Fetzer Company, which is headquartered in Ohio, was ordered to pay for environmental cleanup at contaminated sites in Michigan. It sought coverage under decades-old liability policies, including policies it believed Travelers' predecessor had issued to an Indiana company Scott Fetzer had merged with. According to the pleadings, the insurers neither paid nor gave a final coverage decision for years. Scott Fetzer sued for breach of contract and for bad faith.

When Scott Fetzer asked for Travelers' internal claims-handling documents, Travelers objected on privilege grounds and argued that the law of Michigan or Indiana should decide the issue. As the Court described it, Michigan does not recognize a bad-faith cause of action, and Indiana does not allow discovery of attorney-client privileged materials. Under Ohio law, by contrast, claims-file materials that show an insurer's lack of good faith are not shielded. An administrative judge applied Ohio law and ordered some of the documents produced, and the Eighth District Court of Appeals agreed that Ohio law governed.

The question for the Supreme Court was technical: when a court has to choose which state's law applies to a bad-faith claim, does it use the rules for contracts or the rules for torts?

What the Court decided

Writing for the majority, Justice Brunner held that the tort rule applies, specifically Section 145 of the Restatement (Second) of Conflict of Laws, which looks to the state with the most significant relationship to the occurrence and the parties. The Court affirmed the Eighth District's judgment applying Ohio law to the discovery dispute. Justices Donnelly, Stewart and Deters joined the opinion and Justice Fischer concurred in the judgment, while Chief Justice Kennedy, joined by Justice DeWine, dissented.

The core of the reasoning is what matters for ordinary policyholders. The Court relied on its 1983 decision in Hoskins v. Aetna Life Ins. Co., 6 Ohio St.3d 272, which held that an insurer has a duty to act in good faith in handling and paying its insured's claims, and that a breach of that duty gives rise to a cause of action in tort. The Court rejected the insurer's argument that bad faith is just one of the "rights created" by the insurance contract, explaining that a bad-faith claim "is not rooted in any particular text of the contract" but instead arises by operation of law.

In other words, the insurer cannot write its way out of the duty of good faith in the fine print. The duty comes from Ohio law and from the relationship between insurer and insured, and it is enforced like other torts.

Why "tort, not contract" helps you

The difference is not academic. A breach-of-contract claim against your insurer generally gets you what the policy promised. A tort claim for bad faith can reach further:

• Damages caused by the bad faith itself, not just the policy benefits, such as financial harm from a delayed or denied claim.
• Punitive damages in egregious cases, where the insurer's conduct meets Ohio's demanding standard for punishment.
• Tort rules on discovery and procedure, which, as Scott Fetzer shows, can determine what evidence you get to see.

Our guide chapter on dealing with insurance adjusters explains the standard Ohio courts use to decide whether an insurer's refusal to pay was reasonably justified, and why an insurer does not have to intend to cheat you to be liable.

The claims file: your insurer's own words

The discovery dispute in Scott Fetzer turned on an earlier Ohio Supreme Court decision, Boone v. Vanliner Ins. Co., 91 Ohio St.3d 209 (2001). Boone is a case every UM/UIM claimant should know about. Richard Boone, an Ohio truck driver, was seriously injured in a Florida crash and sought underinsured motorist benefits; his insurer denied the claim and later admitted the coverage existed. In his bad-faith suit, the Supreme Court held that an insured alleging bad-faith denial of coverage is entitled to discover claims-file materials, including attorney-client communications about coverage, created before the denial. The Court reasoned that claims-file materials showing an insurer's lack of good faith in denying coverage are unworthy of protection.

That is powerful. The claims file contains the adjuster's notes, the internal evaluations, the reserve decisions, and the communications about whether and how much to pay. In a bad-faith case, it is often the best evidence there is, and Scott Fetzer confirms that when the dispute is connected to Ohio, Ohio's rules on access to it apply.

What this means for UM/UIM claimants

The duty of good faith runs from your insurer to you. It is most important in the claims where your own company is the one deciding whether to pay: uninsured and underinsured motorist claims and MedPay. Our guide chapter on using your own insurance and our page on UM/UIM claims in Ohio explain how those coverages work.

In May, we wrote about a Montgomery County case, Crawford v. Am. Family Ins. Co., 2023-Ohio-1069 (2d Dist.), in which the Second District held that there is no blanket rule requiring a hired expert in an insurer bad-faith case, and that the insurer's own adjuster had testified to the claims-handling standards in that UM case. See Dayton Court: You Don't Need a Hired Expert. Scott Fetzer fits with that decision: the insurer's own file and its own people are often the proof.

Signs that your own insurer may not be handling your claim in good faith include:

• months of silence or repeated requests for documents you have already provided;
• a denial that does not identify the policy language it relies on;
• an offer that ignores your medical records or your doctors' opinions;
• an investigation that collects only evidence against you; and
• pressure to settle before your treatment is finished.

One important limit: the duty of good faith is owed by an insurer to its own insured. The at-fault driver's insurance company does not owe you that duty, which is one reason your own UM/UIM coverage, and the protections that come with it, matter so much.

What this means for you

Keep every letter, email and claim number from your insurer, and write down the dates and substance of phone calls. If your claim has been delayed, denied or lowballed without a clear explanation, have it reviewed. A bad-faith claim is not appropriate in every dispute, but when it is, the law gives you real tools, including a look inside the insurer's own file.