Federal District Court Denies Motion to Dismiss Insurance Bad Faith Claim

Federal District Court Denies Motion to Dismiss Insurance Bad Faith Claim

Case and Court: Reeves v. State Farm Fire & Cas. Co., Case No. 2:24-CV-2082 (W.D. Ark. 2025)

Issue: Did the plaintiff’s allegations, which included claims of unnecessary delay, deception, baseless denials, and the deployment of an inspector whose sole role was to contradict a neutral inspector’s opinion, suffice to defeat a motion to dismiss in a bad faith insurance case?

Holding: Yes. At this early stage of the case, the plaintiff has made out a claim that plausibly sets forth a cause of action for bad faith insurance denial.

Summary: Under Arkansas insurance law, policyholders who believe that their insurance company has wrongfully denied their claim can make a breach of contract claim to have the claim paid. As discussed in a previous post, insurance claim plaintiffs also have the option to make a claim for damages of 12% of the value of the claim, over and above the claim payout amount, attorney fees, and potentially pre- and post-judgment interest.

Another cause of action that can be pursued against an insurer who unreasonably denies a claim is the tort of bad faith. A plaintiff who prevails on such a claim can obtain, in addition to damages for the amount of the claim, compensatory and punitive damages.

So, for instance, let’s say that a homeowner makes a $10,000 claim and their insurance company denies it. If the homeowner believes this denial was not warranted, they might bring suit for $10,000. If they prevail and are awarded $8,000 (i.e., 80%) or more, the plaintiff homeowner will also be entitled to an attorney fee award, the 12% penalty, and possibly an award of interest. If the insurer is held to have acted in bad faith, the plaintiff might also be granted substantial compensatory and punitive damages several times the amount awarded for non-payment. Bad faith claims can turn fairly low dollar insurance claims into large verdicts. See, e.g., Viking Ins. Co. of Wisconsin v. Jester, 836 S.W.2d 371, 375 (Ark. 1992) (upholding $1,000 compensatory damages award and $250,000 punitive damages award where insurer and insured were apparently only several hundred dollars apart in underlying insurance claim); Employers Eq. Life Ins. Co. v. Williams, 665 S.W.2d 873 (Ark. 1984) (upholding $25,000 compensatory damages award and $75,000 punitive damages award where underlying insurance claim was only around $2,000).

However, Arkansas courts have made clear that the burden for transforming an insurance dispute into a bad faith claim is a high one. An insurance company merely being uncooperative, difficult, or unreasonable is not enough. While plaintiffs often bring a bad faith claim alongside their claim for failure to pay, the bad faith claims are often dismissed early in the case because the allegations simply are not serious enough to overcome the threshold set out under Arkansas law.

But that does not mean that no allegations are sufficient. Indeed, recently, in Reeves v. State Farm Fire & Cas. Co., Case No. 2:24-CV-2082 (W.D. Ark. March 13, 2025), a court deny a motion seeking seeking dismissal of the claim, holding that, if proven true, the allegations set out a plausible bad faith claim.  

The relevant facts were as follows:

According to the Complaint, evidence of State Farm’s bad faith includes:

• sending a second person to inspect the roof “for the specific purpose of contradicting the neutral third-party roofer’s finding of damages,”;
• denying Mr. and Mrs. Reeves’s valid claims on multiple occasions;
• closing out one outstanding claim without prior notice;
• offering to settle the claim for a paltry amount that was less than the deductible, when the true cost to repair the roof exceeded $20,000; and
• taking too long to evaluate the claim, which prevented Mr. and Mrs. Reeves from selling their home to willing buyers.

Slip Op. at 4.

The court held that this was sufficient, at this early stage of the case, to save the claim. The case will now proceed through discovery. Presumably, State Farm will try to have this claim dismissed again at the summary judgment stage. Nonetheless, this case provides encouragement for Arkansans going against insurance companies, especially with respect to homeowners claims they think were improperly denied.

Bottom Line: Bad faith insurance claims are difficult to pursue, but not impossible. Reach out if you are seeking an Arkansas Insurance Attorney and want to discuss your claim, whether you simply wish to have your claim paid or think you have facts supporting a suit for bad faith. 

Contact our firm today to schedule a free consultation with an experienced  lawyer in your area.