Alabama Insurance Bad Faith Demand Letter

ALABAMA INSURANCE BAD FAITH DEMAND LETTER

FORMAL DEMAND FOR PAYMENT AND NOTICE OF BAD FAITH CLAIM

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION PURSUANT TO ALA. R. EVID. 408

DOCUMENT INFORMATION

ADDRESSEE INFORMATION

TO:

SENDER/CLAIMANT INFORMATION

FROM:

CLAIM IDENTIFICATION

I. INTRODUCTION

This letter constitutes a formal demand to [INSURANCE COMPANY] ("Insurer") for immediate payment of all benefits owed under the above-referenced policy. This demand is made on behalf of [INSURED/CLAIMANT NAME] ("Insured").

Under Alabama law, an insurer commits bad faith when it intentionally refuses to pay a claim when there is no lawful basis for the refusal and the insurer has actual knowledge of that fact. National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala. 1982).

Continued refusal to pay will result in litigation seeking:

• All policy benefits
• Punitive damages under Ala. Code § 6-11-20
• Pre- and post-judgment interest
• Attorney's fees and costs

II. SUMMARY OF DEMAND

TOTAL AMOUNT DEMANDED: $[________________________________]

RESPONSE DEADLINE: [__/__/____] (30 days from receipt)

III. FACTUAL BACKGROUND

A. The Insurance Policy

On or about [__/__/____], Insurer issued Policy No. [________________________________] to Insured, providing coverage for [________________________________].

Policy Details:

B. The Loss Event

On or about [__/__/____], Insured suffered a covered loss when:

[________________________________]
[________________________________]
[________________________________]

C. Timely Notice and Cooperation

Insured provided notice on [__/__/____] and has fully cooperated with all reasonable requests:

☐ Proof of Loss submitted on [__/__/____]
☐ Recorded statement on [__/__/____]
☐ Documentation provided
☐ Property inspection on [__/__/____]
☐ Examination under oath on [__/__/____]

IV. CLAIM HISTORY AND TIMELINE

V. COVERAGE ANALYSIS

A. Applicable Policy Provisions

Insuring Agreement:
[________________________________]

B. Policy Conditions Satisfied

☐ Timely notice
☐ Proof of loss
☐ Cooperation
☐ Documentation

C. Exclusion Analysis

Exclusion Cited: [________________________________]

Reasons Not Applicable:

1. [________________________________]
2. [________________________________]

D. Coverage Conclusion

The loss is clearly covered. Insurer has no lawful basis for denial.

VI. IDENTIFICATION OF BAD FAITH CONDUCT

A. "Normal" Bad Faith Under Bowen

Under National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala. 1982), a bad faith claim requires:

1. ☐ Insurance contract between parties and breach thereof
2. ☐ Intentional refusal to pay the claim
3. ☐ Absence of any reasonably legitimate or arguable reason for refusal
4. ☐ Insurer's actual knowledge of absence of legitimate reason
5. ☐ (If relied upon) Intentional failure to determine whether legitimate basis exists

Evidence of Bad Faith:

☐ Denial without reasonable basis

• Conduct: [________________________________]

☐ Failure to conduct fair investigation

• Conduct: [________________________________]

☐ Misrepresentation of policy provisions

• Conduct: [________________________________]

☐ Lowball offer not supported by evidence

• Conduct: [________________________________]

☐ Unreasonable delay

• Conduct: [________________________________]

B. "Abnormal" Bad Faith Under Slade

Under State Farm Fire & Casualty Co. v. Slade, 747 So.2d 293 (Ala. 1999), "abnormal" bad faith applies where:

☐ Intentional or reckless failure to investigate
☐ Intentional or reckless failure to properly evaluate claim
☐ Manufactured debatable reason for denial
☐ Reliance on ambiguous policy provision

Note: Abnormal bad faith does not require directed verdict on contract claim.

VII. LEGAL FRAMEWORK – ALABAMA BAD FAITH LAW

A. Normal vs. Abnormal Bad Faith

Normal Bad Faith: Requires plaintiff be entitled to directed verdict on underlying contract claim before bad faith can be established.

Abnormal Bad Faith: Does not require directed verdict; applies where insurer's conduct itself creates the dispute through improper investigation or manufactured defenses.

B. Punitive Damages

Under Ala. Code § 6-11-20, punitive damages require clear and convincing evidence of:

• Oppression
• Fraud
• Wantonness
• Malice

Caps on Punitive Damages:

• Generally: 3x compensatory damages or $1.5 million, whichever is greater
• Small businesses: $500,000 or 3x compensatory, whichever is greater

C. Key Alabama Case Law

1. National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala. 1982) – Five-element test for normal bad faith.

2. State Farm Fire & Casualty Co. v. Slade, 747 So.2d 293 (Ala. 1999) – Abnormal bad faith doctrine.

3. Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916 (Ala. 1981) – Punitive damages available.

4. Thomas v. Principal Financial Group, 566 So.2d 735 (Ala. 1990) – Insurer's duty to investigate.

5. Employees' Benefit Ass'n v. Grissett, 732 So.2d 968 (Ala. 1998) – Equal consideration to insured's interests.

VIII. DAMAGES

A. Contract Damages

B. Consequential Damages

C. Punitive Damages

Insurer's conduct warrants punitive damages:

☐ Oppression: [________________________________]
☐ Fraud: [________________________________]
☐ Wantonness: [________________________________]
☐ Malice: [________________________________]

Punitive Damages: To be determined at trial (up to 3x compensatory or $1.5 million)

D. Summary

IX. SETTLEMENT DEMAND

Insured demands payment of $[________________________________] within THIRTY (30) DAYS.

Payment Instructions

1. Made payable to: [________________________________]
2. Delivered to: [________________________________]
3. Received by: [__/__/____]

Consequences of Non-Payment

If not paid within 30 days, Insured will file suit seeking:

• All contract damages
• Punitive damages
• Pre- and post-judgment interest
• Attorney's fees and costs

X. PRESERVATION OF EVIDENCE

LITIGATION HOLD NOTICE

Preserve all documents and ESI related to this claim including:
☐ Complete claim file
☐ Internal communications
☐ Adjuster notes
☐ Expert reports
☐ Reserve information
☐ Training materials
☐ Similar claims data

XI. CONCLUSION

Insurer's refusal to pay lacks any lawful basis. Continued refusal will result in litigation seeking punitive damages for bad faith.

SIGNATURE

Insured:

Signature: _______________________________________________

Print Name: [________________________________]

Date: [__/__/____]

Attorney:

Signature: _______________________________________________

Print Name: [________________________________]

Alabama Bar No.: [________________________________]

Firm: [________________________________]

Date: [__/__/____]

EXHIBITS

☐ Exhibit A: Insurance Policy
☐ Exhibit B: Proof of Loss
☐ Exhibit C: Photographs
☐ Exhibit D: Estimates
☐ Exhibit E: Correspondence
☐ Exhibit F: Denial Letter

All rights under Alabama law are expressly reserved.