Insurers Face Bad Faith Claim Despite Contractual Distance
When Ralph and Myrna Lightfoot experienced hail damage to their home, they filed a claim under their homeowner’s insurance policy with American Economy Insurance Company (AEIC). AEIC, a subsidiary of Liberty Mutual Insurance, operates under the Safeco Insurance brand. Although their policy was with AEIC, the Lightfoots sued Safeco and Liberty Mutual, arguing that both companies were deeply involved in the claims process.
They alleged that the insurers failed to adequately investigate the damage and did not pay a sufficient amount to cover the necessary repairs. The Lightfoots filed a lawsuit in Oklahoma County District Court in April 2024, accusing the insurance companies of breach of contract and bad faith. The case was subsequently moved to federal court.
Liberty Mutual and Safeco filed a motion to dismiss, arguing that they were not parties to the insurance contract and thus could not be sued for breach of contract. The court agreed, noting that neither company was directly named in the insurance policy issued to the Lightfoots. Oklahoma law requires a direct contractual relationship for a breach of contract claim.
While the policy included Safeco branding, such as a letter signed by a Safeco executive and customer service references to Safeco’s website, the court determined that these details did not create a binding contract between the Lightfoots and the two companies. As a result, the breach of contract claim against Liberty Mutual and Safeco was dismissed.
The court acknowledged the following links between Safeco and Liberty in the policy:
- The policy title (“Safeco Premier Homeowners Policy”)
- The logo used throughout the policy (“Safeco Insurance – A Liberty Mutual Company”)
- A letter signed by the president of Safeco, thanking the Lightfoots for renewing the policy
- References to American Economy as “A Safeco Company”
- References to “www.safeco.com” for policy service information, online account services, and information on Safeco’s “website specific privacy and security practices”
However, the court ruled that the bad faith claim could proceed. Oklahoma law provides an exception where a non-party to an insurance contract can be held accountable if it acts as though it were the insurer, especially regarding claims processing. The Lightfoots alleged that Liberty Mutual and Safeco were involved in handling their claim, making coverage decisions, training adjusters, and sharing financial risk with AEIC.
The judge determined that if these claims were proven true, they could establish a “special relationship” between the companies and the policyholders, making them liable for bad faith insurance practices. The court cited that, “If “a non-party to the insurance contract . . . engages in activities or conduct such that it may be found to be acting sufficiently like an insurer so that a special relationship can be said to exist between the entity and the insured,” then “the same duty of good faith and fair dealing as that imposed on the actual insurer issuing the insurance policy” is imposed on that non-party. Such a relationship “essentially giv[es] the third party the power, motive, and opportunity to act unscrupulously.”
The Lightfoots also sought to amend their lawsuit, but the court denied the request, stating it would not impact the fact that Safeco and Liberty Mutual were not direct parties to the insurance policy.
This ruling represents a mixed outcome. While Safeco and Liberty Mutual avoided the breach of contract claim, they must now address the bad faith claim. The companies could face liability if the Lightfoots can substantiate their allegations. The case illustrates the complexities of insurance agreements when multiple affiliated companies are involved and reminds insurers that they may be accountable for improper claims handling, even if they are not the direct policy issuers.
As the lawsuit advances in the United States District Court for the Western District of Oklahoma, both sides will present evidence regarding the role of Safeco and Liberty Mutual in the claim denial. If the Lightfoots can demonstrate direct involvement in the decision-making process, they may be able to hold the companies responsible for improper insurance practices.
