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R.I. Supreme Court revives bad faith claim against Travelers

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bad faith

The Rhode Island Supreme Court on Friday agreed with a lower court that a Travelers Cos. Inc unit does not have to defend an urgent care facility in a discrimination case, but it sent a bad faith claim back to a lower court for further consideration.

In July 2015, Folosade Olofinlade, a woman of Nigerian national origin, alleged that she and her 2 ½-year-old daughter accompanied her brother-in-law to the Atmed Treatment Center in Johnston, Rhode Island, to be evaluated for illness symptoms, according to the state supreme court’s unanimous ruling in Atmed Treatment Center Inc. v. The Travelers Indemnity Co. She was 38 weeks pregnant at the time.

Ms. Olofinlade informed Atmed that her brother-in-law had a history of malaria, and that this was the likely cause of his illness. She alleged that she and her daughter were then quarantined in a small room with her brother-in-law for about four hours without access to food, water or a restroom. 

She also alleged to overhearing an employee declare on the telephone that it might have its first case of Ebola, despite having no facts to support such a statement, the ruling said.

She said after four hours of confinement, she and her family members were transported to a local hospital in accordance with “hazmat protocol,” and that her brother-in-law was never diagnosed with Ebola or any other infectious disease.

She filed suit, in October 2017, charging discrimination under federal and state law. That litigation is ongoing in federal court.

Meanwhile, Atmed insurer Travelers Indemnity Co. agreed to defend Atmed subject to a reservation of rights, but has not reimbursed it for its legal costs incurred before August 2019.

Atmed filed suit in state court, seeking a declaratory judgment the insurer had a duty to defend it, and asserting breach of contract and bad faith claims.

The lower court ruled in Travelers’ favor. The state high court agreed Travelers did not have a duty to defend Atmed under a policy exclusion in its coverage.

It held, however, that the bad faith claim “was not properly before the trial justice.”

The charge “was severed and stayed. The parties were not presented with the opportunity to fully debate” the issue, the court said.

Traveler’s “alleged misrepresentations could have caused Atmed to incur damages in the form of attorneys’ fees for the time the action was filed to the date on which Travelers agreed to defend Atmed,” the ruling said.

“This Court has explained that insurers have a duty to fully and completely investigate claims by an insured,” it said, in vacating the portion of the judgment granting summary judgment on this claim, and returning the case to the lower court.

Ahmed’s attorney, solo practitioner Neil P. Philbin, who is based in South Kingstown, Rhode Island, said the opinion “is an accurate summary of the dispute, and a very thorough analysis of the contested issues.”

Travelers’ attorney did not respond to a request for comment.