Mere Negligence, Poor Judgment, Delay, Inadequate Investigation, Valuation Disagreement, or an Honest Mistake May Not Establish Bad Faith.

Post 5433

Posted on August 25, 2026 by Barry Zalma

In Joseph Russell Falasco v. USAA Casualty Insurance Company, No. 25-2632, United States Court of Appeals, Eighth Circuit (August 18, 2026) Joseph Russell Falasco insured a restored 1974 Porsche 911S through USAA. After the Porsche caught fire in August 2023, Falasco reported the loss and initially believed the vehicle was a total loss. USAA investigated the origin and cause of the fire, sent a reservation-of-rights letter, retained an appraiser, and referred the claim to its special investigations unit after questions arose about whether the fire was accidental.

The investigation ultimately indicated the fire likely resulted from deteriorated fuel lines rather than intentional conduct.

USAA offered $46,106.75 based on a CCC valuation using two comparable Porsche vehicles. Falasco disputed the valuation, argued the comparables were inappropriate, and proposed higher-value comparables from Bring a Trailer.

USAA declined to use those comparables, later obtained a Sotheby’s appraisal valuing the Porsche at about $65,000, and paid the difference between that appraisal and its prior payment.

A jury later awarded Falasco damages on his breach-of-contract claim, but the district court granted summary judgment to USAA on Falasco’s bad-faith and unfair-settlement-practices claims.

LAW

Under Arkansas law, an insurer commits the tort of bad faith only when it engages in affirmative misconduct that is dishonest, malicious, or oppressive. The required state of mind must reflect hatred, ill will, or a spirit of revenge. Mere negligence, poor judgment, delay, inadequate investigation, valuation disagreement, or an honest mistake does not establish bad faith.

DISCUSSION

Falasco argued that USAA acted in bad faith by undervaluing the Porsche, conducting a fraud or arson investigation to pressure him, misrepresenting policy terms and claims procedures, and repeatedly seeking title to the vehicle before settlement. The Eighth Circuit rejected each theory. It reasoned that valuation is inherently subjective, USAA could rely on CCC’s third-party appraisal, USAA responded to Falasco’s proposed comparables, and USAA later obtained and paid based on a higher Sotheby’s appraisal. The Eighth Circuit also held that USAA was entitled to investigate a fire of unknown origin, especially because no report identified the cause of the fire when Falasco submitted the claim.

The Eighth Circuit further concluded that USAA’s inaccurate statements about an appraisal clause, “arbitration law,” fire-report requirements, policy access, and automated settlement emails were mistakes or miscommunications rather than evidence of malicious or oppressive conduct. It also found no conversion or bad-faith title procurement because Falasco initially consented to USAA’s possession of the Porsche, USAA had contractual inspection rights, and the repeated title requests appeared to result from communications problems involving USAA and Copart.

ANALYSIS

The majority treated Falasco’s evidence as showing, at most, disputed valuation, delay, investigation, and negligent or mistaken claim handling. Because Arkansas bad-faith law sets a demanding threshold, the court separated each alleged act and found none showed affirmative misconduct carried out with the required culpable state of mind. The fact that USAA substantially paid the claim after further appraisal and that only a relatively small additional amount remained after trial supported the majority’s view that USAA reasonably attempted to discharge its contractual obligations.

CONCLUSION

The Eighth Circuit affirmed the district court’s grant of partial summary judgment for USAA on Falasco’s bad-faith claim. The undisputed facts did not show dishonest, malicious, or oppressive conduct under Arkansas law.

Judge Grasz dissented, concluding that a reasonable jury could infer bad faith from the totality of the circumstances and that the claim should have proceeded further.

ZALMA OPINION

Many people, and lawyers, believe that the refusal to pay an insured what he wants to resolve a claim is sufficient to prove the tort of Bad Faith. Although a 1974 Porsche might be considered antique or highly valuable it is just a car that, like any other product, can be valued. USAA used CCC, a valuation organization to value the car and later, when Sotheby’s showed it was worth more than the CCC evaluation it paid it. The investigation and adjustment was less than perfect but there was none of the dishonest, malicious or oppressive conduct required to prove the tort. Just being wrong is not bad faith.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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