Thomas Shannahan v. Rhode Interlocal Risk Management Trust, 269 A.3d 737

Plaintiffs (Shannahan, Wilson, Twohig estate and Twohig) sued Rhode Island Interlocal Risk Management Trust alleging the Trust wrongfully and in bad faith denied third-party insurance coverage for claims against the City of Central Falls.
The City of Central Falls was the insured under the Trust’s policy; plaintiffs sought to proceed as assignees of the City’s rights after bankruptcy and a Superior Court substitution order.
In a prior decision (Shannahan I), this Court affirmed summary judgment dismissing the plaintiffs’ underlying claims against the City.
The Superior Court granted the Trust’s motion for summary judgment on the bad-faith claim; plaintiffs appealed.
The Supreme Court reviewed whether non-insured plaintiffs, as assignees, could bring a bad-faith action and whether the Trust’s denial/investigation met the ‘‘fairly debatable’’ standard for insurer conduct.
The Court concluded plaintiffs were not entitled to pursue the bad-faith claim and, alternatively, that the Trust’s conduct was fairly debatable; the Court affirmed summary judgment for the Trust.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether non-insured plaintiffs may bring a bad-faith claim as assignees of the insured	Plaintiffs asserted they were assignees of the City’s rights (via bankruptcy and Superior Court orders) and thus can sue for insurer bad faith	The Trust argued plaintiffs were not the insured, the bad-faith claim was not assigned, and Mello limits such assignments to excess-judgment recoveries	Held: Plaintiffs could not pursue the bad-faith claim as assignees; Mello confines assignment to excess-judgment situations and there was no such judgment here
Whether the Trust acted in bad faith (denied/failed to investigate without reasonable basis)	Plaintiffs claimed the Trust improperly investigated/denied coverage and thus acted intentionally or recklessly	The Trust argued its denial was reasonable and supported by a debatable factual/legal record; litigation duration and disputes over merits show reasonable debate	Held: Trust’s position met the "fairly debatable" standard; plaintiffs failed to show absence of reasonable basis or reckless investigation, so no bad faith

Shannahan v. Moreau, 202 A.3d 217 (R.I. 2019) (background appellate decision resolving the underlying claims against the City)
Mello v. General Insurance Company of America, 525 A.2d 1304 (R.I. 1987) (insurer-bad-faith claim assignable to injured claimant only to recover judgment excess over policy limits)
Skaling v. Aetna Insurance Company, 799 A.2d 997 (R.I. 2002) (defines bad-faith standard and emphasizes insurer’s duty in first-party contexts)
Imperial Casualty & Indemnity Co. v. Bellini, 947 A.2d 886 (R.I. 2008) (applies the "fairly debatable" standard and contrasts facts with Mello)
Arena v. City of Providence, 919 A.2d 379 (R.I. 2007) (formulaic admonition that protracted litigation must end)