Real-life insurance bad faith verdicts and what to do if you have a claim
You probably already know the basics of how insurance is supposed to work.
You pay a premium to your insurance company for a policy that provides coverage of losses related to your car, home, accident-related medical treatments, and other things.
If you’re in a car accident or experience some other kind of loss (damage to your home, for example), you file a claim to your insurance company and it sends you a check for the replacement costs.
But what if the process isn’t so smooth?
You might be in a position where the insurance company’s settlement offer is far lower than what you expected — or worse, your claim is denied.
It might be that your policy legitimately didn’t cover your claim, or it could be a case of insurance bad faith. Insurance bad faith is when an insurance company fails to cover your claim as it should according to the terms of your policy.
What to do if your claim is denied
Insurance companies usually process claims promptly. Adjusters know that you need to move forward with car repairs or replacement, medical treatments, home repairs, or whatever else you need. Besides, they have a huge number of claims being filed every day and they need to keep cases flowing in order to stay on top of their business.
But you don’t have to accept a denial of your claim right away.
If the insurance company denies all or a portion of your claim, you can ask for additional review. The adjuster is the first line of communication, but there’s always a supervisor who might have more ability to make decisions about a claim.
If appealing to a supervisor doesn’t help you reach a resolution, you can contact the department in your state that regulates insurance and file a complaint.
When to contact a bad faith insurance lawyer
If you’ve appealed to the highest level possible within the insurance company and made a complaint to the state insurance department’s consumer bureau, the next step is to contact a lawyer who specializes in bad faith insurance lawsuits.
Your lawyer will probably begin by trying to advocate directly to the insurance company to negotiate for a reasonable settlement. Sometimes, a phone call or demand letter from a lawyer will trigger a higher level of scrutiny by the insurance company than your handling it alone, and it could be enough to settle your claim — without the need for a trial.
Elements of a bad faith insurance claim
A bad faith insurance lawsuit falls under personal injury law. Each state handles insurance bad faith a little differently, and your lawyer will know what the standard is in the jurisdiction where your lawsuit is filed.
Some states view bad faith insurance as a breach of contract dispute, while others consider it part of tort law. In general, under a tort law definition, an insurer owes a policyholder a duty of good faith and fear dealing because of the special relationship between the parties.
In order to prove bad faith under common law, the plaintiff (policyholder) needs to prove that:
- The insurance company withheld benefits owed under the policy. In other words, the original claim was valid under the terms of the policy and was denied anyway.
- The insurance company was unreasonable in its withholding of benefits. This is where the evidence becomes important. Negligence isn’t enough to prove bad faith. The insurance company must have withheld benefits intentionally and unreasonably.
Proof of bad faith
Once a lawsuit is filed, your attorney will begin the process of discovery. Discovery is when both parties have the opportunity to review the opposition’s evidence. It usually involves examination of documents, requests for admission or denial of facts, and questioning submitted both ways that needs to be answered under oath.
Your lawyer will seek to prove that the insurance company did one (or more) of the following:
- Misrepresented relevant facts or provisions of the insurance policy.
- Failed to reasonably explain why your claim was denied.
- Failed to accept your claim and process it within a reasonable amount of time.
- Failed to approve or deny your claim within a reasonable amount of time.
- Failed to reasonably investigate your claim.
Bad faith insurance verdicts
Sometimes, a story is best told by examples. Here are recent notable court cases of bad faith insurance verdicts.
|Fern Johnson vs. United Parcel Service, Inc., Liberty Mutual Fire Insurance Co.
|Plaintiff Fern Johnson filed a lawsuit against her employer, UPS, and Liberty Mutual as its insurance company, as part of a workers’ compensation claim. Although Ms. Johnson did initially receive some compensation for her medical treatment, the insurance company stopped paying her workers’ compensation bills.
Ms. Johnson was injured at work in 1996 and her benefits were denied. She finally secured benefits after more than a decade of litigation. The lower court had determined that the work injury caused chronic pain, for which she was receiving ongoing treatment. However, even after the court declared that she was entitled to benefits, Liberty Mutual denied them.
Ms. Johnson had to sue UPS and Liberty Mutual a second time, and that lawsuit revealed an email from a Liberty Mutual claims representative who said that he wanted to “bury” her. That was determined to be egregious and unreasonable conduct on the part of the insurance company.
The court awarded a bad faith judgment to Ms. Johnson in the amount of $15 million against UPS and $30 million against Liberty Mutual.
|Prime Natural Resources Inc. v. Certain Underwriters at Lloyds and Navigators Insurance Co.
|Prime Natural Resources had an oil and gas drilling platform in the Gulf of Mexico with a Wellsure insurance policy. However, the underwriter refused to pay benefits for damages that occurred as a result of Hurricane Rita in 2005. The insurance company insured the offshore oil well, but then said that some parts of the well weren’t covered.
The attorney who tried the case put it like this: “The insurers were claiming that they insured the offshore oil well, but they would not pay for any of the individual parts of the oil well that were damaged. It would be like saying your car is insured, but your bumper isn't. The jury didn't buy that argument.”
A Houston jury awarded $41.6 million in this breach of contract lawsuit, with $10.9 million of that being for bad faith.
|Odin Anderson v. National Union Fire Insurance Co. of Pittsburgh
|Plaintiff Odin Anderson was hit by a bus while crossing a street in Boston, and he suffered many injuries including a traumatic brain injury.
The bus operator’s insurance company didn’t pay Anderson’s claim against the bus company because the driver said he didn’t see Anderson before the impact and that Anderson made no attempt to avoid the accident. The insurer said the bus company had “no viable liability defense.”
The court found that the insurance company failed to conduct a reasonable investigation based on the evidence and failed to offer a prompt settlement after liability was established. The court further found this to be a case of “egregious” conduct by the insurance company because it concealed the truth in order to deprive the plaintiff of fair compensation. The insurance company’s conduct led to the maximum sanction under Massachusetts law for double damages.
Anderson was awarded more than $7 million by a Massachusetts court.
Punitive damage awards in bad faith insurance cases
A plaintiff is usually awarded compensatory damages in a personal injury lawsuit to recover costs for actual losses, both economic and non-economic. Economic damages include costs for replacement of property, medical treatments, and other costs that have a dollar amount attached. Non-economic damages include pain and suffering, mental distress, loss of consortium, and other injuries that don’t have a specific financial cost but still harm a plaintiff.
Generally, the point of a tort lawsuit isn’t to punish a defendant for their behavior—it’s to restore the plaintiff to the position they were in before the injury occurred. The point of compensatory damages is to help the plaintiff recoup financial losses that were the result of another person’s wrongful acts, and so the plaintiff can be compensated for their additional non-economic losses.
But in an insurance bad faith lawsuit, punitive damages—an award intended to punish the defendant for wrongful acts—aren’t uncommon.
Punitive damages tend to be large sums of money, and one reason why they’re more commonly awarded in insurance bad faith cases is because the defendants are deep-pocketed corporations. If the settlement amount were too low, it wouldn’t be an effective punishment.
The other reason is that courts intend for punitive damage awards to serve as a deterrent, both to the defendant and other insurance companies, to discourage wrongful practices.
Consider this well-known insurance bad faith case that resulted in a heft punitive damages award:
|State Farm Mutual Automobile Insurance Co. v. Campbell
|Curtis Campbell was insured by State Farm. He was found liable in a car accident that left one person permanently disabled and killed another. The investigation was clear in its findings that Campbell was at fault based on physical evidence and witness testimony.
State Farm decided to contest the liability and refused to settle with the injured person and the estate of the deceased person. The parties had offered to settle for the policy limit, which was $50,000.
State Farm then told Campbell that he had no liability, his assets were safe, and that it would represent him so he didn’t need his own lawyer. But at trial, Campbell was ordered to pay a judgment of nearly $200,000, and State Farm refused to pay the excess amount.
Campbell ended up filing a separate lawsuit against State Farm for its bad faith refusal to defend him properly, along with fraud and intentional infliction of emotional distress.
The jury found that State Farm was unreasonable in its decision not to settle with the injured parties. It also found that the insurance company’s conduct toward Campbell was egregious enough to warrant punitive damages.
The Campbells were awarded $1 million in compensatory damages and $145 million in punitive damages.
How to handle an insurance bad faith claim
Fraud. Breach of contract. Intentional infliction of emotional distress.
There are a lot of potential causes of action for a bad faith claim. Your personal injury lawyer will identify the best grounds for a lawsuit. Start with the Enjuris Personal Injury Law Firm Directory to find a lawyer in your state who’s experienced and knowledgeable about insurance bad faith and can manage your claim.