When MetLife became a publicly-traded company, then-Chairman Robert Benmoche set a goal for the underperforming Auto and Home Division: increase profits 300% in 2002. That year, MetLife allegedly mishandled the claim of a family whose truck had been vandalized. Under Arizona law, the family could recover punitive damages for bad faith, by demonstrating “evil mind”—that is, showing the insurer had “consciously pursued … conduct … that … created a substantial risk of significant harm to others.” In May, an Arizona appellate court held that the aggressive measures MetLife implemented to pursue its profit target constituted “clear and convincing evidence” of the requisite “evil mind.”

Plaintiffs in Nardelli v. Metropolitan Group Property and Casualty Insurance held a MetLife auto policy when car thieves damaged their Ford Explorer. For several months, adjusters refused to declare a total loss, offered insufficient repair estimates and failed to disclose relevant endorsements. An Arizona Court of Appeals ruled that these facts supported a verdict finding MetLife liable for bad faith.

The jury also awarded $55 million in punitive damages, which requires an additional showing of “evil mind.” Plaintiffs’ showing focused on corporate communications: In presentations to offices around the country, MetLife officers emphasized the 300% target, warned that the Auto and Home Division might be sold if it fell short of that goal, and specifically communicated that the claims department was “expected to contribute.” Employees were told of a company policy to “be tougher on claims.” Compensation in claims offices was tied to the average payment per claim through performance reviews and bonuses.

The Court of Appeals held that this evidence supported a finding of “evil mind.” (On Due Process grounds, it also reduced the punitive damages award to make it equal the amount of compensatory damages.) The court held, in other words, that an insurer’s aggressive campaign to increase profits can, in and of itself, constitute “a substantial risk of harm” to insureds—especially if the insurer fails to take affirmative steps to guarantee that claims will be resolved impartially. The ruling underscores the critical importance of carefully managing communications about business issues with claims personnel.