A Missouri state appeals court recently affirmed a $16.3 million bad faith award against an automobile insurer arising from a policy with a $50,000 limit of liability. Johnson v. Allstate Insurance Co., No. WD 68169 (Mo. App. Ct. July 29, 2008).
An injured couple made a settlement demand of the $50,000 policy limits after having an automobile accident with the insured. The insurer failed to respond within the 60-day demand period imposed by the claimants, later making a settlement offer of $50,000, which was rejected. The injured couple then brought suit against the insured on hospital bills totaling $320,000. The couple and the insured entered into a consent judgment for $5 million, with the couple agreeing not to collect against the insured in return for an assignment of 90% of the insured’s claim against the insurer for bad faith failure to settle. The insured and the injured couple then jointly sued the insurer for bad faith, obtaining a judgment after trial awarding them $5.8 million in compensatory damages and $10.5 million in punitive damages.
On appeal, the insurer argued that the plaintiffs had failed to establish that the insurer had acted in bad faith or that it had acted with malice, a necessary element for punitive damages. The trial court disagreed and the appeals court affirmed.
First, the appeals court found that the plaintiffs submitted sufficient evidence of bad faith by showing that the insurer failed to recognize the severity of the couple’s injuries and the probability of an excess verdict; failed to investigate the claim and respond to the demand in accordance with industry standards and its own good faith claim handling manual; and failed to advise the insured of the demand, his likely exposure to an excess judgment and his right to retain counsel. The court further rejected the insurer’s argument that the couple’s failure to timely submit their medical records required the reasonable inference that the insurer had had insufficient information to evaluate the claim at the time of the demand.
Second, the appeals court found that the plaintiffs submitted sufficient evidence to support an inference that the insured acted in reckless disregard of its insured’s interests by presenting evidence that the insurer ignored the demand despite having sufficient information to appreciate the probability that liability would exceed policy limits and by failing to inform its insured of the demand for nearly four years after it was made.
Based upon its analysis, the appeals court affirmed the lower court’s entry of judgment in the amount of $16.3 million.