In the field of liability insurance, there is a special type of “bad faith” claim you can make against your insurer if there is a jury verdict against you in an amount higher than the amount of your insurance policy’s limits. If you are sued due to an auto accident or incident on your property, your insurance company has an obligation to settle the case against you within the limits of your insurance policy, when it has the chance, if there is a possibility that you could lose your case and get hit by a verdict bigger than the amount of your insurance policy. When the insurance company breaches its duty, in bad faith, and you get hit with such a large verdict, you can sue the insurance company for the amount in excess, over your coverage amount, plus punitive damages. That’s what happened in the Missouri case, described below.
A drunk driver was sued for severely injuring a couple when he crossed a divider and crashed his pickup truck into an innocent couple, injuring both of them severely. They were hospitalized for over a month. His insurer did not tell him that his insurance policy had a limit that was likely to be exceeded by this significant case, and it refused to settle on his behalf.
The drunk driver worked out a $5 million settlement with the injured couple and then allowed them to pursue his insurance company for its bad faith conduct in the handling of the liability claim against him, under his insurance policy. Allstate had an opportunity to resolve the case at an early stage, but by refusing to do so, it lost the opportunity and left its insured exposed for millions of dollars in liability to the insured couple.
After a trial on the bad faith case, the jury returned a verdict for $5.8 million in damages to compensate the injured couple for their injuries and financial harm and $10.5 million in punitive damages to punish Allstate for its conduct.
On appeal, the Court in Johnson v. Allstate, WD68169 Mo. App. West Dist. 2008, the court found that Allstate had exhibited a “reckless disregard” for its policyholder and upheld the verdict. The liability had been clear and Allstate failed to investigate and denied coverage in a manner that was a clear breach to its policyholder.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack