A California state court jury has returned a verdict of fraud and breach of the implied covenant of good faith and fair dealing against Mercury Casualty Co. and awarded compensatory damages of $170,000 and punitive damages of $3 million to the plaintiff. Interestingly, five persons who had automobile policies of insurance with Mercury Casualty were on the jury and voted for the fraud verdict and for punitive damages against their own insurance company. Amerigraphics, Inc., a small, three-person graphic design and printing business, sued Mercury for failing to provide coverage for business property and normal operating expenses suffered as a result of water damage from a ruptured water heater in their leased building. The plaintiff suffered damage to equipment used in the business.
Despite being informed that the firm’s scanner and large format printer were permanently damaged and not repairable, Mercury took possession of the equipment and did not return or replace it for more than 650 days. At trial, Mercury didn’t dispute that Amerigraphics had coverage under their business policy for normal operating expenses of $90,000, which the insurer also did not pay. Mercury took two years to pay only $23,000 on a $45,000 claim. Mercury’s own outside adjustor had recommended payoff of the full claim. The plaintiff claimed that the payment delay and failure to return the equipment put the company out of business.
Amerigraphics sued Mercury for “bad faith” based on improper claims handling and alleged that Mercury failed to investigate or evaluate their claim in a timely manner; used improper and nonexistent standards to deny their claim; unreasonably delayed payment of their claim; and failed to advise Amerigraphics of existing coverage. The Los Angeles jury found that Mercury defrauded Amerigraphics and failed to pay proceeds due under their property policy. In this case, the alleged fraud meant not only concealing material facts and doing so intending to harm Amerigraphics, but also affirmatively representing to Amerigraphics that coverage did not exist, when in fact coverage did exist. At trial, Mercury’s senior vice-president of claims testified that the company had no property claim handling guidelines in effect during 2003 and 2004.
This was a violation of California state law requiring all insurance carriers to maintain guidelines for the prompt processing of insurance claims. The vice-president also testified that Mercury’s own internal training guidelines taught claims adjustors to “never use your top dollar to begin negotiations,” to “use time as your ally,” and to “remind claimants that a judge or jury would find them at comparative fault” if they sued. James Osborne, who is with the firm of Osborne and Associates in Sherman Oaks, California, represented the plaintiff and did a very good job.
Source: Insurance Journal
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.