Allstate Insurance Co. has lost its appeal of a $16 million judgment against it for not settling a claim for the $50,000 limit on an automobile liability insurance policy. The Missouri Court of Appeals upheld an award of more than $5.8 million in compensatory damages and $10.5 million in punitive damages against Allstate. The insurer failed to settle a demand for insurance policy limits of $50,000 made against its insured, Wayne Davis, Jr., by Edward and Virginia Johnson. The Johnsons made the demand after Davis drove across the center line of a highway in March 2000, and crashed head on into the Johnsons’ car. The Johnsons suffered life-threatening injuries that required extensive hospital treatment. After Allstate failed to settle their claims, the Johnsons sued Davis.
Subsequently, Davis consented to a $5 million judgment and negotiated a settlement agreement with the Johnsons. As part of the settlement, the Johnsons agreed not to collect any of the $5 million judgment from Davis in exchange for his assigning to them 90% of his claim against Allstate for a bad faith refusal to settle. The Johnsons and Davis jointly sued Allstate for its bad faith refusal to settle a just claim and for equitable garnishment. Allstate had questioned whether the Johnsons’ injuries were actually caused by the crash.
A jury in 2006 found that Allstate had acted in bad faith and awarded compensatory damages plus interest, as well as punitive damages against Allstate. The company appealed, claiming that the Johnsons and Davis had not proved their case further and that they failed to establish that Allstate had acted in bad faith in refusing to settle the Johnsons’ claim against Davis or that it had acted with malice, a necessary element for punitive damages under applicable Missouri law. A three-judge panel of the Missouri Court of Appeals affirmed the lower court’s judgment, holding that the evidence was sufficient to submit the Johnsons’ and Davis’s bad faith refusal to settle claim and to justify the verdict. The court’s opinion reads:
Allstate’s failure to recognize the severity of the Johnsons’ injuries and the probability that the claim would far exceed Davis’s policy limits; its failure to investigate the claim and respond to the demand in accordance with insurance industry standards and its own good faith claim handling manual; and its failure to advise Davis of the demand, his likely exposure for an excess judgment, and his right to retain counsel, are all circumstances supporting a reasonable inference that Allstate’s refusal to settle was in bad faith.
It was evident from the facts proved at trial that Allstate had acted in bad faith. There was a claim that should have been paid within the insured’s policy limits. Instead, Allstate put both the injured party and its own insured through a long and drawn-out ordeal with no legal justification.
Source: Insurance Journal
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