ARE PUNITIVE DAMAGES AVAILABLE FOR BAD-FAITH CLAIMS IN MISSOURI?
Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.
Johnson v. Allstate Insurance Co., 262 S.W.3d 655 (Mo. Ct. App. 2008).
This case addresses the following issue:
Can a claim for bad faith include punitive damages?
In this case, the court was asked to decide when, if ever, punitive damages were appropriate for a bad-faith failure to settle claim. Id. at 666. The court found that punitive damages were appropriate, so long as the usual standard for such damages was met: “wanton, willful, or outrageous act, or reckless disregard for an act’s consequences.” Id. In this case, there was plenty of evidence to support the jury’s findings, and thus, the award of punitive damages by the jury was affirmed. Id. at 666-67.
The underlying case in which Defendant’s bad-faith refusal to settle occurred involved a horrendous car accident. Id. at 658. The insured-plaintiff had been extremely drunk at the time of the accident, and was driving on the wrong-side of the room when the accident occurred. Id. at 659. The two injured individuals were flown by helicopter to a local hospital and kept for over a month each. Id. Three days after the accident, Plaintiff informed his insurance company—Defendant—including that fact that he had been intoxicated and driving on the wrong-side of the road. Id. The police report also supported that Plaintiff was clearly at-fault, and noted that the other driver and passenger had to be cut from their vehicle and flown to the hospital by helicopter. Id.
Around this time, an attorney representing the injured individuals contacted Defendant. Id. The attorney made an offer to settle for the policy limits of $50,000, but that offer was never accepted by Defendant. Id. Instead, Defendant requested medical records to determine the extent of the injuries before making an offer. Id. at 660. Ultimately, after learning of his personal liability for any excess amount, Plaintiff entered into a settlement with the individuals for $5 million. Id. at 661. Plaintiff then initiated suit against Defendant, and was ultimately awarded $5.8 million in compensatory damages and $10.5 million in punitive damages. Id.
After determining that Defendant’s action clearly indicated bad faith, the court moved on to determining whether punitive damages were appropriate for a bad-faith claim. Id. at 666. Punitive damages are appropriate when it is shown by “clear and convincing evidence” that a defendant committed a “wanton, willful or outrageous act” or showed “reckless disregard for an act’s consequences.” Id. This is known as “legal malice.” Id. The court found no reason that punitive damages should not apply to bad-faith claims when this standard was met. Id.
Looking to the facts of this case, the court agreed with the jury that sufficient evidence existed to demonstrate legal malice here. Id. First, liability was never in question: Plaintiff had been highly intoxicated and driving on the wrong-side of the road. Id. The Defendant had known several key facts that suggested the injuries at issue were extremely severe, even without seeing the actual records themselves. Id. Put simply, Defendant’s “actions demonstrate a reckless disregard for [Plaintiff]’s interests as its insured.” Id. Thus, punitive damages were correctly awarded by the jury. Id.