For consumers of insurance coverage, whether individuals or businesses, fairness and promptness in disbursing funds are critical to ensure the insured has financial support in time of need. When an insurance company fails to live up to its obligations under an insurance policy, an insured’s situation can go from bad to worse very quickly.
One important concept for consumers of insurance coverage to be aware of is insurance bad faith. The term can refer to a wide variety of activities, but generally refers to an insurance company’s failure to deal fairly with an insured in the claims process. Whenever an insured has been dealt with in bad faith, he or she should work with an experienced attorney to seek appropriate legal remedies.
Among the legal remedies that may be available in insurance bad faith cases is punitive damages. A recent California case provides a good example of when these damages may be available. The case involved denial of coverage under an insured’s fire insurance policy due to a mistake in how the insurance company listed the business in its records. After a fire resulted in $2.15 million in damages in 2011, the insurance company denied coverage because the company the insurer mistakenly listed in its records did not have an insurable interest in the property. The company later sued, accusing the insurer of negligence and bad faith.
At trial, it was determined that the insurance company owed the business the full $2.15 million, as well as interest. One issue which gave rise to a significant dispute was whether it was appropriate to award punitive damages in the case. At trial, the jury ended up awarding $50,000 in punitive damages and over $1 million in attorney fees and expenses. Both of these awards were appealed at then upheld by the California Court of Appeals.
In our next post, we’ll say a bit more about insurance bad faith.