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Bad faith and damages | Zalma about insurance



See the full video at https://rumble.com/v16z3tv-bad-faith-and-damages.html and at https://youtu.be/m3EPAbrNK88

In 1958, California’s Supreme Court, with the best of intentions, changed centuries of contract law in Comunale v. Traders & General Insurance Company50 Cal. 2d 654, 328 P.2d 198 (Cal. 07/22/1958) and made an insurer’s breach of contract, in particularly serious circumstances, a right to damages and allowed more damages than what is permitted under contract law.

When the court found that there is an implied covenant of good faith and fair settlement in each agreement that neither party will do anything that harms the other’s right to benefit from the agreement, the court concluded that the principle applied to insurance. The implied obligation of good faith and fair handling requires the insurer to settle in an appropriate case even if the express terms of the insurance do not imply such an obligation.

The Comunales family was treated badly. The insurer failed to take into account the interests of its insured and thereby – by not accepting a reasonable offer of conciliation – violated the good duty of care incumbent on the municipalities and allowed them, for the first time in a case of breach of an insurance contract. , to recover damages.

The damages in bad faith (created without precedent by the good intentions of the court) were increased, as time went on and insurers were found to be liable for various types of damages, including punitive damages. The first cases where a crime was found in bad faith were about third party liability policies until 1972 when the California Supreme Court ruled Gruenberg v. Aetna Försäkringsbolag, Civ. 38919, 103 Cal.Rptr. 887, 27 Cal.App.3d 616 (1972) applies damages in bad faith to first party property claims.

State legislators have enacted laws on improper claims settlement to legislate what Communal court created. Those who have adopted all, part of, or extended, the National Association of Insurance Commissioners (NAIC) model for Unfair Claims Settlement Practices, include:

  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • North Dakota
  • Northern Mariana Islands
  • Ohio
  • Oregon
  • Pennsylvania
  • Puerto Rico
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • western Virginia
  • Wisconsin
  • Wyoming

The damages were accepted by almost every state in the United States, either by court order, legislation, or both, and the business of insurance and insurance claims management was never the same again.

Criminal damages were awarded to insurance companies in gigantic amounts with juries and courts that awarded more than 100 times greater damages than the amount of damages for breach of the insurance contract.

After several decades of abuse of bad faith by the insured’s and plaintiffs ‘or policyholders’ attorneys, who recognized the effect of the Unintended Consequences Act, the U.S. Supreme Court, in State Farm Mut. Car. Ins. Co. v. Campbell538 US 408, 416 (2003) found it inappropriate to assess punitive damages for more than ten times the compensatory damages and that the punishable damages in most cases should never be more than once the compensatory damages.

The National Association of Insurance Commissioners (NAIC) also created a model ordinance for regulating unfair property / accident claims that has been adopted in full, in part, or extended to the ordinance in the following states:

  • Florida
  • Kansas
  • Kentucky
  • Missouri
  • Nebraska
  • Nevada
  • New Jersey
  • New York
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia.

In addition, California and other states have created their own set of rules for the settlement of improper claims. Regardless of whether the state was created or based on the NAIC model ordinance, the state’s regulations result in micro-handling of claims management and establish minimum standards for claims management that the plaintiff can use to create a bad faith presumption if the insurer did not meet the alleged minimum standards. The rules do not address the fact that almost every insurance claim is unique and is like a square stick trying to fit into a round grip.

Since all insurance claims are unique, the handling of an individual claim may not fit into the requirements of the Fair Claims Settlement Practices Regulations, plaintiff’s attorneys invariably seek damages and punitive damages due to the alleged failure to meet the minimum standards. The bad faith fits, then, attempts to hold the insurer hostage when a claim is rejected – even if the refusal was correct and in accordance with the terms of the insurance.

The attempt to help consumers get their claims paid immediately was another victim of the law of unintended consequences and resulted in encouraging litigation rather than a fair settlement of damages that gave the insured the benefits promised by the insurance and nothing but the benefits promised by the insurer.

The damages in bad faith resulted in thousands of lawsuits seeking damages. Hundreds of judgments were handed down against insurance companies for several million dollars. Thousands of lawsuits against insurers were settled for amounts in multiples of insurance limits for fear of falling victim to an escaped jury and criminal damages.

The good deed created by California’s Supreme Court in Communal became a nightmare for insurance companies that could not convince judges and the Court of Appeal that the law on unintended consequences had struck.

For example, the following are just a few bad faith judgments taken from news reports:

  • USD 568,000 to a woman in a case against progressive selected insurance
  • $ 130 million to homeowners underpaid by Farmers Insurance
  • $ 20 million Civil Judgment Revoked: Attention to Anyone Defended by an Insurance Company for a Car Accident or Liability
  • $ 13 million in insurance payments is required to lose customers
  • $ 233,000 for bad faith insurance estimates for glass repair
  • Uninsured patients receive a 35% refund for overpriced medical bills at Scripps Health
  • Walgreens pays an undisclosed amount for dispensing the wrong medication that leads to miscarriage
  • $ 1 million settlement by Allstate Insurance for non-payment of claim
  • New Jersey woman gets $ 50,000 verdict against Allstate Insurance
  • The life insurance company received $ 39 million for failure to pay
  • $ 14 million punitive damages ordered by the jury for the insurance company’s refusal to pay benefits
  • State Farm is paying $ 2.5 million to the couple for denying Katrina’s claim
  • $ 250,000 for flood deaths
  • $ 20 million judgment against Allstate Insurance.

Judgments in bad faith, including both compensatory damages, contract damages, damages and punitive damages continue, but are only withheld by any of the Supreme Court’s decisions in State Farm v. Campbell. The law on unintended consequences continues to wreak havoc on the insurance industry even though recent appeals decisions have given insurers defenses that make it harder for policyholders to successfully pursue damages and penalties when the insurer’s decision to refuse payment was quite debatable or there was a reasonable doubt and the insurer.

The damage of bad faith proves the concept that the road to hell is lined with good intentions. Curing the conduct of insurers in bad faith led to the misuse of insurance business by fraudsters, insured persons and lawyers who became rich in damages including criminal damages.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims management, non-insurance and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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