$784K Verdict Against Insurance Grinch Who Stole Christmas

Posted November 14, 2011 in Insurance Law by Arthur Buono
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A woman whose house burned down at Christmastime 2009 has won a $784,000 jury verdict against her homeowner’s insurer. The verdict included an 18 percent penalty because the jury found the insurer acted in bad faith in failing to pay the claim.

     
  • Jury finds insurer acted in bad faith by claiming arson in Christmas fire
  • Bad faith laws protect consumers from stonewalling and excess judgments
  • Whether a state is liberal or conservative often determines its bad faith insurance laws

 

The jingle goes, "Nationwide is on your side." Nationwide was not on the side of its insured, Norma O’Neal, when her house went up in flames two weeks before Christmas. She said a string of Christmas tree lights that was loosely plugged into a receptacle set fire to her Christmas tree. Nationwide called the fire arson. With that, they strung her along for almost two years, leaving her out of house and definitely not "home for the holidays."

With Christmas bearing down on us again it seems appropriate to consider how to have a safe holiday season, and how to deal with your insurance company if an accident occurs.

"That’s a horrible case of first party insurance bad faith," says Tom Simeone, a personal injury and insurance practitioner in the Washington, DC region. Simeone’s also an Adjunct Professor of Law at The George Washington University Law School, where he teaches trial advocacy.

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Two Types of Insurance Bad Faith Claims

Insurance bad faith comes in two types. "First party" insurance bad faith happens when an insurer, in bad faith, refuses to pay a claim by its insured. So if an insured’s house burns and the insurance company disregards the evidence that the fire was accidental in origin and refuses to pay, that can be bad faith.

Simeone points out that the majority of states do not allow claims for first party bad faith to be made against an insurer. "The insured was lucky to live in a state that does. First party bad faith laws are really needed because otherwise the insurer doesn’t have the same incentive to quickly and fairly resolve a claim."

Simeone contrasts this with what are known as "third party" bad faith claims. "These are claims arising from excess judgments an insured suffers because of an insurer’s bad faith refusal to settle on the insured’s behalf. So let’s say the insured is sued for causing personal injury to someone. The injured party is willing to settle for the insured’s policy limits, let’s say that’s $50,000. The insurer refuses in bad faith to settle and as a result the injured party sues and wins a $100,000 verdict at trial. The insured now is exposed to the additional $50,000 over the policy limits, and has a claim for that amount against the insurer for letting that happen. One reason for allowing third party bad faith claims is to stop insurers from exposing insureds to the risk of excess judgments."

Getting Help with an Insured Loss

Lawyers can have a role in making sure insureds are treated fairly when it’s time to make a claim for coverage. Says Simeone, "Any attorney will tell you to call him or her immediately when you have a property damage claim or are involved in an accident. If you wait a few weeks, you can run up your own costs, for example for storage." It’s a judgment call, of course, as to whether the claim is large enough to warrant the expense of an attorney. Simeone notes that an attorney can facilitate a claim, and can do so either on an hourly or contingent fee basis. But he says that unless the insured’s claim involves compensable pain and suffering damages, the contingent fee approach won’t leave an insured whole.

An attorney won’t generally help with adjusting a loss. Adjustment is the process of valuing the loss. It’s very important for an insured to get full value for property destroyed or damaged. Simeone says a public adjuster – that is, one who works for the insured, not the insurance company – can provide a valuable service in that case. "When the claim is large enough to warrant it, or when the insured has the money to spend, an adjuster can be helpful. The adjuster does the work of establishing the amount of the loss for you. It’s a luxury in that sense. Adjusters may also be helpful in that they ‘speak the same language’ as the insurance company’s people. As a practical matter though I find that most people with losees are in a jam and don’t have the money for this."

Insurance Bad Faith Law Varies from State to State

Simeone says there’s no nationwide trend as far as the law of bad faith is concerned. It comes down to state by state. "Liberal states, like Massachusetts or New York, tend to have good, pro-consumer bad faith laws. By contrast, pro-business states, like Virginia, don’t."

And it’s likely to remain that way. Simeone notes, "Insurance companies are good at PR and they always say that if they’re exposed to first party bad faith claims it will mean higher premiums for everyone. Nobody wants that tradeoff – until their insurer deals with them in bad faith."

Art Buono co-authors the Lawyers.com blog.

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