This is a review of a lawsuit which was filed by a woman against her insurance carrier. The bad faith claim litigation ensued after an automobile collision in which the woman was injured. The woman had filed a claim with her insurance carrier for reimbursement for her medical bills, out of pocket expenses, and lost wages. Her policy was current and there were no apparent reasons for the claim to be denied.
The insurance carrier, acting on its own behalf, investigated the claim and found certain aspects of both the woman and her claim concerning. Based on their suspicions, the company denied the claim outright. The woman contended her claim was legitimate and there existed no reason for its denial. As a result, she entered into the following bad faith claim litigation with her insurance carrier.
Statement of Facts…
On March 2nd, 2011, Sherry Olden was driving southbound on Stemmon’s Freeway, in Dallas, Texas. As Olden was exiting at the Royal Lane exit a pickup truck cut her off. In an effort to avoid the collision, Olden veered left and crashed into the guardrail.
As she came to a rest Olden looked in her rear view mirror and saw the pickup truck slow down momentarily and then suddenly speed up, leaving the scene. A passing motorist came to a stop on the side of the exit and walked up to Olden to see if she was alright. Olden said she was injured and asked the motorist to call 911.
Several minutes later Dallas Police and an ambulance arrived. They treated Olden and asked her if she wanted to be transferred to the Emergency Room at Parkland Hospital. She said she needed to be transported and she was.
At the hospital, after both an MRI and a CAT Scan, Olden was diagnosed with a herniated disk and torn cartilage in her left knee.
Olden’s injuries required therapy which lasted for almost three months. During that time Olden was not able to perform her duties as a cashier and store clerk for a national food chain. Her medical bills totaled $12,500 to date, and her therapy totaled $4,500 with a probability of continued therapy for another 90 days. Her lost wages totaled an additional $3,500.
Olden contacted her insurance carrier and filed her claim. In that claim she requested reimbursement for the cost of her medical bills, cost of therapy, and lost wages. Olden had borrowed money from friends and family to help cover her costs, and she still owed her medical creditors over $4,000.
Before reimbursing her, Sherry’s insurance carrier, Secure Mutual Insurance Company, investigated the collision. In conformance with their company’s policy, Secure Mutual also ran a check on Olden’s background.
Secure Mutual’s investigation revealed Olden filed four previous and separate insurance injury claims over the last five years. In those claims, Olden was paid over $40,000 for injuries and property damage. Also, the passerby who stopped to help Olden had been able to write down the license plate number of the pickup truck. Secure Mutual was able to track down the driver of the pickup and learned that they were actually a relative of Olden.
Based on what Secure Mutual referred to as Olden’s suspicious activity and inordinate amount of previous insurance claims, Secure Mutual denied Olden’s claim.
Olden’s bad faith claim litigation argued Secure Mutual violated the terms of her insurance policy. The policy, Olden contended, had no provisions which prevented payments to someone who filed previous insurance claims, regardless of the number of claims, or the number of years within which each claim was filed.
Additionally, Olden contended, Secure Mutual never asked her if she was related to the driver of the pickup truck. If they had, Olden argued, she would have immediately told them she was related to the driver.
Olden argued Secure Mutual’s denial of her legitimate claim constituted a bad faith act. As such, Olden argued she had a legal right to be awarded a judgment for Secure Mutual’s breach of the insurance contract, and an additional judgment for Secure Mutual’s tortious bad faith denial of her claim.
In the United States the courts have traditionally held that an insurance company’s bad faith denial of a legitimate insurance claim subjects that company to a claim for breach of contract and tortious bad faith denial. Each of those acts can subject an insurance carrier to different damages.
If the court finds an insurance carrier acted in bad faith, the court can conclude the act of denial of the claim constituted a breach of the contract. This breach of contract entitles the insured to recover the amount of insurance money which was wrongfully denied and only that amount.
A court can also conclude the act of denial constituted a “tort”. If this is found, the insured can recover not only the amount of the insurance claim but an additional amount in “punitive” damages. Punitive damages mean additional compensation with the intention of actually punishing an insurance carrier for their bad behavior.
The amount of punitive damages is not limited by law. As a result a court can award the insured untold amounts of money, well beyond the amount of the medical bills, out of pocket expenses, and lost wages an insured was owed for her injuries.
After hearing the evidence in this bad faith claim litigation the Court held:
Although the defendant Secure Mutual Insurance Company has a right to review public records as any other individual might, and the same defendant has an additional right to review the past claims of their insured, that insurance carrier must weigh and balance those discoveries against the legitimacy of the claim before them and nothing more.
Punishing an insured for previous claims is inappropriate. Although four claims in five years may be suspicious on its face, and in fact may be a legitimate concern involving the honesty of the plaintiff, that does not afford the insurance carrier a right to deny the claim. If the defendant showed the court their investigation found the claim before us to be fraudulent we would have found for the defendant and against the plaintiff. The defendant though offered no such proof.
We therefore hold for the plaintiff on the breach of contract case in the amount of $20,500. In the tortious bad faith claim we find punitive damages for the plaintiff in the amount of $100,000.
Insurance companies must be very careful when denying a claim. Once they accept the premiums from the insured a contract is created between them both. A violation of that contract can lead to bad faith claim litigation for breach of contract damages, and punitive damages in extraordinary amounts.
Insurance companies pay out millions of dollars each year in fraudulent claims. Those amounts are passed on to their customers. Regrettably the safe drivers end up subsidizing millions of dollars of insurance payouts each year.
*This case example is for educational purposes only. It is based on actual events although names have been changed to protect those involved. Any resemblance to real persons or entities is purely coincidental.
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