American Family Mutual Insurance Company has lost its appeal to the 8th Circuit in a bad faith and breach of contract case after accusing its insured of burning down his own home. Arson is a felony and the accusations resulted in not only economic loss but serious emotional and physical distress of the insured. The Court of Appeals upheld the district court verdict which resulted in a compensatory damage award of $49,564.96 and $1,150,000.00 in punitive damages.
The court upheld a jury instruction that allowed the jury to consider violations of Prohibited Practices in Insurance Business Act as evidence of bad faith. The court also upheld the punitive damages award based upon American Family's "tortious conduct" of labeling their insured an arsonist based on insufficient grounds. The court found that that conduct "evinced an indifference to or disregard of" the insured's financial, emotional and physical well-being. Notably the insured presented evidence that American Family, without first conducting an adequate investigation, sent documents to the State Insurance Commissioner and the Property Loss Insurance Register that the insured's claim was denied for arson and fraud. The evidence presented was that such a report would have a devastating effect on the insured's ability to obtain other insurance and thereby hurt his family business.
Insurance companies cannot deny claims without a valid basis, or without conducting a prompt, fair and full investigation. In Missouri, the tort of bad faith known as vexatious refusal to pay can be brought to obtain the benefits the insured is owed and to recover punitive damages and attorneys' fees.
The court upheld a jury instruction that allowed the jury to consider violations of Prohibited Practices in Insurance Business Act as evidence of bad faith. The court also upheld the punitive damages award based upon American Family's "tortious conduct" of labeling their insured an arsonist based on insufficient grounds. The court found that that conduct "evinced an indifference to or disregard of" the insured's financial, emotional and physical well-being. Notably the insured presented evidence that American Family, without first conducting an adequate investigation, sent documents to the State Insurance Commissioner and the Property Loss Insurance Register that the insured's claim was denied for arson and fraud. The evidence presented was that such a report would have a devastating effect on the insured's ability to obtain other insurance and thereby hurt his family business.
Insurance companies cannot deny claims without a valid basis, or without conducting a prompt, fair and full investigation. In Missouri, the tort of bad faith known as vexatious refusal to pay can be brought to obtain the benefits the insured is owed and to recover punitive damages and attorneys' fees.
