Insurance
Bad Faith“What an insurance agent says is also
a contract whether it is written in the contract or not. Even if it is just the
agent’s interpretation. There could also be punitive damages involved in
any lawsuit against an insurance company.” When
a small or medium sized company suffers a catastrophic business loss, such as
a fire or hurricane, its bargaining power against its property and casualty insurer
is virtually nil. Loss of inventory, for example, can result in death of the business
if not replaced promptly and fairly. Insurance companies know this, and often
take advantage.
Insurance
Companies are NOT in the Business to Lose Money
When
a loss occurs, the language of the insurance contract becomes crucial. All insurance
policies include an implied obligation which applies to the insurance company
“of good and fair dealing” toward the policyholder. Look closely at
the language of the policy. What type of losses does it cover? What property is
covered exactly? What are the ancillary coverages that the policyholder can invoke
that may be obscure such as valuable papers coverage? Most policyholders don’t
know that, in most jurisdictions, the law construes the insurance contract
most strictly against the insurance company who, after all, drafted the language,
and in favor of the policyholder. In reality,
what an insurance company tells a policyholder is also a contract whether it is
written in the contract or not. This also applies to the agent’s interpretation
of an insurance policy as it is orally expressed to the policyholder.
Punitive Damages
Punitive
damages may be involved in any lawsuit against an insurance company. For example,
one of our cases involved an insurance company that refused to pay for damaged
products for one of our clients following a major hurricane. The company couldn’t
replace the product quickly enough and lost business. The insurance company claimed
that the product was not covered, although it was implied. The insurance company
was found to be reckless and punitive damages assessed.
Laws Hold Insurance Companies Responsible
In
almost every state, insurance contracts, as well as most other contracts, include
an implied duty of good faith and fair dealing. This is often interpreted to mean
that the insurance company, when faced with an ambiguous choice between its own
interests and that of its policyholder, must favor the policyholder. Breach of
the duty of good faith can result in liability for not only the damages covered
under the policy, but for consequential damages - damages caused by the delay
in, or refusal of, payment, over and above those covered by the policy, and punitive
damages. In one recent case, an insurance company refused to pay for a client’s
damaged product. The company couldn’t afford to buy more product and lost
business. In cases like this involving reckless misconduct by an insurance company,
the insured may also be entitled to punitive damages. Partner
Ken Suggs has handled numerous insurance bad faith cases, and has lectured on
the topic in many legal education programs.
CASE
OVERVIEWS:
Agent mistake—Hurricane Coverage denied
Among
the cases Mr. Suggs has successfully prosecuted for small businesses is Orangeburg
Sausace Company v. Cincinnati Insurance Co. (reported at 450 S.E.3d 66). In that
case, a local meatpacking and processing plant suffered damage to the contents
of its freezers due to a hurricane. The insurance agent who sold OSCO its policy
had made a mistake in the address of the plant, although the plant and premises
surrounded the end of a dead end street, and had always had the same address for
the entire premises. The insurance company insisted that it would only pay for
lost inventory on one side of the street, and refused to pay the other side of
the street. It also refused to pay undisputed amounts of the loss until the insured
accepted the insurance company's position. A jury found Cincinnati Insurance Co.
to be not only negligent in its handling of the claim, but also willful and reckless.
The company's behavior turned a $231,000 claim into a $2.1 million win for the
small business due to the resulting award of consequential damages and punitive
damages.
Building Covered—Not the Contents
Another
example is Cock N Bull Steakhouse v. General Ins. Co. (reported at 466 S.E.2d
727). A locally owned restaurant suffered a fire loss. The insurance company paid
$275,000 for the restaurant's building coverage, but refused about $50,000 in
payment, alleging the items claimed were "contents" and not covered.
The items included refrigerators and other "fixtures," which under the
law are considered real estate. The restaurant owner first hired a private adjuster,
who had no luck convincing the insurance company of its erroneous interpretation.
This time the insurance company's bad faith converted a $50,000 debt into $1.5
million in punitive damages, upheld by the South Carolina Supreme Court on appeal.
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