Allstate Loses Bad Faith Insurance Lawsuit Appeal, $16 Million Verdict Still Stands

An appeals court has upheld a <"">bad faith insurance lawsuit verdict against the Allstate Insurance Co., leaving in place a $16 million verdict against the company.  Like the Missouri jury that originally found against Allstate, a three-judge appeals panel did not believe the insurance company’s assertion that its failure to settle the claims of two car accident victims in a timely manner was not intentional.

The Allstate lawsuit stemmed from a car accident that occurred in March of 2000, when a pickup truck driven by an intoxicated Wayne Davis Jr.  collided with the subcompact car carrying Edward Johnson and his wife, Virginia.  Both the Johnson’s survived, but their medical bills came to at least $320,000.

The Johnson’s initially agreed to settle for Davis’ minimal insurance policy limits of $50,000, but Allstate did not respond until six months later. That was after the statutory 60-day limit for accepting had expired.

The Johnson’s were forced to sue Davis, and he agreed to a judgment in excess of $5 million.   However, the Johnson’s also agreed not to collect on that judgment in return for Davis assigning to them of most of his claim against Allstate for its refusal to settle. The couple and Davis then sued Allstate in Jackson County Circuit Court, alleging the insurer had acted in bad faith when it did not respond in a timely fashion to the Johnsons’ initial settlement offer.

Allstate defended itself by claiming that it lost the letter proposing the offer and responded late because it did not receive the Johnsons’ medical records.  Allstate also had the audacity to argue  that it was unsure the crash had caused the Johnsons’ injuries, despite the fact that they had to be cut out of the wreckage, were flown by helicopter to the hospital and received intensive care.

But the jury in the case did not accept Allstate’s defense, and in November 2006, it found that Allstate had acted in bad faith.  The jury unanimously awarded compensatory damages of $5.8 million plus 9 percent interest since the date of the judgment to the Johnsons. By a vote of 10-2, it also hit Allstate with $10.5 million in punitive damages.

Allstate appealed, but on Tuesday a three-judge panel of the Missouri Court of Appeals held that the jury’s verdict was justified.

“Allstate’s failure to recognize the severity of the Johnsons’ injuries and the probability that the claim would far exceed Davis’s policy limits; its failure to investigate the claim and respond to the demand in accordance with insurance industry standards and its own good faith claim handling manual; and its failure to advise Davis of the demand, his likely exposure for an excess judgment, and his right to retain counsel, are all circumstances supporting a reasonable inference that Allstate’s refusal to settle was in bad faith,” Judge Paul Spinden wrote in the panel’s decision.

Allstate has not yet decided if it would continue to appeal the case further.

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