Insurance Bad Faith
Article: $8M Punitive Damages Award against State Farm Upheld
A Missouri appellate court recently upheld a lower court ruling that imposed an $8 million punitive damages judgment against State Farm. The damages award, meant to punish State Farm for breach of contract and malicious prosecution, stems from a court case that has been going on for over ten years.
In 1997, a Missouri woman reported to State Farm that her 1990 Toyota 4Runner was stolen and filed a claim. The vehicle was found abandoned and burned in Kansas four days later. State Farm denied her $10,000 claim and reported her, and her boyfriend’s brother, to local authorities who charged them with insurance fraud. State Farm alleged that the couple abandoned and burned the vehicle intentionally to collect the insurance proceeds. However, a Missouri jury found them both not guilty.
The couple then sued State Farm for breaching their insurance contract (not paying for valid damages) and malicious prosecution (intentionally bringing a legal action without probable cause). Each was initially awarded $400,000 – although the judge had to reduce that amount to $250,000 because of Missouri’s cap on damage awards. However, the judge also imposed an $8 million fine against State Farm – $4 million each for malicious prosecution.
State Farm appealed the punitive damages award, but an appellate court upheld that decision in a recent opinion. The court said that State Farm had acted maliciously by providing the National Insurance Crime Bureau with incomplete files, omitting evidence and police reports and for allegedly lying to the plaintiffs’ attorney about having evidence that never existed. State Farm has indicated that they may appeal the ruling yet again.
Another $2.5M penalty
Punitive damages awards are frequently imposed on insurance companies – and this is not State Farm’s first. A Mississippi jury awarded a family whose home was destroyed in Hurricane Katrina a whopping $2.5 million punitive damages award in 2007 for State Farm’s shady claims practices. Although the judge later reduced that amount to $1 million, it shows that insurance companies that act in bad faith towards their policyholders can be held accountable.
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