American Fidelity Assurance Company was hit with a $10.8 million punitive damages award for changing the way it pays out benefits. The jury verdict was clearly a sign to punish the insurer for acting in bad faith as the underlying dispute was only for about $1,000.

The case

A University of Central Oklahoma economist purchased a cancer policy from American Fidelity in 1992 and named his mother as the beneficiary. He was diagnosed with cancer in November 2004 and two months later. His mother sought to collect on the policy, but quickly discovered that American Fidelity had changed its definition of “actual charges” in all of its policies in 1994. This meant that the insurer would only pay what the hospital billed the insurance company (actual charges) instead of the actual cost for the services. The mother sued the American Fidelity for acting in bad faith.

A strange twist of events

According to the Associated Press, the damages amount was only $1,000. However, the mother wanted to prove a point and decided to sue for the sake of her son and other Oklahomans who found themselves in similar situations. In a strange twist of events, an Oklahoma jury awarded her the $1,000, but also tacked on a $10.8 million punitive damages award against American Fidelity. The insurer has said that it is stunned at the verdict, denies any wrongdoing and has said that it will appeal the decision.

Punitive damage awards not uncommon

Punitive damage awards against insurers are not uncommon. For example, a Missouri appellate court recently upheld a punitive damages judgment against State Farm for maliciously prosecuting (intentionally bringing a legal action without probable cause) a Missouri couple after they reported their truck had been stolen. State Farm accused the couple of staging the theft to collect the insurance proceeds, but a jury acquitted them and hit State Farm with $8 million in punitive damages.

If an insurance company has denied your valid claim or acted in bad faith, contact an attorney whose practice focuses in this area of law and who understands how insurance companies operate. To contact a qualified attorney for a free, no-obligation consultation, please click here.