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A California jury awarded a small employer $3 million in punitive damages for Mercury Insurance Company’s bad faith claims handling practices which put the employer out of business. The details of the case are rather astonishing.

What happened?

Amerigraphics, a three-person graphic design firm, had property insurance with Mercury. A broken water heater in the employer’s building caused severe water damage to some of the firm’s expensive graphic and printing equipment. The employer filed a claim with Mercury, but the insurer told them that coverage did not exist. What’s more, the insurer’s subsequent actions put the employer out of business.

Mercury took the employer’s equipment – leaving it unable to operate. Despite the employer’s requests to return the equipment or pay the claim so that they could buy new equipment, Mercury did nothing – for nearly two years! Eventually, it paid half of the employer’s claim, but that was too little, too late. The employer sued Mercury for fraud, concealment of material facts and bad faith claim handling practices.

Unanimous decision

In a unanimous decision, the jury awarded the (former) employer $170,000 in damages, but also $3 million in punitive damages. According to the Insurance Journal, a representative from the insurer testified that it had no claims handling processes in place at the time – which is a violation of California law. In addition, it was discovered that the ‘guidelines’ the insurer did have were less than consumer-friendly. These ‘guidelines’ taught adjusters to “never use your top dollar to begin negotiations”, “use time as your ally” and to “remind claimants that a judge of jury would find them at comparative fault” if they sued.

Mercury Insurance is a writer of automobile insurance in California, Arizona, Florida, Georgia, Illinois, Michigan, Nevada, New Jersey, New York, Oklahoma, Pennsylvania, Texas and Virginia. The company also writes other lines of insurance in various states, including mechanical breakdown and homeowners insurance.

If you’re insurance company has acted in bad faith, contact an attorney whose practice focuses in this area of law. Consultations are free, without obligation and strictly confidential. To contact a qualified attorney, please click here.