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When Are The Limits of an Insurance Policy Not Really The Limits?

When an insurance policy has limits of $100,000.00, that is usually all one can reasonably expect to recover. However there is one exception to that restriction. In the event an insurance company acts in "Bad Faith" in attempting to settle your case, the insurer can be held liable for a percentage of, or the entire amount of the judgment entered against the insured party.

So the question becomes just what constitutes bad faith on the part of an insurance company? An insurance company is under a duty to its insured (the defendant), to protect the best interests of the insured in the handling of their claim. This means that they cannot just look out for their own financial best interests when evaluating and paying claims.

Punitive Damages for Bad Faith in Florida

An example of the above occurred in a Miami case after a homeless twenty-six-year-old mother came to the residence of her minor daughter who was being cared for by foster parents. Morgan v. Kloster, 500 So. 2d 154 (Fla. Dist. Ct. App. 1986). The mother was drunk, belligerent and demanded to take her daughter with her. The foster parents told the mother to come back when she was sober and she could see her daughter. The mother refused to leave whereupon one of the foster parents came out with a gun. The gun went off and the mother was struck in the thoracic spine. She was rendered a paraplegic at the T-2 level.

The mother retained an attorney who discovered there was only a $25,000.00 homeowner's insurance policy. Letters were written requesting the policy limits, but the insurance company continually denied those requests. Suit was then filed alleging an unintended result from an intentional act. The court granted Summary Judgment and the case went to trial on damages only. Prior to trial the insurance company then offered the policy limits to which the reply was, "It's too late. You had the chance to settle this case and protect your insured and failed to do so." The jury returned a verdict in favor of the mother for $10,000,000.00. The case was settled on appeal for $7,000,000.00. As a result of the insurance company's bad faith in handling the above mentioned claim, it wound up paying $7,000,000.00 on a $25,000.00 policy of insurance.

Punitive Damages for Bad Faith in Tennessee

According to T.C.A. 56-7-105, when a loss occurs in Tennessee and the insurer refuses to pay because of an intentional disregard for the financial interests of the insured, the insurance company is liable to pay the policy holder punitive damages not exceeding 25% on the liability for the loss. Prior to pleading a bad faith cause of action under Tennessee law the following criteria must be met:

  • The insurance policy must be due and payable
  • The policy holder must inform the insurance company of his/her intent to assert a bad-faith claim with a formal demand for payment.
  • The insured must wait 60 days after making a formal demand for payment before filing a lawsuit

Additionally, In Riad v. Erie Insurance Exchange the Tennessee Court of Appeals clarified that punitive damages are available in insurance disputes when a breach of contract exists. This opinion allows for another method of recovery outside the 25% statutory bad faith penalty provided for in T.C.A. 56-7-105 and makes clear that punitive damages are indeed available when specific circumstances exist.

In summary, there are consequences for the insurance companies when they act in bad faith, and it is possible for you to benefit from their bad faith by getting paid more than policy limits. An important element of legal strategy is knowing when to settle and when to take your case to trial even after settlement is offered. Our knowledgeable attorneys at Cole Law Group, P.C. will offer sound counsel and help you navigate through this complex process.

Call Cole Law Group, P.C. today for a free initial evaluation of your personal injury matter!


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