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$16 Million Verdict Stands in Allstate Bad Faith Suit

An appeals court has upheld a bad faith insurance jury award against Allstate Insurance, letting stand 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 originated from a March 2000 car accident, involving a collision between a pickup truck and a subcompact vehicle. The pickup truck was driven by Wayne Davis Jr., who was intoxicated when he smashed into a car carrying Edward Johnson and his wife, Virginia. The Johnsons survived, but their medical bills totaled over $320,000.

Although the Johnsons agreed to settle for Davis’ insurance policy limit of $50,000, Allstate failed to respond to them regarding the settlement offer until 6 months later, after the statutory 60-day limit for accepting had passed.

The Johnsons then sued Davis, who agreed to a judgment in excess of $5 million. However, the Johnsons 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 Johnsons and Davis both sued Allstate in 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’s lawyers claimed that the company lost the offer letter and responded 6 months later because it was waiting to receive the Johnsons’ medical records. The company additionally argued that it couldn’t be certain that the crash had caused the Johnsons’ injuries, despite the fact that they had to be cut from the wreckage and airlifted to a local hospital, where they were placed in intensive care.

The jury found that Allstate had acted in bad faith and awarded compensatory damages of $5.8 million plus interest to the Johnsons. It also ruled in a 10-2 vote in favor of a $10.5 million punitive damages award.

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 announced if it will further appeal the case.