Missouri Court Upholds $16 Million Bad Faith Award Against Allstate

July 30, 2008

Allstate Insurance Co. has lost its appeal of a $16 million judgment against it for not settling a claim for the $50,000 limit on an auto insurance policy.

The Missouri Court of Appeals this week upheld an award of more than $5.8 million in compensatory damages and $10.5 million in punitive damages against Allstate.

Allstate did not settle a demand for insurance policy limits of $50,000 made against its insured, Wayne Davis, Jr., Edward and Virginia Johnson. The Johnsons made the demand after Davis drove across the center line of a Camden County highway in March 2000, and crashed head on into the Johnsons’ car. The Johnsons suffered life-threatening injuries that required extensive hospital treatment. After Allstate failed to settle, the Johnsons sued Davis.

Davis consented to a $5 million judgment and negotiated a settlement agreement.

As part of the settlement, the Johnsons agreed not to collect any of the $5 million judgment from Davis in exchange for his assigning to the Johnsons 90 percent of his claim against Allstate for bad faith refusal to settle.

The Johnsons and Davis jointly sued Allstate for bad faith refusal to settle a claim and for equitable garnishment.

Allstate had argued that there was some doubt whether the Johnson’s injuries were caused by the crash.

A jury in 2006 found that Allstate had acted in bad faith and awarded compensatory damages plus interest. It also hit Allstate with punitive damages.

Allstate appealed, claiming that the Johnsons and Davis did not make a submissible case and that they did not establish that it had acted in bad faith in refusing to settle the Johnsons’ claim against Davis or that it had acted with malice, a necessary element for punitive damages.

But on July 29 a three-judge panel of the Missouri Court of Appeals affirmed the lower court’s judgment, holding that the evidence was sufficient to submit the Johnsons’ and Davis’s bad faith refusal to settle claim and to justify the verdict.

“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,” wrote Judge Paul Spinden in the decision.

The case is Edward Johnson, Virginia Johnson and Wayne Davis, Jr., Respondents v. Allstate Insurance Company, Appellant.

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