Are Insurance Bad Faith Lawsuits Eligible for Punitive Damages?

California courts can award plaintiffs punitive damages in cases where insurance companies found to have acted in bad faith are also shown to have done so with malicious, fraudulent, or oppressive intent. When a bad faith claim rises to this level, punitive damages may be assessed as a way of (1) punishing the insurer for its conduct, (2) deterring the insurer from subsequent acts, and (3) discouraging other insurers from doing the same.

Reckless or Outrageous Behavior

An insurance company and its insureds have a special relationship that is bound by contractual obligations on the insurer’s part. If the insurer does not provide benefits (that the insured pays for by paying insurance premiums), then the insurance company may be in breach of the contract between the two parties. This type of claim is not uncommon, but when the actions or inactions of the insurance company are elevated to point that they can be considered unreasonable, then the insurance company may have acted in bad faith. Thus, a bad faith claim may arise, which is also quite common and not usually the cause for punitive damages.

If the insurance company’s conduct can be deemed as reckless or outrageous, as shown by additional evidence during the bad faith claims process, then the plaintiff in a bad faith claim may be able to recover punitive damages at the discretion of the court. Cases where the insurer practiced intentional deceit or where a repetitive pattern of misconduct is established are generally seen as highly prehensible by the courts, and punitive awards may follow. 

Successful Punitive Damages Claims

Some of the additional evidence necessary to justify a claim for punitive damages can be useful for plaintiffs to know. This evidence includes:

• Claim handling policies and procedures. Plaintiffs and their attorneys must know as much as possible about how the insurance company handles incoming claims. By having this internal claim-handling knowledge, it is easier to establish the intent of the insurer’s conduct and whether the insurer acted with malice, fraud, or oppression during the processing of the claim. 
• Records kept in the claimant’s file. Activity notes left in the claim file can also be evidentiary by nature. Insurers are required to keep records regarding the handling of the claim by the assigned claims adjuster. These records include opinions and statements by the adjuster about how the claim should be handled and facts about decisions that were made on the claim. 
• Claims adjuster training documents. Training handbooks and other documentation showing how the insurance company trains its adjusters to handle claims can be effective in showing whether or not the insurance company supported the conduct that led to the bad faith claim. Such documentation can be useful in establishing a systematic failure on the insurer’s part in training adjusters or even a lack of training altogether, both of which can be damaging for the defense. 

An experienced bad faith attorney can help you establish the strongest and most convincing case against your insurance company. Dawson & Rosenthal P.C. wants to help. Reach out to our office at (800) 598-5017 to schedule a consultation to discuss your circumstances in greater depth.