Allstate Insurance Forced to Pay $22. Million Dollars on a $250,000 policy, for Bad Faith Toward It's Policyholder

Unfortunately, most consumers purchase insurance on the basis of a television commercial or by though price comparisons. Yet, not all insurance companies are equal, and some have a reputation for providing meager loss payouts. The problem may be exacerbated after a calamity such as a hurricane where several hundred claims are made at once.

Contesting the amount offered by an insurance company to cover a loss may be a daunting task. Insurance companies are, after all, large companies. Most consumers do not fully understand the terms of an insurance policy that may be fifty pages long. One alternative to poor service, is to file a complaint with the state insurance commission, who will try to mediate the complaint.

You can also sue an insurance company for breach of contract, but that's also a poor solution. The insurance company can afford to hire a law firm who may then file a multitude of motions and other legal papers driving up the price of litigation. Should the consumer prevail, even if they hire an attorney on a contingent fee basis, they must still pay the costs of litigation. This may leave a consumer with an insufficient amount to do the necessary repairs. Should the consumer hire an insurance adjuster who takes 25%, and then hire an attorney who takes a 33% contingent fee, they’re left with very little money to perform repairs.

 

Fortunately, Pennsylvania and most other states have a law called a “Bad Faith Statute” which penalizes insurance companies for failing to make good on the policy they sold to the consumer. Pennsylvania’s law is found at 42 Pa. C.S.A. § 8371, and it provides that if an insurer does not comply with the terms of an insurance policy by paying according to the terms of the policy, the policyholder may be entitled to : (1) Interest on the amount of the claim at the prime rate + 3%; (2) Punitive damages against the insurance company; (3) Court costs and attorney fees paid. 

Although not our primary area of practice, our firm has handled a some of these cases in the past. The insurance company will usually try to remove the case to federal court to avoid the wrath of a local jury, and litigation can take years. 

This Bad Faith statue cited above recently played out in a case in Philadelphia, where the insurance company had to bear the wrath of a local jury. Allstate was required to pay a record $22 million dollars in punitive and delay damages for not living up to it’s promise to place it’s insured “In good hands” by paying the $250,000. benefits under an insurance policy. The local jury jury was incensed by Allstate’s refusal to pay $250,000. benefits to a man whose leg was crushed following an auto accident by their insured, and then using frivolous delay tactics in the case brought against it by the insured, so they added punitive and delay damages to the $250,000. policy held by the insured. 

There is an added twist that may have something to do with the verdict, and that is the fact that the insured became so exasperated trying to get Allstate to pay under the policy, he assigned his rights under the policy to the man whose leg he crushed. So the $22. million dollar award went directly to the man who’s leg was crushed following the accident rather than to the person who bought the policy.

It is never a good idea to buy insurance simply on the basis of a television commercial or lower rates. If the insurance company will not repair your home after a hurricane, or pay your benefits after an auto accident, it is not a bargain after all. It is always better to talk to family and friends about their experiences with their insurance company. The case cited above was Hennessey v. Alltate Insurance, Philadelphia Court of Common Pleas Case No. 131001095.

Stay well until the next post.

Bob Gasparro, Esq.