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Michael Phelan
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Allstate Hit With $16 Million Bad Faith Verdict

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On March 24, 2000, a drunk driver got into his pickup, crossed the center line on a Missouri highway, and hit a compact car head-on.

The force of the collision pushed the car back more than 100 feet. The driver and the passenger (husband and wife) survived but suffered life-threatening injuries. Each was hospitalized for over one month and their combined hospital bills totaled $320,000.

Although the couple offered to settle for the drunk’s minimal insurance policy limits of $50,000, his carrier, Allstate Insurance Co., did not respond until six months later. That was after Missouri’s statutory 60-day limit for accepting had expired.

Allstate wishes it hadn’t applied its delay strategy in this case. On Tuesday, the Missouri Court of Appeals in Kansas City upheld a bad faith jury verdict against Allstate for more than $16 million in damages.

After Allstate failed to settle, the injured couple sued the drunk driver who consented to a judgment in their favor of more than $5 million — $2.5 million in actual damages, $1.5 million in punitive damages and more than $1 million in prejudgment interest.

The couple agreed not to execute on the judgment in return for the drunk driver’s assignment to them of most of his claim against Allstate for its refusal to settle.

The couple and the drunk driver then sued Allstate in Jackson County 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 claimed it lost the letter proposing the offer and responded late because it did not receive the couple’s medical records. The jury did not buy Allstate’s story. On Nov. 8, 2006, it found that Allstate had acted in bad faith and unanimously awarded compensatory damages of $5.8 million plus 9 percent interest since the date of the judgment to the plaintiffs. By a vote of 10-2, it also awarded $10.5 million in punitive damages.

Allstate appealed, and on Tuesday a three-judge panel of the Missouri Court of Appeals held that the evidence was sufficient to justify the verdict.

“Allstate’s failure to recognize the severity of the [plaintiffs’] injuries and the probability that the claim would far exceed [the defendant’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 [the defendant] 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,” the judge wrote.

The appeals court’s decision comes just a few weeks after Allstate settled another bad faith case in Kansas City on undisclosed terms. In that case, Jackson County Circuit Judge Michael Manners fined Allstate $25,000 per day — a penalty that ultimately grew to more than $7 million — for failing to comply with a court order directing it to turn over internal documents concerning its claim handling procedures.

Manners last week agreed to expunge the fine after finding that Allstate eventually complied with the order. Allstate had blamed its attorney, whom it later fired, for failing to inform it of the order.

Apparently, not even Allstate’s lawyers are in good hands with Allstate. That’s Allstate’s stand!