Disciplined in Sophisticated Defense and Insurance Litigation

January 22, 2003 | Publication| Anger And Punishment

Matthew W. Peaire

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 16, #18, p. 20 (January 22, 2003). © Copyright Butler 2003. 

I.   Two-Thousand Years

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today's January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated:

The 4-to-3 ruling addresses only one piece of a knotty legal puzzle: damages meant to punish and deter. While they are a sound idea in principle, excessive awards pocketed by a few victims and lawyers ultimately penalize consumers, who get stuck with higher prices to cover increased insurance costs. The public also can lose beneficial services, such as when doctors flee high-risk specialties.(1)

In a March 13, 2000 issue of the Wall Street Journal, Dick Thornburgh wrote:

Enormous punitive damage awards are a unique feature of America's legal system. They aren't designed to compensate a victim for any actual injuries sustained (that is the purpose of compensatory damages), but solely to punish the alleged wrongdoer. While they were once reserved for only the most egregious conduct, in recent years plaintiffs' lawyers have called for punitive damages in cases against any defendant with deep pockets. Sky-high awards generate extravagant contingency fees -- litigation windfalls that are then used to finance the next round of lawsuits.

* * *

Waffle House was hit for a $7.5 million in punitive damages based on the fact that the company had “total revenues of $283 million.” The Nevada Supreme Court upheld a $1.9 million judgment against Dillard Department Stores after generously concluding that “the award will not financially destroy or annihilate Dillard.”(2)

In a December 1996 issue of U.S. Business Litigation, Michael A. Pope, in an article entitled “Threat of Huge Verdicts Spurs Settlement,” wrote:

Highly emotional issues in a punitive damage debate are whether the amounts paid are excessive, and therefore, a threat to the civil justice system.

The mere threat of such huge verdicts can effect the company's credit rating, stock value -- and even employee morale -- to such an extent that an inflated settlement may be preferable to litigation. Only the strongest company or the most stubborn CEO is likely to be immune to the influence of such claims.(3)

Theodore B. Olson and Theodore J. Boutrous, Jr. in a September 1993 article published in DRI Magazine: For The Defense, entitled, “The Constitutional Battle Against Punitive Damages: Where to Go After TXO,” wrote:

Punitive damages, on the other hand, are pursued by self-interested private bounty hunters who are motivated to impose the largest possible punishment in every case. They are assessed in unlimited amounts for violation of vague, elastic, retroactive, and highly subjective standards of conduct. And, while punitive damage defendants are not afforded the numerous procedural rights of the criminal system, punitive damage awards often vastly exceed criminal punishments for comparable conduct.

* * *

Until the last decade or so, punitive damages were rarely awarded; they were generally assessed in relatively modest amounts in traditional tort-law cases involving egregious, intentional misconduct that resulted in personal injury or death.

p. 2-3.


 

II.   Punitive Damages

A punitive damage award is intended to punish, hence the term “punitive.” It is also intended to deter the wrongdoer from future similar conduct. Punitive damages are not compensation for injury, but instead, are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence.(4)

The typical terms describing such wrongful conduct that call for punishment are “wilful,” “wanton,” “reckless,” “intentional,” “reprehensible,” and “malicious.”(5)

Would you punish a child for accidentally knocking over a glass of milk? You don't punish someone for being fallible. Even negligence is not enough. A tortfeasor may need to pay restitution for actual damages resulting from their carelessness, but punishment to deter wrongful conduct is not required -- the child neither intended nor wanted to knock over that glass of milk. A defendant, like a child, must have intended to do what she did, although not necessarily intended the consequences, for there to be a need to deter -- for there to be a reason to assess punitive damages.


 

III.   The Jury

Therefore, taking a post-mortem perspective, assume a fair and intelligent jury renders a punitive damages award. What must that jury have been thinking? In what appears to be an empirically based study on the subject, the authors of “Punitive Damages: How Juries Decide,” write:

We seek to understand why juries do what they do when faced with punitive damages cases. With that understanding, we hope to provide a better sense of how people think about both dollars and punishment -- and in the process to contribute to the continuing social reevaluation of juries, punitive damages, and risk regulation in general.

Lawyers and social scientists know very little about how juries set damages awards, for punishment or for anything else . . .(6)

The authors of the present commentary have not attempted a scientific empirical study. Instead, the basis of this commentary is anecdotal, observational, and intuitive. What must a jury awarding punitive damages have been thinking? First, that the defendant acted wrongfully. That is, the defendant did something it should not have done, or failed to do something it should have done. Second, that such defendant acted intentionally and, more than likely, maliciously. That is, the defendant knew what it was doing, chose to do it, and did so knowing that it may harm the plaintiff. When a jury renders a punitive damages award, this is their thinking.

But to understand the process, it is insufficient and a misnomer to simply understand what a jury rendering a punitive damages award was “thinking.” Instead, you must understand what such a jury was feeling. A defendant has denied that it acted wrongfully. That same defendant has just testified that even if it acted wrongfully, it was unintentional, and certainly not malicious. After hearing all the evidence, however, you do not believe that defendant. In fact, you believe the defendant was acting wrongfully and did so knowingly, intentionally, and maliciously. How do you feel right now? How do you feel just reading of such a hypothetical scenario? Now, be a juror. You believe plaintiff was harmed by the intentional wrongful conduct of the defendant who has spent the last two weeks denying it. What do you feel? The authors suggest if such reflection does not elicit a chemical and biological reaction consistent with what we call “anger,” you may not be human.

It is difficult to imagine a jury returning a punitive damages award when it is not angry with the defendant. The plaintiff has already been compensated for his actual damages. The punitive damages are neither intended to compensate nor enrich the plaintiff, but rather punish and deter defendant. If the defendant needs no deterrence, there is no need to punish. When was the last time you punished your own child without experiencing any anger at the thought of that child's “wrongful” conduct? Rarely, if ever. And you love your child. Many jurors may sympathize with a particular defendant, but never do they love it.

Researchers have found that punishment is mentioned approximately one and one-half times as often as deterrence when jurors describe their reasoning processes, suggesting that punishment plays a larger role in a jury's thoughts about punitive damages than does deterrence. (7) Not surprisingly, it has been found that juries do not carefully follow judicial instructions, and are willing to ignore a large number of the legally necessary conditions to punitive damages verdicts. Instead, they use their everyman's intuitive sense of right and wrong for the assessment of blame as a substitute for the legal standards described to them:(8)

An inevitable by-product of this adaptive habit is that events in the past seem more comprehensible than they were before they occurred. One implication is that ex post judgments of liability by jurors or by judges, attribute more ex ante for knowledge to another person than is reasonable. In short, a juror is prone to a hindsight bias when judging what the defendant could have and should have been able to foresee when taking an action that resulted in harm to the plaintiff. Second, there is a tendency to rely on everyday intuitions about what is proper rather than on the law, especially when the legal principles are unfamiliar and sometimes incomprehensible to the juror.(9)


 

IV.   Defendant's Dilemma

How does one prosecute a punitive damages case? The authors suggest that the essential element is “anger.” How do we make this jury dislike defendant? How do we make them angry? What admissible facts do we have that will anger the jury? What can we say about defendant in closing that will get the jury riled-up?

Conversely, how can defendant admit and explain its conduct without angering the jury? How does defendant defend against the tort or contract claim yet not prejudice its defense of the punitive damages claim?

Assume defendant takes the position it did not engage in wrongful conduct. In many cases defendant contends it did not even make an innocent mistake. The jury, however, renders its verdict in disagreement. Now what?

That jury must now determine the amount of punitive damages, if any. Let's see, at trial you were already made aware of the alleged wrongful conduct yet you told the jury under oath that you did not believe it was wrongful. Now you are going to take the stand and testify, “Your verdict has convinced us that indeed what we did was wrong. We promise it won't happen again. There is no need to punish us (at least not very much) -- we got the message. Last night, after you returned your verdict, we e-mailed throughout our company the following guidelines to ensure that this conduct never ever happens again. . . .”

This defendant has a problem. The jury already disagrees with it, as the underlying verdict reveals. Now that same jury is to decide whether defendant who testified and argued for two weeks it did nothing wrong, has now experienced an epiphany and is sincere in its contrition. You do not have to be an experienced plaintiff's attorney to salivate at such an opportunity to shine in a courtroom:

Ladies and gentlemen. For two years defendant and its counsel have submitted paper after paper after paper, argument after argument after argument, all stating that it did nothing wrong. That such conduct was appropriate and that it will continue to engage in such conduct. For the past two weeks you have watched and listened to defendant and its counsel categorically deny any wrongful acts, without remorse, without regret, without contrition, without any acknowledgment that it even made an innocent mistake, let alone engaged in intentional wrongful conduct. Now, after being found guilty, and facing judgment day, actual punishment for their wrongful conduct, they come before you and tell you, “We agree. We agree! We agree!!” Have they no shame. They don't agree. They have no regret, no remorse, no contrition, no belief whatsoever that any of their conduct was wrong to any degree. They regret they lost the case. They regret that judgment day has now arrived. They regret that now you the jury will now award punitive damages against them. Yes, they do not wish to be punished and will tell you anything to avoid that punishment. Anything to save them from losing what they cherish above all else -- money.

It wouldn't be difficult to get any jury to believe such a defendant is untrustworthy, manipulative, and dishonorable, thereby deserving punishment, notwithstanding its belated “admissions” of guilt and remorse. So what's the alternative for the defendant?

Defendant could have chosen another path. Defendant could have said we did wrong:

We were careless, selfish, and inconsiderate, and we take responsibility for our wrongful conduct. We have admitted our mistakes. Moreover, here is what we have done to take care of the plaintiff and all others similarly situated. Yes, initially we were in denial and defensive, but once our upper management was made aware of all the facts, we acted swiftly, honorably, and effectively to repair the actual damage we caused and prevent such from ever happening again. However, we were never malicious toward the plaintiff, or anyone else. Our subsequent conduct proves that we never intended to harm anyone. We needed to be educated, which we were. Once educated, we acted fairly, honestly, and appropriately. Punitive damages are designed to punish those who must be punished to deter them from acting in a similar fashion again. We believe our conduct to date, clearly establishes we are not a company that needs to be punished in order to get it to do the right thing.

Of course, to be able to argue the above is defense counsel's fantasy. Rarely do the facts provide such an opportunity. Rarely does the defendant believe it did anything wrong, and, to admit that it did, will almost guarantee litigating, if not trying a punitive damages claim. Few defendants believe it, and even fewer want to admit it even if they did believe it; thus, defendant's dilemma.

Does a defendant argue it did nothing wrong? Does defendant argue it made mistakes, but they were innocent, maybe even careless, but never wilful, wanton, reckless or intentional? The correct strategy in any particular case is the one that works. Unfortunately, if it does not, you will never know if the other would have.

In an excellent article entitled “What Everyone Should Know about Punitive Damages!,” Philip L. Harris writes:

Long before trial, the company and its trial attorney should have discussed how to present in a clear and favorable light evidence about the company's conduct. Every company that I have represented has a good story to tell, but putting that story together may require a monumental effort. The key players might be dead or incompetent, or be ex-employees who now refuse to cooperate (or are testifying for your adversary). Not to be deterred by these possibilities in your on-going quest to personalize your corporate client, you should have identified and prepared several witnesses who can address what a responsible citizen your client really is. Often, this requires the development of corporate representative who may have given a deposition pursuant to Fed. R. Civ. P. 30(b)(6) or similar State provisions.

* * *

If you do not have any good stories to tell, then what are you doing in the courtroom? The absence of a compelling company conduct story might lead the jury to conclude that your client really did put profits over safety and did its best to “coverup” the truth about the product [or service].(10)

Thus, in a nutshell, if the plaintiff can't rile-up the jury, she does not have a punitive damages case. Conversely, if defendant does not have a credible explanation for its conduct that does not anger the jury -- it does have a punitive damages case.


 

Endnotes

1.p. 10A.

2.p. A47.

3.p. 17.

4.Exxon Valdez v. Hazelwood et al., 27 F.3d 1215, 1241 (9th Cir. 2001) (an appeal of a $5 billion punitive damages award arising out of the Exxon Valdez oil spill. The Ninth Circuit upheld the lower court in every regard, but found the $5 billion punitive damages award to be excessive and therefore returned it to the trial court for reconsideration of the amount of the punitive damages award: “The $5 billion damages award is too high to withstand a review we are required to give it under BMW and Cooper Industries. It must be reduced. Because the Supreme Court decisions came down after the District Court ruled, it cannot apply then. We therefore vacate the award and remand so that the District Court can set a lower amount in light of the BMW and Cooper Industries standards.”)

5.Punitive Damages: How Juries Decide, Cass R. Sunstein, Reid Hastie, John W. Payne, David A. Schkade, and W. Kip Viscusi (University of Chicago Press 2002) (“although there is some differences across States, the terms most commonly used as bases for punitive damages awards are 'recklessness,' 'reckless disregard,' 'maliciousness,' 'oppression,' 'reprehensibility,' 'egregious or outrageous behavior,' or similar such terms relating to the character of the defendant's actions.” p. 12) [the authors of this commentary strongly recommend the addition of this invaluable reference book to any litigator's or claims professional's library].

6p. vii.

7.Punitive Damages: How Juries Decide, at 70.

8.Punitive Damages: How Juries Decide, at 75.

9.Punitive Damages: How Juries Decide, at 222.

10.DRI Insurance Coverage and Practice Symposium, December 10-11, 1998, New York, New York, p. J-14-15.

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October 27, 2011 PublicationRecent Application Of State Farm v. Campbell In Bad-Faith Cases

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 25, #10 (September, 2011). © 2011 

[ Julie A. Simonson is an associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is active in the firm's Extra-Contractual and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by Julie A. Simonson. Responses are welcome. ]

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August 25, 2011 PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.] 

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)

[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 

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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

[R. Steven Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright © 2011 by R. Steven Rawls and Ryan K. Hilton. Responses are welcome.] 

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February 24, 2011 PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

In some jurisdictions, including Florida, the courts recognize a duty in some circumstances for a liability insurer to initiate settlement negotiations with a third-party claimant before the claimant has ever made a demand. This duty is a relatively recent invention in the common law and has yet to be fully defined. While most articles on the subject tend to focus on whether or not this duty should exist in the first place, this article skips that threshold question and delves into the particulars that apply in the jurisdictions that recognize it. What triggers the duty? What is required of the insurer to discharge it? What are the defenses to a claim for bad-faith failure to initiate settlement negotiations? This article tackles these emerging questions and more in attempt to define this nascent duty.

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December 23, 2010 PublicationDoes Policy Reformation Create A Retroactive Bad-Faith Claim?

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.] 

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December 09, 2010 PublicationSplitting The Baby: The Insurer's Duty To Notify The Insured Of The Need For An Allocated Verdict

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #15 (December 9, 2010). © 2010  

[Editor's Note: Fay E. Ryan is a partner the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Kimberly N. Gorak is a senior associate in the Tampa office of Butler , also practicing in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2010 by Fay E. Ryan and Kimberly N. Gorak. Responses are welcome .]

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November 24, 2010 PublicationPitfalls For The Unwary: The Use Of Releases To Preserve Or Extinguish Any Potential Bad-Faith Claims Between The Primary And Excess Insurance Carriers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #14 (November 24, 2010). © 2010 

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September 23, 2010 PublicationWe Said What We Meant And We Meant What We Said! — Enforcing Contract Language Despite Assertions Of Bad Faith And Insurer 'Misconduct' During The Adjustment Of The Claim

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #10 (September 23, 2010). © 2010  

[Editor's Note: John V. Garaffa is a Partner and Jason M. Seitz is an associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida.  Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by Jason M. Seitz and John V. Garaffa. Responses are welcome.]

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August 26, 2010 PublicationChinese-Drywall Cases And Their Impact On Liability-Insurance Carriers In Settling Multiple Claims In Good Faith Against Their Insureds In Certain State Courts

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #8 (August 26, 2010). © 2010  

[Editor's Note: Steve Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida. Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by R. Steve Rawls and Ryan K. Hilton. Responses are welcome.]

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July 29, 2010 PublicationBad Faith - Variations On A Theme

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #6 (July 29, 2010). © 2010  

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May 27, 2010 PublicationBad Faith and Beyond: A Business Law Primer For Insurers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #2 (May 27, 2010). © 2010  

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May 13, 2010 Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

The Florida Third District Court of Appeal’s 1991 decision in Powell v. Prudential Property & Casualty Insurance Co. recognized a duty, in some circumstances, for a liability insurer to initiate settlement discussions with a third-party claimant who has not made a demand. The case proved to have a strong ripple effect, bringing about a sea change in bad-faith jurisprudence for the next twenty years. This article examines the expansion of Powell from a unique facts-driven anomaly to an entire branch of bad-faith jurisprudence and discusses early indications that the courts may be retreating again to applications more in line with the original case.

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March 25, 2010 PublicationBreaking Down Privileges: Discovery of the Claim File In Florida Bad-Faith Actions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #22 (March 25, 2010). © 2010  

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

Insurance intermediaries (insurance agents and insurance brokers) are especially vulnerable to claims by insureds. While bad-faith actions continue to be the favored method of pursuing recovery beyond a policy limit, some litigants turn to claims against insurance intermediaries (and the insurers they represent) for extracontractual recovery. In addition to bad-faith law, insurers need to know what kinds of claims can be brought in relation to the procurement of the insurance policy itself and what defenses can be raised. This article delves into this often-misunderstood area of the law and illuminates some legal issues with which every insurer should be familiar.

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January 28, 2010 PublicationA Look Back At Some Of 2009s Significant Bad Faith Decisions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #18 (January 28, 2010). © 2010

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October 22, 2009 PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

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August 27, 2009 PublicationFairly Debatable?

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

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July 30, 2009 PublicationWrit Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams. While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

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April 23, 2009 PublicationArbitrary and Capricious

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north. 

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March 26, 2009 PublicationFlorida's Bad Faith Quagmire: Is Summary Judgment Ever Available?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #22 (March 26, 2009).

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February 26, 2009 PublicationIs Abnormal Becoming The New Normal In Alabama?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #20 (February 26, 2009).

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November 25, 2008 PublicationUnreasonable Consent Judgments; What Next?

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer. 

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August 28, 2008 PublicationTorts for Tots (Bad Faith And Other Independent Torts)

The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.

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July 15, 2008 PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

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June 17, 2008 PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

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January 22, 2008 PublicationRipe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

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December 18, 2007 PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell, courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1 ratio of punitive damages to compensatory damages is appropriate. The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility." Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

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July 24, 2007 PublicationOxymoronic ("Tortious Breach of Contract")

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).

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June 19, 2007 PublicationWilliams v. Philip Morris Inc. II – The Fog of Legal Rationale

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

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March 20, 2007 PublicationCaveat Insuror

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

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September 19, 2006 PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

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June 15, 2006 PublicationSelected Third-Party Bad Faith Liability Standards Governing Failure to Settle Cases

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits.  Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship.  Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.
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April 18, 2006 PublicationAchilles' Heel: First-Party Property "Bad-Faith" Damages

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

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February 21, 2006 PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract.  By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.

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June 07, 2005 PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

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April 19, 2005 PublicationDetours: Campbell Stops At The Willow Inn

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

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March 22, 2005 PublicationThe Timely Demise of Excess Judgments (Probate Nonclaim Statutes)

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

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January 18, 2005 PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

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July 07, 2004 PublicationThe Continuing Need for De Novo Review of Punitive Damage Awards -- Liggett Group, Inc. v. Engle

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. 

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January 21, 2004 PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

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August 13, 2003 PublicationReflections – Thirty Years After Gruenberg v. Aetna Ins. Co.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured.  If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

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July 16, 2003 PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

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June 18, 2003 PublicationAppraising Windstorm Claims

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith. 

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March 19, 2003 Publication"Advice of Counsel" – Defense or Defeat

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)

In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?

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December 18, 2002 PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

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October 23, 2002 PublicationTime Bombs

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so. 

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September 18, 2002 PublicationSpoliation As Bad Faith

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

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April 17, 2002 PublicationSeventh Circuit Court Of Appeals Finds "Independent" Insurance Broker To Be Intermediary Of Insured, Barring Coverage And Bad Faith Claims

The Seventh Circuit recently addressed the question of whether an independent insurance broker, who provided clients to the insured, was their intermediary, thus barring coverage and bad faith claims. (First Insurance Funding Corporation v. Federal Insurance Company, No. 01-2855 (7th Cir. March 28, 2002)).

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November 21, 2001 PublicationRecognizing Subtle Exposures To Avoid Bad Faith Claims

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

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October 17, 2001 PublicationJustices: Please Take This Case!

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

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April 18, 2001 PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

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February 21, 2001 PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

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October 24, 2000 PublicationRaising the Coverage Defense in the Bad Faith Case

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

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August 22, 2000 PublicationIs It Bad Faith to Settle Covered Claims Only?

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case

Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.

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June 20, 2000 PublicationThe Public Adjuster's Perspective

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

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May 19, 2000 PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

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April 18, 2000 PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

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March 01, 2000 PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

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February 15, 2000 PublicationPerfunctory Defense

per-func-to-ry   per-fúngk'te­re   adj.   Done or acting routinely andwith little interest or care. The American Heritage Dictionary, NewSecond College Edition (1983).

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

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December 21, 1999 PublicationMalicious Defense

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.

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November 16, 1999 PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

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October 19, 1999 PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

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September 21, 1999 PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds

Introduction

Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith

The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.

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July 01, 1999 PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Since the early 1970s, when first-party bad faith actions came into being, a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.

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March 16, 1999 PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

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January 19, 1999 PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

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December 15, 1998 PublicationFederal Preemption of Extracontractual Claims Under Flood Insurance Policies

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

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December 14, 1998 PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

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November 17, 1998 PublicationThe Expanding Scope of Discovery in Bad Faith Cases

Bad faith litigation is complex and the stakes are high. In such cases, the discovery process has become critical as litigants struggle for advantage. The litigation often raises issues outside the facts of the particular case or claim. The conduct of the insurance company as a whole sometimes is placed on trial.

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October 20, 1998 PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over the defense and settlement of third-party claims against the insured. This control imposes upon the insurer a duty to exercise good faith in settling claims. When the claimant makes a reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case. 

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

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July 21, 1998 PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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Key Points