It’s time for the next installment of Holcomb Dunbar law series “Insurance Law from A to Z.” This was put together by our litigation group who practice in the insurance law arena. Of course, if you have questions about these or any other topics please do not hesitate to contact us.
This week’s installment – Bad Faith
Punitive damages are designed to “punish” a person or company for extremely negligent conduct. Punitive damages are available to the insured in addition to the amount of the claim in some cases when the insurance company wrongfully refuses to pay a claim. The jury may consider these damages only when the evidence has established that the insurer acted with (a) malice or (b) gross negligence or reckless disregard for the rights of others. Scott v Transport Indemnity Co., 513 So. 2d 889 (Miss. 1987). See also, Miss. Code Ann. § 11-1-65, regarding punitive damages.
If the insurer has a reasonable factual or legal basis (sometimes referred to as an arguable reason) for denying a claim, the insurer cannot be liable for bad faith in denying it. Jenkins v. Ohio Cas. Ins. Co., 794 So. 2d 228 (Miss. 2001).
When a suit covered by a liability insurer is for an amount in excess of the policy limits, and an offer of settlement is made within the policy limits, the insurer has a fiduciary duty to look after the insured’s interest to the same extent as its own, and also to make a knowledgeable, honest and intelligent evaluation of the claim in consideration with its ability to do so. A failure to do this may subject the carrier to all damages, even in excess of the policy. Hartford Acc.& Indem. Co. v. Foster, 528 So. 2d 255, 265 (Miss. 1988).
A carrier can be liable for certain expenses incurred by an insured even if the conduct falls short of bad faith or punitive conduct. Even though if an insurer’s failure to pay a claim was the result of a clerical mistake, the insurer may be liable for extra-contractual damages caused by anxiety resulting from the delay in payment. Additional expenses including attorney’s fees which are reasonably incurred in an effort to correct the mistake may also be recovered. Universal Life Ins. Co. v. Veasley, 610 So. 2d 290, 295-96 (Miss. 1992).
The denial of a claim without the proper investigation may give rise to punitive damages. Gilbert v. Infinity Ins. Co., 769 So. 2d 266, 269 (Miss. Ct. App. 2000) (citing Bankers Life & Casualty Company v. Crenshaw, 483 So. 2d 254, 276 (Miss. 1985)).
At a minimum, the insurer must determine whether the policy provision at issue has been voided by state or federal court, interview its agents and employees to see if they have knowledge relevant to the claim, and make a reasonable effort to secure all relevant medical records before denying the claim. Eichenseer v. Reserve Life Insurance Co., 682 F.Supp 1355, 1366 (N.D. Miss. 1988).
Third Party/Direct Action
There is no direct action allowed by third parties in Mississippi, except to contest a coverage issue. Kaplan v. Harco Nat. Ins. Co., 716 So. 2d 673, 677 (Miss. Ct. App. 1998).
The information contained in this post is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, there may be omissions or inaccuracies in information contained in this report. Accordingly, the information in this report is provided with the understanding that the authors are not herein engaged in rendering legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with legal or other competent advisers. Before making any decision or taking any action, you should consult with your counsel or the attorneys at Holcomb Dunbar.