The California Court of Appeal upheld a bad faith ruling based on the insurer's delay in paying benefits. See Major v. Western Home Ins. Co., 2009 Cal. App. LEXIS 4 (Cal. Ct. App. Jan. 6, 2009).
The insureds' home was destroyed by a wild fire in October 2003. They held a homeowners policy from Western. The policy provided $193,000 for dwelling, $19,300 for other structures, $135,000 for personal property, $38,600 for living expenses and $18,000 for mortgage disaster protection. The policy included an "extended replacement cost" provision, promising to pay up to a specified percentage above policy limits to replace damaged property.
After the home was totally destroyed by the fire, Western used another company, Cambridge, to administer the claims. Western did not make its first payment until February 2004. Thereafter, Cambridge assigned a new, inexperienced claims adjuster to the claim. Western fell two months behind in mortgage payments. The 77 page inventory sent by the insureds in May 2004 was ignored for over three months despite numerous call and requests from the insureds. The new adjuster complained to the insureds that it would be a nightmare to have to review the inventory and that the file was 16 inches thick.
The insureds hired counsel in October 2004. A supervisor at Cambridge thereafter worked on the file. Fifteen days later, Western paid personal property benefits the insureds submitted in May. Subsequently, the insureds submitted receipts for replacement cost of personal property because Western had only paid depreciated value. The supervisor claimed the receipts had been faxed and she could not read them. She admitted at trial, however, this statement was false and the receipts had been mailed. Moreover, the supervisor realized "other structure" benefits had not been paid for the pool and spa, but did not pay these benefits until five months after she began handling the claim.
Suit was filed in February 2005. The jury found in favor of the insureds for breach of contract and bad faith. The total damage award was $1.3, including $450,000 for emotional distress and $646,471 for punitive damages.
The Court of Appeal affirmed. There was substantial evidence the insureds suffered significant emotional distress caused by Western's delayed payment of benefits and its refusal to pay amounts clearly covered under the policy.
Western argued punitive damages were not warranted because the supervisor and other claims adjusters at Cambridge were not managing agents at Western. The Cambridge supervisor, however, exercised substantial discretionary authority to pay or not to pay benefits owed the insureds. In fact, she made the decision to refuse to pay benefits ultimately awarded by the jury based on her untrue statement that the receipts were illegible because they were faxed. The punitive damages were slightly more than a one-to-one ratio to the tort damages, and therefore not excessive.
Hawai`i recognizes the tort of good faith and fair dealing against insurers. Further, Hawai`i courts permit punitive damages in bad faith cases. See, e.g., The Best Place v. Penn Am. Ins. Co., 82 Hawai`i 120, 920 P.2d 334 (1996).
