Sometimes Both Sides Win in Bad Faith Insurance Law

Columbia, SCSometimes a bad faith insurance claim can go both ways. In one example, with the help of a bad faith insurance lawyer, a plaintiff won his case under the provisions of bad faith insurance law. However, the Court later reduced the punitive damages originally awarded by the jury, which amounted to a cutting of some slack for the defendant.

The September 14th issue of Lawyer's USA reports on the case of a 17-year-old man who applied for a health insurance policy. He stated on the application that he had never knowingly been diagnosed as having, or having been treated for any immune deficiency disorder by a member of the medical profession.

The insurer duly issued him a policy.

However, a few months later after the insured attempted to donate blood and tested positive for HIV, the insurer revoked the coverage after reviewing claims for his treatment.

The abandoned policyholder filed and won a bad faith insurance claim. A jury awarded the man actual damages as well as $15 million in punitive damages.

The insurer cried foul, stating in an appeal of the ruling that the award was excessive and violated its due process rights.

This time, the Court agreed with the defendant, finding that the ratio of actual damages to the punitive damages award, at 13.9 to 1, was out of whack. The Court determined that the cost of the insured's treatment for HIV over his assumed lifetime amounted to just over $1 million. Based on that amount, the Court found for the defendant that the $15 million stipend for punitive damages was excessively high.

Award is Reduced, but Bad Faith Life Insurance Ruling Stands

"In our view, the conduct in this case was reprehensible enough to merit an award towards the outer limits of the single-digit ratio," the Court said. "[The insurer] willfully disregarded [the insured's] health and safety and the jury so found in assessing this punitive damages award. ... We therefore remit the punitive damages award to $10 million, resulting in a ratio of 9.2 to 1. We believe a $10 million award in this case satisfies due process and comports with South Carolina law.

"We are also certain that a $10 million award will adequately vindicate the twin purposes of punishment and deterrence that support the imposition of punitive damages."

The South Carolina Supreme Court issued the final ruling.

A bad faith insurance claim often results from the failure of an insurer to adequately and fairly respond to a legitimate claim according to the provisions of an insurance policy in good standing.