As we said when we started this series of posts, it is rare to find news stories about insurance bad faith cases. This case, against Nationwide Mutual Insurance Co., is remarkable because of the punitive damage award — the $18 million referred to in the headline. That is a drop in the ocean for such a big company (Nationwide reported net income of $1.35 billion for 2013), but, then, the initial claim was worth just $25,000.
The insureds accused Nationwide of withholding information about their vehicle’s crashworthiness after the insurer’s preferred garage repaired it. The company then spent several years and millions of dollars litigating the claim. For the court, that all added up to reckless indifference, a defining component of bad faith, on Nationwide’s part. When bad faith comes into a lawsuit, punitive damages are often sought and granted.
Insurance companies have two primary duties to their policyholders: the duty to indemnify and the duty to defend. The latter deals with claims against the policyholder, claims where the policyholder could be liable for harm to someone else. The former addresses the insurer’s promise, its responsibility to pay valid claims for covered losses.
For the court, Nationwide did not just fail to meet its obligation to indemnify the plaintiffs. The company made a conscious decision not to indemnify, to use deception and concealment of the facts in an effort to avoid paying the claim. That conduct was made all the more egregious when the company did all of this without any regard for the safety of the policyholders or the safety of the general public.
It will be interesting to see what the appeals court does with the case.
Source: Insurance Journal, “Penn. Family Awarded $18M in Bad Faith Suit Against Nationwide,” July 14, 2014Share