Missouri Court Upholds $16 Million Verdict Against Allstate for Claims Practices

Appeals court upholds $16 million verdict against Allstate

By DAN MARGOLIES, The Kansas City Star

On March 24, 2000, Wayne Davis Jr. got into his pickup while intoxicated, crossed the center line on U.S. 54 in Camden County and hit a compact car head-on.

The force of the collision pushed the car back more than 100 feet. The driver and the passenger, Edward Johnson and his wife, Virginia, survived but suffered life-threatening injuries. Virginia was hospitalized for 40 days and Edward for 35 days. Their combined hospital bills totaled $320,000.

Although the Johnsons offered to settle for Davis’ minimal insurance policy limits of $50,000, his carrier, Allstate Insurance Co., did not respond until six months later. That was after the statutory 60-day limit for accepting had expired.

Now Allstate is paying dearly. On Tuesday, the Missouri Court of Appeals in Kansas City upheld a jury verdict that socked the insurer with more than $16 million in damages.

After Allstate failed to settle, the Johnsons sued Davis. He consented to a judgment in their favor of more than $5 million ”” $2.5 million in actual damages, $1.5 million in punitive damages and more than $1 million in prejudgment interest.

The Johnsons, however, agreed not to execute on the judgment in return for Davis’ assignment to them of most of his claim against Allstate for its refusal to settle.

The couple and Davis then sued Allstate in Jackson County Circuit Court, alleging the insurer had acted in bad faith when it did not respond in a timely fashion to the Johnsons’ initial settlement offer.

Allstate claimed it lost the letter proposing the offer and responded late because it did not receive the Johnsons’ medical records, which it had sought to determine the extent of the Johnsons’ injuries.

The jury was unconvinced. On Nov. 8, 2006, it found that Allstate had acted in bad faith and unanimously awarded compensatory damages of $5.8 million plus 9 percent interest since the date of the judgment to the Johnsons. By a vote of 10-2, it also hit Allstate with $10.5 million in punitive damages.

Allstate appealed, and on Tuesday a three-judge panel of the Missouri Court of Appeals held that the evidence was sufficient to justify the verdict.

“Allstate’s failure to recognize the severity of the Johnsons’ injuries and the probability that the claim would far exceed Davis’s policy limits; its failure to investigate the claim and respond to the demand in accordance with insurance industry standards and its own good faith claim handling manual; and its failure to advise Davis of the demand, his likely exposure for an excess judgment, and his right to retain counsel, are all circumstances supporting a reasonable inference that Allstate’s refusal to settle was in bad faith,” Judge Paul Spinden wrote.

Although Allstate argued that it was unsure the crash had caused the Johnsons’ injuries, Kansas City lawyer Walter Simpson, testifying as an expert witness, pointed out that they had to be cut out of the wreckage, were flown by helicopter to the hospital and received intensive care.

“The fortunate thing is that this verdict obviously takes care of some people that badly need taking care of,” said Kansas City lawyer Kirk Presley, who represented Davis in the action against Allstate. “And I think, under the facts, this was the only appropriate result. This was a case where (Allstate) offered no evidence whatsoever, and I think it’s because they were in an indefensible position in how they treated this client.”

Mike Siemienas, a spokesman for Allstate, said the company was “disappointed the verdict was not overturned.”

“We need to review the opinion to determine our next steps,” he said.

The appeals court’s decision comes just a few weeks after Allstate settled another bad faith case in Kansas City on undisclosed terms. In that case, Jackson County Circuit Judge Michael Manners fined Allstate $25,000 per day ”” a penalty that ultimately grew to more than $7 million ”” for failing to comply with a court order directing it to turn over internal documents concerning its claim handling procedures.

Manners last week agreed to expunge the fine after finding that Allstate eventually complied with the order. Allstate had blamed its attorney, whom it later fired, for failing to inform it of the order.

The attorney, Paul Hasty Jr., also represented Allstate in the Johnson case. He did not return a call seeking comment.