American Family to Pay More than $2,000,000 due to Finding of Bad Faith

18 Aug

On Friday, August 14, 2009 a three-judge panel of the United States Court of Appeals for the Eighth Circuit upheld a decision by a Federal judge of the North Dakota Federal District Court not to overturn a jury’s verdict finding that American Family Mutual Insurance Company committed bad faith adjustment practices and should pay punitive damages.  The case involved a farmer, Thomas Moore, and his wife, who purchased a structure to use as rental property and insured it for $50,000.  The property burned down and American Family accused the Moores of arson, which apparently the jury concluded was so unfounded as to constitute bad faith on the part of American Family.  You can read the case here:  http://www.ca8.uscourts.gov/opndir/09/08/083238P.pdf.

 

The jury concluded that the Moores should have received their original insurance claim of $48,414.97, as well as $1,150,000 for, among other things: economic losses that Moores suffered from loss of income on their rental property; the potential expenses they might incur as a result of being deemed uninsurable as a result of American Family’s reporting its unfounded conclusion to various agencies; and the related emotional trauma caused by the accusation that they were arsonists.  The jury also added $1,150,000 in punitive damages, which are warranted under North Dakota law where an insurer “guilty by clear and convincing evidence of oppression, fraud, or actual malice.”  The panel of Eighth Circuit judges held that the punitive damage award was not excessive and was supported by the evidence.

 

This case should be compelling reason for insurers to exercise appropriate discretion before accusing insureds of wrongdoing and/or denying an insurance claim.  Importantly, it should also encourage people who feel their insurance claims have wrongfully been denied to pursue their rights.  Minnesota does have its own version of North Dakota’s bad faith adjustment practices statues and provides a policy holder with the right to seek additional damages and attorneys’ fees if the insurance company acts in bad faith or is knowingly unreasonable.  These rights are affected where the insured proceeds with an arbitration or appraisal proceeding, so it is important to get proper advice before pursuing that option under an insurance policy.  Contact an attorney right away if you believe you are not being offered the insurance benefits you paid for.  Thomsen & Nybeck has insurance coverage litigation attorneys who can help.

 

Entry by Matt Drewes.  Matt is a shareholder at Thomsen & Nybeck, P.A. and head of the firm’s Community Association Representation Group and Co-chairs the firm’s Construction Defect Litigation Group.  He practices primarily in the areas of real estate litigation, townhome and condominium law, construction litigation, debtor/creditor law, insurance litigation and employment law.

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