Missouri Court of Appeals whacks Allstate

The Kansas City Star reported that the Missouri Appeals court upheld a $16 million verdict against Allstate. 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 crash 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.

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

Now Allstate has to pay much more for its failure to offer a reasonable settlement. 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 timely respond to the Johnsons’ initial settlement offer.

Allstate claimed it lost the letter proposing the settlement and responded late because it did not receive the Johnsons’ medical records. 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 upheld the verdict. Judge Paul Spinden wrote, “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.”

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.

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

Just a few weeks ago, 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.