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Understanding claims based on carriers interactions.
Sept. 2017  |  Bad Faith Update  |  Vol. 3 Iss. 11

Other Avenues to Extra-Contractual Awards


While Bad Faith claims are the traditional vehicle to securing and imposing extra-contractual damages against a carrier, other options and legal theories may exist to secure an extra-contractual recovery against a carrier.
 
The 8th Circuit recently affirmed such a judgment totaling over $3.3 million against an insurance carrier out of South Dakota.
 
Dziadek v. Charter Oak Fire Ins. Co., 867 F.3d 1003 (8th Cir. 2007)
 
Background and District Court Judgment
 
In September 2008, Dziadek was a passenger in a car loaned to Lorie Peterson by an auto dealership. The car ran off the road and Dziadek suffered severe injuries. At the time of the incident, the dealership which owned the car was insured by Charter Oak Fire Ins. Co. with UIM coverage of $1,000,000 and Peterson was insured by Progressive with $100,000 bodily injury liability coverage.
 
After being notified of the Dziadek injuries and claim, Charter Oak’s claim representative spoke with and informed Dziadek’s attorney that no coverage existed for Dziadek under the Charter Oak Policy. A few days later, the attorney requested a copy of the dec sheet and the policy to which the claims representative sent select portions of the Charter Oak Policy indicating that Dziadek was not an insured.
 
Based on these representations and actions, Dziadek and her attorneys pursued claims against entities and individuals alleged to be liable for her injuries.
 
Almost two years later, Dziadek’s attorney was reviewing the Charter Oak Policy and noticed the UIM coverage. His paralegal requested the entire policy from the claims representative who represented that the policy was over 2,000 pages long (in reality the policy consisted of roughly 200 pages) and that the paralegal would need to specify what portion of the policy she needed. After another request by the paralegal, the entire policy was provided to Dziadek’s attorney which confirmed that UIM coverage should have been provided to Dziadek. 
 
Dziadek eventually filed suit against Charter Oak alleging breach of contract, deceit, and bad faith. Charter Oaks eventually paid Dziadek $900,000 ($1,000,000 minus the $100,000 limit paid by Progressive) representing the UIM coverage available.
 
However, Dziadek continued to prosecute her claim and the jury ultimately returned a verdict finding Charter Oak liable for deceit and breach of contract and awarding Dziadek $250,000 in legal fees, $500,000 for emotional harm (later stricken by the District Court), prejudgment interest on the $900,000 in UIM coverage, and $2.75 million as punitive damages.
 
Charter Oak appealed the District Court’s Judgment
 
8th Cir. Opinion
 
Charter Oak first challenged that it could be held liable for the tort of deceit as the independent duty doctrine barred such claim as its only obligations were based on the insurance contract.
 
The 8th Circuit rejected this argument noting that while Dziadek’s claim may have grown out of the insurance contract, this could not immunize Charter Oak from liability that would be visited upon other tortfeasors. Charter Oaks had simply done more than fail to perform its contractual obligations, it had actively attempted to conceal the existence of its coverage and liability.
 
Charter Oaks also attempted an argument that the deceit claim must fail as bad faith was the only theory under which a carrier could be held liable.
 
In rejecting this argument, the 8th Circuit noted that while bad faith is a remedy available against carriers, it is not the only such remedy.
 
Finally, Charter Oaks challenged the sufficiency of the evidence supporting punitive damages and the excessiveness of the punitive damage award.
 
These arguments were both rejected by the 8th Circuit with the Court finding that repeat attempts to mislead Dziadek and her attorneys as to the existence of coverage were sufficient to support the punitive damage award and the ratio of compensatory to punitive damages (4.3:1) was appropriate.
 
Charter Oaks liability was premised on its misrepresentations and fraudulent conduct in dealing with counsel representing an adverse party. While most extra-contractual awards in Missouri are based on Missouri’s vexatious statutes and traditional bad faith claims, Missouri Courts have recognized valid claims for fraud and misrepresentation against carriers and their employees based on their interactions with claimants and opposing counsel.
 
The Dziadek case and Grisamore v. State Farm in Missouri mandate that all conduct must be closely evaluated in determining the ultimate liability of a carrier.
"My legal practice involves keeping up with the latest cases involving bad faith claims. Contact me if you need advice."

- Kirk Presley
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