Allstate Hit for $10 million in Bad Faith Case--Drunk Driver Now a Millionaire....

Now here is a truly unusual bad faith insurance case against Allstate.

What's unusual is not that Allstate was found to have acted in bad faith in denying the payment of an automobile accident claim, what's unusual is that the facts play out so that the at-fault driver (who was drunk) will actually become a millionaire as a result of Allstate's refusal to pay his policy limits to the people he injured in a car accident.

In short, here are the facts: Allstate Insurance Company was found to have acted in bad faith for refusing to pay its insured's $50,000 policy limits to two severly injured people. To be more precise, a jury returned a verdict against Allstate for $5.8 million in compensatory damages and $10.5 million in punitive damages. According to the Missouri Court of Appeals, Allstate did not settle a demand for insurance policy limits of $50,000 made against its insured, Wayne Davis, Jr., by Edward and Virginia Johnson. The Johnsons made the demand after Davis drove across the center line of a Camden County highway in March 2000, and crashed head on into the Johnsons' car. The Johnsons suffered life-threatening injuries that required extensive hospital treatment and medical bills of over $300k. After Allstate failed to settle, the Johnsons sued Davis. Davis consented to a $5 million judgment and negotiated a settlement agreement. As part of the settlement, the Johnsons agreed not to collect any of the $5 million judgment from Davis in exchange for his assigning to the Johnsons 90 percent of his claim against Allstate for bad faith refusal to settle. The Johnsons and Davis jointly sued Allstate for bad faith refusal to settle a claim and for equitable garnishment.

Note that I said Davis only assigned 90% of his claim. This means he is entitled to 10% of the $10.5 million in punitives, or about a million dollars. While at first blush, this may seem unfair, a closer examination of the facts shows why it may not be so far afield.

Davis immediately admitted he was drunk and responsible for the accident. The Johnson's lawyer demanded Davis' small insurance policy early and often--Allstate refused to pay it. More importantly, Allstate never told Davis that he was financially responsible for any judgment over and above his policy limits should the case proceed to trial and a jury render a verdict of more than $50k. To say it in other words, Allstate failed to protect its insured by settling the case for 50k when it had the chance and thereby exposed him to a potential verdict of millions of dollars. That is what's known as first party bad faith. When the insurance company gambles with the money and assets of its insured, they are violating the contract of insurance and should be held responsible.

hans