Congratulations to my partner Mike Moody, and his co-counsel Dennis Mestas, for their excellent work in the Ennen v. Integon Insurance case. The Alaska Supreme Court recently held in Ennen v. Integon Insurance Corp., Opinion No. 6637 (1/20/12 Alaska), that insurance companies owe a duty of good faith and fair dealing to all their insureds, not just to the individual or the business which happens to be listed as the named insured on the policy. This is a very important decision. Insurance companies are liable for damages in tort when they breach their duty of good faith and fair dealing by, for example, hiding coverages from the insured, unreasonably low-balling the value of a claim, or unreasonably delaying or denying payment of a valid claim. This cause of action is called an insurance bad faith claim. It allows the insured to recover not just what the insurance company should have paid to begin with (before years of litigation finally made them do it), but also the additional damages the insured suffered in the meantime by not having the insurance policy benefits they should have promptly received from the insurance company. If the insurance company’s improper conduct was reckless or intentional, the insurance company may also be liable for punitive damages.
In two earlier blog posts, we discussed how pervasive this type of improper claims handling is. The first post discussed the results of an 18-month investigation by CNN which concluded that many insurance companies engaged in systematic bad faith claims handling. The second post discussed an American Association for Justice Report which showed that such hardball claims tactics had gone hand-in-hand with record industry profits.
The Ennen v. Integon Indemnity decision is extremely important in light of these problems because many insurance companies (including Integon and Allstate) have taken the position that they owe no duty of good faith and fair dealing to their insureds who are not the named policy holder. A motor vehicle insurance policy typically protects many types of insureds who are not the named insured on the policy. For example, permissive drivers are covered under the liability coverage for any accidents they cause and medical payments coverage if they are injured. If they are injured by the negligence of another driver, they may be entitled to uninsured or underinsured motorist (UM/UIM) coverage. The policyholder’s spouse and other resident relatives of the named insured and guest passengers are expressly included as insureds for UM/UIM coverage. If Integon’s (and Allstate’s) position had been accepted by the Alaska Supreme Court, they would have been insulated from bad faith claims by any of these insureds. Insurers in Alaska could have hidden policy benefits from these types of insureds; delayed their claims for years; or denied their claims entirely for no valid reason and faced no penalty whatsoever. If the insurance company got caught, it would only have to pay what it should have paid to being with.
Being able to sue for insurance bad faith, in addition to pursuing a contract claim for the original policy benefits, is an extremely important check on abusive practices of insurance companies. The Alaska Supreme Court noted that in the seven years that Integon Indemnity had failed to pay the seriously injured Jacob Ennen his rightful insurance benefits, he was at times on public assistance, unable to afford heating oil, and short on food. Insurance is supposed to protect insureds in their time of need. The Ennen v. Integon Indemnity decision creates an important, and extremely necessary, economic incentive for insurance companies to do what they promised to do in return for the premium dollars paid by the insured.