When insurance companies, including those offering disability, life, health or accidental death policies, engage in conduct that is sufficiently egregious, a court may award punitive damages against the insurance company.  Under Arizona law, to support an award of punitive damages in an insurance bad faith case, the plaintiff must prove a willful and knowing failure to process or pay a claim known to be valid.  Farr v. Transamerica Occidental Life Ins. Co. of California, 699 P.2d 376, 383 (1984).  Recently, the Ninth Circuit grappled with a large punitive damages award issued by an Arizona jury in a long-term disability insurance case.  In McClure v. Country Life Insurance Company, No. 18-16661 (February 27, 2020), the Ninth Circuit upheld a jury verdict awarding $2.5 million in punitive damages against defendant CC Services, Inc. (“CCSI”), the entity that administered the plaintiff’s claim.

After suffering a head injury in November 2012, Plaintiff Benjamin McClure developed severe depression and became unable to work.  He filed a disability claim with his insurer, defendant Country Life Insurance Company (“Country Life”) and defendant CCSI undertook claims handling responsibilities.  Defendants approved and paid McClure’s claim for thirteen months, but terminated his claim in April 2014.  At trial, McClure contended that he was especially vulnerable and susceptible to emotional injury, and that the bad faith termination of benefits exacerbated his depression, resulting in extreme emotional distress and suicidal ideations for which he was hospitalized a number of times.  McClure also contended that defendants terminated his claim without a reasonable basis and adequate investigation, ignored medical facts that supported the claim and misinterpreted medical facts to their advantage.

Following a jury trial, the jury returned a verdict in favor of McClure on his breach of contract and bad faith claims and found that the defendants were jointly liable for the conduct of the insurance adjusters handling the claim.  The jury awarded $1.29 million in emotional distress damages and $2.5 million in punitive damages against each defendant.  After the district court upheld the jury award and entered judgement in favor of McClure, the defendants appealed.  The Ninth Circuit affirmed the judgement finding that the district court did not abuse its discretion in upholding the emotional distress and punitive damages award.

The Ninth Circuit first addressed defendants’ argument that there was insufficient evidence that Country Life and CCSI engaged in a joint venture.  The Court determined that the jury’s conclusion that a joint venture existed was supported because Country Life had no employees of its own, all employees who made claim decisions were employed by CCSI and CCSI employees were compensated in part based on the profitability of Country Life.  Therefore, a reasonable jury could infer that Country Life and CCSI shared in the control and management of the venture.

The Ninth Circuit then determined that the evidence supported the separate punitive damages award against CCSI.  Of note, the defendants did not challenge the punitive damages award against Country Life.  Under Arizona law, a business may be vicariously liable for punitive damages for acts of an employee that are committed in furtherance of the business and within the scope of employment.  Hyatt Regency Phx. Hotel Co. v. Winston & Strawn, 907 P.2d 506, 515 (Ariz. Ct. App. 1995).  The Court found that the CCSI employees’ actions were undertaken in furtherance of and within the scope of the employment and there was sufficient evidence of evil intent in terminating McClure’s benefits, justifying an award of punitive damages.  For instance, evidence was presented that defendants’ claims adjuster knew that McClure suffered from major depressive disorder and panic attacks, that there was no basis to reject the opinions of McClure’s treating doctors who found that he suffered from disabling depression, that McClure had been hospitalized as suicidal and that terminating disability benefits could be devastating.

With regard to emotional distress damages, the Ninth Circuit found that the jury’s $1.29 million award was not “grossly excessive or monstrous” and that the jury could have reasonably inferred that the benefit termination aggravated McClure’s emotional distress.  Defendants had argued that there was insufficient evidence that they caused McClure significant emotional distress and that the jury’s award was based on improper speculation.  The district court concluded that McClure had offered sufficient evidence from which a jury could infer that defendants’ conduct resulted in McClure’s emotional distress.  The jury had heard testimony from those close to McClure regarding his severe emotional pain brought on by financial hardship due to the denial of benefits.  The Ninth Circuit agreed that McClure had presented sufficient evidence to justify the emotional distress award.

One final issue the Ninth Circuit addressed on appeal was defendants’ claim that the district court erred in limiting its expert’s testimony.  At trial, after it was revealed that defendants’ bad faith expert witness’ definition of insurance bad faith was inconsistent with Arizona law, the district court ruled that defendants’ expert could not opine as to whether defendants’ conduct amounted to good faith or bad faith because any such opinion would have been unreliable.  In finding that the district court did not abuse its discretion, the Ninth Circuit stated that the lower court “reasonably concluded that [the expert’s] testimony would have been an improper expert opinion on an ultimate issue of law.”

With the help of his attorneys, McClure was able to secure a victory against an insurance company who acted dishonestly every step of the way while putting its own profits ahead of the interests of its insured.  If you believe you have been the victim of a bad faith insurance denial with regard to your disability, life, health or accidental death policy, please contact the McKennon Law Group PC.  Having well-qualified, experienced attorneys on your side can make all the difference.