Arizona jury awards $6.5 million for disability insurer’s bad faith

A jury believed the insurance company had acted toward its customer with an "evil mind."

People participate in disability insurance policies at work or purchase them in the private market to protect themselves from interruption of wages should they become too ill or sustain injury too severe for them to continue to work. Disability insurance benefits coming into a household can literally protect a claimant and his or her family from being unable to pay mortgage or rent payments during a time of serious health problems.

Of course, this arrangement breaks down when the insurance company does not hold up its end of the bargain. The law requires that parties to a contract act in good faith in carrying out the terms of the agreement, especially when one party is much more powerful than the other is.

Insurance bad-faith claim

Because of the unequal power of an insured individual and an insurer, when the insurance company acts in bad faith to the detriment of an insured party, the claimant may bring a lawsuit for insurance bad faith. In September 2017, an Arizona jury in federal court awarded a total of more than $6.5 million to a claimant who had been wrongfully terminated from receiving his disability benefits for impairment stemming from a head injury.

Disability based on TBI

A news release by the plaintiff's attorneys describes the case of McClure v. Country Life Insurance Company in which the claimant McClure became disabled from a devastating traumatic brain injury. The TBI led to severe depression and suicidal ideation that required repeated hospitalization. After a year of benefits, the insurer terminated McClure "without gathering any of [his] treating physicians' records for eight to nine months ..." He did not know that his medical record was not reviewed since the company said it had reviewed "extensive medical records." The insurance company said it had found "no evidence of any cognitive or mental health impairments."

The verdict

After a three-week trial in U.S. District Court for the District of Arizona, the jury found that the termination of benefits was "done with an 'evil mind' and with conscious disregard of the harm McClure would likely suffer." They awarded him $5 million in punitive damages from the two involved, affiliated insurance companies.

Punitive damages

The purpose of punitive damages is to punish the wrongdoer and to set it out as an example that will deter others from engaging in similar behavior. Before the trial, the court had issued an opinion in which it denied the insurance company's motion for partial summary judgment. In that opinion, the court described the conditions under which Arizona law allows an award of punitive damages.

Arizona law requires that in a bad-faith insurance lawsuit, the insurer's wrongful behavior has to be something worse than what would have been enough to meet the bad-faith standard - a "bad-faith-plus standard," to put it into more common language. The "plus" is an "evil mind" that could be shown by evidence of:

  • Spite
  • Actual malice
  • Intentional fraud
  • Conscious, deliberate disregard of the "interest and rights of others"

Anyone whose disability insurance claim has been denied or who has been wrongfully terminated from disability insurance benefits should speak with an experienced disability insurance lawyer to understand his or her legal options for a remedy.

The seasoned lawyers at Dawson & Rosenthal, P.C., in Sedona, Arizona, and San Diego, California, represent claimants under disability insurance policies in matters of bad-faith denial and termination of benefits.