INTRODUCTION

• Jurisdiction: United States
• Publication year: 2018

Every lawyer who represents a plaintiff suing an insurance company for the tort of bad faith, or the lawyer defending an insurer against claims that it committed the tort of bad faith, must understand why punitive damages can be awarded to punish an insurer. Through an analysis of punitive damages as applied in the United States to insurance bad faith suits, this book will analyze why the various states allow judges and juries to award punitive damages against insurers in civil litigation.

First and foremost, lawyers and litigants must understand that unlike contract or tort damages punitive damages are awarded to punish the tortfeasor sufficiently to act as a deterrent to others who may be considering acting similarly. Until the 1950s, a person suing an insurance company could only recover contract damages. The most the insured could recover, if an insurer breached the contract of insurance, were the benefits promised by the policy. When the courts created the tort of bad faith they changed contract law enormously by allowing unhappy insureds to sue insurers for both contract and tort damages, including punitive damages.

Basic tort damages are designed, and expected, to provide indemnity to the plaintiff. Tort damages attempt to use money to place the plaintiff in the same situation he or she was in before injured by a tortfeasor.

The award of punitive damages provides the plaintiff with sums greater than the damages actually incurred as a result of the tort in a sum sufficient to punish the defendant and deter the defendant—and others—from repeating the wrongful conduct. Punitive damages do not help the insured return to the situation he or she was in before the insurance contract was breached. If the insured collects the punitive damages he or she is placed in a better position than he or she was in before the breach of the contract and receives more than the insurance policy promised to pay.

A. Traditional Tort Damages

When an American is damaged by the tortious conduct of another his or her ability to reason analytically disappears. The damaged person becomes angry and wants to punish the person who caused the harm. Indemnity, the general measure of tort or contract damages, is insufficient. The injured person wants revenge; he or she wants the defendant tortfeasor to suffer. The plaintiff is not satisfied with traditional tort damages that merely compensate him or her fairly for the damages incurred.

In the past, punishment for the criminal conduct of a defendant was limited to that authorized by statute. The common law of England and the common and statutory law of the United States only allowed tort damages designed to make the plaintiff whole. Damages for breach of contract or for injuries to person or property by the tortious conduct of the defendant were limited to the cost to repair or replace the damaged property or compensate the plaintiff for the injuries incurred. The defendant who acted tortiously—negligent or intentionally—was only required to pay damages resulting from the tortious conduct that placed the plaintiff back in the position he or she was in before the injury or damage.

Civil juries have a difficult enough time establishing appropriate numbers to indemnify a person so that he or she is back the way he or she was before being damaged by a tort. To ask a civil jury, after concluding a tort caused damage to the plaintiff, to add to the actual damages an...