Successful Litigation Strategies in Recent $112 Million Punitive Damages Property Damage Insurance Case

• Publication year: 2024
• Citation: Vol. 4 No. 3

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Mark E. Miller ^*

Abstract: On March 22, 2024, an Indiana federal judge affirmed a historic $112 million punitive damages jury verdict—the largest punitive damages award ever handed down in a property damage insurance case. The facts of the case are not that atypical. Flooding damaged a manufacturing facility, and a claim was made under the policyholder's "all risk" property insurance program. The insurers adjusted and paid the claim until covered losses exceeded their expected loss tolerances. When the policyholder demanded full recovery, the insurers abandoned the claim and denied coverage. This article examines the use of bad faith litigation in the corporate insurance context and offers one perspective on what can transpire if a corporate policyholder questions insurer conduct. This case validates the value of bad faith litigation in corporate insurance claims. Litigation strategies that enabled the jury to reach a verdict consistent with the facts presented are also addressed.

Introduction

On March 22, 2024, an Indiana federal judge affirmed a historic $112 million punitive damages jury verdict ¹ —the largest punitive damages award ever handed down in a property damage insurance case. This verdict stands out, in part, because corporate policy-holders seldom bring bad faith cases against their insurers. This retrospective analysis highlights some of the litigation strategies

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that proved successful in a case where bad faith was aggressively pursued.

Corporate Insurance Bad Faith Litigation

The insurance companies subject to this verdict ² undoubtedly believe that bad faith has no place in the corporate insurance world. Under the law applicable to this case, an insurer engages in bad faith by: (1) making an unfounded refusal to pay policy proceeds, (2) causing an unfounded delay in making payment, (3) deceiving the insured, or (4) exercising any unfair advantage to pressure an insured into a settlement of his claim. ³ Similar bad faith law is found in most other states as well. The law sets the bar for bad faith conduct relatively low because insurance companies are incentivized to minimize claim payments.

Despite this modest bad faith standard, few commercial policyholders bring bad faith actions. The reasons for this have little to do with insurer conduct.

The overwhelming majority of high-end law firms are precluded from filing bad faith actions. Insurance companies are prolific consumers of legal talent. Most established corporate law firms either represent insurance companies or defend claims paid for by insurers. These law firms find it difficult or impossible to bring bad faith lawsuits on behalf of corporate clients. A breach of contract action may get approved by law firm management, but a bad faith action that could severely damage a law firm's reputation with insurers is rarely authorized. No matter how skilled these litigators are, and no matter how large the corporate claim may be, their hands are tied behind their backs when it comes to litigating against an insurance company.

This imbalance also extends to insurance brokers. The first place corporate policyholders look when they have a claim is their insurance broker. Insurance brokers depend on trustworthy relationships with insurers. Without these relationships, they cannot place coverage for corporate clients. Litigation brought by policyholders is frowned on by insurers and bad faith litigation is even more concerning. When a significant claim is made, insurance

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brokers can find themselves in a "catch-22" situation, as they need to maintain advantageous relationships with both the insurers and their clients. Litigation is generally discouraged, and bad faith litigation is seldom recognized as a viable option.

The pre-litigation deck is undoubtedly stacked in favor of the insurers, and it is not uncommon for corporate policyholders to abandon or significantly compromise a claim. Only the most contentious of claims result in litigation, and only a small percentage of those claims are for bad faith. This case challenges these insurance industry norms.

Facts of This Case

The plaintiff in this case, Indiana GRQ, purchased a historic Studebaker manufacturing plant in South Bend, Indiana. Their plan was to bring it back to its former days of glory and make it a manufacturing hub for the reshoring of U.S. manufacturing. In 2016, a 100-year flood took out the manufacturing "crown jewel" of the facility—an underground electrical system capable of delivering enough electrical capacity to power a small city. ⁴

The Studebaker plant is a million square foot facility, with miles of underground tunnels. The 2016 flood completely submerged the facility. It took days before employees could even reach the site. Water from the flood shorted out 11 energized transformers located in underground rooms connected to the underground tunnels, resulting in the destruction of the facility's electrical infrastructure. To make matters worse, the transformers arced during the flood, causing them to release PCB (polychlorinated biphenyls)...