MI Windows & Doors, Inc. has manufactured windows and doors for nearly sixty years. Throughout that time, MI has purchased various insurance policies, providing general liability, umbrella, and excess coverage.
Between 1997 and 2003, Liberty Mutual Fire Insurance Company insured MI under six annual commercial general liability insurance policies (“the Policies”). The Policies conferred upon Liberty the duty and right to defend MI against lawsuits claiming property damage. They also vested in Liberty the discretion to “investigate any occurrence and settle any claim or suit that may result.” The Policies also contained a $500,000 deductible, requiring MI to reimburse Liberty Mutual up to that amount for any defense and indemnity costs incurred per occurrence.
During the time period MI was covered by the Liberty Mutual Policies, MI was a named as a defendant in five property damage lawsuits in South Carolina. Each suit alleged that defective manufacturing and installation of MI windows and doors led to progressive water damage in five condominium developments.
Pursuant to the Policies, Liberty agreed to defend MI in the lawsuits. MI expressed its position that it desired to defend the reputation of its products and avoid settling meritless cases lest it become an easy target for suits related to other buildings or developments. Nonetheless, Liberty Mutual ultimately decided to settle each of the suits. Furthermore, because Liberty Mutual settled each suit for less than the $500,000 deductible, Liberty Mutual sought reimbursement from MI for the amounts of the settlements.
MI refused to pay and, when Liberty Mutual sued, MI countersued alleging breach of contract and bad faith. A jury returned a verdict in favor of both parties. The jury ruled in Liberty’s Mutual favor on its breach of contract claim, thereby holding MI liable for the amount billed by Liberty Mutual to MI for the settlements. However, the jury also ruled in in MI’s favor on its bad faith claim. The jury awarded MI consequential damages and also awarded MI $12.5 million in bad faith punitive damages.
The district court granted Liberty Mutual’s motion for JNOV on the grounds that MI failed to prove damages flowing from any bad faith. With MI having failed to prove actual or consequential damages, the district court found that MI was not entitled to punitive damages. Applying South Carolina law, the Fourth Circuit Court of Appeals has affirmed in part and vacated in part, remanding the case back to the district court for further proceedings. Liberty Mut. Fire Ins. Co. v. JT Walker Industries, Inc., — Fed.Appx. —-, 2014 WL 504086 (4th Cir. February 10, 2014).
The court of appeals agreed that MI failed to establish damages caused by any bad faith. On the one hand, the settlement amounts were less than the amounts estimated for defenses costs and reserves. On the other hand, MI failed to provide substantial evidence that it would have prevailed had it proceeded to trial in the underlying cases.
However, the court of appeals reversed the district court’s ruling that MI cannot receive punitive damages because it did not establish actual or consequential damages. As to punitive damages, the court of appeals held:
Despite its inability to demonstrate direct or indirect damages, MI was entitled to, and did receive, the opportunity to have the jury consider punitive damages liability. The court properly instructed the jury as to the punitive damages standard. In awarding punitive damages, the jury found Liberty’s actions willful, wanton, or reckless. As a result, MI is not prohibited from receiving punitive damages. […]
The district court’s sole basis for setting aside the jury’s punitive damages award was MI’s failure to prove ascertainable damages of Liberty’s bad faith. Having already applied the preponderance of evidence standard to find bad faith, the district court should have further considered whether MI “might be entitled to nominal damages … even [though] actual damages cannot be precisely ascertained.” […] The district court’s opinion does not speak to whether it found that the evidence supported the jury’s finding that Liberty acted willfully, wantonly, or recklessly. If the court finds the evidence sufficient, then nominal damages may be presumed, […], and the court must consider whether punitive damages are appropriate and whether the jury’s award was excessive.
Accordingly, we vacate the district court’s ruling on punitive damages. On remand, the district court must consider whether the evidence supported the jury’s finding that Liberty engaged in willful, wanton, or reckless conduct. If so, MI is entitled to nominal damages, and then the court must consider Liberty’s challenge to the amount of the punitive damages award.
Thus the Fourth Circuit affirmed the district court’s ruling in all respects except for bad faith damages. The court of appeals agreed that without proof of expenditures absent bad faith, MI failed to demonstrate direct or indirect damages resulting from Liberty Mutual’s bad faith conduct. However, the Fourth Circuit vacated the ruling on punitive damages and remanded with instructions for the district court to determine whether MI is entitled to nominal and punitive damages under South Carolina law. If the court finds that the evidence supports the jury’s conclusion that Liberty acted willfully, wantonly, or recklessly, MI is entitled to nominal damages, and the court must consider Liberty’s challenge to the amount of punitive damages.
Trouble with your insurance company?
If you believe your insurance company is not treating you fairly, you should consult with an attorney experienced in pursuing “bad faith” lawsuits against insurance companies. The insurance company has an army of lawyers looking after its interests. It only makes sense that you have a lawyer looking after your interests.
At Heygood, Orr & Pearson, we vigorously stand up for individuals and companies who find themselves in the unenviable position of having an insurance company refuse to treat them fairly and reasonably. When an insurance company fails to treat a customer appropriately and denies a legitimate claim that should be paid, the lawyers at Heygood, Orr & Pearson are willing to take them on, expose their actions and make them pay for their improper and illegal conduct
Heygood, Orr & Pearson also has the financial resources to handle bad faith insurance cases from start to finish. In fact, there are many instances in which we invested hundreds of thousands of dollars in a case in order to take it to trial. At Heygood, Orr & Pearson, we are committed to achieving justice for our clients, whatever the cost.
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