There are three basic categories of damages a policyholder can recover if she wins a bad faith case. Bad faith cases can be worth significant amounts of money. In fact, a meritorious bad faith case can result in far more money being paid to the policyholder than what she was entitled to recover under the insurance policy in the first place.
The first category of damages a policyholder can recover is “contract” damages. This is the amount of money the insurance company should have paid the policyholder under the insurance contract (the insurance policy) in the first place if it had not acted in bad faith. For example, if the insurance company properly owed its policyholder the policy limits of $25,000.00, but denied the claim in bad faith, the insured is entitled to recover the $25,000.00.
The second category of damages is “compensatory damages for bad faith” or “bad faith damages.” The policyholder who can prove bad faith is entitled under Oklahoma law to recover money from the insurance company, above and beyond the “contract” damages under the policy. These damages are to compensate the policyholder for the harm done to them as a result of the insurance company’s bad faith conduct. If the evidence supports it, the jury in a bad faith case is allowed to award the policyholder monetary damages for things like: financial losses, embarrassment and loss of reputation, and mental pain and suffering. (See Oklahoma Uniform Jury Instruction No. 22.4 – it should be noted the Comment to this OUJI allows it to be altered by the trial court to fit the evidence of the policyholder’s damages). If the claim denial by the insurance company caused, for example, the policyholder to lose money in their business, have their credit adversely affected and suffer mental upset, the jury may award the policyholder money for these things at trial.
The third category of damages is “punitive damages.” Punitive damages are designed to punish a defendant in a lawsuit, if the defendant’s conduct is deemed sufficiently improper. These damages are not designed to compensate the policyholder, but instead to deter the defendant and others from engaging in the punishable conduct in the future. In a bad faith case, punitive damages may be awarded by the jury to make an example of the defendant insurance company so that they refrain from the same bad faith conduct in the future, and to send a message to the insurance industry that the bad faith conduct being punished is unacceptable. Punitive damages can be awarded in addition to “contract” damages and “compensatory damages for bad faith.”
In theory, the law on damages in a bad faith case serves as a check against insurance companies denying claims without properly investigating, evaluating and paying them fairly, if owed. If there was no monetary remedy for compensatory damages (and, in the right circumstances, punitive damages), insurance companies could deny claims in bad faith with the only downside to them being the policyholder recovering what was owed under the policy in the first place.
Not all bad faith cases filed are meritorious. However, the ones that are can serve the valuable function of leveling the playing field between policyholders and the insurance industry.