November 22, 2010
No "bad faith" in Katrina coverage dispute
The Mississippi Supreme Court has reversed an award of punitive damages, attorneys’ fees, and damages for emotional distress against an insurer who denied coverage for storm-surge damage caused by Hurricane Katrina. The court upheld a jury verdict for compensatory damages against insurer USAA, but held that the plaintiff had failed to show that the denial was in bad faith.
USAA argued that the damages to the first floor of the Lisanby home (top left) was caused by water, and thus was excluded from coverage. An expert for the Lisanbys testified that the damages was caused by wind. From the report:
The home of retired Navy Admiral James Lisanby and his wife, Gladys (top left) was severely damaged by Hurricane Katrina in 2005. USAA provided the couple with homeowners insurance but concluded that most of the damage was caused by storm surge, a peril not included in a standard homeowners policy.
USAA paid the Lisanbys about $46,350 and the couple filed a complaint against the insurer. After the trial a jury awarded the Lisanbys about $909,640 in compensatory damages, which included $86,000 for emotional distress. It also gave the couple about $302,920 for attorneys’ fees and about $211,100 for litigation expenses.
The Supreme Court opinion written by Justice Jim Kitchens upheld the couples’ breach of contract claim against their insurer, but "because the [Lisanbys] failed to demonstrate that [USAA] acted in bad faith when it denied their claim, we reverse and render judgment in favor of [USAA] regarding the award of extra-contractual damages for the infliction of emotional distress, attorneys’ fees and litigation expenses."
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