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Do Punitive Damages Apply to Bad Faith Claims?

If an insurance company takes advantage of you and engages in bad faith tactics, you could suffer the consequences. Bad faith could rob you of the settlement amount your injuries demand or lead to further damages while you wait for an unfairly delayed payout. An insurance company handling your claim in bad faith could exacerbate the damages you already suffered in the original accident, adding to your physical, emotional and financial hardships. In Arizona, it is possible to receive punitive damages for insurance bad faith in certain circumstances.

What Are Punitive Damages?

The two broad damage categories in any civil claim in Arizona are compensatory and punitive (also called exemplary). Compensatory damages reimburse an injured victim for his or her losses. They can include monetary awards for economic or noneconomic damages: medical expenses, pain and suffering, lost wages, property repairs, and more. Punitive damages serve a different purpose. Rather than making up for the victim’s losses, they punish the defendant for misconduct.

In most personal injury cases, a judge will only award punitive damages if the defendant is guilty of conduct that goes beyond ordinary negligence. If the defendant was grossly negligent, malicious, reckless, intentional or wanton in the harm he or she inflicted on the victim, a judge may force that defendant to pay an extra amount in restitution for the victim. A judge may also give a punitive damage award to a victim that suffered catastrophic damages if that judge believes the jury verdict is not enough to fully compensate such serious losses.

Punitive damages also serve a larger purpose: to set a public example in the county. A judge may assign an exemplary award to warn others that the county will not tolerate a certain act of wrongdoing, such as reckless driving or physical assault. Forcing the defendant to pay a punitive damage award can encourage others not to imitate the defendant’s egregious acts. Punitive damages are not something judges in Arizona award frequently, but they can arise in suitable circumstances.

When Punitive Damages May Apply to a Bad Faith Claim

Plaintiffs receive punitive damages more often during tort claims, or claims involving a defendant’s wrongdoing, than contractual matters. However, a case brought against an insurance company on the grounds of bad faith could also be eligible for exemplary relief. Bad faith could be a grave enough type of misconduct on the insurance company’s part to warrant a judge granting a punitive damage award. Although it is rare, a judge may award punitive damages during an insurance bad faith claim on three main grounds.

  1. Intent to harm. You or your lawyer must be able to prove that the insurance company engaged in the bad faith practice to intentionally cause you harm, such as to put you under financial duress.
  2. Engaging in outrageous conduct. Certain acts by the insurance company or one of its employees could be outrageous enough to lead to the assumption of intent to harm without you actually needing to prove intent.
  3. Knowingly engaging in conduct that was likely to hurt you. Even if the insurance company’s bad faith practices were not meant to intentionally hurt you, a judge could award punitive damages if the company knowingly engaged in conduct it reasonably should have known would lead to damages for you.

A punitive damage award could increase your total recovery during an insurance bad faith claim. Rather than only receiving payment for your personal losses, you could receive additional compensation to punish the insurance company for wrongdoing. Working with a lawyer on your insurance bad faith claim could increase your odds of receiving fair compensation for your losses, including a punitive damage award if it applies. A lawyer can connect you to important resources such as insurance claim experts to help you prove that the insurance company acted outside of its responsibilities to you as a client. Hire a bad faith attorney in the Phoenix area if you suspect insurance bad faith to help you get the most out of your claim.