USAA Bad Faith Claim and Punitive Damages Assessment for Breach of Contract

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USAA’s appeal against R. Brent O’Neel was denied by the in the COURT OF APPEALS OF THE STATE OF NEW MEXICO on March 1, 2002, No. 27,334.

{1} Defendant (USAA) appeals the judgment entered in favor of Plaintiff (O’Neel) awarding damages and attorney fees for bad faith failure to pay a first party claim, breach of an insurance contract, and unfair insurance practices.

(2) Following the burglary of a house he was building near Tome, New Mexico, O’Neel submitted a claim under his USAA renter’s insurance policy. Under the terms of the policy, O’Neel was entitled to the replacement cost for personal property stolen in the burglary. Consequently, O’Neel submitted a claim to USAA requesting reimbursement in the amount $7052. USAA began an extensive investigation into O’Neel’s claim, which included two lengthy examinations of O’Neel under oath by USAA’s attorney. Based on its investigation and evaluation of O’Neel’s claim, USAA concluded that O’Neel overvalued the amount of his claim. Because of these ostensible overvaluations, USAA accused O’Neel of breaching the insurance contract by misrepresenting and concealing material facts and by failing to cooperate with the investigation. As a result, USAA denied O’Neel’s claim in its entirety. (3) Upon receiving notice that USAA denied his claim, O’Neel instituted this action to recover damages for bad faith breach of an insurance contract and unfair insurance claims practices. The district court referred the action to court-annexed arbitration, and the arbitrator’s award in favor of USAA was ultimately appealed de novo to district court. A jury trial was held at which both sides presented evidence concerning the extent to which Plaintiff did or did not overvalue his claim and cooperate with USAA’s investigation. Both sides also presented evidence from experts in the field of insurance claims practices to give their opinions on the reasonableness of USAA’s claims handling practices. Although O’Neel valued his claim at over $7000, the jury awarded O’Neel only $2500 in compensatory damages. However, the jury also found that USAA breached the insurance contract in bad faith and engaged in unfair insurance practices. The jury, therefore, awarded O’Neel an additional $20,000 in punitive damages. In addition, the district court subsequently awarded O’Neel over $64,000 in attorney fees.

 

 

 

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