Facts

On Oct. 10, 2000, Paula Lawson, 67, tripped and fell in her home, fracturing her distal left femur. Three years later, in February 2003, she had her leg amputated. She passed away approximately three weeks later.

Her husband, William Lawson, presented a claim to his insurance company, American Reliable Insurance Co. under an accidental death and dismemberment policy. His broker on the policy was Larry N. Walters Insurance Administrators.

American Reliable denied the claim, stating that the loss must occur within 365 days of the accident and must result solely from that accident. Paula Lawson's death certificate had listed the causes of death as pulmonary embolus with underlying causes of hypertension, vascular insufficiency and peripheral vascular disease.

In December 2003, American Reliable contracted with an insurance coverage law firm who sent out an opinion letter concluding the denial of William Lawson's claim was proper. The firm also hired an orthopedic surgeon, who, upon review of Paula Lawson's medical records, determined there was not an accident within the 365 days before the first loss (the amputation).

William Lawson sued American Reliable and Walters for breach of contract and bad faith, claiming economic and emotional damages. Before trial, Walters was dismissed from the case.

However, in October 2005, American Reliable's coverage counsel learned of California's process of nature rule, which overrides the 365-day time provision of the policy. As a result, American Reliable paid William Lawson the benefit, plus 10 percent interest from their first denial of August 2003. This payment resolved the breach of contract claim. The case proceeded to adjudicate the bad faith claim.

PLAINTIFF'S CONTENTIONS:
William Lawson claimed American Reliable failed to do a thorough investigation of his claim, which lead to a long, unfair delay in payment.

DEFENDANT'S CONTENTIONS:
American Reliable claimed its initial denial was an error, but the mistake did not constitute bad faith because the company had relied upon the advice of third party attorneys and the case was extremely difficult given Paula Lawson's complex medical history. American Reliable, an Arizona company, also claimed that the process of nature rule followed by California is rare and obscure, and not widely recognized in other states.

Settlement Discussions

American Reliable offered $200,000.

Damages

William Lawson sought about $200,000 in damages for emotional distress and $86,000 in attorney fees.

Injuries

William Lawson claimed the delay of payment caused him emotional distress.

Result

The jury returned a verdict for the defense. The jury found that while Mr. Lawson did suffer a loss under the policy and American Reliable had been advised of the loss, American Reliable did not unreasonably fail to respond and investigate.

Deliberation

one day

Poll

10-2

Length

six days