Bad Faith Insurance Verdict – $12 Million Evidentiary Miscalculation

The $12 million verdict against Progressive Insurance last week in Albuquerque brings up a host of interesting issues. First, it is worth noting that the judgment was on counter-claims following a lawsuit initiated by Progressive against its own insured. Second, the verdict was 9 years in the making and the trial ending last week would not have occurred at all but for the persistence of the defendant/counter-claimant‘s attorney and the thoughtful analysis of the New Mexico Court of Appeals in its 2009 unpublished opinion Progressive v. Vigil.

The case involved a rollover car accident that resulted in the death of one of the passengers and serious injuries to 5 others. The police first suspected that alcohol was a factor in the crash but the driver later tested 0.0 on his blood alcohol test and the DWI related manslaughter charges were dismissed.

The gist of the case revolves around the bad faith denial of insurance coverage by Progressive Insurance for the passengers injured in the vehicle. Before getting to last week‘s trial, the case was dismissed on partial summary judgment by the first district court trial judge where the Vigil‘s claims were essentially dumped out. The judge in the first trial found that the plaintiff had failed to present evidence of coverage. In doing so, the court restricted consideration to the language in the policy itself, excluding from consideration verbal conversations with the agent, numerous automated responses, and subsequent notices indicating that the policy was in good standing.

The Court of Appeals found that this evidence should not have been excluded. Instead, it should have been presented to the jury for the jury to determine whether or not coverage was in place at the time of the accident. The Court stated that in the interpretation of insurance contracts, the courts are not restricted to the policy itself but may look to other evidence beyond the policy. Restriction of consideration to the policy itself is referred to as the “four corners” rule which means that the analysis is restricted to the four corners of the contract.

The Court of Appeals specifically rejected the four corners rule in cases involving consumer insurance contracts. The Court recognized that the great majority of policyholders rely largely or entirely on the representations of their agents. The court tacitly acknowledged that few if any consumers of insurance read the policy cover to cover. As such, the Court ruled that extrinsic evidence outside the contract such as conversations with an agent, automated responses, correspondence, and notices could be considered when ambiguity arises as to the terms of the contract. Specifically, the Court of Appeals stated:

“In this case, the evidence of the representations regarding the change in coverage to delete one vehicle and add another, followed by the repeated representations by the automated system and the customer service representatives about the November 15 premium date must be addressed at trial to determine whether the facts support a temporary contract of insurances, notwithstanding the existence of prior unambiguous policy language reflecting an end date of November 3, 2002.”
The Court of Appeals therefore reversed the district court‘s summary judgment on the coverage issue sending the case back to district court for retrial.

The evidence submitted to the jury this time around would have never gotten to the jury if the analysis was restricted solely to the insurance policy itself. Had the analysis been restricted to the policy itself, the jury would not have heard all of the evidence that the premiums were either current or at the very least that the Vigils were led to believe the premiums were current. Instead the jury would have heard only that Progressive made payments on the lapsed policy of a deadbeat client for which it sought reimbursement.

Fortunately, due to the New Mexico Court of Appeals and the persistence of the Vigils and their attorney, the jury did hear the evidence. And the jury spoke loud and clear. Suffice it to say that in light of the evidence formerly excluded by the original trial judge, the jury found Progressive‘s behavior to be outrageous enough to justify the $12 million verdict. In short, Progressive‘s miscalculation in filing a lawsuit against its own insured backfired in the worst possible way. We will have to wait to see how this verdict will be spun to paint Progressive and the insurance industry as the victim of greedy trial lawyers and opportunistic plaintiffs.


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