In some disability insurance cases, punitive damages are assessed against the disability insurer when it violates the covenant of good faith and fair dealing with the insured.  In Arizona, a court may award punitive damages as punishment against a wrongdoer when ordinary compensation is deemed inadequate to satisfy the wrongs committed.  See Gila Water Co. v. Gila Land and Cattle Co., 30 Ariz. 569, 249 P. 751 (1926).  The purpose of punitive damages is not to compensate the disabled claimant for actual harm committed, but to deter other disability insurance companies from engaging in similar unfair practices.  To obtain a punitive damages award, a disability insurance attorney must be prove that the disability insurer’s “evil hand was guided by an evil mind.”  Rawlings v. Apodaca, 151 Ariz. 149, 162 (1986).  An “evil mind” can be proven by showing either (1) that the disability insurance company intended to injure the insured or (2) that the disability insurance company consciously pursued a course of conduct all the while knowing its conduct created a substantial and unjustifiable risk of harm to the insured.  Id.

An insurance company does not always need to breach an express covenant in the contract to be guilty of insurance bad faith, and subject to an assessment of punitive damages.  Id.  In Rawlings v. Apodaca, for example, the Arizona Supreme Court found that an insurance company breached its implied covenant of good faith and fair dealing by failing to provide copies of fire investigation reports—the basis for its claim decision—to its insureds after their house caught fire.  The insurance company intentionally withheld these reports because it learned during the investigation that it also provided insurance to those who were liable for setting the fire.  It feared that the insureds would use the fire report information to file a lawsuit against the fire setters, for whom the insurance company would also be required to provide coverage.  The court found that by failing to furnish these reports the insurance company had “breached its duty to play fairly with its insureds” because, for its own financial benefit, the insurer had injured the insureds by wrongfully impeding them from bringing a claim against those who started the fire.  Id. at 157.  This misconduct was sufficient to establish bad faith, despite the fact that the insurance company had complied with its express contractual obligations by paying benefits to the insureds.

The bad faith conduct constituted an “evil hand” for punitive damages purposes in this case.  However, the Rawlings court determined that insufficient findings were made to support the conclusion that the insurance company’s “evil hand was guided by an evil mind.”  Id. at 162.  Therefore, the case was remanded to make this determination.  The Rawlings court instructed, however, that when an insurer’s “motives are shown to be so improper, or its conduct so oppressive, outrageous or intolerable that such an ‘evil mind’ may be inferred, punitive damages may be awarded.”  Id. at 162-63.

This Rawlings standard for punitive damages is still in force today.  Courts using the standard have assessed punitive damages against insurance companies even when they have abided by the express provisions of a contract.  See e.g., Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 509 (1992) (reaffirming Rawlings holding that “breach of an express covenant is not a necessary prerequisite to an action for bad faith”).  Despite this, many disability insurance companies continue to find ways to wrongfully deny or terminate disability benefits.  In some instances, not only does the disability insurer’s misconduct constitute bad faith, but its “evil hand is guided by an evil mind.”

An experienced disability insurance lawyer will be able to identify these unfair practices and hold the disability insurance company accountable for misconduct.  If you are filing for disability benefits, be sure to contact a disability insurance lawyer to ensure your disability claim receives the consideration it deserves.