Question

6. Assume that Cameron is covered by a homeowners policy identical to the one used in class. Cameron, while cleaning his gun, caused the gun to accidentally discharge. The bullet from the discharge hit Molly, who was visiting his daughter. Molly was rendered a paraplegic. She sued Cameron for negligence. Her attorney offered to settle the case for $300,000 even though the evidence clearly showed $1 million in damages. The insurer refused the settlement offer because it believed there was a good case for a defense verdict. Cameron lost the case and Molly was awarded $1 million in damages. Please analyze whether insurance company has bad faith liability for the $700,000 in excess of the policy limits.

Answer 1

Guidance to write answer:

In the given case of homeowners policy offer of $300000 was made by Molly even though evidences showed $10 million damages. Insurer believed that it was a good case of defense verdict has acted in bad faith as evidences clearly showed damages of greater amount. Here insurer can be held liable in bad faith for amount in excess i.e. $700000 for damages as cameron lost the case beacause of false belief of insurer. Insurer should have acted in good faith and should have awarded insured with the price of damages claimed despite looking at the evidences this is clear case of bad faith insurance.

In bad faith insurance the more insurer acts reprehensible the greater damages may be paid to the insured.

Therefore an insurer as in this case who has acted in bad faith can be held liable for amount in excess of policy limits.

hope this helps:)