Cases

LAW REPORTER

Volume 42,Number 2 March 1999

Insurer terminates disability benefits: Bad faith: Breach of contract: Settlement: Verdict: Punitive damages.

Diamond v. General Am. Life Ins. Co., Ariz., Maricopa County Super. Ct., No. CV 96-02277, Nov. 13, 1998.

Diamond, a dentist, bought a disability income policy from General American Life Insurance Company. The policy provided total and residual disability benefits. Under a five-year own occupation rider, insurance benefits for total disability were extended to cover disability from his own occupation. The rider was limited by its term to 60 months of total disability benefits.

Diamond was diagnosed with carpal tunnel syndrome, and became unable to practice dentistry from 1985 until April 1986. He applied to General American and was paid total disability benefits under the rider for two months. Diamond attempted to resume his practice but experienced recurring symptoms in April 1988, when he was declared totally disabled from his own occupation and applied for policy benefits. Diamond, 50 had earned about $40,000 t0 $50,000 annually.

General American began paying Diamond total disability benefits in July 1988. Later that year, General American paid Diamond benefits for residual disability during the two-year period in which he returned to dentistry work but ceased paying benefits in February 1991. General American had apparently applied the two years of residual benefits to reach the 60-month limit, thus claiming that Diamonds benefits were exhausted under the rider.

Diamond and his wife sued General American, alleging breach of contract and bad faith. Plaintiffs claimed the insurer had discovered severe financial losses on its disability income lines of business and, in 1990, prepared a list of 58 policyholders, including Diamond, who had reserves of $100,000 or more. Plaintiffs presented evidence suggesting the existence of a systematic plan to reduce the number of pending claims submitted by these policyholders through such actions as sending policyholders to multiple independent medical examinations, increasing paperwork requirements, and withholding or stopping payment of benefits.

Plaintiffs also sued the agency that had sold Diamond the policy and the agencys principals, alleging he agents knew of Diamonds disability when the insurer terminated his benefits but advised him that no further benefits were available under the policy. Plaintiffs also alleged that claims such as Diamonds yet concealed these facts from plaintiffs. During trial, plaintiffs reached a settlement with these defendants for $35,000.

Before a verdict was reached, the court ruled that defendant had breached the contract when it stopped paying Diamond his total disability benefits in February 199 and ordered that defendant owed a minimum of $200,000. The jury awarded additional compensatory damages of about $768,300 and $58 million punitive damages.

Plaintiffs experts were Stephen D. Prater, bad faith, San Jose, Cal., and Mark R. Reiser, statistics, Phoenix, Ariz.

Plaintiffs Council:

• Charles J. Surrano III, Phoenix, Ariz.
• John N. Wilborn, Phoenix, Ariz.
• Krista l. Dunacan, Mesa, Ariz.

[Documents in the Diamond case are available through the Court Documents section in the back section of this issue,, courtesy of Mr. Surrano.]