Ohio Auto insurer hit with $10 million bad faith verdict Company claimed couple's policy had been canceled before crash

By Sylvia Hsieh The Daily Record Newswire BOSTON -- A jury has awarded $10 million to an Ohio couple whose insurer refused to pay their auto claim or provide a lawyer for their defense for hitting another car in an accident that killed one person and injured another. The couple, Donald Cox and Kathryn Cox Baugh, believed they had auto insurance. Kathryn had purchased a policy three months before the accident, but the insurance company, Personal Service Insurance Co. (PSIC), claimed it had been canceled before the crash. The jury found that the insurer acted in bad faith when it refused to settle the couple's insurance claim for the policy limits, instead exposing them to a much larger negligence verdict. In the underlying negligence case, the Coxes were found liable for $3 million for personal injury to the victims in the other car and $12,000 for property damage to their car. "The [insurer] could have gotten out of this for $50,000," said James Bordas, of the 12-lawyer firm Bordas & Bordas in Wheeling, Ohio, which also represented the couple as defendants in the negligence case. The $10 million bad faith award, including $2 million in punitive damages, will be shared with the family who was struck by the couple's vehicle under an agreement to assign a portion of their recovery. The jury also found that the Coxes are entitled to have their attorney fees paid in an amount to be determined by the judge. Attorney Tom Mulvey, who represented PSIC, could not be reached for comment. Big accident in small town On a bright, sunny day in 2003, Donald Cox was driving on a two-lane county road when he reached up to lower his sun visor, drifted left of the center line and hit another vehicle, killing the driver, Brian Bigler, and seriously injuring the driver's father, Howard. The accident made big news in the small community, according to Bordas. At trial he introduced evidence that the Coxes' insurance agent read about the accident in the newspaper the next morning and faxed the article to PSIC. Later the same day, the agent mailed a letter to the Coxes saying their policy had been canceled the previous month. Three months later, their premiums were refunded. When Bordas's firm first took the Coxes' case, the couple was looking for a lawyer to help get their claim covered. "We were the eighth or ninth law firm they had contacted. No one would help them. They were poor folks and couldn't afford to pay by the hour and they couldn't get anyone to do it on a contingency fee," said Bordas. Bordas told the couple they would not have to pay if his firm could straighten out the insurance with a few letters, but if they recovered any money, they would charge them a contingency fee. Scott Blass, a partner at Bordas' firm, wrote letters to the insurance company saying the couple was willing to settle for the $50,000 policy limits and sign a release of liability. "PSIC writes back that there was no coverage. They don't even do any investigation," said Bordas. In the meantime, the Coxes were sued by the Biglers' insurance company Nationwide for property damage and by the Biglers for negligence and wrongful death. Blass defended the couple in a bench trial, but with liability difficult to dispute, the judge imposed damages of $3 million against Donald and $12,000 for property damage against Donald and Kathryn. 'No reasonable justification' During the two-week trial against PSIC for bad faith in not settling the Coxes' claim, Kathryn testified that her agent had sent her a cancellation notice one month before the accident. However, after the accident Kathryn had sent in the appeal form and spoken to her agent. At that time, the agent informed her that she was still covered until the appeal was granted or her money was returned. Donald suffered brain damage in the crash and was unable to testify, Bordas said. Bordas did not have to prove that the insurance was in effect at the time of the accident, thanks to a finding by the trial judge (the same judge who oversaw the bench trial) that PSIC did not cancel the policy under the requirements of state law. "We needed to demonstrate that PSIC had no reasonable justification for denial of coverage," said Bordas. An insurance expert for the plaintiffs testified that the company should have conducted an investigation. The expert also testified that the insurer should have known that coverage still existed because the standard practice in canceling a policy is to issue an SR-26 Form notifying the department of motor vehicles of the cancellation -- something that didn't occur in this case. According to Bordas, PSIC argued that the company didn't think it had to send the form because another form, called an SR-22, which confirmed that the policy was issued to the couple, was sent back to them due to incomplete data. "That was hogwash," said Bordas. "Nowhere in their internal file did they say that because the SR-22 wasn't filed they considered the policy canceled." Another expert testified that the insurance company's underwriting department was involved to an unusual degree in deciding that there was no coverage. "The underwriting department is the department in charge of making money and how much to charge in premiums. They are not the ones to investigate claims, or whether a claim is honored or paid. The claims department does that. You don't want people in charge of making money to be in charge of paying a claim or not," said Bordas. "We demonstrated that the [corporate representative] in charge of the underwriting department was the one telling the claims department, 'We're not covering this,'" he added. He also uncovered that the company had an incentive program that rewarded adjusters who closed 100 percent of their files each month. "Four different times they closed this file. Four different times they told [Kathryn] to ignore" their cancellation notices, telling her that she was still covered, said Bordas, who added that Kathryn has since lost her house and moved with her three children into her mother's home, but continues to make loan payments on two cars (including the wrecked vehicle). In closing arguments, Bordas told the jury that as a result of the insurance company's actions, two families' lives were torn apart. To Bordas' surprise, the defendant told the jury about the agreement between Donald Cox and the Biglers that the Biglers would receive 60 percent of any award to him. In light of that agreement, Donald Cox, who was awarded $6 million in compensatory damages, will owe the Biglers $3.6 million -- about what he owed them after the bench vedict. Kaythyn will keep the $2 million in compensatory damages that the jury awarded to her. As for the $2 million in punitive damages, a pro-rated portion representing Donald's share, or $1.5 million, will be split between Donald and the Biglers in 40/60 fashion. Published: Fri, Feb 17, 2012