The Arkansas Court of Appeals has tossed out a bad-faith suit against a bank and its credit life insurance company, rejecting a widow's argument that they improperly had engaged in post-claim underwriting to avoid payment under a policy.
The widow, whose husband bought the policy when he borrowed $2,500 to finance a used 1986 Toyota pickup, will ask the court for a new hearing, according to her lawyer, Sandy McMath of Little Rock.
'This is a bleak day for Arkansas consumers,' McMath said, adding that if the decision stands, vehicle buyers who die owing only small amounts on their loans won't be able to afford lawyers to sue credit life insurers that refuse to pay claims.
But a lawyer for the bank and insurance company, Marshall Ney of Little Rock, said the appellate decision has broad implications for bad-faith claims in Arkansas because a mere dispute between a policyholder and an insurer is not enough to assert bad faith.
'You have to see some kind of malicious conduct,' Ney said.
In this case, he said, the widow's bad-faith claim 'was a vehicle for the plaintiff to take a $2,500 case and make it a six-figure case' through punitive damages.
The controversy was rooted in Stanley Richison's purchase of the used Toyota pickup in 1992. The college choir director financed the deal with a loan from Boatmen's Bank.
The bank, acting as an agent for Consumer's Protective Life Insurance Co., issued a credit life policy.
Richison, who had a history of asthma, was not asked details about his physical condition, but signed a statement that he was in good health.
Other than periodic refills of his prescriptions, he had not sought treatment for his asthma in more than four years, the appeals court said, and was not impaired by his condition.
Because Richison declared himself in good health on the loan application, he was not asked to complete an additional medical questionnaire.
He died 13 months later because of an allergic reaction to a drug prescribed by his dentist during root-canal work, the court said.
When Richison's widow filed a claim under the policy, the insurance company investigated and found the death certificate describing the fatal drug reaction as asthma-related.
It denied coverage on the basis of misrepresentation on the insurance application.
The widow then sued in Baxter County Circuit Court, seeking compensatory and punitive damages for breach of contract and bad-faith denial of her claim.
The lawsuit alleged that Boatmen's and Consumer's arbitrarily had rejected the claim and that there was no evidence that Richison's alleged misrepresentation of his health was relevant to coverage.
Judge Robert McCorkindale dismissed the bad-faith allegations and the demand for punitive damages without trial.
The appeals court upheld that ruling, saying the widow had failed to provide enough evidence of bad faith to warrant a trial on the issue.
The decision allows the widow to pursue only a breach-of-contract allegation for about $1,200 that was left on the loan when her husband died, said McMath, her lawyer.