An insurance claim against an insured’s own insurance policy is called a “first party claim.” These claims have different laws that govern them than traditional claims against another person (or so called “third party claims”). The Missouri legislature has provided a contractual remedy for insureds who are seeking enforcement of the benefits promised in their insurance policies.
Vexatious refusal to pay laws protect insureds from being abused by their own insurance company. “Vexatious” means “without reasonable or probable cause or excuse.” These laws exist to make sure insurance companies play fair when presented with a claim from their insured.
The Missouri Supreme Court has found insurance companies responsible for vexatious refusal to pay claims even when they paid claim just before trial.
In Missouri, the elements for vexatious refusal to pay are:
1.) Issuance of an insurance policy to a Missouri resident or corporation;
2.) The plaintiff sustains a loss and makes a first-party claim under the plaintiff's
insurance policy against the defendant insurance carrier;
3.) The claim is wrongly denied;
4.) The defendant's refusal to pay the loss was willful and without reasonable cause or
excuse;
5.) The plaintiff is entitled to damages for breach of the insurance contract, and
penalties and fees are warranted due to the insurer's vexatious and recalcitrant claim
handling.
Under RSMO § 375.420, 20% of the first $1,500 of the loss and 10% of the loss in excess of $1,500 together with reasonable attorney's fees, in addition to the amount of recovery owing under the policy.
Under RSMO § 376.296, the failure of an insurer to appear and defend any action, suit or other proceeding shall be deemed prima facia evidence (or accepted until proved otherwise) that its failure to make payment was vexatious without reasonable care.
No recovery can be made under this statue can be had for vexatious refusal to pay where there is a bona fide dispute over the existence or extent of liability. Loulos v. United Security Insurance Company, 350 S.W.2d 87.
Attorney fees can be assessed in a vexatious refusal to pay case even if the jury does not assess any penalty damages under the statute.
Common Grounds for an Action for Vexatious Refusal to Pay
The following are some cases where vexatious refusal to pay has been found in the past:
1.) Refusal to pay the claim without a valid reason. Russell v. Farmers & Merchants. Ins. Co., 834 S.W.2d 209 (Mo. Ct. App. S.D. 1992).
2.) Inadequate investigation and refusal to explain its denial of coverage. Allen v. State Farm Mut. Auto. Ins. Co., 753 S.W.2d 616 (Mo. Ct. App. E.D. 1988);
3.) Claim denied without explanation. Hensley v. Shelter Mut. Ins. Co., 210 S.W.3d 455, 467 (Mo. Ct. App. S.D. 2007); Hounihan v. Farm Bureau Mut. Ins. Co. of Missouri, 523 S.W.2d 173 (Mo. Ct. App. 1975)
4.) Vexatious refusal found where 18-month delay in paying life insurance policy proceeds when the company knew of the beneficiaries and their residences. Victor v. Manhattan Life Ins. Co., 772 S.W.2d 826 (Mo. Ct. App. E.D. 1989).
5.) Vexatious refusal found when insurance company inadequately investigated the claim; Watters v. Travel Guard Intern., 136 S.W.3d 100, 110 (Mo. Ct. App. E.D. 2004);
6.) Vexatious refusal found where insurance company denied a claim with vague reason and improper delay in payment. DeWitt v. American Family Mut. Ins. Co., 667 S.W.2d 700 (Mo. 1984).
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