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Insurance Coverage lawyer, consultant and expert witness, Barry Zalma, in an article published at the LexisNexis Insurance Law Center, discusses the need to discard the so-called tort of bad faith because it has outlived its usefulness and because it has created a greater abuse than it was designed to cure. Although the tort of bad faith was created with good intentions to cure a perceived wrong, it has fallen victim to the law of unintended consequences. It is time to put a stake in the heart of the tort of bad faith. Insureds who are wronged by their insurer should limit their recovery to contract damages.

Zalma discusses the need to discard the so-called tort of bad faith. Instead of protecting the consumer imprecise language, an attempt to force insurers to deal fairly with the insureds resulted in thousands of lawsuits determined to impose penalties on insurers for attempting to enforce ambiguous easy to read language of their policies. The multiple lawsuits cost insurers and their insureds millions (if not billions) of dollars to get court opinions that interpret the language and reword their easy to read policies to comply with the court decisions. For more than thirty years the unintended consequence of a law designed to avoid litigation has done exactly the opposite.

Mr. Zalma discusses why in 1958 the California Supreme Court created a tort new to U.S. jurisprudence when it decided Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 658-659, 328 P.2d 198 (1958). A tort is a civil wrong from which one person can receive damages from another for multiple injuries. After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages as in other commercial relationships. If the court found that the insurer was wrong it could be required to pay the contract amount AND damages for emotional distress, pain, suffering, punishment damages, attorney's fees and any other damages the insured and the court could conceive. It was hoped that the tort of bad faith would have a salutary effect on the insurance industry and force insurers to treat their insureds fairly. However, claims for $40.00 wrongfully denied resulted in $5 million verdicts. Juries, unaware of the reason for and operation of insurance, decided that insurers that did not pay claims were evil and that they wrote contracts so they never had to pay. They punished insurers severely even when the insurer's conduct was correct and proper under the terms of its contract. The massive judgments were publicized and many insurers decided fighting its insureds in court was too expensive regardless of how correct its position was on the contract.

Mr. Zalma explains why the tort of bad faith, designed to help the innocent, resulted in punishing the honest and correct insurers, honoring the insurers who acted in bad faith with profit, allowed many frauds to succeed and caused contract terms and conditions to be ignored while simultaneously making rich members of the plaintiffs' bar. He explains how the tort is not applied equally in violation of Due Process and why its elimination from U.S. jurisprudence will help those who are insured as well as their insurers.

The white paper is available at the LexisNexis Insurance Law Center at http://law.lexisnexis.com/practiceareas/Insurance/  entitled Time to Put a Stake Through the Heart of the Tort of Bad Faith and is available at and specifically at http://law.lexisnexis.com/practiceareas/Insights--Analysis/Insurance/Barry-Zalma-on-Bad-Faith-Time-to-Put-A-Stake-Through-the-Heart-of-the-Tort-of-Bad-Faith