ARE PUNITIVE DAMAGES AVAILABLE FOR FIRST-PARTY BAD-FAITH CLAIMS IN KANSAS?

Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.

Guarantee Abstract & Title Co. v. Interstate Fire & Casualty Co, 232 Kan. 76, 652 P.2d 665 (1982).

This case addresses the following issue:

Are punitive damages available for first-party bad-faith claims in Kansas?

Under Kansas law, there are two types of bad-faith claims. Id. at 78. First-party claims are those brought about directly, based upon failure to perform under the insurance contract itself, i.e., breach of contract. Id. Third-party claims deal with situations in which a third-party files suit against the insured, causing obligations to arise on the part of the insurance company. Id. at 79. This case dealt with a first-party claim, and whether the awarding of punitive damages—those damages designed to punish a defendant—were appropriate for such claims. Id. at 78. Finding that Kansas law does not allow punitive damages “in the absence of an independent tort,” the court held that first-party bad-faith claims do not allow for the awarding of punitive damages. Id.

This case dealt with an insurance policy held by Plaintiff and provided by Defendant. Id. at 77. Defendant refused to pay a portion of a judgment rendered against Plaintiff. Id. This lead Plaintiff to file suit for breach of contract, and ultimately received roughly $75,000 in compensatory damages and $250,000 in punitive damages. Id. at 78.

The court began by noting that “damages for breach of contract are limited to pecuniary losses sustained.” Id. Punitive damages, on the other hand, are particular to tort actions, or personal wrongs. Id. Even then, punitive damages are reserved for cases where the plaintiff proves “the presence of malice, fraud or wanton disregard for the rights of others.” Id. at 78-79. Because breach of contract actions are violations of willingly accepted duties and torts are violations of duties imposed by law, torts are more serious violations and warrant more severe punishment. Id. at 79. Thus, the award of punitive damages by the jury was improper, and was vacated. Id. at 80.