CAN AN INSURER BE LIABLE FOR VEXATIOUS REFUSAL TO PAY EVEN IF THERE IS A QUESTION AS TO WHETHER THE CLAIM IS VALID UNDER THE POLICY?

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.

Evans v. Provident Life & Accident Insurance Co., 249 Kan. 248,815 P.2d 550 (1991).

This case addresses the following issue:

Can an insurer be liable for vexatious refusal to pay even if there is a question as to whether the claim is valid under the policy?

This matter dealt with a life insurance policy to which the Plaintiff was a beneficiary. Id. at 250. There was evidence that the death could be either an accident—a covered death—or a suicide—a non-covered claim under the insurance contract. Id. Based on this, the claim was denied. Id. The court ultimately found that the Defendant could not show the death was a suicide, and by denying the claim where it should have known it couldn’t prove suicide, a penalty and award of attorneys’ fees for vexatious refusal was appropriate based upon the trial court’s finding of no just cause or excuse. Id. at 262.

In this case, Plaintiff’s husband had a life insurance policy through Defendant. Id. at 250. The husband was forced to retire, caused by several health problems. Id. He became very depressed and was sent to a psychiatric unit of a hospital. Id. He was killed in the hospital, after suffering from fatal burns. Id. Plaintiff filed a claim to recovery as the beneficiary of her husband’s policy. Id. The claim was denied by Defendant based upon a suicide exclusion in the life insurance policy. Id. Plaintiff filed suit seeking payment and a penalty for vexatious refusal to pay. Id.

The court first noted that the jury was correct (or at least, wasn’t wrong) in determining that death was accidental and thus, covered under the policy. Id. at 252-53. Finding that the claim was covered and had not been promptly paid, the question of whether the vexatious penalty was proper. Id. at 260. The trial court had found that there was no just cause, and a trial court’s decision will only be overturned if found to be “an abuse of discretion” because “no reasonable person would take the view adopted by the trial court.” Id.

The trial court had determined that there were sufficient factors to support a finding that the claim was denied without just cause. Id. The investigation conducted by Defendant was lacking and conducted at a slower-than-normal rate compared to industry practices. Id. Even after the investigation was concluded, there seemed to be nothing in the report to definitely show the death was intentional. Id. This was important, because Kansas requires the insurance company to prove a claim falls within an exclusion. Id. These facts were sufficient to support the trial court’s decision to impose the penalty. Id. The fact that the validity of the claim had to be decided via a trial did not prevent a finding of vexatious refusal to pay. Id.