Emotional distress damages are recoverable in an insurance bad faith action even if the emotional distress is not severe and substantial

In Torres v. Automobile Club of So. California (1995) 95 D.A.R. 9352, the Court of Appeal for the Fourth Appellate District held that emotional distress damages were not recoverable in an insurance bad faith action unless the emotional distress was severe and substantial. The Court of Appeal reversed an award for emotional distress damages supported by the plaintiff's testimony that he was outraged, frustrated, angered, upset and "lost a little bit of sleep". The Court of Appeal held that such evidence was insufficient to recover emotional distress damages in an insurance bad faith action, as the emotional distress must be "severe, substantial or enduring".

The California Supreme Court subsequently granted a petition for review but later limited the issue for review as to whether or not a defendant was entitled to a new trial on both liability and compensatory damages after reversal of a punitive damages award. On June 2, 1997, the Supreme Court held that retrial would be limited to the punitive damages issue only. (97 D.A.R. 6919.) The Supreme Court did not address whether or not emotional distress had to be severe and substantial to be recoverable in a bad faith action. However, that issue has again recently been addressed by the First Appellate District in its recent decision in Clayton v. United Services Automobile Association (1997) 97 D.A.R. 5786.

The First Appellate District in the Clayton case held that emotional distress need not be severe to be recoverable in an insurance bad faith action. The First Appellate district found that it did not need to follow the Torres decision as the Supreme Court had granted a petition for review limiting the issue on review as to the scope of a new trial after reversal of the punitive damages award. The Court of Appeal in Clayton held that once economic loss was shown, the plaintiff was entitled to all emotional distress caused by the insurers bad faith without proving any causal link to the economic loss.

In the Clayton case, USAA initially offered to settle an underinsured motorist's claim arising from the death of the insured's 15-year-old son for only $10,000.00 but on the eve of arbitration settled the claim for $175,000.00 (the policy limits less what was recovered from another insurer).

Interestingly, the only economic damages suffered by the plaintiff in the Clayton case was the plaintiff's attorney's fees incurred to obtain the benefits due him under his policy of insurance which was awarded as economic damages by the jury.