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Blue Cross & Blue Shield of Miss. v. Campbell
Citations: 466 So. 2d 833; 1984 Miss. LEXIS 2072Docket: 54744
Court: Mississippi Supreme Court; December 18, 1984; Mississippi; State Supreme Court
Blue Cross Blue Shield of Mississippi, Inc. appealed a judgment from the Circuit Court of Washington County, which favored William T. Campbell with $10,000 in damages beyond his insurance coverage. The Supreme Court of Mississippi reversed this decision, stating there was no justification for damages exceeding the policy provisions. Campbell applied for a non-group insurance policy on October 2, 1980, falsely answering "No" to questions regarding prior treatment for alcoholism and ulcers. The insurance application explicitly stated that no benefits would be provided for conditions existing before the policy's effective date. The policy was issued on October 16, 1980, with a similar exclusion for pre-existing conditions. On December 3, 1980, Campbell was hospitalized for acute alcoholic pancreatitis, leading to a claim for $8,210.87 in charges. Notably, Campbell signed an authorization for direct payment to the hospital but acknowledged financial responsibility for any charges not covered. Blue Cross requested additional medical information from Delta Medical regarding Campbell's medical history on February 19 and again on March 2, 1981, but did not receive a timely response. When Delta Medical eventually submitted the information, Campbell's discharge summary indicated a history of excessive alcohol consumption and prior treatment for a duodenal ulcer. The court found that Campbell's condition fell under the policy's exclusion for ailments existing prior to coverage, leading to the reversal of the lower court's decision in favor of Blue Cross. After the fifth day in the hospital, the patient exhibited symptoms of alcohol withdrawal, including disorientation and combativeness, which were treated with Haldol. The patient was admitted for abdominal pain, nausea, and vomiting, denying diarrhea but acknowledging heavy weekend alcohol consumption. His medical history includes treatment for a duodenal ulcer and a long-standing heavy drinking habit. The diagnosis recorded was acute pancreatitis likely due to alcoholism, alongside an active duodenal ulcer and general debility. Blue Cross denied the claim based on the hospital records. On March 26, 1981, the patient signed a Discharge Payment Agreement with Delta Medical, acknowledging a total bill of $8,180.87 from his hospitalization between December 3 and December 19, 1980, agreeing to pay $50 monthly without interest and allowing a 15% collection fee upon default. The patient was readmitted on April 28, 1981, and discharged on May 11, 1981, with a claim submitted totaling $2,823.28 for diagnoses of acute pancreatitis, acute gastritis, urinary tract infection, and possible active duodenal ulcer. The second hospitalization history indicated previous treatments for pancreatitis and ulcers, confirming that the patient had been treated in December for pancreatitis and a duodenal ulcer. The discharge summary noted satisfactory healing of the ulcer and advised a convalescent diet. Blue Cross received a revised claim on May 21, 1981, which altered the diagnosis by crossing out "acute alcoholic" and replacing it with "acute pancreatitis," annotated as "corrective billing" for a wrong diagnosis. However, due to the lack of correction in the hospital records, Blue Cross continued to deny the claim. The patient was subsequently hospitalized again from June 16 to June 22, 1981. Delta Medical submitted a claim to Blue Cross for a patient diagnosed with "Acute Pancreatitis and small duodenal ulcer," including an authorization for payment to Delta Medical. The total hospital charges amounted to $1,514.50. The hospitalization diagnosis reiterated "acute pancreatitis, Small Duodenal Ulcer," with "alcohol Abuse" noted as a secondary complication. Dr. Yeldell documented the patient's prior treatment for these conditions and confirmed the continuing alcohol abuse. On July 31, 1981, Campbell retained attorney Leslie D. King, who requested a reconsideration of the claim, including a note from Dr. Yeldell asserting that the condition was not pre-existing. Blue Cross acknowledged receipt of this correspondence on August 7, 1981, and subsequently agreed to pay for the previously denied charges in a letter dated August 27, 1981, indicating that copies were sent to Campbell, Dr. Yeldell, and Delta Medical. On August 28, 1981, Campbell instructed Blue Cross to direct payment for the claims to both himself and King, while King wrote back to clarify that the check should be issued jointly and to address additional expenses incurred by Campbell due to Blue Cross’s previous denial, totaling $13,352.97. Sally McDavid, General Counsel for Blue Cross, acknowledged receipt of King’s letter on September 1, 1981. The company, following a previous communication from Mrs. Guenin, has decided to pay contract benefits for services provided to Mr. Campbell, which were initially denied on grounds of pre-existing conditions prior to the contract's effective date of October 15, 1980. A detailed summary of total charges is attached, revealing that Mr. Campbell incurred $13,028.65 in services, with a payment due of $10,574.92 under the contract stipulating an annual deductible of $100, an 80% coverage of most charges, and 100% coverage for hospital room and board at the semi-private rate. The denial of benefits was based on medical records and was influenced by a memo from Dr. Yeldell, which was not previously reviewed by the company. A check for $10,574.92 was issued to both Mr. Campbell and his attorney, King, on September 2, 1981, which was cashed; from these proceeds, Campbell settled his hospital bill and retained the remainder. Campbell had no formal contract with King, stating he hired him to recover unpaid bills from Blue Cross. Subsequently, Campbell filed a lawsuit on October 5, 1981, later amending his complaint to seek $100,000 in punitive damages and $25,000 in actual damages due to Blue Cross's alleged wrongful denial of his claim. During the trial commencing November 19, 1982, witnesses for Campbell included himself, Dr. Yeldell, and an insurance clerk from Delta Medical, while Blue Cross presented two witnesses, including Patsy Cruz, a nurse from their Medical Review Department. Cruz testified that the claim for December 1980 hospitalization was initially reviewed by another nurse, who concluded that the condition was pre-existing, a determination later supported by the Medical Director. Evidence suggested that Mr. Campbell’s pancreatitis was likely related to long-standing alcohol issues, with indications of a history of ulcers. Dr. Yeldell's hospital records indicated that Campbell's pancreatitis was related to alcoholism, a conclusion supported by the Medical Director and consistent with medical literature. Despite a corrected diagnosis submitted on May 21, 1981, the Medical Review Department, led by Cruz, maintained denial of the claim, citing evidence from Campbell's April 1981 hospitalization for pancreatitis and an active duodenal ulcer. Key individuals in the denial process included Mrs. Flowers and Dr. Caldwell. A reconsideration was initiated after receiving a letter from King, which included a statement from Dr. Yeldell denying a pre-existing condition. Upon review, Cruz authorized payment for all claims, although Dr. Caldwell was unavailable due to illness. Charlene Oltremari Putnam, an insurance clerk with Delta Medical, testified that she had received a denial notice citing a pre-existing condition and acknowledged submitting the corrected diagnosis. She clarified that follow-up records were not requested through her but through medical records. Ultimately, the circuit judge instructed the jury on punitive and actual damages. The jury ruled in favor of Campbell, awarding him $10,000 in compensatory damages, leading to a judgment for that amount. Blue Cross's assertion that there was insufficient evidence to support the jury's verdict and that it was entitled to judgment notwithstanding the verdict is upheld. The court found no basis for punitive damages or any other damages to be submitted to the jury, indicating that the circuit judge erred in doing so. Blue Cross fulfilled its obligations under the policy by paying the full amount due before any lawsuit was initiated. The key issue was whether Blue Cross’s actions warranted a jury's determination of additional damages, which was deemed unjustified. In this case, Campbell, the policyholder, assigned his claim to Delta Medical, the hospital. Blue Cross's primary business involves processing and paying hospital claims, and the claims in question belonged to Delta Medical rather than Campbell. Medical records indicated a pre-existing condition prior to the policy's issuance, and there was no evidence that Delta Medical acted to counter Blue Cross's claim of a pre-existing condition. Medical literature supports that alcohol use is a significant factor in acute pancreatitis, which was relevant given Campbell's history of alcohol abuse. After five days of hospitalization, Campbell required restraints and was heavily medicated, leading to a significant portion of the hospital bill being attributed to his drug treatment. Blue Cross was justified in rejecting the claim, as the hospital's records raised serious doubts about the claim's validity. The Blue Cross medical staff reviewed the evidence and concluded the claim was excluded under the policy terms. There was no evidence of arbitrary or capricious behavior by Blue Cross in denying the claim, and the available medical records supported their decision. Although there were arguments regarding the adequacy of Blue Cross's scrutiny of the claim, the crucial factor was the medical documentation available at the time of denial, which indicated a strong association between alcohol abuse and acute pancreatitis. Dr. Yeldell could confirm that Campbell's acute pancreatitis attack did not occur 24 hours before his hospital admission, but could not definitively state that it was not caused by conditions that existed prior to the contract's effective date. Although he described the pain leading to Campbell's emergency room visit as recent, he did not assert that the acute attack was unrelated to any pre-existing ailment or condition as outlined in the exclusionary language of the insurance policy. Claims submitted by the hospital suggested a cause excluded by the policy, leading Blue Cross to deny them. The hospital made no substantial effort to amend the records. It was Campbell, not Delta Medical, who sought legal assistance, resulting in a letter to Blue Cross that prompted a reconsideration of the claim based on Dr. Yeldell's accompanying note. Blue Cross subsequently agreed to pay the claim shortly after reviewing the new information from Campbell. The trial record indicates that only Oltremari from Delta Medical submitted the claims and made minor corrections. Dr. Yeldell noted pressure regarding the diagnosis but did not provide a formal correction to the hospital records. The court referenced Standard Life Ins. Co. v. Veal and Reserve Life Ins. Co. v. McGee, establishing that an insurer can deny claims based on policy exclusions without bad faith. Blue Cross acted within its rights in denying Delta Medical's claims and, having later paid Campbell, absolved itself of further liability. The Circuit Court's judgment was reversed in favor of Blue Cross, affirming the insurance company's legal right to investigate claims. The petition for rehearing was denied, with clarifications issued regarding the previous ruling. Campbell contends that, according to the majority opinion in Reserve Life, the question of whether an insurance carrier acted in "bad faith" should always be decided by a jury, referencing the guideline from Paymaster Oil Co. v. Mitchell. He claims that denying a jury's input on this disputed factual issue infringes upon his rights. However, this argument overlooks that in punitive damages cases, the trial judge must first assess whether the evidence supports submitting the punitive damages issue to the jury. This evaluation requires the judge to consider all evidence, not just the plaintiff's, and to determine if the defendant's conduct warrants jury consideration for punitive damages. The court has established guidelines for determining punitive damages in insurance disputes, specifically in Standard Life Insurance Co. of Indiana v. Veal, which emphasizes that an insurance company that can refuse payment without consequence could do so unreasonably. A refusal to pay a legitimate claim, deemed an intentional wrong, may constitute an independent tort. However, if the insurer presents a legitimate or arguable reason for denying a claim, punitive damages are not applicable. The trial judge must ascertain whether the insurer had a reasonably arguable basis for denial. If such a basis exists, the jury should not consider a "bad faith" award. The responsibility lies with the trial court to evaluate the evidence and determine if the insurer's denial of the claim was justified before any punitive damages can be awarded. A trial court must refuse to grant a punitive damages instruction if it finds that a legitimate or arguable defense exists, regardless of whether the question of compensatory damages is submitted to the jury. The presence of such defenses does not automatically entitle the insurer to a directed verdict on the payment of the contract claim. If the trial judge does not grant a directed verdict on the contract claim, it may imply that the insurer had a reasonably arguable basis for denying the claim, potentially shielding it from punitive damages based on bad faith. However, it's possible for an insurer to have defenses against contract liability yet still be liable for bad faith, as highlighted in the case of Reserve Life, where the majority opinion allowed for jury consideration of bad faith despite contract liability issues. The court emphasizes that the determination of whether an insurer had a reasonably arguable basis for denying the claim transcends the directed verdict status and encompasses all evidence presented. The plaintiff bears a significant burden to prove the absence of a reasonably arguable basis for the insurer's denial of the claim; failure to do so mandates that the punitive damages claim be dismissed from jury consideration, resulting in a directed verdict for the insurer on the bad faith claim. The circuit judge granted five jury instructions allowing for punitive damages, which the jury ultimately denied. Although the instructions correctly articulated the law on punitive damages, the court erred in permitting an instruction based on bad faith, as Blue Cross had a reasonably arguable basis for denying the claim. The court also allowed an instruction for compensatory damages but emphasized that such an instruction would require a prior determination by the trial judge that there was no reasonable basis for the denial, which was not the case here. The document references Alabama case law, noting that under Alabama law, a court must first establish whether there was a reasonably arguable basis to deny a claim before any bad faith claims can proceed. In cases of punitive damages, it is acknowledged that emotional distress and attorney's fees may be considered by the jury. The court expresses caution against adopting new damage concepts without clear necessity or wisdom, reaffirming existing standards in Mississippi law regarding punitive damages. The petition for rehearing has been denied, with Chief Justice Patterson and Justices Walker, Lee, and Sullivan concurring, while Justices Robertson, D.M. Lee, Prather, and Anderson specially concur. Justice Robertson concurs with the denial, referencing Justice Hawkins' original opinion from December 19, 1984. He notes that Blue Cross had sufficient facts to counter Plaintiff Campbell's request for a peremptory instruction on liability regarding the underlying contract claim. He emphasizes that Campbell's evidence does not support a bad faith claim. In his previous dissent, Robertson expressed concerns about the legal framework established in Reserve Life Insurance Co. v. McGee, which he believes should have prevented Blue Cross from obtaining a peremptory instruction or judgment notwithstanding the verdict. Although he appreciates the majority's movement away from the Reserve Life view, he criticizes the majority opinion for failing to provide clear guidelines for trial judges on bad faith refusal claims and for appellate review of such decisions. Robertson intends to clarify the substantive components of bad faith refusal claims and articulate a comprehensive legal standard, expressing concern that the current case law gives an impression of ad hoc decision-making, which complicates judges' efforts to apply the law consistently. He acknowledges Justice Hawkins' cautious approach in the rehearing denial but highlights the need for clearer legal standards following eight years of evolving case law. Guidance for trial judges and litigants in bad faith refusal cases is essential to ensure these cases are tried under neutral and consistently applied legal standards, minimizing the influence of bias and arbitrary factors. A bad faith refusal claim arises primarily from an insurance contract, although it could be applicable in similar contexts. To establish such a claim, the plaintiff must demonstrate: (a) the insurer intentionally refused to pay the claim promptly, and (b) there was no reasonable basis for this refusal. If these elements are proven, the plaintiff may recover actual damages beyond the contract benefits, even though explicit cases permitting this recovery are sparse. For punitive damages, the plaintiff must meet a higher threshold, as these are reserved for extreme cases involving significant wrongdoing such as fraud or reckless disregard for the plaintiff's rights. The legal framework for adjudicating bad faith refusal and punitive damages still lacks clarity and a principled approach to mitigate bias in the decision-making process. The trial judge's determination of whether to submit a bad faith refusal claim to the jury hinges on the rules and procedures outlined in Reserve Life. The majority opinion in that case presents a three-step formulation which the author critiques as confusing, irrelevant, and erroneous. Specifically, in Step One, the trial court must decide if the insurer had a legitimate or arguable reason for denying the claim based on the evidence presented. If such a reason exists, a punitive damages instruction should be denied, although the jury may still address the compensatory claim. The author identifies several problems with Step One: 1. The standard or rule of law for determining an arguable reason is unspecified, although it should align with the factual considerations from Paymaster Oil Mill Co. v. Mitchell. The defendant's request to determine this issue is akin to requesting a peremptory instruction on the bad faith claim. 2. The phrase "legitimate or arguable claim existed" is misleading; the determination of whether the insurer had an arguable reason is fundamentally a question of fact, requiring adherence to the Paymaster Oil standard. 3. The terminology used in Step One is confusing, particularly in labeling the second element of the bad faith claim. The author suggests that this element should be referred to as the "absence of an arguable reason," arguing that "legitimate," "arguable," and "reasonable" are synonymous in this context, thereby questioning the necessity of distinguishing between them. Two synonyms are deemed unnecessary in the context of legal clarity. The primary error in the Reserve Life framework is the omission of a critical initial determination based on the Paymaster Oil standard, which assesses whether the plaintiff insured is entitled to a peremptory instruction on the liability aspect of the contract claim. If the trial court concludes it cannot determine that the insurer had a legitimate and arguable defense, the issue should then be submitted to the jury, although the document critiques the lack of a specified legal standard for this determination. The term "defensive position" suggests that the insurer must prove an "arguable reason" as a defense; however, the absence of any arguable reason for the insurer's refusal to pay is actually an element the plaintiff must establish by a preponderance of the evidence. A further subtlety in the analysis indicates that Step Two does not constitute a separate phase but is intrinsically linked to Step One; if the plaintiff is entitled to a peremptory instruction regarding the underlying policy claim, then the bad faith refusal claim should also be presented to the jury. Conversely, if the plaintiff is not entitled to such an instruction, the insurer may be entitled to a peremptory instruction on the bad faith claim. In most cases, only Step One will be necessary. The determination of whether the jury should consider the bad faith refusal claim for non-contractual actual damages hinges on the proper resolution of Step One. Step Two, when relevant, pertains solely to the rare instances where punitive damages might be appropriate for jury consideration, with ongoing efforts needed to clarify the standards for assessing such damages, which are being disentangled from the Paymaster Oil precedent. Step Three of the Reserve Life majority's legal formulation requires the trial court to first determine if there is a jury question regarding the legitimacy of an insurance company's reason for denying or canceling a claim. If so, the court must then assess whether the evidence is adequate to warrant submitting a punitive damages instruction to the jury, following the guidelines from the Veal case. The Veal case establishes that punitive damages are not applicable if the insurance company has a legitimate or arguable reason for denying a claim. The excerpt highlights that the clarity on what constitutes "sufficient evidence" for the court to present this issue to the jury is lacking in Veal. The assessment of whether an insurance company had an arguable reason for its actions is linked to the insured's entitlement to a directed verdict on the underlying contract claim. The distinction made in Step Three between determining a jury question regarding the absence of an arguable reason and the punitive damages issue is valid but requires a more refined legal framework regarding bad faith refusal claims. The author proposes that a plaintiff should be able to recover actual or compensatory damages resulting from the insurer's bad faith actions, including economic losses and emotional distress. If a plaintiff is entitled to a directed verdict on their underlying policy claim, they should automatically be allowed to present their damages to the jury. The author indicates that if a prior case had been ruled in favor of the plaintiff, they would have had to confront the issue of actual damages directly. Ultimately, the author argues that the majority's Step One-Two-Three formulation should be abandoned and that more than a mere clarification is necessary. Justice Hawkins asserts that the key criterion for determining whether a bad faith refusal claim should go to jury is whether the trial judge grants a directed verdict to the insured on the contract claim. He believes this view effectively dismisses the precedent established in Reserve Life, indicating a need for a "fresh start" in legal interpretation. Although he acknowledges that the outcome in Reserve Life could remain unchanged under his perspective, he emphasizes that the current case is distinctly different. According to the established "Step One-Two-Three" approach from Reserve Life, he maintains that the bad faith claim was appropriately submitted to the jury. However, under his alternative formulation, he agrees with Justice Hawkins that Blue Cross should receive judgment notwithstanding the verdict. He clarifies that if an insurer denies liability or asserts lack of coverage at trial, and the evidence permits a reasonable jury to support the insurer's position, the insured is not entitled to a peremptory instruction on the underlying policy claim, thus insulating the insurer from a bad faith refusal claim. This principle is subject to an exception regarding "lying," where if evidence allows a reasonable jury to find in favor of the insured, it may justify a bad faith claim. The insurer must have a legitimate or arguable reason for denying a claim, supported by credible evidence, to avoid punitive damages. This reasoning aligns with existing case law and is consistent with Alabama's legal stance as well. To establish a prima facie case of bad faith refusal to pay an insurance claim in Alabama, a plaintiff must demonstrate entitlement to a directed verdict on the underlying contract claim, implying recovery as a matter of law. If evidence creates a factual dispute regarding the claim's validity, the tort claim does not warrant jury submission. Moreover, if there is a jury issue related to the plaintiff's entitlement to a peremptory instruction on the underlying claim, the insurance company has an arguable reason for denying payment, regardless of whether that claim is litigated. In cases where the underlying claim has been settled, the trial judge should determine if the plaintiff would have been entitled to a peremptory instruction had the claim been tried. The standard of reasonableness for jurors aligns with that for insurance adjusters, as both are human. An exception exists for claims centered on the truthfulness of insurance company representatives, termed the "lying" exception. If the case hinges on whether an insurance representative has lied, the bad faith refusal claim may be submitted to the jury even if the plaintiff is not entitled to a peremptory instruction on the underlying claim. This recognizes the risk of an insurance company creating a false jury issue through deceptive testimony. In such instances, if the jury’s decision relies on determining deliberate falsehood, the bad faith claim can proceed. However, mere credibility issues do not negate the insurer's arguable reason defense. The use of special verdicts under Rule 49(b) is encouraged in these scenarios. Judgment notwithstanding the verdict under Rule 50(b) and motions for a new trial under Rule 59 are mechanisms aimed at ensuring justice in legal proceedings. In bad faith cases, it is suggested that trial judges should assess whether a jury question arises regarding an underlying policy defense. If a jury issue is determined, a directed verdict in favor of the insurance company on the bad faith claim may be appropriate. However, given the complexities of real-life cases, it is often recommended that judges submit all issues to the jury when there is doubt, reserving the option to correct any verdict through a motion for judgment notwithstanding the verdict. This approach minimizes the need for retrials in cases where the court might later find a jury issue existed. The document highlights that many cases are close, and differing reasonable interpretations can arise even when substantive law is clear. Therefore, in bad faith refusal cases, when sufficient evidence exists, special verdicts under Rule 49(b) of the Mississippi Rules of Civil Procedure should be utilized. This entails submitting separate questions regarding the underlying policy and the insurance company's defenses, as well as, if justified by the evidence, questions regarding bad faith refusal and punitive damages. This process allows for clearer resolution and final judgment from both the trial court and, if necessary, on appeal. If the trial judge determines that the jury was properly instructed on the plaintiff's policy claim and that a peremptory instruction was not warranted, a judgment in favor of the plaintiff on the bad faith refusal claim would be legally barred. Such a determination indicates the insurance company had an "arguable reason" for denying the claim based on precedent from Standard Life Insurance Company v. Veal. In cases utilizing Rule 49 (b), an appellate court can conclusively resolve the matter by reversing any judgment on the bad faith refusal claim if the plaintiff was found not entitled to a peremptory instruction. The opinion by Justice Hawkins is recognized as a significant development, though it lacks clarity on several points. He emphasizes the trial judge's role in deciding whether the evidence justifies jury consideration of punitive damages. However, this conflates two key issues: (1) whether the bad faith refusal claim should be presented to the jury, which requires assessing actual damages, and (2) whether there is sufficient evidence for punitive damages. The determination of whether an insurance company had an arguable reason for refusing a claim involves both legal and factual considerations, adhering to the standards set in Paymaster Oil and its related cases. Ultimately, the right to a jury trial as guaranteed by the Mississippi Constitution must be preserved, particularly regarding factual inquiries central to the bad faith claim. The question of arguable reason is primarily factual and specific to the case at hand, reinforcing the need for jury involvement in civil actions. The inquiry remains a question of fact governed by Section 31 of the Constitution and the Paymaster Oil rule, analogous to technical questions in other fields. Justice Hawkins suggests replacing Paymaster Oil with guidelines from Standard Life v. Veal for assessing whether punitive damages should go to a jury, yet the opinion does not provide specific criteria for such determinations. The substantive questions outlined in Veal do not clarify when a jury should be involved. Justice Hawkins maintains that only a trial judge can assess if an insurer had an arguable reason for denying a claim, paralleling this to the determination of negligence, both of which involve mixed questions of law and fact. Under constitutional principles, these cannot be removed from the jury unless material facts are undisputed. The author disagrees with Justice Hawkins' assertion that Reserve Life was an exceptional case allowing jury submission of both contract and bad-faith claims. The author argues that the evidence in Reserve Life warranted a peremptory instruction on the contract claim, thereby justifying the bad-faith claim's jury submission. However, applying Hawkins' loose standards reveals that Reserve Life does not fit the criteria for jury submission regarding the bad faith claim. The author agrees with Hawkins that it's not absolute that a jury question on bad faith arises only if a peremptory instruction is given on the contract claim, nor can it be stated that all plaintiffs receiving such instructions are entitled to punitive damages, highlighting concerns about the ambiguities in these legal standards. The general rule regarding an insurer's avoidance of a peremptory instruction on an underlying policy claim lacks exceptions, except for the "lying" exception previously mentioned. To allow the jury to consider punitive damages, the Plaintiff must demonstrate that the insurer’s conduct was exceptionally outrageous, exceeding mere bad faith in delaying payment of a legitimate claim. The assertion that Blue Cross had a reasonable basis for denying the claim is contested, as trial testimony indicated otherwise. Evidence existed that would prevent the Plaintiff from obtaining a favorable peremptory instruction on the contract claim had it not been settled, thus barring the bad faith claim from being presented to the jury. The trial judge's refusal to grant Blue Cross’ motion for judgment notwithstanding the verdict is deemed erroneous. While there are criticisms of Justice Hawkins’ opinion, it is acknowledged as a significant improvement over previous formulations regarding the legal framework. Notably, disputes remain about whether an insurer’s payment of a claim prior to litigation constitutes an admission of wrongdoing, and concerns are raised about the implications of such a precedent on future claims handling. The majority and dissenting opinions agree on the legal standard for when a jury can consider punitive damages, but they differ in its application. The majority acknowledges that certain language in their opinion may cause confusion but clarifies that it does not alter their conclusion. In cases where the trial court finds a factual issue on liability yet permits a punitive damages instruction for bad faith, it may follow Justice Robertson's suggestion to first submit the liability issue to the jury. If the jury rules in favor of the plaintiff, the punitive damages issue may then be submitted. The Alabama Supreme Court has not approved compensatory or punitive damages on appeal since introducing a "compensatory damages" concept. Various cases are cited to illustrate the circumstances under which punitive damages are or are not awarded, particularly in insurance disputes. For example, punitive damages may be considered when an insurer intentionally acts in bad faith or takes advantage of a plaintiff's financial distress. Conversely, punitive damages are not typically awarded in cases involving genuine disputes, negligence, clerical errors, or when the insurer successfully defends against the main claim. Specific cases provide precedents for these outcomes, demonstrating the court's consistent approach to punitive damages in the context of insurance claims. Punitive damages are not warranted solely because an insurance company defended itself and lost a claim, as established in *Progressive Casualty Ins. Co. v. Keys*. Federal cases illustrate that punitive damages may be appropriate in instances of gross negligence during claim investigations or when an insurer denies a claim under provisions contrary to state law. However, punitive damages are not justified when there is a genuine dispute over coverage or factual issues, such as medical testimony or disability claims. Advice from counsel may serve as a defense, but it must be proven. The trial judge must assess whether the plaintiff would have prevailed on the underlying contract claim had it been litigated based on evidence. The document highlights the inadequacy of current legal standards and procedures regarding punitive damages in bad faith cases, noting that trial judges lack clear criteria for jury instructions. The jury's decision against the punitive damages claim in this case remains unchallenged due to inadequate briefing on the matter.