Non-American insurers have long been covering risks in, and connected with, the United States. As with any insurance business there may be occasions where the insurer wishes to dispute his liability under the policy. The insured may then institute proceedings against his insurer for failure to pay out; insurers unused to American litigation generally believe that in such circumstances their maximum liability is limited to the amount due under the policy, together with interest.

However, in an increasing number of actions brought before American courts insurers are faced with claims not only for the amounts due under the policy and interest, but also for compensatory and punitive damages. This article examines the basis on which such additional damages are awarded by American courts.

Some American States make provision for additional payments by their local legislation. States with such local statutes include Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Missouri, Oregon, Tennessee and Texas. While the approach adopted differs from State to State, the law of all of these States permits the insured to recover a proportion of his attorney’s fees (a successful litigant in America is not usually awarded legal costs); five of these States (Georgia, Louisiana, Missouri, Tennessee and Texas) permit the insured to recover compensation over and above the policy amount, interest and costs. Attorney’s fees and compensation generally become payable under the statutory regime where the insurer has failed to meet the claim within a prescribed time limit and/or has acted unreasonably and without just cause in withholding payment. Where additional compensation above attorney’s fees is recoverable, it is generally limited to a fixed percentage of the policy amount and interest due. This amount ranges from 10% (Missouri) to 25% (Georgia and Tennessee).

Claims presented under these local statutes rarely present great problems to insurers; the insured’s additional recovery, if any, will be limited and the insurer can reasonably assess the amounts at stake. However, claims for additional damages are often brought otherwise than under one of these local statutes. Where there is no statutory ceiling on the amount recoverable insurers face greater problems in assessing the extent of the risk that they run in declining liability.

Contractual claims for compensatory damages for the insurer’s breach of contract in failing to pay amounts due under a policy fall between two conflicting approaches