W.Va. Jury Finds Chartis Owes $58M In Bad Faith Verdict

The lawyer who won a $58 million judgment against Chartis Inc., the property/casualty arm of American International Group Inc., in a long-running environmental coverage lawsuit in West Virginia, said he would not be surprised if the company appeals the verdict.

On Dec. 20, a Harrison County, W.Va. jury found two AIG insurance subsidiaries "intentionally, willfully and maliciously" mishandled an insurance claim filed by Hess Oil Co. The jury held that because of the insurers' bad faith conduct, Hess Oil should be awarded $5 million in compensatory damages and $53 million in punitive damages.

The case stems from a gasoline spill that was discovered in 1998 at a location near a facility owned by Hess Oil.

Michael Romano, a Clarksburg, W.Va.-based solo practitioner, said Chartis accepted liability for the claim and began supervising and paying for the cleanup in 1999. For more than a decade, Chartis spent hundreds of thousands in cleanup costs. But when AIG declined to pay for more than $250,000 in cleanup work it had already authorized, AIG and Hess Oil were hit with a lawsuit, Romano said.

Chartis settled that suit and then sued Hess Oil for $900,000, alleging Hess Oil had misrepresented facts regarding this spill on an insurance application in 1997.

The jury ultimately found Hess Oil's claim had been wrongfully denied in an effort to delay and reduce the insurance payout, Romano said. "The jury awarded punitive damages in the case in order to deter AIG, its subsidiaries and other insurance companies from intentionally and maliciously mishandling future claims filed by West Virginia businesses and families -- the manner in which this claim was found to have been handled," Romano said.

Efforts to reach Chartis for comment were unsuccessful.

Romano said because his client was awarded punitive damages, he and his co-counsel James Varner Jr. are entitled to attorneys' fees. Once those fees have been calculated by the court, Chartis will have 30 days to file an appeal with the West Virginia Supreme Court.

"We believe that everyone in West Virginia has a right to appeal their case to the state supreme court," Romano said. "But we think that this case should serve as a signal to insurance companies that they should realize the kind of damage they can cause when they engage in bad faith practices."

Should the verdict be upheld, the jury award will add to losses AIG has seen in recent months.

Last month, Robert H. Benmosche, president and chief executive officer, said the company's third-quarter net loss of $4.1 billion came as a result of a number of events that proved to be a real life stress test.

That said, the company saw improved rates on its property/casualty business during the same time frame. Renewed business rates increased by 4.1% for the quarter, and property rates rose by 8%. On the casualty side, workers' compensation rates were up 6.3% year over year for the quarter (Best's News Service, November, 4, 2011).

AIG currently has a Best's Financial Strength Rating of A (Excellent).

(By Jeff Jeffrey, Washington Correspondent: [email protected])