Richard Shenkman isn't the ideal candidate to file an "emotional
distress" lawsuit against an
company. Recent newspaper headlines describe the former ad
executive as "a ticking time bomb" who has inflicted a lot of
emotional distress himself.
Nonetheless, Connecticut's second highest court ruled in
February that Shenkman, though accused of burning down his East
Lyme, Conn., home in March 2007, can sue Central Mutual Insurance
Co. because of the way the insurer did -- or didn't -- investigate
If Shenkman succeeds in establishing a claim for intentional
affliction of emotional distress, the precedent could change the
legal landscape for insurers that drag their feet or fail to
properly evaluate a claim.
"Allowing a homeowner to sue an insurer for emotional distress
could have far-reaching effects," says Loretta Worters, a
spokesperson for the Insurance Information Institute (III). "Even
if the insurer wins, these suits consume time and money."
Shenkman's 115-year-old Victorian beach house went up in flames
just before a divorce court turned it over to his ex-wife. He
became a celebrity of sorts in 2009 when he kidnapped his ex-wife,
handcuffed her inside his other house and set fire to it during a
tense standoff with police. And when Central Mutual Insurance was
ready to pay off on the East Lyme beach house, it agreed to give
the money to Shenkman's ex-wife.
But Shenkman's attorney, Benjamin Gettinger, objected. The
insurance company should have done an "independent investigation"
of the East Lyme fire, he tells Insure.com, and not relied on the
divorce court or Shenkman's subsequent battle with the police as
evidence that he had burned down the beach house, which Shenkman
denies. The Connecticut Appellate Court ruled in his favor.
Ticking insurance time bombs
Shenkman won his appeal on solely the narrow issue that the ad
exec had standing to sue his insurer for "negligent infliction of
emotional distress." His ex-wife still gets the settlement for the
beach house. Gettinger says the nature of that
emotional distress will be revealed at the trial. The case is in
its early stages and Gettinger says he has yet to find a
psychiatrist or medical professional who will certify that the
insurer caused his client's emotional distress.
But if Shenkman's "emotional distress" case is successful, it
may compel other lawyers to play the same card. If such cases
companies that delay settling large claims -- a situation that
occurs every day - will face mounting pressure to change their
The toll of emotional distress
When homeowners perceive that their claims are not being handled
fairly and efficiently, it only adds to their already high level of
"Any time you lose a home it's the epitome of 'emotional
distress,'" says Ron Reitz, a public insurance adjuster and
president of Quality Claims Management Corp. in San Diego. "You
lose personal items, business records. You have to relocate the
pets and the kids." Add to that the stress of having to "jump
through all sorts of hoops" for your insurer, and Reitz has seen
why "small businesses often don't survive and marriages break
Reitz says it's strictly a numbers game for insurers, where they
do what they can to minimize their claims payouts with the
expectation that most people, particularly those with smaller
claims, won't fight for higher payments. But adding emotional
distress to a plaintiff's quiver of arrows would "up the ante" and
make insurers more willing to settle, Reitz predicts.
The III, which represents insurers, denies that the industry
will "delay, deny and defend" against claims in order to save
themselves money. "That's simply unsupported by the facts," says
III president Robert Hartwig, who notes in a recent presentation
that property insurers pay out more than $1 trillion in claims
every two to three years. That doesn't mean they lost money,
however. Net premiums still run about 40 percent over losses,
according to III data.
The worst of intentions
Shenkman isn't the only one asking for damages for emotional
distress. Robin and Hildrith Wegener, whose Louisiana property was
damaged in 2005's Hurricane Katrina, recently won an appeal for a
new trial after the Louisiana Supreme Court found errors in the
trial court judge's instructions to the jury when he told the
jurors that they could not issue an award for emotional distress.
The ruling was "subtle and complicated," said a Louisiana attorney
who asked not to be identified because he represents insurers, but
it does open the door for plaintiffs who, like the Wegeners, want
more money because the settlement delay caused them mental
Lawyers already have other weapons if they feel an insurer is
delaying a claim or requiring unnecessary paperwork. States
generally have "
unfair claims settlement practices acts
" under which policyholders can file complaints.
"A bad faith complaint is a good way to get an insurer's
attention," says attorney Steven Fairlie of North Wales, Pa., who
handles many homeowners' claims for faulty construction. Emotional
distress is difficult to prove, he adds.
Normally, the insurer has no intention of inflicting emotional
distress, says Fairlie. "The intent is simply not to pay."