In recent years, tort lawyers have succeeded in establishing a “bad faith” cause of action against insurance companies for their failure to offer to settle certain tort claims for policy limits brought against their insured. In these litigations, large punitive damages or their functional equivalents have been assessed against insurance companies for their failure to offer policy limits. This has a dual effect. First, it directly enriches tort lawyers. Second, insurance companies, fearful of punitive damages awards if they fail to make substantial settlement offers, are more likely to offer higher settlements, even when they do not believe the claim merits such an offer.

Punitive damages amounting to tens of millions of dollars have also been awarded against medical insurers and HMOs for failing to cover “experimental” treatments for life-threatening conditions. For example, a jury awarded $77 million in punitive damages to a family of a woman who died after an HMO denied her the ability to undergo an experimental bone marrow transplant. In another case, a jury rendered a $116 million punitive damages award for an “HMO's refusal to authorize payment for an expensive, state-of-the-art treatment for terminal cancer that the HMO considered to be experimental.” No doubt, some medical insurers' denials of coverage have more to do with financial self-interest than with the medical appropriateness of the course of treatment.