Punitive Damages Must Be Added to Gross Income for Tax Purposes
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The stated purpose of punitive damages is to punish a wrongdoer civilly to deter the wrongdoer and others from acting wrongfully. Insurance Bad Faith litigants dream of large punitive damage awards as a bonus and revenge upon the insurer that did not treat them fairly.
Punitive damages may be awarded where there is substantial harm and where there is none. [Restatement (First) of Torts § 908 cmt. c (Am. L. Inst. 1939); see also Smith, 461 U.S. at 54–55, 103 S. Ct. at 1639] Society has an interest in deterring and punishing all intentional or reckless invasions of the rights of others, even though it sometimes chooses not to impose any liability for lesser degrees of fault.
What Does the Insured Get to Keep of a Punitive Damages Award?
Consider an insurance bad faith judgment where the jury awards the plaintiffs (for ease of calculation) $1,000,000 in compensatory damages and $9,000,000 in punitive damages. The Plaintiffs’ lawyer, in a standard contingency fee agreement, takes 40% of the gross award or $4,000,000 and expenses of $500,000 for experts and other litigation expenses.
The plaintiffs’ share of the recovery is $5,500,000. If the Plaintiffs live in California or New York they will pay approximately 39% federal income tax and approximately 10% state income tax on their gross earnings in that year. Assuming the Plaintiffs earned nothing in the year of the judgment they are responsible to pay taxes on the $9,000,000 punitive damage award or slightly less than $4,500,000. In essence they receive none of the punitive damage award and the lawyer pays taxes on his $4,000,000 recovery of legal fees. If the plaintiff attempts to avoid paying tax on the punitive damage award they may be assessed a 20% penalty.
A Taste of What Subscribers Get
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(c) 2025 Barry Zalma & ClaimSchool, Inc.
INSURANCE FRAUDSTER MUST PAY INSURER FULL RESTITUTION
Post 5049
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Plaintiff Liberty Insurance Corporation (“Liberty”) issued a homeowners insurance policy to Defendant Jack Strunk that was active when his home was damaged by fire. Strunk made two insurance claims: one for fire damage and another for alleged theft of certain personal property after the fire. Strunk sued Liberty for the payment of the alleged damages. That case was removed to federal court and ultimately settled by Liberty paying $100,000 to Strunk.
In Liberty Insurance Corporation v. Jack A. Strunk, Civil Action No. 5:24-128-DCR, United States District Court, E.D. Kentucky (April 4, 2025) Liberty sued Strunk for return of the amounts paid in settlement after he pleaded guilty to defrauding Liberty.
THE CRIMINAL CONVICTION
Strunk was convicted of felony insurance fraud. This is not contested as Strunk admited to ...
Private Limitation of Action Provision Defeats Suit Against Insurer
Post 5049
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This case involves a contractual statute of limitations in an insurance policy. Sidney and Shatika Davis (together, “Davis”) argue the trial court erroneously granted summary judgment in favor of Homeowners of America Insurance Company (“HAIC”).
In Sidney Davis And Shatika Davis v. Homeowners Of America Insurance Company, No. 05-24-00035-CV, Court of Appeals of Texas, Fifth District, Dallas (April 7, 2025) because: (i) the contractual limitations period was valid (ii) the limitations was not tolled, (iii) HAIC did not breach the contract by failing to pay the amounts claimed, and (iv) HAIC addressed the fraud claim in its summary judgment motion.
BACKGROUND
HAIC issued an insurance policy for the Davis property (the “Property”). The Policy includes a contractual limitations period that requires suit to be filed by ...
Zalma’s Insurance Fraud Letter – April 15, 2025
Posted on April 15, 2025 by Barry Zalma
ZIFL – Volume Number 29 Issue No. 8
Read the full article at https://lnkd.in/gfbHTC6G, See the full issue of ZIFL in Adobe .pdf format at https://lnkd.in/ghr52uM4, see the full video at https://lnkd.in/gnuSwaYN and at https://lnkd.in/gFPWAJEW, and at https://zalma.com/blog plus more than 5000 posts.
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See the full issue of ZIFL in Adobe .pdf format at https://zalma.com/blog/wp-content/uploads/2025/04/ZIFL-04-15-2025.pdf
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter ...
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Duties and Liabilities of Insurance Brokers
Posted on March 12, 2025 by Barry Zalma
Excellence in Claims Handling
This blog post is just a taste of the full article that is only available to subscribers to Excellence in Claims Handling. Anyone can subscribe to “Excellence in Claims Handling” at https://barryzalma.substack.com/subscribe for only $5 a month or $50 a year.
Cases in which insurance brokers’ liability is in question depend in part on whether brokers are seen to be serving a fiduciary role or simply acting as a conduit between the insured and the insurer.
A person or an entity is a fiduciary with respect to a plan to the extent:
he exercises any discretionary authority or discretionary control respecting management of such plan ...
Read the full article at https://www.linkedin.com/pulse/duties-liabilities-insurance-brokers-barry-zalma-esq-cfe-mmpbc, if you Subscribe to “Excellence in Claims Handling” at https://barryzalma.substack.com/subscribe for only $5 a month or $50 a year.
Duties and Liabilities of Insurance Brokers
Posted on March 12, 2025 by Barry Zalma
Excellence in Claims Handling
This blog post is just a taste of the full article that is only available to subscribers to Excellence in Claims Handling. Anyone can subscribe to “Excellence in Claims Handling” at https://barryzalma.substack.com/subscribe for only $5 a month or $50 a year.
Cases in which insurance brokers’ liability is in question depend in part on whether brokers are seen to be serving a fiduciary role or simply acting as a conduit between the insured and the insurer.
A person or an entity is a fiduciary with respect to a plan to the extent:
he exercises any discretionary authority or discretionary control respecting management of such plan ...
The Basics Needed by a Liability Adjuster
Post 5003
Posted on February 25, 2025 by Barry Zalma
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Adjusting liability insurance claims requires skill, patience, knowledge of insurance, basic knowledge of tort and contract law, and knowledge and experience as an investigator. The liability claims adjuster is faced with the following basic obligations:
- To understand the law of torts as applied in the state where the adjuster works.
- To understand the law of contracts as applied in the state where the adjuster works.
- To understand sufficient medical terminology to be able to evaluate claims of injury.
- To understand the costs to repair or replace damaged real or personal property.
- To understand how to read and apply the terms and conditions of a liability insurance policy.
- To understand how to thoroughly investigate all claims assigned.
- To conduct an investigation of every claim ...
