In October 1991 Larry Link and Jason Axsom were involved in an auto-motorcycle accident in which Axsom sustained serious injuries. Link had a policy issued by Allstate with a $50,000 limit. Before the jury in the trial court began its deliberations, Axsom offered to settle for the policy limit, but Allstate rejected the offer. The jury returned a verdict in favor of Axsom for $80,500.

Link assigned to Axsom any rights which he had against Allstate, and Axsom filed this action against Allstate alleging that Allstate had acted in bad faith in rejecting Axsom's offer to settle for the policy limit. In addition to the jury's award, Axsom sought to recover punitive damages and attorney's fees. Allstate contended that, as assignee of the insured's rights, Axsom was not entitled to either. The trial court granted Allstate's motion with respect to the attorney's fees but found that Axsom was entitled to punitive damages. Allstate appealed on the theory that the insured could not assign the rights to punitive damages since such damages were personal in nature.

The question as to whether the insured could assign any rights he might have for punitive damages was a matter of first impression in Indiana, and the court commented that few courts have decided the matter. The court noted that Indiana law forbids the assignment of personal tort claims, but in this case the entry of judgment against the insured constituted actual damages since it impaired the insured's credit. Punitive damages and actual damages serve two distinctive purposes. Actual damages are meant to compensate a victim for harm suffered by him/her. Punitive damages are intended to punish the wrongdoer and deter others from the same conduct.

The court commented: "If the only damages the insurer will have to pay upon a judgment of breach are the amounts that it would have owed under the policy plus interest, it has every interest in retaining the money, earning the higher rates of interest on the outside market, and hoping eventually to force the insured into a settlement for less than the policy amount."

The judgment entered in the trial court against Allstate for punitive damages was affirmed.

Allstate Insurance Company, Appellant v. Jason Axsom, as assignee of Larry Link--No. 54A05-9704-CV-124--Court of Appeals of Indiana--July 15, 1998--696 North Eastern Reporter 2d 482.