1999 -NMSC- 6, Allsup's Convenience Stores, Inc. v. North River Ins. Co.

• Decision Date: 03 December 1998
• Docket Number: No. 22,621,22,621
• Citation: 127 N.M. 1,976 P.2d 1,1999 NMSC 6
• Parties: 1999 -NMSC- 6 ALLSUP'S CONVENIENCE STORES, INC., and Allsup's Enterprises, Inc., Plaintiffs-Appellants and Cross-Appellees, v. The NORTH RIVER INSURANCE COMPANY and The United States Fire Insurance Company, Defendants-Appellees and Cross-Appellants.
• Court: New Mexico Supreme Court

Page 1

976 P.2d 1

1999 -NMSC- 6

ALLSUP'S CONVENIENCE STORES, INC., and Allsup's Enterprises, Inc., Plaintiffs-Appellants and Cross-Appellees, v. The NORTH RIVER INSURANCE COMPANY and The United States Fire

Insurance Company, Defendants-Appellees and

Cross-Appellants.

No. 22,621.

Supreme Court of New Mexico.

Dec. 3, 1998.

Rehearing Denied Jan. 29, 1999.

Ron Morgan, Chris Key, Michael Browde, Albuquerque, for Appellants and Cross-Appellees.

Civerolo, Wolf, Gralow & Hill, P.A., Ellen M. Kelly, Albuquerque, Fowler, Schimberg, & Cowman, P.C., Daniel M. Fowler, Denver, Skelton & Woody, Robert J. Woody, Scott K. Arnold, Austin, for Appellees and Cross-Appellants.

OPINION

McKINNON, J.

¶1 Today we consider the appeal of plaintiff-appellants Allsup's Convenience Stores and Allsup Enterprises and the cross-appeal of North River Insurance Company. This case raises an important question about the appealability of remittitur orders. We hold that such appeals should be allowed, and that a remittitur should not have been ordered; therefore, the trial court is reversed on that issue and the jury verdict reinstated. As to all other issues, we affirm.

I. FACTS AND ISSUES

¶2 The appellants in this case are Allsup Enterprises, Inc. and its subsidiary, Allsup's Convenience Stores ("Allsup's").¹ The appellees are North River Insurance Company and United States Fire Insurance Company ("North River"), which were, respectively, the workers' compensation and general liability insurers from 1984 to 1990 for all of Allsup's businesses. Below, the appellees were formally denominated "Crum and Forster Commercial Insurance and its Affiliates North River and U.S. Fire." The insurance carrier defendants were referred to collectively as "Crum and Forster" throughout the proceedings in the lower court. North River and U.S. Fire jointly have been the real parties in interest throughout the relevant period, and as stated by North River in its brief on cross-appeal, references in the record to "Crum and Forster" include defendants North River and U.S. Fire.² Thus, wherever "Crum and Forster" is referred to here, it refers to the acts of North River.

¶3 North River and Allsup's entered into a series of agreements for retrospective premium insurance. Under this plan, the premium is based in part upon the actual losses that occur during the policy period. Since these actual losses often or usually are not known until after the end of the policy period, the insured pays an estimated premium during the period, which is retrospectively adjusted downward or upward to a certain maximum at the end of the period. The adjustment depends on the insured's paid or incurred losses, according to the type of policy.

¶4 On the policies that form the background in this case, Alexsis, Inc. was the third party administrator directly responsible for claims handling. A three-way Memorandum of Agreement was signed to govern the relationship among Allsup's, Crum & Forster, and Alexsis. Three areas of disagreement developed between North River and Allsup's, that later became claims in this lawsuit. The claims are: 1) North River's alleged breach of obligations with respect to the administration of workers' compensation claims made against Allsup's, specifically obligations under the Memorandum of Agreement that Allsup's claims, and North River denies, imposed on North River a duty to supervise and ensure the quality of claims handling by Alexsis; 2) North River's alleged wrongful drawdown on a letter of credit, where the issue is which premiums under a number of successive policies were backed by the letter; and 3) North River's alleged failure to perform loss control services, such as instituting programs to diminish injuries on the job, deemed by Allsup's to be integral to the risk financing function of North River, but claimed by North River to be a role it never undertook.

¶5 A number of other issues are before us on appeal: 1) whether Allsup's has foregone the opportunity to object to certain jury interrogatories and the special verdict form; 2) whether the trial court properly found the Memorandum of Agreement to be ambiguous as a matter of law and if so, whether the jury's interpretation thereof was supported by substantial evidence; 3) whether the covenant of good faith and fair dealing is enforceable against North River for a failure to disclose information regarding the claims handling by Alexsis; 4) whether North River owed a fiduciary duty to Allsup's and, if so, whether it was breached; 5) whether the jury was properly instructed under NMSA 1978, § 57-12-1 to -22 (1995); 6) whether the trial court's granting of summary judgment in favor of Allsup's on the drawdown on the letter of credit was correct; 7) whether the jury award of punitive damages was unconstitutional or otherwise excessive; 8) whether the remittitur of a punitive damages award is properly before this Court, and if it is, whether it should be sustained or the jury's verdict reinstated. We consider the last issue first because of its jurisdictional importance.

II. ALLSUP'S APPEAL

A. Remittitur

¶6 On November 14, 1994, judgment was entered on the jury verdict of $540,000 in compensatory damages for Allsup's and against North River for inadequate claims handling, and for $4,792 in compensatory damages for the wrongful drawdown of the letter of credit. The jury also assessed punitive damages against North River for $4,000,000 for bad faith in the supervision of handling of claims and $500,000 for the wrongful drawdown. By directed verdict, the trial court awarded North River $1,645,708 on its cross-claim for unpaid premiums by Allsup's.

¶7 On November 28, 1994, North River filed a "Motion to Amend the Judgment, for Judgment Notwithstanding the Verdict, or in the Alternative, for New Trial, or for Remittitur." On December 27, 1994, the trial court issued Memorandum Order No. 66, addressed to North River's motion. The motion for JNOV was denied. With respect to the issue of remittitur or a new trial, the motion was framed in alternative terms. We consider the order, on its face granting the motion for remittitur, to have been a grant of North River's motion generally, so that Allsup's had a choice when the motion was granted of accepting remittitur or a new trial. The court exercising its discretionary power, albeit ambiguously, offered Allsup's the option of remitting a part of the award or accepting a new trial. As stated in Richardson v. Rutherford, 109 N.M. 495, 503, 787 P.2d 414, 422 (1990), "it has long been the law in this state that the trial court may require a remittitur as an alternative to the grant of a new trial to the unsuccessful party." The trial court's order granted remittitur on the punitive damages award in the amount of $3,000,000 on the supervision of claims handling, and in the amount of $400,000 on the drawdown on the letter of credit.

¶8 The next day, on December 28, 1994, North River filed a motion under Rule 1-60(B) NMRA 1998 asking the court to "stipulate a time period during which Allsup's had to either accept a reduction or elect a new trial." Rather than respond to this motion or make an election, Allsup's filed its Notice of Appeal on December 29, 1994. The trial judge then ruled she lacked jurisdiction to consider the merits of North River's motion to clarify. See Khalsa v. Levinson, 1998-NMCA-110, p 12, 125 N.M. 680, 964 P.2d 844 (whether an order is a "final order" is a jurisdictional question); Montoya v. Anaconda Mining Co., 97 N.M. 1, 4, 635 P.2d 1323, 1326 (Ct.App.1981) (same).

¶9 Allsup's appeal initially appeared not to be accommodated by our case law and appellate rules. Nally v. Texas-Arizona Motor Freight, Inc., 67 N.M. 153, 156, 353 P.2d 678, 680 (1960) (order granting, in the alternative, a remittitur or a new trial not appealable; plaintiff may preserve the issue, accept new trial and appeal thereafter). A plaintiff such as Allsup's is denied review of the district judge's ruling of law that the verdict was excessive, the procedure in place requiring a new trial instead of such review, rather than treating the parties equally and attributing finality to the judgment. Our constitution provides "that an aggrieved party shall have an absolute right to one appeal." N.M. const. art. VI, § 2. But here, the option of having a new trial is substituted for an absolute right to appeal on the issue of remittitur. Thus, we decide anew whether a claimed error in granting a motion for a new trial or for remittitur should be reviewed as any other claimed error would be on appeal.

¶10 The historic rationale for remittitur practice is that it saves the time and expense of a new trial if the plaintiff will accept a lesser sum as a verdict. The plaintiff is satisfied because the expense of a new trial is avoided, and the defendant is satisfied because he or she either obtains a new trial, or has had the verdict against him or her reduced. Thus this procedure generally has the effect of facilitating settlement, thereby enhancing judicial economy. See Hudson v. Otero, 80 N.M. 668, 672, 459 P.2d 830, 834 (1969). It is said that finality and repose are achieved because the "risks of a verdict less than the amount to which the remittitur order has reduced the plaintiff's recovery are ... calculated to induce most reasonable plaintiffs to accept the remittitur and call it a day." Donovan v. Penn Shipping Co., Inc., 536 F.2d 536, 538 (2d Cir.1976), aff'd, 429 U.S. 648, 97 S.Ct. 835, 51 L.Ed.2d 112 (1977), quoting Evans v. Calmar S.S. Co., 534 F.2d 519 (2d Cir.1976).

¶11 In the federal courts, this familiar remittitur procedure gained the United States Supreme Court's stamp of approval in Donovan, which barred plaintiffs from seeking review of remittitur orders, even those accepted "under protest," which is merely the procedural technique whereby remittitur is conditionally accepted for purposes of rendering the judgment final even though the plaintiff...