Campbell v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 19 October 2001
• Docket Number: No. 981564.,981564.
• Citation: 65 P.3d 1134,2001 UT 89
• Parties: Curtis B. CAMPBELL and Inez Preece Campbell, Plaintiffs, Appellees, and Cross-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant, Appellant, and Cross-Appellee.
• Court: Utah Supreme Court

65 P.3d 1134

2001 UT 89

Curtis B. CAMPBELL and Inez Preece Campbell, Plaintiffs, Appellees, and Cross-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant, Appellant, and Cross-Appellee.

No. 981564.

Supreme Court of Utah.

October 19, 2001.

Rehearing Denied December 4, 2001.

L. Rich Humpherys, Roger P. Christensen, Karra J. Porter, Salt Lake City, Laurence H. Tribe, Kenneth J. Chesebro, Cambridge, MA, W. Scott Barrett, Logan, for plaintiffs.

Glenn C. Hanni, Paul M. Belnap, Stuart H. Schultz, Salt Lake City, Evan M. Tager, Adam C. Sloane, Washington, DC, for defendant.

George C. Harris, Salt Lake City, amici National Association of Independent Insurers, National Association of Mutual Insurance Companies, United Services Automobile Association, Farmers Group of Insurance Companies, SAFECO Insurance Company of America.

INTRODUCTION

DURHAM, Justice:

¶ 1 On August 24, 1989, plaintiffs Curtis B. and Inez Preece Campbell, sued State Farm Mutual Automobile Insurance Company for damages arising from State Farm's decision to try a third-party automobile accident case in which Mr. Campbell was the defendant, rather than accepting offers to settle for the policy limits of Mr. Campbell's insurance policy. The jury found in plaintiffs' favor, awarding them $911.25 in out-of-pocket costs, $2.6 million in compensatory damages, and $145 million in punitive damages. State Farm filed several post-verdict motions challenging the jury verdict, which the trial court rejected. As a condition of denying State Farm's motion for a new trial, however, the trial court remitted the compensatory damage award from $2.6 million to $1 million and the punitive damage award from $145 million to $25 million. The Campbells also received a judgment from the trial court for attorney fees and litigation expenses in the amount of $801,582.48. State Farm has appealed from the judgment and the Campbells have cross-appealed the trial court's remittitur ruling on punitive damages.

BACKGROUND

¶ 2 On May 22, 1981, while driving north on Highway 89-91 near Logan, Utah, Mr. Campbell unsafely passed a car driven by Robert Slusher (Slusher).¹ Slusher, 777 P.2d at 438-39. This unsafe maneuver forced a southbound car, driven by Todd Ospital, to veer onto the shoulder of the road and collide with Slusher's car a split second later. Id. at 439. The accident killed Todd Ospital at the scene and left Slusher disabled. Id. Although the initial investigation of the accident supported differing conclusions as to who caused the accident, a consensus was reached early on by the investigators and witnesses that Mr. Campbell's unsafe pass had indeed caused the crash.

¶ 3 In September 1981, Slusher filed an action against Mr. Campbell, Ospital's estate (Ospital), and Kenneth Brooks (the owner of the car driven by Todd Ospital) for damages resulting from the collision. Slusher, 777 P.2d at 439. Ospital filed a cross-claim against Mr. Campbell for wrongful death. Id. Mr. Campbell cross-claimed against Ospital for contribution. Id.

¶ 4 During discovery, State Farm collected evidence that blamed Mr. Campbell for the accident. At various stages throughout discovery, including as late as a month before trial, Slusher and Ospital invited State Farm to settle for the policy limits of the Campbell policy.² On April 23, 1983, Ospital's counsel even sent a letter to State Farm stating that State Farm "should tender its limits" because "[a] limit of $25,000 is too low to risk excess exposure by exposing its insured to personal liability." This letter also stated that if State Farm continued to oppose settlement, Ospital would seek a separate agreement with Slusher that "may not likely be favorable to [Mr.] Campbell's interests." However, State Farm never departed from its original "no settlement" stance, continuing to reject offers made following the commencement of the trial.

¶ 5 In choosing not to settle, State Farm superintendent Bob Noxon (Noxon) and divisional superintendent Bill Brown (Brown) rejected a report of State Farm investigator Ray Summers (Summers) that stated there was evidence of fault on Mr. Campbell's part. In particular, Brown ordered Summers to change the portion of his report describing the facts of the accident and his analysis of liability "wherein [he] had indicated an exposure [for Mr. Campbell], and that there could be a high settlement value on it." Additionally, after hearing from Bill Brown, Noxon told Summers that Noxon had "screwed up" by agreeing with Summers' initial analysis regarding Mr. Campbell's fault and demanded that Summers return to Noxon the letter Noxon had written indicating his approval. Subsequently, State Farm discontinued Summers' involvement in the case. State Farm hired Wendell Bennett (Bennett), an attorney who had done a considerable amount of work for State Farm, to represent the Campbells.

¶ 6 In June 1983, Ospital's estate did in fact enter into a separate settlement agreement with Slusher. Ospital had $130,000 of combined liability insurance.³ Under the settlement agreement, Ospital's estate paid Slusher $65,000 dollars and the Ospitals promised to assist Slusher in prosecuting claims against Mr. Campbell and his insurer, State Farm. In exchange, Slusher released all claims he had against Ospital's estate. Id.

¶ 7 Shortly thereafter, the case against Mr. Campbell went to trial. The jury found Mr. Campbell 100% at fault for the accident and a judgment for $135,000 was entered. Slusher, 777 P.2d at 439. The jury also awarded Ospital damages in the amount of $50,849. In light of Bennett's numerous reassurances to both Mr. and Mrs. Campbell that their assets were safe, that they had no liability for the accident, that he would represent their interests, and that they did not need to procure separate counsel, the Campbells were utterly dismayed. To their expressions of dismay, Bennett responded by telling the Campbells that "[y]ou may want to put for sale signs on your property to get things moving," making it clear that State Farm did not intend to pay the excess judgment against the Campbells. Furthermore, State Farm declined to post a supersedeas bond on appeal in excess of their $25,000 policy limit. The Campbells immediately acquired other counsel and learned that their situation was indeed grave.

¶ 8 In late 1984, Slusher, Ospital, and Mr. Campbell entered into an agreement in which Mr. Campbell agreed that: (1) he would pursue a bad faith action against State Farm; (2) Ospital's and Slusher's attorneys would represent him in that action; (3) Slusher and Ospital would have the right to be part of all major decisions relating to that action; (4) no settlement of any claim against State Farm could be made without Slusher's and Ospital's approval; and (5) in the event Mr. Campbell recovered any monies, Ospital and Slusher would receive 90% of the sum remaining after certain agreed-upon obligations were paid. In exchange, Slusher and Ospital agreed to not seek satisfaction of their judgment from Mr. Campbell and to inform anyone checking on Mr. Campbell's credit that their judgments were not personal obligations. Id.

¶ 9 In 1989, this court affirmed the 1983 verdict against Mr. Campbell. Slusher v. Ospital, 777 P.2d 437, 438-39 (Utah 1989). State Farm then paid all of the damages awarded in the 1983 action, both its policy limits and Mr. Campbell's personal liability. Shortly thereafter, the Campbells filed this action against State Farm alleging, among other things, bad faith, fraud, and intentional infliction of emotional distress. The trial court granted summary judgment to State Farm on the ground that because it had ultimately paid all of the damages awarded, there had been no bad faith as a matter of law. Plaintiffs appealed to this court, which transferred the case to the Utah Court of Appeals, which reversed and remanded, stating that although State Farm had paid the debt, the Campbells had the right to pursue their claim that there had been bad faith in the previous dealings. Campbell v. State Farm Mut. Auto. Ins. Co., 840 P.2d 130, 143 (Utah Ct.App.1992), cert. denied, 853 P.2d 897 (Utah 1992).

¶ 10 On remand, the trial court denied State Farm's motion to introduce the settlement agreement entered into by Slusher and Ospital before the original trial in Logan, Utah. However, over the Campbells' resistance, the trial court did grant State Farm's motion to bifurcate the trial. In phase I of the trial, the jury was to determine whether State Farm acted in bad faith. Id. Only if the jury found such bad faith would phase II, setting the compensatory damages award for State Farm's bad faith and addressing the Campbells' claims for fraud, intentional infliction of emotional distress, and punitive damages, occur.

¶ 11 In phase I, the jury found that State Farm had acted unreasonably and in bad faith in its decision to take the case to trial because there was a substantial likelihood of an excess judgment against Mr. Campbell. Notwithstanding this finding of bad faith, State Farm argued during phase II that its decision to take the case to trial was an "honest mistake" that did not warrant punitive damages. In contrast, the Campbells introduced evidence that State Farm's decision to take the case to trial was a result of a national scheme to meet corporate fiscal goals by capping payouts on claims company wide. This scheme was referred to as State Farm's "Performance, Planning and Review," or PP & R, policy. To prove the existence of this scheme, the trial court allowed the Campbells to introduce extensive expert testimony regarding fraudulent practices by State Farm in its nation-wide operations. Although State Farm moved prior to phase II of the trial for the exclusion of such evidence and continued to object to it at trial, the trial court ruled that such evidence was admissible to determine whether State Farm's conduct in the Campbell case was indeed intentional and sufficiently...