Am. Nat'l Prop. & Cas. Co. v. Cleveland

• Decision Date: 21 November 2012
• Docket Number: No. 30,164.,30,164.
• Parties: AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY, Plaintiff/Counter–Defendant–Appellant, v. Tina CLEVELAND and Adam Hudson, Defendants/Counter–Plaintiffs–Appellees.
• Court: Court of Appeals of New Mexico

293 P.3d 954

AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY, Plaintiff/Counter–Defendant–Appellant,

v.Tina CLEVELAND and Adam Hudson, Defendants/Counter–Plaintiffs–Appellees.

No. 30,164.

Court of Appeals of New Mexico.

Nov. 21, 2012.

Montgomery & Andrews, P.A., Paul E. Houston, Brian T. Judson, Albuquerque, NM, Jaime R. Kennedy, Santa Fe, NM, for Appellees.

Tucker Law Firm, P.C., Steven L. Tucker, Santa Fe, NM, James C. Ellis, Albuquerque, NM, for Appellant.

OPINION

CASTILLO, Chief Judge.

{1} In this claim dispute, insurer American National Property and Casualty Company (ANPAC) does not challenge the judgment against it finding breach of contract and requiring it to pay the insurance claim filed by Defendants. Rather, ANPAC seeks reversal of two awards based on the allegation of bad faith denial of the claim: $20,000 in compensatory damages and $50,000 in punitive damages. ANPAC argues that its motion for directed verdict on the bad faith claim should have been granted because the claim was not supported by substantial evidence and did not reach the legal threshold for bad faith under New Mexico law. ANPAC also challenges the admission of testimony offered by Defendants' expert witness. We affirm.

I. BACKGROUND

{2} This case arises from an automobile collision that took place in the early morning hours of October 13, 2007. Albuquerque Police Officer Matthew McElroy was parked in his squad car in the median on southbound Jefferson Street Northeast, pointing his radar gun toward oncoming traffic when he saw two vehicles headed toward him. One of the vehicles, a 1986 Porsche 944 Turbo, was driven by Defendant Adam Hudson, who lost control at the curve and slammed into the back of Officer McElroy's squad car. The other car, thought to be a black Lincoln LS, sped on southward, its driver never identified.

{3} There was a police investigation and report by Officer Compton after which Hudson was charged with drag racing and reckless driving. Hudson's mother, Co–Defendant Tina Cleveland, co-signed on the loan for the Porsche and was a named insured on the ANPAC policy. After the accident, Defendants promptly filed a claim with ANPAC. Two days after the collision, the claim was assigned to adjuster Evan Williams, who reviewed the police report and recorded an interview with Hudson. The policy contained language excluding coverage for accidents “resulting from the use of your insured car in or in preparation for any race, speed contest, hill climbing exhibition, or any other contest or demonstration.” Williams contacted Defendants to let them know that additional investigation was needed regarding their claim because of the racing exclusion in the policy.

{4} Two weeks later, on October 30, 2007, Williams brought the claim before ANPAC's claims committee. The committee requested further investigation, and Williams later obtained a recorded statement from investigating Officer Compton. On December 20, 2007, the claims committee met again, this time with a notarized statement from Hudson who denied drag racing and a recorded statement from Officer Compton who explained that Hudson had originally denied drag racing but then admitted it. The committee denied the claim on the basis of the racing exclusion. In early March 2008, Williams was informed that the racing charge against Hudson had been dismissed. Williams presented that new information to the claims committee later that month, and it determined that the denial of the claim “will stand based upon the exclusion for racing under your policy” and “Officer Compton's statement that Adam did indeed admit to racing a black Lincoln LS.”

{5} Defendants brought suit against ANPAC in Metropolitan Court, and ANPAC filed this action in district court seeking a declaratory judgment stating it had no duty to provide coverage under the language and terms of the policy. Defendants countersued for breach of contract, breach of the covenant of good faith and fair dealing, and three other claims that eventually were dismissed. After a three-day trial, a jury decided that Hudson was not racing and returned a verdict against ANPAC, finding that the insurer breached its contract with Defendants and awarding Defendants $8,260.08 in damages. The jury also found that ANPAC had acted in bad faith and awarded $20,000 in additional compensatory damages; it also found that the bad faith was the result of malicious and/or willful and wanton actions on the part of ANPAC and awarded $50,000 in punitive damages.

{6} ANPAC filed this appeal. It raises no issues as to the breach of contract claim and limits its challenge to the two awards based on bad faith. We first address ANPAC's contention that it was error for the district court to deny its motion for directed verdict on the bad faith claim. Then we will address ANPAC's second claim that the court abused its discretion in allowing the opinion evidence of Defendants' expert witness. Finally we will address the award of attorney fees and costs.

II. DISCUSSIONA. Motion for Directed Verdict

1. Arguments of the Parties

{7} ANPAC argues that the district court should have granted its motion for directed verdict on the bad faith claim as a matter of law. A motion for directed verdict, also referred to as judgment as a matter of law, is governed by Rule 1–050 NMRA. Our Supreme Court has cautioned that judgment as a matter of law “is a drastic measure that is generally disfavored inasmuch as it may interfere with the jury function and intrude on a litigant's right to a trial by jury.” Torres v. El Paso Elec. Co., 1999–NMSC–029, ¶ 26, 127 N.M. 729, 987 P.2d 386,overruled on other grounds by Herrera v. Quality Pontiac, 2003–NMSC–018, 134 N.M. 43, 73 P.3d 181. “In ruling upon and reviewing a motion for a directed verdict, the court must consider all of the evidence. If there are conflicts or contradictions, they must be resolved in favor of the party resisting the motion.” Hicks v. Eller, 2012–NMCA–061, ¶ 16, 280 P.3d 304 (internal quotation marks and citation omitted). Therefore, judgment as a matter of law shall be granted “only when there are no true issues of fact to be presented to a jury,” and it is clear that the facts and inferences are so “overwhelmingly in favor of the moving party that the judge believes that reasonable people could not arrive at a contrary result.” McNeill v. Rice Eng'g & Operating, Inc., 2003–NMCA–078, ¶ 31, 133 N.M. 804, 70 P.3d 794 (internal quotation marks and citation omitted). Whether there is sufficient evidence to support a claim or defense is a question of law that we review de novo. Id.

{8} ANPAC's position is that because its policy unambiguously excluded coverage for drag racing and because there was conflicting evidence as to whether Hudson was drag racing, there was a reasonable question as to coverage and, consequently, ANPAC's decision to deny coverage could not be considered frivolous or unfounded as a matter of law. Defendants contend that the racing exclusion in the ANPAC policy applies to pre-arranged racing and not to impromptu drag racing. They also argue that even if the exclusion does apply to impromptu drag racing, there was substantial evidence that ANPAC breached its duty to conduct a fair investigation before denial of the claim, thus allowing the jury to find that the denial of the claim was frivolous and unfounded. As to punitive damages, Defendants argue that evidence sufficient to support the submission of bad faith is sufficient to support the submission of the issue of punitive damages. In its reply, ANPAC points to the jury instructions as a basis for its contention that the failure to fairly investigate the claim is contrary to the law of the case and that the only issue before the jury was whether ANPAC's denial of the claim was “for reasons [that] were frivolous or unfounded.”

2. Policy Exclusion

{9} We begin with the policy exclusion. For purposes of this Opinion, we will assume without deciding that ANPAC's policy excluded coverage for drag racing. The jury instructions required the jury to determine whether Hudson was engaged in a race at the time of the collision. The jury answered no. In other words, whether there was an exclusion or not became a non-factor for this part of the case. While Defendants contend that ANPAC's interpretation of the insurance contract to exclude coverage for drag racing was an example of bad faith, we need not reach this argument because we decide that there was sufficient evidence for the jury to find bad faith based on the manner in which the investigation was conducted. Consequently, we make our assumption that there was an exclusion because it does not affect the outcome of the case.

3. Bad Faith Claim

{10} The parties argue about two bases for bad faith. ANPAC focuses on the reasons for denial of coverage and argues that there is no evidence to support the finding that the reasons for denial were frivolous or unfounded. Defendants center their argument on events before the actual denial and contend that the bad faith claim flowed directly from ANPAC's breach of duty to fairly investigate and evaluate the claim.

{11} We agree with ANPAC that in New Mexico, an insurer acts in bad faith when it denies a first party claim for reasons that are frivolous or unfounded. See Sloan v. State Farm Mut. Auto. Ins. Co., 2004–NMSC–004, ¶¶ 3, 18, 135 N.M. 106, 85 P.3d 230. “Unfounded” is defined not as “erroneous” or “incorrect[,]” but rather the failure to exercise care for the interests of the insured, an arbitrary or baseless refusal to pay, lacking support in the language of the policy or the circumstances of the claim. Id. ¶ 18 (internal quotation marks and citation omitted). “Unfounded” is synonymous with “frivolous.” Id. (internal quotation marks and citation omitted).

{12} The term has been more specifically defined:

“Unfounded” in this context does not mean “erroneous” or “incorrect”; it means essentially the same thing as “reckless disregard,”...