Badillo v. Mid Century Insurance Company, 2004 OK 42 (OK 6/8/2004), 98136

• Decision Date: 08 June 2004
• Docket Number: No. 98136,98136
• Citation: 2004 OK 42
• Parties: MARIO BADILLO, Appellee/Counter-Appellant, v. MID CENTURY INSURANCE COMPANY, A CALIFORNIA CORPORATION; FARMERS INSURANCE EXCHANGE, A CALIFORNIA RECIPROCAL OR INTERINSURANCE EXCHANGE, Appellants/Counter-Appellees.
• Court: Oklahoma Supreme Court

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2004 OK 42

MARIO BADILLO, Appellee/Counter-Appellant, v. MID CENTURY INSURANCE COMPANY, A CALIFORNIA CORPORATION; FARMERS INSURANCE EXCHANGE, A CALIFORNIA RECIPROCAL OR INTERINSURANCE EXCHANGE, Appellants/Counter-Appellees.

No. 98136

Supreme Court of Oklahoma

June 8, 2004.

APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY HONORABLE NANCY L. COATS, DISTRICT JUDGE.

¶0 The appellee, Mario Badillo, sued his insurer, Mid Century Insurance Company, and Farmers Insurance Exchange, the appellants, for breach of the insurer's duty of good faith and fair dealing. Mid Century offered the policy limits to the pedestrian injured when Badillo ran over her in a crosswalk, but would not agree to allow their insured to be questioned by the attorneys for the injured pedestrian. When Badillo received a judgment against him for $600,000.00 he sued his insurer and the jury awarded him $2.2 million. This Court granted the appellants' motion to retain.

REVERSED AND REMANDED.

Mark E. Bialick, Gerald E. Durbin, II, Rodney D. Stewart, DURBIN, LARIMORE & BIALICK, Oklahoma City, Oklahoma, for appellee/counter appellant.

Eric S. Eissenstat, Steve Stephens, Brooks A. Richardson, FELLERS, SNIDER, BLANKENSHIP, BAILEY & TIPPENS, for appellants/counter appellees.

WINCHESTER, J.

¶1 The dispositive issue is whether under the uncontested facts, the trial court should have found as a matter of law that the liability insurer did not violate its duty of good faith and fair dealing to its insured. We hold that the uncontested facts do not support a breach of the duty and therefore the trial court should have granted the appellants' motion for a directed verdict.

I. FACTS

¶2 On February 4, 2000, Mario Badillo, the appellee/counter appellant, struck a pedestrian, Loretta Smith, in a crosswalk with his vehicle. She sustained severe injuries, resulting in medical expenses in excess of $700,000.00. Mid Century Insurance Company, an appellant/counter appellee, was the liability insurer of Badillo's vehicle.¹ The insurance contract carried a policy limit of $10,000.00.

¶3 Smith's sister employed lawyers on Smith's behalf. The law firm contacted Mid Century's adjuster and at their request, the insurer sent them a check for the policy limits along with a release. They refused to have the release signed without a statement from Badillo. The claims adjuster refused to offer such a statement explaining he must protect his client.

¶4 Smith's attorney's employed a trial lawyer. He telephoned the claims adjuster and repeated the demand that Badillo be produced for a statement. He added that unless Badillo was produced, he would file a lawsuit and would refuse any subsequent settlement. The adjuster told the trial lawyer that he would check around and get back with him. However, the lawsuit was filed within four hours of the conversation.

¶5 Mid Century provided independent counsel for Badillo. When the case was tried, the jury found damages in the amount of $1,000,000.00. Badillo was found sixty percent negligent. His portion of the damages was assessed at $600,000.00. With the interest added, the total judgment against him was $633,202.63. No appeal was filed.

¶6 Smith's trial attorney attempted to collect the judgment against Badillo, although the lawyer knew beforehand that he would not succeed. At a hearing on assets, he formally learned what he already knew; Badillo had few, if any, nonexempt assets to satisfy the judgment and he did not have sufficient income to pay. Smith's trial attorney suggested to Badillo and his attorney that Badillo sue his insurer for bad faith and the judgment against Badillo could be satisfied from that action. In exchange, Smith would suspend her attempts to collect the judgment from Badillo until after the litigation. Filing for bankruptcy was the other alternative offered Badillo.

¶7 Badillo elected to sue his insurer for bad faith. At the close of the trial, Mid Century and Farmers Insurance Exchange, the appellants, moved for a directed verdict on the claim of bad faith and on the claim for punitive damages. The court denied the first and granted the latter, finding no evidence of reckless disregard or malice by the insurer. The jury then returned a verdict against the appellants for $ 2,200,000.00, for financial losses, embarrassment, and mental pain and suffering. The trial court entered judgment but refused to award attorney fees or prejudgment interest.²

¶8 Among other allegations of error, the appellants argue that the trial court should have granted their motion for a directed verdict.

II. STANDARD OF REVIEW

¶9 The appellants challenge the trial court's refusal to grant their motion for directed verdict on Badillo's claim for bad faith. "Sufficiency of the evidence, the legal standard which determines whether a case may go to the jury . . . is a question of law for the court." Akin v. Missouri Pacific R. Co., 1998 OK 102, 977 P.2d 1040, 1054.

¶10 In bad faith cases, the appellate court may examine the uncontested facts to determine whether the defendants' actions were reasonable and legitimate. Manis v. Hartford Fire Ins. Co., 1984 OK 25, ¶ 12, 681 P.2d 760, 762. In Manis the insured sued the insurer for bad faith when it denied the insured's claim for a fire loss. The jury awarded the plaintiff his damages under the contract as well as punitive damages for bad faith. On appeal, this Court observed that evidence existed showing the fire was not accidental, but incendiary in origin, and the Court held that the insurer's conduct was reasonable. Therefore, the Court reversed the punitive damages for bad faith. Manis, 1984 OK 25, ¶ 15, 681 P.2d at 762.

¶11 Manis quoted Christian v. American Home Assurance Co., 1977 OK 141, 577 P.2d 899, and McCorkle v. Great Atlantic Ins. Co., 1981 OK 128, 637 P.2d 583, that an insurer did not litigate at its peril, and that there could be disagreement between insurer and insured on a variety of matters such as insurable interest, extent of coverage, cause of loss, amount of loss, or breach of policy conditions. Manis, 1984 OK 25, ¶¶ 5-7, 681 P.2d at 761.

¶12 Christian, McCorkle and Manis all involved losses suffered by the insured, which the insured tried to collect from the insurer. The case at bar involves a third party who was injured. But this principle still applies, that the appellate court may examine the jury's verdict and if it finds that the facts reveal the decision of the insurer leading to the litigation was reasonable, it will reverse the jury verdict on that issue. Consistent with the law of appellate review, those facts must be uncontested.

III. USE OF "UNREASONABLE" IN THE INTENTIONAL TORT OF BAD FAITH

¶13 The appellants argue that the trial court erred in denying their motion for directed verdict because the evidence presented at trial was insufficient to support a permissible inference that they acted unreasonably or in bad faith. Badillo answers that the trial court properly submitted the issue of bad faith to the jury. He asserts that the essence of bad faith is reasonableness, and that if the insurance company is not reasonable in the manner it treats its insured, bad faith exists. He insists that the cases cited by the appellants to support their position that they did not violate their duty of good faith and fair dealing pre-date today's reasonableness standard. Badillo concludes that where there is conflicting evidence concerning the reasonableness of the insurer's conduct, the issue of bad faith must be decided by the jury.

¶14 The objections of the appellants and the answer of Badillo indicate confusion over what actions of an insurer comprise bad faith. The trial court used Oklahoma Uniform Jury Instruction (OUJI) number 22.3 as its Jury Instruction No. 13. The appellants had previously objected to its use and offered a modified version of the OUJI. They preserved their objection in the Petition in Error, and argued in their Brief in Chief that the trial court erred in refusing to give their proposed instruction. A finding of error in denying a motion for a directed verdict precedes the jury instruction stage of a trial. Nevertheless, a review of the elements of bad faith listed in OUJI is necessary for clarification and for a correct understanding of the law.

¶15 The OUJI 22.3 seems to imply three elements in the bad faith determination. If we assume that the plaintiff was covered under the insurer's liability policy, and the insurer was required to defend in the previous lawsuit, then a jury must determine that (1) the insurer's action was unreasonable under the circumstances; (2) that the insurer did not deal fairly and in good faith with the plaintiff; and (3) that the violation of its duty of good faith and fair dealing was the direct cause of the injury sustained by the plaintiff.

¶16 Instructing that to prove bad faith you must show that the insurer failed to deal fairly, in good faith, does not provide any help in understanding the term. The only help provided by the instruction is whether the actions of the insured were unreasonable under the circumstances. But the problem with the use of the term "unreasonable" is that it sounds like a description of negligence, instead of bad faith.

¶17 Manis characterizes this tort as "the intentional tort of bad faith." Manis, 1984 OK 25, ¶ 6, 681 P.2d at 761. McCorkle also refers to the tort as "the intentional tort of bad-faith recognized in Christian." McCorkle, 1981 OK 128, ¶ 9, 637 P.2d at 585. In contrast, negligence is not an intentional tort.

¶18 Christian approved and adopted the rule in Gruenberg that "an insurer has an implied duty to deal fairly and act in good faith with its insured and that the violation of this duty gives rise to an action in tort for which consequential and, in a proper case, punitive, damages may be sought." Christian, 1977 OK 141, ¶ 25, 577 P.2d at 905, citing Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 510 P.2d 1032 (1973). The Ninth Circuit...