Bernhard v. Farmers Ins. Exchange

• Decision Date: 21 April 1994
• Docket Number: No. 92CA1790,92CA1790
• Citation: 885 P.2d 265
• Parties: Sandra O. BERNHARD, Plaintiff-Appellee and Cross-Appellant, v. FARMERS INSURANCE EXCHANGE, Defendant-Appellant and Cross-Appellee. . III
• Court: Colorado Court of Appeals

Page 265

885 P.2d 265

Sandra O. BERNHARD, Plaintiff-Appellee and Cross-Appellant, v. FARMERS INSURANCE EXCHANGE, Defendant-Appellant and Cross-Appellee.

No. 92CA1790.

Colorado Court of Appeals Div. III.

April 21, 1994.

Rehearing Denied May 26, 1994.

Certiorari Granted Nov. 29, 1994.

Law Firm of Kevin S. Hannon, Kevin S. Hannon, Denver, for plaintiff-appellee and cross-appellant.

Hall & Evans, L.L.C., Eugene O. Daniels, Malcolm S. Mead, Denver, for defendant-appellant and cross-appellee.

Law Office of Steven Taffet, Steven L. Taffet, Denver, for amicus curiae Colorado Lawyers Ass'n.

Opinion by Judge CRISWELL.

The defendant, Farmers Insurance Exchange (Farmers), appeals from the judgment entered on a jury verdict which awarded its insured, plaintiff Sandra O. Bernhard, damages for Farmers' bad faith refusal to settle a personal injury tort claim asserted by third parties against the insured and from the court's post-verdict award of attorney fees to the insured. Farmers argues that the trial court erred in allowing the jury to assess damages that occurred to the insured after the date that Farmers made a "full limits" offer to settle the tort claims being asserted, in refusing to admit the insured's agreement with the third-party claimants, and in awarding the insured her attorney fees incurred in the prosecution of this action. In addition, the insured cross-appeals, asserting that the trial court erred in refusing to award additional attorney fees to her. We reverse the award of attorney fees, but we otherwise affirm.

The insured, while driving her vehicle, struck another vehicle, seriously injuring its two occupants. She had a liability insurance policy issued by Farmers, which had limits of $100,000 per person and $300,000 per accident for bodily injury benefits.

About three months after the accident, the two occupants of the vehicle struck by the insured sued the insured and her employer, requesting compensatory damages in excess of the Farmers' policy limits, as well as exemplary damages. Farmers advised the insured that the claims exceeded the policy limits, that the policy provided no coverage for exemplary damages, and that the insured had the right to engage her own counsel to aid in the defense of the action. The insured did so.

Substantially simultaneously with the commencement of that suit, counsel for the injured parties offered to settle their claims against the insured in return for payment of the policy limits, i.e., a payment of $100,000 to each of the two plaintiffs, or $200,000 in total. Counsel selected by Farmers to represent the insured in that litigation was able to obtain an extension of time within which to respond to the offers of settlement made by the plaintiffs, and in mid-October 1986, about five and one-half months before the date scheduled for the trial of the two claims, counsel offered to pay the full policy limits of $100,000 to one of the plaintiffs but only $10,000 to the second.

This offer was rejected, and in late 1986, the depositions of the two plaintiffs were taken. Thereafter, in early February 1987, Farmers' offer for the second plaintiff was increased to $45,000, and in mid-February, about six weeks prior to the scheduled trial date, Farmers offered to pay the full policy limits of $100,000 to each of the plaintiffs.

While this offer was identical to the one made by the plaintiffs less than a year previously, it was rejected. Instead, plaintiffs offered to settle the case for a total of $230,000 (rather than $200,000). The additional amount requested was based, at least in part, upon the fact that the written contingency fee agreement between the plaintiffs and their counsel called for an increase in fees as of the 45th day prior to any scheduled trial and Farmers' offer was not received prior to that date.

The subsequent trial of the personal injury case resulted in verdicts against the insured and her employer (who was insured by another carrier) substantially in excess of the combined policy limits. After a portion of the claim for one of the plaintiffs was compromised and the full limits of both policies were paid in satisfaction of the judgment, there was still some $82,000 owing on the judgment.

The insured and the plaintiffs in that action then entered into an agreement pursuant to which the insured agreed to assert a bad faith claim against Farmers and to pursue such claim through all available appeals and the plaintiffs agreed that, if the insured exhausted all her remedies as she agreed to do, no attempt to execute on the judgment would be undertaken. Out of any final recovery, the plaintiffs were to receive the first $82,000, and the insured was to receive any excess.

This action followed, and upon trial, the jury returned a verdict awarding the insured the sum of $108,911.30, of which amount some $27,224.85 represented attorney fees incurred by the insured in prosecuting this action. The trial court reduced the verdict by this latter amount, leaving a verdict in the amount of some $81,700. Thereafter, however, the trial court, in post-trial proceedings, awarded the insured the sum of $32,000, which also represented the attorney fees incurred by her in the prosecution of this action; such fees were not incurred by her in engaging her own counsel with respect to the personal injury action.

Before us, Farmers concedes that, considering the actions and inactions of its agents and employees between the time that the initial personal injury complaint was filed in March 1986 and the date that an offer to pay the full policy limits was made in February 1987, a reasonable fact finder could determine that it was negligent in failing to offer to pay the full policy limits prior to the latter date. Hence, it does not assert that the jury verdict finding it liable is unsupported. It argues, nevertheless, that the court committed three errors which affected the amount of the judgment entered against it.

I.

Farmers argues, first, that the trial court erred in refusing to rule that, because Farmers offered its full policy limits in February 1987, any damages accruing to the insured thereafter could not, as a matter of law, have been caused by Farmers' previous actions, even if those actions were unreasonable. While we agree that an offer to pay full policy limits may have the effect of limiting the damages that otherwise might result from a carrier's previous actions, we disagree that a determination can be made, as a matter of law, that damages occurring after the date of the offer here were not caused by Farmers' previous negligence.

Farmers concedes, and we agree, that, if an insurance carrier acts unreasonably, and if injury results therefrom, then any claim based upon that unreasonable act accrues at the time of the act. Hence, a later tender of the full policy limits will not excuse any prior unreasonable actions. W. Shernoff, S. Gage, & H. Levine, Insurance Bad Faith Litigation, § 503 at 5-10 (1992) ("The insurer is not relieved from liability for bad faith merely because payment of the claim was eventually made...." (emphasis supplied)). See also Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984) (actual exposure to excess verdict not necessary for assertion of bad faith claim; claim accrues upon unreasonable failure to pay).

However, the act of tendering the full limits is itself evidence upon the question whether the carrier's course of action has been reasonable, and such tender may, under appropriate circumstances, negate the conclusion that the carrier is guilty of bad faith. See Adduci v. Vigilant Insurance Co., 53 Ill.Dec. 854, 98 Ill.App.3d 472, 424 N.E.2d 645 (1981) (where carrier tendered full policy limits at time of pre-trial conference, which tender was not accepted because of increase in rate of attorney fees at that time, carrier was not, as a matter of law, guilty of unreasonable action); Bailey v. Hardware Mutual Casualty, 322 F.Supp. 387 (W.D.La.1969), aff'd, 439 F.2d 763 (5th Cir.1971).

Further, because a carrier is under no duty to pay more than the amount required to be paid under the terms of the policy, once a tender of such amount is made, it has fulfilled its duty, and it cannot be said that its later actions were unreasonable. There is, therefore, nearly universal agreement that such a carrier is liable only for the damages that are caused by its earlier actions; damages to the insured that occur after the tender of the full limits and which are not caused by the carrier's previous unreasonable actions, are not recoverable. Berry v. United of Omaha, 719 F.2d 1127 (11th Cir.1983) (applying Alabama law); Schlauch v. Hartford Accident & Indemnity Co., 146 Cal.App.3d 926, 194 Cal.Rptr. 658 (1983); Knobloch v. Royal Globe Insurance Co., 38 N.Y.2d 471, 381 N.Y.S.2d 433, 344 N.E.2d 364 (1976). See generally Insurance Bad faith Litigation, supra, § 503 at 5-10 ("[E]ventual payment of the claim may serve to mitigate damages incurred as a result of the insurer's bad faith.").

However, particularly given Farmers' concession here that the evidence adduced was legally sufficient to sustain the jury's findings of liability, we cannot conclude, as did the court in Adduci v. Vigilant Insurance Co., supra, that Farmers was not guilty of bad faith before making the tender of the full policy limits.

Moreover, the question whether particular damages have been caused by a party's wrongful acts is generally a question of fact. Largo Corp. v. Crespin, 727 P.2d 1098 (Colo.1986).

Here, then, the question presented was whether the trial of the personal injury case, which resulted in excess judgments and emotional suffering by the insured, was caused solely by the personal injury plaintiffs' refusal to accept the tendered policy limits or whether that trial was the result, at least in part, of Farmers' earlier unreasonable actions. Although it is true that that trial and the damages that it caused came after Farmers' tender of...