Buzzard v. Farmers Ins. Co., Inc.

• Decision Date: 03 December 1991
• Docket Number: No. 69344,69344
• Citation: 824 P.2d 1105,1991 OK 127
• Parties: James C. BUZZARD and Martha N. Buzzard, Individually and as Parents and Next of Kin of Troy Dean Buzzard, Deceased, Appellees, v. FARMERS INSURANCE COMPANY, INC., and Farmers Insurance Exchange d/b/a Farmers Insurance Group of Companies, Appellants.
• Court: Oklahoma Supreme Court

Page 1105

824 P.2d 1105

1991 OK 127

James C. BUZZARD and Martha N. Buzzard, Individually and as Parents and Next of Kin of Troy Dean Buzzard Deceased, Appellees, v. FARMERS INSURANCE COMPANY, INC., and Farmers Insurance Exchange d/b/a Farmers Insurance Group of Companies, Appellants.

No. 69344.

Supreme Court of Oklahoma.

Dec. 3, 1991.

Rehearing Denied Feb. 19, 1992.

Certiorari to the Court of Appeals, Division I; Edward M. McDanel.

Certiorari granted to review the opinion of the Court of Appeals, which affirmed the judgment of the trial court. Appellant Insurance Company urges that (1) payment on the uninsured/underinsured motorist policy was not required until the limits of the liability policy of the tortfeasor had been exhausted, (2) that a defense of contributory negligence existed to excuse payment, and (3) that payment was excused by plaintiffs' covenant not to sue tortfeasor. Held, that on these facts none of the above constituted a valid reason to excuse payment of the claims. Held, also, that the imposition of punitive damages was supported by the evidence, but that a remittitur be filed by the plaintiffs as a condition to affirmance. AFFIRMED UPON THE CONDITION OF REMITTITUR.

CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS OPINION VACATED; JUDGMENT AFFIRMED SUBJECT TO REMITTITUR.

John F. Percival, Roger L. Heath, Lana K. Cohlmia, Mark E. Truex, Culp, Heath, Sushnik, Percival & Percival, Oklahoma City, for appellants.

Clifton D. Naifeh, Naifeh & Woska, Oklahoma City, for appellees.

SUMMERS, Justice:

Farmers Insurance Company contracted with the plaintiffs to provide coverage for injuries caused by underinsured motorists as defined in the Oklahoma Insurance Code. It appeals a large jury verdict rendered against it for actual and punitive damages based on the company's bad-faith failure to honor its contract. The company argues that it had a reasonable basis in fact and in law to delay or deny payment of the claim. It also challenges on appeal certain rulings of the trial court relating to the evidence and jury instructions. Finally it attacks the award of punitive damages as unsupported by the evidence, and on constitutional grounds. Upon review we affirm, subject to plaintiff's application for remittitur.

I. FACTS

On August 19, 1982, eighteen-year-old Troy Buzzard was killed in an automobile accident involving his Toyota truck and a truck owned by the City of Norman. The city truck, driven by a city employee, attempted to cross a highway. Troy, traveling eastbound on the highway, collided with it. The gas tank exploded and Troy was burned to death. The passengers in the city truck were also severely burned.

The report of the investigating police officer revealed the city truck was severely overloaded, weighing more than one ton over the weight limit. The city truck failed to yield in crossing the highway and was unable to maneuver quickly because of its size and weight. The officer estimated that Troy was traveling at a speed of between 65 and 75 miles per hour before the collision, and between 45 and 55 miles per hour at impact. At impact, the city truck was blocking both eastbound lanes of the highway.

The next day the incident was reported by James and Martha Buzzard, the parents of Troy, to Farmers Insurance Company. There is no dispute that a policy issued by Farmers insuring the vehicle was in effect at the time of the accident. Uninsured motorist (UM) coverage under the policy was $10,000.00. It is also undisputed that the City's liability policy provided coverage up to $50,000.00 per claimant and $300,000.00 per accident. Home Insurance Company was the insurer of the City.

The Buzzards retained counsel to represent them, and counsel made demand for payment under the UM portion of the Farmers' policy on September 2, 1982. According to the Farmers' file made by the claims adjuster, no investigation was made into the cause of the accident or the liability limits of the City, and no settlement was offered. Instead, the claims adjuster repeatedly told Buzzard that Farmers would not offer any UM settlement until the liability limits of the City had first been exhausted. The Buzzards' attorney, Phillip DeVilliers, told the adjuster that the policy liability limits of the City was $50,000.00, and that in light of the accident, his clients' claim far exceeded this amount. Nevertheless, Farmers refused to make any settlement offer, relying on the general industry policy that liability insurance of the tortfeasor must first be exhausted.

This process continued for over seven months. During this time DeVilliers repeatedly contacted the claims adjuster regarding payment of the UM claim. During this delay, Farmers did not conduct any investigation into the accident or into the liability limits of the City. In March, 1983, DeVilliers informed Farmers that settlement with the City was imminent. Farmers, in reply, wrote DeVilliers that if the Buzzards settled with the City and executed releases, Farmers would deny UM benefits because the insurer's subrogation rights would have been extinguished. The Buzzards then settled with the City for $50,500.00, and signed a covenant not to sue. Once informed of the settlement, the claims adjuster closed the file without payment, and destroyed his personal notes on the case.

The Buzzards, through their attorney, again requested payment under the UM policy. DeVilliers informed the adjuster that the delay in payment was causing substantial family strife. The adjuster answered by refusing payment based on the issuance of the covenant not to sue given by Buzzards to the City of Norman. The record reveals a memorandum written by Farmers' claim manager in which he acknowledged the family strife and noted that Mrs. Buzzard disagreed with her husband's pursuit of the claim, the intimation being that the Buzzards might drop the UM claim because of the intra-marital conflict.

In 1985, the Buzzards filed suit, alleging bad-faith denial of payment under the UM policy. Shortly before the suit was filed, but after the claim had been denied, Farmers began an investigation into the accident. At trial, Farmers alleged the claim was denied not only because of Buzzards' settlement with the City, but also because of the negligence of Troy Buzzard, the deceased. Farmers asserted that both Troy and the driver of the vehicle were fifty percent negligent. No mention of this comparative negligence theory as a basis for denial of the claim appeared in Farmers' file until after the date of the denial.

At trial extensive evidence regarding the circumstances surrounding the accident and the following denial of the claim by Farmers was presented to the jury. The jury returned a verdict in favor of the plaintiffs, specifically finding that the City was 73% negligent and that Troy was 27% negligent. They found that actual damages were $750,000.00, reduced by Troy's negligence to $540,000.00, but limited by the insurance policy to $10,000.00. The jury awarded actual damages for bad-faith breach of contract in the amount of $200,000.00, and $2,000,000.00 in punitive damages. Thus, the total damages awarded were $2,210,000.00. From this, Farmers appealed. The Court of Appeals, Division I, affirmed the verdict. Certiorari was granted on March 12, 1990, and we affirm, subject to conditions stated in this opinion.

II. THE TORT OF BAD-FAITH BREACH OF CONTRACT

Farmers argues that there was insufficient evidence to support a finding of bad faith. It asserts that three reasonable defenses existed for denying Buzzard's claim: (1) contributory negligence on the part of Troy Buzzard, (2) settlement was not due until the liability limits of the tortfeasor had been exhausted, and (3) abrogation of the insurer's right of subrogation. We will address each of these questions separately.

We first recognized the tort of bad-faith breach of contact in Christian v. American Home Assurance Co., 577 P.2d 899 (Okla.1977). We held that the insurer is under a legal duty to act in good faith when dealing with its insured. The insurer's duty includes, but is not limited to, the duty not to unreasonably withhold payment of claims. Christian, 577 P.2d at 903. The special relationship between the insurer and its insured gives rise to such a duty, especially in light of the quasi-public nature of the insurance industry and the unequal bargaining power of the parties. Id. at 902. Of particular importance is the delicate position of the insured after a loss is incurred:

The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, particularly vulnerable to oppressive tactics on the part of an economically powerful entity. Id. at 902, quoting Fletcher v. Western Nat'l Life Ins., 10 Cal.App.3d 376, 89 Cal.Rptr. 78 (1970).

In McCorkle v. Great Atl. Ins., 637 P.2d 583, 588 (Okla.1981), we held that this duty of good faith to one's own insured extended to all types of insurance companies. In Rodgers v. Tecumseh Bank, 756 P.2d 1223, 1226 (Okla.1988), we refused to extend the duty to commercial loan agreements. This refusal was based on the absence of the policy considerations present in an insurance contract. In pursuing a claim, the plaintiff carries the burden of proof and must plead the elements of this intentional tort, the essence of the tort being the unreasonable bad-faith conduct of the insurer. McCorkle 637 P.2d at 587; Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 761 (Okla.1984).

The tort of bad faith does not foreclose the insurer's right to deny a claim. An insurer clearly has the right to resist payment and litigate any claim to which the insurer has a reasonable defense. "Resort to a judicial forum is not per se bad faith or unfair dealing on the part of the insurer regardless of the outcome of the suit." Manis, 681 P.2d at 761. In such circumstances the insurer does not risk a tortious breach of...