Crawford v. American Emp. Ins. Co.
| Citation | 1974 NMCA 42,86 N.M. 612,526 P.2d 206 |
| Decision Date | 29 May 1974 |
| Docket Number | No. 1054,1054 |
| Parties | Oscar F. CRAWFORD, Plaintiff-Appellee Cross-Appellant, v. AMERICAN EMPLOYERS' INSURANCE COMPANY, a corporation, Defendant-Appellant Cross-Appellee. |
| Court | Court of Appeals of New Mexico |
This case involves the appeal of a judgment arising from a jury verdict for the plaintiff, Oscar F. Crawford (Insured), in an action brought alleging breach of contract and bad faith and negligence of the defendant (Insurer) which resulted in a judgment against the Insurer in the sum of $633,000.
The Insurer alleges three points of error: (1) that Insurer was entitled to a directed verdict on the issues submitted to the jury; (2) that the trial court's instruction on the Insured's theory of the case created false issues; (3) that the trial court erred in failing to give Insurer's instruction pertaining to prejudice.
The Insured cross-appealed alleging error for failure to instruct on punitive damages.
We affirm.
A prior action involving the Insured arose out of a one-car accident in which Lonnie Woolett was rendered a paraplegic. The Insured's business associate, John M. Penrose, was the driver of the car. Woolett's complaint prayed for compensatory, special and punitive damages which totaled $3,000,000 plus $150,000 for alleged breach of contract for failure to provide liability insurance coverage.
The Insured's policy provided for a maximum bodily injury benefit of $100,000 for each person. It excluded coverage for employees of the Insured if the accident arose out of the use of the automobile in the business of the Insured. It did not apply to liability assumed by the Insured under any contract or agreement nor did it provide coverage for punitive damages. It did provide that the Insurer would defend any suit, even if the suit was groundless, false or fraudulent. It also provided that the Insurer could make such investigation, negotiation and settlement of any claim or suit as it deemed expedient.
The trial court in the instant action concluded that the issue of whether Woolett was an employee was litigated in the prior action and determined adversely to the Insured. Therefore, it held as a matter of law that the employee exclusion applied. This holding is not questioned on appeal.
The defense of the prior litigation from investigation through trial to judgment was conducted by persons and attorneys retained by the Insurer.
Insurer's points 1 and 2 will be considered together and as prologue we wish to set forth certain rules of law that will govern that consideration.
The relationship of Insurer and Insured gives rise to a duty on the part of the Insurer to act in good faith in all of its relations with the Insured. No one single definition of 'good faith' is practicable because of the infinite variety of situations in which problems concerning it might arise. Thus the question of good faith or its converse bad faith must be determined from the particular facts in each case. Lujan v. Gonzales, 84 N.M. 229, 501 P.2d 673 (Ct.App.1972).
'* * * ( A) party is entitled to have the jury instructed on all correct legal theories of his case which are supported by substantial evidence.' LeBarge v Stewart, 84 N.M. 222, 501 P.2d 666 (Ct.App.1972).
Upon a motion for a directed verdict, the trial court must view the evidence in the light most favorable to the party resisting the motion and indulge all reasonable inferences in support of him and ignoring conflicts in the evidence unfavorable to him. If reasonable minds might differ as to the conclusion to be reached from the evidence or permissible inferences, then the question is for the jury. Archuleta v. Johnston, 83 N.M. 380, 492 P.2d 997 (Ct.App.1971).
The facts most favorable to the verdict are these: The accident out of which the initial action arose occurred on May 31, 1966. The Insurer upon being notified of the accident ordered an investigation. On June 2, 1966 the investigators submitted their report which indicated that Woolett claimed to be an employee of the Insured. On May 24, 1967 Woolett filed suit in the Superior Court in San Francisco, California, against the Insured and others. Defense of the suit was tendered to the Insurer who accepted and engaged attorney Robert E. Friedrich on June 12, 1967 to handle the defense. Friedrich was an experienced trial attorney who had represented the Insurer for about five and one-half years on a case to case referral basis. On June 19, 1967 Friedrich wrote to the Insurer:
'I have conducted a detailed review of this file, and, as you have so aptly observed * * * two things are most readily apparent * * * (2) Whether or not the employee exclusion is applicable to the coverage claim herein. What is now required * * * is an immediate opinion from a New Mexico lawyer * * * (w)hether or not an employee exclusion is a valid exclusion in New Mexico.
If we intend to decline coverage * * * this should be done at the earliest possible date, so they cannot claim prejudice by the delay in securing other counsel. In any event, they should be advised to obtain counsel, if for no other reason than that the complaint far exceeds the amounts of their coverage.'
On July 28, 1967 the Insured signed a reservation of rights agreement prepared by attorney Russell Mann, portions of which are as follows:
'WHEREAS, the INSURED is desirous of having the COMPANY, its agents, representatives and attorneys to continue to investigate the aforesaid alleged losses, possibly negotiate for a settlement, and to furnish to INSURED a full and complete defense to said cause * * * WHEREAS, the COMPANY is desirous of continuing * * * to furnish INSURED with a full and complete defense * * * with the understanding that such investigation, possible settlement negotiations and defense * * * shall not in any way change, waive, invalidate or forfeit any of the terms, conditions or requirements of the subject insurance policy or any of the rights of any of the parties hereto under said policy.
* * * INSURED hereby covenants and agrees with the COMPANY that the COMPANY'S agents, representatives or attorneys may continue to investigate the alleged losses, damages, causes or circumstances surrounding the occurrence in question, possibly negotiate for settlement and furnish to the INSURED a full and complete defense to such cause and that no such action taken by the COMPANY shall in any way waive any right that the COMPANY may now or hereinafter have, under the terms of the policy * * * to escape liability from any judgment that may be redered against the INSURED and the INSURED does hereby expressly consent and accede to the reservations by the COMPANY of all its rights in the premises * * * so that the rights of the said COMPANY will in all respects be identical with its rights had it refused to participate in such investigation, possible settlement negotiations and defense of any claims made against INSURED * * *'
It was signed by the Insured and 'AMERICAN EMPLOYERS INSURANCE COMPANY By Russell D. Mann, Attorney and Agent.'
On January 9, 1968 Friedrich wrote the following to the Insurer:
'Needless to say in view of the very substantial injuries which the plaintiff received, this is a very serious case, indeed, and an excess letter should be directed to Oscar F. Crawford. * * *
It might be will (sic) to point out in your excess letter that if Woolett should establish that he is an employee of any of the addresses of the letter, that the policy contains language which would exclude any coverage as to the claim brought by him. * * *
This is certainly a case of doubtful liability, but one with a very large potential exposure, and as we have discussed many times, the coverage question remains obscure.'
On January 22, 1968 Friedrich wrote to the Insurer:
'Following our discussion I am dictating herein what I feel would be an appropriate form of excess letter. * * * As I explained, in discussing the coverage and defense situation with Mr. Mann, the attorney employed by your Dallas Office in Roswell, New Mexico, he told me that there was no New Mexico law on the subject of a determination of the existence of coverage. * * *
This, of course, gives rise to the thought that perhaps the thing to do is to bring a declaratory relief action in New Mexico, to determine whether or not there is coverage.'
On February 2, 1968 in response to Friedrich's suggestion the Insurer wrote the following to the Insured:
* * *'
On September 4, 1969 Friedrich wrote to Mr. Penrose, one of the defendants in the initial action, with copies to the Insured and Attorney Mann, telling him of an offer of settlement received from Woolett's attorney on August 29, 1969 offering to settle for $175,000. The letter also stated: 'I have been in contact with Employers Group of Insurance Companies, as well as Russell Mann and as of now I do not know what either the insurance company or Mr. Crawford will do,...
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