Crookston v. Fire Ins. Exchange
| Decision Date | 28 June 1991 |
| Docket Number | No. 880034,880034 |
| Citation | 817 P.2d 789 |
| Parties | S. Larry CROOKSTON, Randi L. Crookston, and Anna W. Drake, Trustee of the Estate of Spencer Larry Crookston and Randi Lynn Crookston, Plaintiffs and Appellees, v. FIRE INSURANCE EXCHANGE, a California corporation, Defendant and Appellant. |
| Court | Utah Supreme Court |
L. Rich Humphreys, M. Douglas Bayly, Salt Lake City, for plaintiffs and appellees.
Philip R. Fishler, Stephen J. Trayner, Salt Lake City, and Frank A. Roybal, Bountiful, for defendant and appellant.
Fire Insurance Exchange ("Fire Insurance") appeals a jury verdict awarding Spencer Larry Crookston and Randi Lynn Crookston (collectively referred to as "the Crookstons") and Anna W. Drake, trustee of the Crookstons' estate, compensatory damages of $815,826 and punitive damages of $4,000,000 on various theories arising out of Fire Insurance's failure to pay in full a claim for property damage caused by the collapse of the Crookstons' home while under construction. Fire Insurance also appeals the trial court's award of $175,000 in attorney fees and $11,126 in costs to the Crookstons.
The jury found that Fire Insurance breached its contract of insurance, including the implied covenant of good faith and fair dealing recognized in Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985); intentionally inflicted emotional distress upon the Crookstons; committed fraud and misrepresentation in its handling of the Crookstons' claims; and was the proximate cause of the damages suffered by the Crookstons. Fire Insurance argues that myriad substantive and procedural errors were committed which require reversal of the verdict and/or the damage awards. We find no reason to reverse on the issue of Fire Insurance's liability. We also uphold the trial court's determination that the compensatory damages are supported by the evidence and well within the discretion of the jury. However, we vacate the trial court's denial of a motion for a new trial on grounds that the punitive damage award was excessive and remand for further consideration consistent with this opinion.
On appeal, we recite the facts in the light most favorable to the jury's verdict. E.g., State v. Verde, 770 P.2d 116, 117 (Utah 1989); Von Hake v. Thomas, 705 P.2d 766, 769 (Utah 1985). Larry and Randi Crookston owned a vacant lot in Davis County, Utah, on which they wanted to build an "earth" home, i.e., a house constructed partially underground to take advantage of the natural heating and cooling effects of the earth. In December of 1980, they approached Rocky Mountain State Bank for a construction loan in the amount of $60,000. The bank approved the loan with the stipulation that the Crookstons obtain insurance naming the bank as the loss payee. The Crookstons obtained such a policy from Fire Insurance with a maximum coverage of $67,000. The policy named the Crookstons as the insureds and the bank as the loss payee.
In December of 1981, the home, which was 90 percent completed, collapsed. The Crookstons filed a claim with Fire Insurance that month, and an adjustor was assigned the claim. A few months passed during which no progress was made on the claim. The Crookstons then hired an attorney, Ralph Klemm, to represent them in the claim adjustment. Klemm assisted Fire Insurance in obtaining bids to have the home repaired. By the end of March of 1982, Fire Insurance had received bids from two contractors: one in the amount of $50,951, and another in the amount of $49,600. In April of 1982, Fire Insurance's regional office extended settlement authority in the amount of $49,443. In May of 1982, the adjustor obtained another bid from an architect in the amount of $74,000.
Later in May, Fire Insurance replaced the original adjustor with one more experienced. The new adjustor, Alan Clapperton, commissioned an engineer to do an analysis limited to structural damage. The engineer was not informed by Clapperton that his report would be the basis for a bid to reconstruct the house. Clapperton then requested a bid to rebuild the home from an inexperienced contractor. Clapperton provided this contractor with a copy of the engineer's analysis, representing that the engineer's limited analysis encompassed the entire damage to be repaired. On June 14, 1982, the contractor bid $27,830.60 to repair the home. Clapperton immediately made an appointment to meet with a bank officer on June 16th to discuss settlement. On the morning of the 16th, Clapperton received a call from Ralph Klemm, the Crookstons' attorney, asking about the status of any settlement. Clapperton told Klemm that he needed a little more time and would be getting back to him soon with a settlement proposal. Clapperton said nothing about the bid he had received two days earlier or of the meeting he had scheduled with the bank for later that same day.
At the meeting with the bank, Clapperton did not disclose the fact that three other bids, all substantially higher, had been obtained, nor did he reveal that the $27,830.60 bid was based on an engineer's appraisal limited to structural damage only. The bank officer agreed to settle for slightly more than $32,000, the amount of the low bid plus an approximation of the interest that had accrued on the Crookston loan since the collapse. Knowing full well that the $27,830.60 bid was substantially lower than any other bid, Clapperton insisted that the bank accept a settlement check made out only to the bank, not jointly to the bank and the Crookstons, and that the bank execute a proof of loss form releasing Fire Insurance from any further liability on the claim. The settlement was effected that same day, and all necessary documents were signed and exchanged.
The Crookstons' attorney called the bank later on June 16th. At that time, Klemm was told that the bank had just settled the claim with Fire Insurance. Klemm immediately called Clapperton, who affirmed that Fire Insurance had settled all claims under the policy with the sole loss payee, the bank. Clapperton also stated that the insureds, the Crookstons, did not have to be included in the settlement, that nothing more was owing, and that he was closing his file.
Klemm called the bank and discussed the Crookstons' situation. He learned that the bank intended to pursue a deficiency claim against the Crookstons for the balance due on the $60,000 loan that was not paid by the insurance settlement. Because the Crookstons lacked the means to pay off the loan, the bank threatened foreclosure. In order to avoid additional interest, attorney fees, and costs, the Crookstons deeded the property on which the earth home stood to the bank in lieu of foreclosure and then declared bankruptcy.
In February of 1983, the Crookstons filed a suit against the bank and Fire Insurance. As the pleadings ultimately stood, the Crookstons alleged causes of action against Fire Insurance for breach of contract, breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and misrepresentation and fraud. Against the bank, the Crookstons asserted claims for breach of a covenant of good faith and fair dealing, breach of fiduciary duty, misrepresentation and fraud, and intentional infliction of emotional distress. They sought actual and punitive damages against both Fire Insurance and the bank. Fire Insurance and the bank cross-claimed against each other, asserting rights of contribution.
In January of 1987, Fire Insurance moved for summary judgment based on a clause in the insurance contract requiring that any actions against the company be brought within one year of the date of loss. Fire Insurance argued that because the date of loss was December of 1981, when the house collapsed, and the action was brought fourteen months later, in February of 1983, the action should have been barred. The trial court denied the motion. Fire Insurance also moved to bifurcate the proceedings, requesting that the cause of action for breach of contract be separated from the remaining causes of action, which motion the trial court also denied.
Five days before trial, on a Thursday afternoon, the Crookstons agreed to settle with the bank. The afternoon of the next day, a stipulation regarding the settlement was executed, and the bank served and filed a motion for summary judgment, seeking its dismissal from the action. This motion was granted.
The case then proceeded to trial against Fire Insurance. After a six-day trial, the jury awarded $815,826 in compensatory damages and $4,000,000 in punitive damages. Although the jury's award of compensatory damages was not broken down further, testimony at trial attributed $323,399 of the $815,826 to economic loss, making the remaining $492,427 apparently attributable to emotional distress and loss of financial reputation. Fire Insurance filed a motion for judgment notwithstanding the verdict, new trial, or remittitur, which the court denied on December 30, 1987. On January 11, 1988, the court entered an additional judgment against Fire Insurance awarding the Crookstons attorney fees of $175,000 and expenses of $11,126. Fire Insurance then filed this appeal.
Fire Insurance claims as follows: (i) the trial court erred in granting the bank's summary judgment motion, which was both procedurally and substantively flawed; (ii) the trial court erred in refusing to hold the action barred by the one-year limitation period in the policy; (iii) the jury instructions regarding fraud were erroneous; (iv) the evidence is insufficient to support a finding of either intentional infliction of emotional distress or fraud; (v) attorney fees should not have been awarded; and (vi) the compensatory and punitive damages were excessive under Utah law and also violated constitutional notions of due process and the prohibition of excessive fines. We will address only the dispositive issues.
Initially, we consider the claim that the trial court...
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