Dydek v. Dydek

• Decision Date: 09 July 2012
• Docket Number: Nos. 30,775,30,804.,s. 30,775
• Citation: 288 P.3d 872
• Parties: Lowell Richard DYDEK, Petitioner, v. Mary Olene DYDEK, Respondent. and Joseph E. Gant, III, in his capacity as Receiver, Intervening Plaintiff–Appellant/Cross Appellee, USAA Casualty Insurance Company, Defendant–Appellee/Cross–Appellant. and Lowell R. Dydek, and Mary O. Dydek, Defendants.
• Court: Court of Appeals of New Mexico

288 P.3d 872

Lowell Richard DYDEK, Petitioner,

v. Mary Olene DYDEK, Respondent.andJoseph E. Gant, III, in his capacity as Receiver, Intervening Plaintiff–Appellant/Cross Appellee,USAA Casualty Insurance Company, Defendant–Appellee/Cross–Appellant.andLowell R. Dydek, and Mary O. Dydek, Defendants.

Nos. 30,775, 30,804.

Court of Appeals of New Mexico.

July 9, 2012.

The McClenahan Law Firm, PLLC, Barry A. McClenahan, San Antonio, TX, Rodey, Dickason, Sloan, Akin & Robb, P.A., Edward Ricco, Jocelyn Drennan, Albuquerque, NM, for Appellee.

Michael B. Browde, Albuquerque, NM, Randy K. Clark, P.C., Randy K. Clark, Roswell, NM, for Appellant.

OPINION

BUSTAMANTE, Judge.

{1} This is an insurance bad faith action brought by Joseph Gant (Receiver) on behalf of Lowell Dydek (Husband). Following a bench trial, the district court ruled that “USAA breached its contract with [Husband] by failing to act in good faith to make a timely policy limits settlement offer to Mary Dydek [Wife] and causing a Judgment in the amount of 2.8 million dollars to be entered against [Husband].” The district court concluded that “USAA knowingly failed to in good faith effectuate a prompt, fair, and equitable settlement of [Wife's] liability claim ... in violation of [NMSA 1978, Sections] 59A–16–20 and 59A–16–30.” Although Receiver prevailed, the district court ruled that Wife's agreement not to execute the judgment against Husband's personal assets precluded the award of the excess judgment as damages. Instead, the court awarded $100 as nominal damages.

{2} The district court also concluded “that USAA wantonly and recklessly breached its contract with [Husband], and violated [Sections] 59A–16–20 and [–30].” As a consequence of this ruling, the district court granted Receiver attorney fees and costs incurred in pursuing the bad faith claim against USAA as well as punitive damages in the amount of $300,000. In addition, the district court awarded Receiver “compensatory damages for attorney[ ] fees and costs expended in the Texas litigation.” The district court's ruling that USAA acted recklessly and wantonly was based in part on its conclusion that “USAA's actions ... in the Texas litigation show the culpable conduct of USAA regarding [Husband].”

{3} Receiver appeals the district court's refusal to award the full amount of the excess liability judgment entered against Husband. We reverse that portion of the district court's judgment. USAA cross-appeals arguing that (1) the district court erred in finding that USAA acted in bad faith; and (2) Receiver was not properly appointed and, therefore, the bad faith claim was not prosecuted by the real party in interest. We affirm the district court as to all matters raised in the cross-appeal.

I. BACKGROUND

{4} The factual background undergirding the district court's decision is detailed in its comprehensive “Decision, Findings of Fact, Conclusions of Law, and Order.” The parties do not challenge the facts as found by the district court—USAA agrees that they are “largely based on undisputed evidence”—and we therefore accept them as accurate and controlling. The background facts organize themselves rather neatly into three areas: (1) the three-month period following the collision and ending with Wife's filing of her tort action against Husband in October 2003, (2) the facts surrounding the so-called “Texas litigation” starting in April 2005, and (3) the process leading to the appointment of Receiver. We will provide a synopsis of the post-collision events and the Texas litigation here because they both have a direct impact on the finding of bad faith—which we will examine first. We will provide a summary of the facts regarding the Receiver's appointment as part of our analysis of that issue.

A. Collision and Claims Handling

{5} On July 21, 2003, Husband was driving a vehicle in which Wife was a passenger. The couple was headed to a neurologist appointment to assess what was later determined to be Husband's early onset of Alzheimer's disease. Husband attempted to pass on a blind curve and collided head-on with another vehicle. Wife was severely injured and within weeks of the collision incurred hundreds of thousands of dollars in medical bills. [RP 2395, 2421 FOF 25; Def. Exh. # 17] Wife's injuries included: (1) complex facial fractures, (2) a fractured jaw, (3) facial lacerations, (4) acute respiratory failure requiring a tracheotomy, (5) bilateral rib fractures, (6) fractured wrist, (7) fractured spine, (8) bladder rupture, (9) fractured pelvis, (10) fractured and lacerated knees and knee ligament displacement, (11) fractured/dislocated right ankle, (12) fractured left leg, and (13) a puncture wound to the right foot. As of July 25, 2003, Wife was in intensive care, had undergone “an open reduction of internal fixation [ORIF] surgery on her legs and was scheduled for spinal/back surgery.” USAA admitted during discovery that by July 25, it was aware of Wife's general condition and impending surgery. Though the record does not reflect exactly when Wife was discharged from the hospital, it is clear that she went home sometime in late August with severe injuries after multiple surgical interventions and medical bills in excess of $300,000.

{6} USAA confirmed Husband's coverage and opened a claim file on July 23, 2003. From that point on each of USAA's claim handling activities “were reviewed by management, ratified and found to be satisfactory to USAA and constituted a general business practice of USAA.”

{7} On July 25, USAA determined that Husband was “100% at fault for the collision and crash injuries” to Wife. USAA had enough knowledge of the type and extent of the injuries Wife had incurred to classify her injuries and make a “Serious Injury Referral” to the home office. By July 25, USAA knew where Wife was hospitalized and her general condition, knew the identity of the financial case manager for the hospital, and had received a call from the hospital providing updated billing information for Wife's treatment.

{8} Taylor Stott was the bodily injury adjuster assigned to the file. Stott knew as soon as he reviewed the file on July 25 that Wife's “injuries and claim had a value in excess of the amount of [Husband's] liability coverage.” On July 25, USAA set a reserve for Wife's bodily injury claim at the policy limit of $100,000. Soon after, however, USAA reduced the reserve to $25,000, relying on a provision in its policy that limited coverage for family members to $25,000. USAA relied on this provision “to justify its initial delay in paying [Wife's] liability insurance benefits.” USAA was aware at the time it reduced the reserve that the family coverage limit had been declared invalid in New Mexico for at least eighteen years. USAA had a provision in its internal operating procedures that said the family coverage limit was invalid in New Mexico.

{9} Eventually, Wife began discussions with USAA to obtain insurance proceeds to help defray her medical costs. Though USAA knew within days that Husband was entirely at fault and that Wife's damages would exceed the $100,000 policy limit—and after paying the $5000 limit for medical expenses—it made no settlement offers or payments to Wife until October 22, 2003. Instead, on August 20, USAA instructed Wife to forward any additional charges to her health insurer. Similarly, on August 27, USAA sent Wife copies of letters it had sent to various of her medical care providers refusing to pay them on their claims and referring them to Wife's “health carrier.”

{10} On September 12, Wife started to correspond with USAA by faxed letter. Each of the letters she sent contained a variation of the same theme, including a recitation of severe injuries, the amount of the medical bills to date, attached copies of medical bills, requests for information, and requests for payment. USAA's file did not reflect any written response to these communications prior to September 26. On September 22, Wife faxed a letter demanding payment of the policy limits by September 28 at noon. Attached to the letter were medical bills totaling over $348,000. The letter, which USAA received on September 23, 2003, indicated that Wife would no longer be willing to settle for the limits after September 28, 2003. Despite the deadline, USAA initially ignored the letter. The letter was received by the medical claims adjuster for USAA on September 23. Wife had been in contact with her previously. The adjuster promptly reviewed the offer and “recognized the time feature of the letter.” The adjuster's “usual business practice was to deliver such letters immediately to Taylor Stott, the bodily injury claims adjuster handling [Wife's] claims.” On September 26, after a conversation with Stott, Wife faxed an additional copy of her timed demand and request for payment of policy limits to USAA. USAA did not acknowledge receipt of Wife's timed settlement demand, did not respond to the settlement demand and allowed it to expire. As of September 17, USAA had been informed that Wife was “now represented.”

{11} The first entry in USAA's running computer file reflecting Wife's September 22 letter is on October 2. It reflects Wife's demand for “the $100K BI limits.” The October 2 entries also reflect Wife's September 26 letter and noted that “IP–Mary is ‘frustrated’ and wants immediate attention.” The note reflects that medical bills are enclosed.

{12} This entry is in contrast with an entry to the same log noting receipt of an October 23 demand from the attorney for the driver of the other vehicle involved in the July 21 crash seeking “$100K BI limits within [ten] days from date of the letter” and enclosing “partial medical specials of $27,623.49.” Stott responded to this demand within the time frame set by the letter and asked for a thirty-day extension. The other driver's claim was settled for policy limits on November 25.

{13} On or about October 3, USAA sent Husband a notice of non-renewal of his auto...