Goddard v. Farmers Ins. Co. of Oregon, 9005-03204; A118750.

• Decision Date: 12 October 2005
• Docket Number: 9005-03204; A118750.
• Citation: 202 Or. App. 79,120 P.3d 1260
• Parties: Margie A. GODDARD, as Personal Representative for the Estate of Marc E. Goddard, Deceased, Respondent-Cross-Appellant, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation, Appellant-Cross-Respondent.
• Court: Oregon Supreme Court

120 P.3d 1260

202 Or. App. 79

Margie A. GODDARD, as Personal Representative for the Estate of Marc E. Goddard, Deceased, Respondent-Cross-Appellant, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation, Appellant-Cross-Respondent.

9005-03204; A118750.

Court of Appeals of Oregon.

Argued and Submitted April 18, 2005.

Decided October 12, 2005.

COPYRIGHT MATERIAL OMITTED

James N. Westwood, Portland, argued the cause for appellant-cross-respondent. With him on the briefs were Stoel Rives, LLP, and Thomas H. Tongue and Dunn Carney Allen Higgins & Tongue LLP, Portland.

Jeffrey M. Batchelor, Portland, argued the cause for respondent-cross-appellant. With him on the briefs were Jennifer H. Holcomb, David W. Melville, Markowitz, Herbold, Glade & Mehlhaf, PC, Portland, and William A. Barton, Kevin K. Strever, and Barton & Strever, P.C., Newport.

Before HASELTON, Presiding Judge, and ORTEGA, Judge, and DEITS, Judge pro tempore.

HASELTON, P.J.

This appeal is the latest chapter in remarkably protracted litigation that began with an auto accident in 1987, in which plaintiff's decedent, Marc Goddard, died following a collision with a pickup truck driven by a drunk driver, John Munson.¹ Munson was driving a vehicle insured by defendant Farmers Insurance Company of Oregon. In this case, a jury awarded plaintiff, as assignee of Munson's bad faith claim against defendant, $863,274 in compensatory damages and $20,718,576 in punitive damages, based on defendant's conduct in handling the wrongful death claim against Munson and in failing to settle that claim within policy limits.

Defendant appeals, asserting that the trial court erred in admitting a "pooling agreement" among various Farmers companies and that the jury's award of punitive damages was unconstitutionally excessive under the standards prescribed in State Farm Mut. Ins. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). Plaintiff cross-appeals, challenging various aspects of the trial court's calculation of compensatory damages. As described below, we conclude that the trial court did not err in admitting the "pooling agreement." However, we further conclude that the punitive damage award is unconstitutionally excessive and that the maximum constitutionally permissible award of punitive damages is three times the compensatory damage award. With respect to the cross-appeal, we conclude that the trial court erred in two respects in calculating and reducing the compensatory damage award.

I. PROCEDURAL BACKGROUND AND HISTORY OF THE LITIGATION

On October 29, 1987, plaintiff's son, Marc Goddard, was killed in a collision with a pickup truck driven by Munson, who was intoxicated. Munson had an auto insurance policy issued by defendant. The pickup that Munson was driving was owned by Helen Foley, who also had an auto insurance policy issued by defendant. Munson's and Foley's policies each had a $100,000 limit. In a wrongful death action initiated by plaintiff as representative of Marc Goddard's estate against Munson and Foley, defendant defended Munson and Foley. In that case, plaintiff obtained a judgment against Munson in the amount of $863,274 in compensatory and punitive damages. See generally Goddard v. Munson, 108 Or.App. 342, 816 P.2d 619, rev. den., 312 Or. 525, 822 P.2d 1194 (1991) (affirming judgment in wrongful death action). Thus, Munson was subject to a judgment that exceeded available policy limits.²

In a separate declaratory judgment proceeding initiated before the wrongful death action had concluded, defendant sued Munson, Foley, Goddard, and Goddard's insurer, State Farm, seeking a declaration that it was not liable under either Munson's or Foley's insurance policies for the accident that killed Marc Goddard. That litigation ultimately resulted in a judgment declaring that Foley's policy provided coverage.³

In a different declaratory judgment proceeding, Goddard's uninsured motorist insurance carrier, State Farm, sued the Goddard estate, asserting that there was no underinsurance coverage available for the collision. That case was settled. State Farm ultimately paid plaintiff $325,000 under that policy.

In April 1990, after entry of judgment against Munson in the wrongful death action, Munson assigned all of his potential claims against defendant, including potential "bad faith" claims, to plaintiff. In May 1990, plaintiff, as Munson's assignee, filed this action, asserting that defendant had acted in bad faith in defending the wrongful death claim and seeking compensatory damages in the amount awarded to plaintiff against Munson in the wrongful death case, and also seeking $450 million in punitive damages. The trial court initially granted summary judgment to defendant. We reversed on the ground that there was evidence from which a jury could find that plaintiff would have accepted a settlement of the wrongful death action within policy limits had defendant made such an offer. Goddard v. Farmers Ins. Co., 173 Or.App. 633, 639-40, 22 P.3d 1224, rev. den., 332 Or. 631, 34 P.3d 1178 (2001).⁴

After remand, the jury found that defendant was 80 percent at fault and that Munson was 20 percent at fault. The jury awarded plaintiff compensatory damages of $863,274 and punitive damages of $20,718,576. Before entry of judgment, however, defendant raised several objections, including potential offsets, to the jury's award of compensatory damages. Ultimately, the trial court entered a judgment that provided that plaintiff should recover "$265,619.20 economic damages, plus prejudgment interest thereon in the amount of $343,573.62; and $20,718,576 in punitive damages plus interest thereon at the rate of nine percent per annum," as well as costs and disbursements. An appendix to the judgment set forth the trial court's methodology in calculating the amount of compensatory damages. Because two aspects of that calculation are challenged in assignments of error on plaintiff's cross-appeal, we reproduce that appendix in its entirety:

                Damages Prejudgment Interest
                   Economic Damage Verdict      $863,274.00
                   Munson's Fault               -172,654.80
                                               _____________
                   Damages as of 2/5/90          690,619.20
                                                                              Interest on  $690,619.20, 2/5/90-3/20/92
                                                                $ 131,804.19
                   State Farm Payment, 3/20/92 - 350,000.00
                                                ____________
                   Damages as of 3/20/92         340,619.20
                                                                              Interest on $340,619.20
                                                                + 185,950.08  3/21/92-4/14/98
                                                                              Interest Paid by Farmers
                   Farmers Payment, 4/14/98    - 100,000.00     - 75,960.08   4/14/98
                

                   Returned to State Farm
                   4/14/98                  + 25,000.00
                                             ___________
                   Damages as of 4/14/98     265,619.20
                                                                               Interest on $265,619.20
                                                                + 101,779.43   4/15/98-7/18/02
                                            ____________          __________
                   Economic Damages $ 265,619.20 $ 343,573.62 Prejudgment Interest
                

In addition, before entry of judgment, defendant filed a motion for judgment notwithstanding the verdict or in the alternative to order plaintiff to remit a substantial portion of the punitive damage award or to order a new trial, on the ground that the punitive damage award was unconstitutionally excessive. The trial court denied that motion. This appeal and cross-appeal ensued.

Defendant appeals, arguing that the trial court erred in admitting into evidence a pooling agreement between defendant and other related insurance companies and also challenging the amount of the punitive damage award. Plaintiff cross-appeals, arguing that the trial court erred in (1) reducing the compensatory damage amount by $325,000 that State Farm paid to the Goddard estate for underinsured motorist coverage, and (2) allocating defendant's payment in partial satisfaction of the Goddard estate's judgment against Munson to reduce the compensatory damage principal, rather than to reduce the accrued interest on the principal.

II. FACTS PERTAINING TO COMPENSATORY AND PUNITIVE DAMAGE LIABILITY FOR DEFENDANT'S "BAD FAITH" CLAIMS HANDLING AND FAILURE TO SETTLE

Because the jury found in plaintiff's favor on her "bad faith" claim, we view the evidence pertaining to that claim, and all reasonable derivative inferences, in the light most favorable to plaintiff. Greist v. Phillips, 322 Or. 281, 285, 906 P.2d 789 (1995). As noted, the facts at the core of this dispute concern defendant's conduct with respect to the wrongful death action against its insured, Munson. Although normally we summarize the material facts before addressing the law, in this case it is helpful to outline the relevant legal principle underlying plaintiff's claim before turning to the facts.

Under Oregon law, an insurer owes a duty of care to its insured that includes a duty to make reasonable efforts to settle claims in order to avoid exposing the insured to liability in excess of policy limits. See ORS 746.230(1)(f) (it is an unfair claims settlement practice if an insurer does not, in good faith, attempt "to promptly and equitably settle claims in which liability has become reasonably clear"); Maine Bonding v. Centennial Ins. Co., 298 Or. 514, 518-19, 693 P.2d 1296 (1985) ("[T]he insurer must use such care as would have been used by an ordinarily prudent insurer with no policy limit applicable to the claim. The insurer is negligent in failing to settle, where an opportunity to settle exists, if in choosing not to settle it would be taking an unreasonable risk—that is, a risk that would involve chances of unfavorable results out of reasonable proportion to the chances of favorable results.").

The gravamen of plainti...