Goddard v. Farmers Ins. Co.

• Jurisdiction: Oregon
• Parties: Margie A. GODDARD, as Personal Representative for the Estate of Marc E. Goddard, Deceased, Petitioner on Review, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation, Respondent on Review.
• Citation: 344 Or. 232,179 P.3d 645
• Docket Number: No. CC 9005-03204.,No. SC S053405.,No. CA A118750.,CC 9005-03204.,CA A118750.,SC S053405.
• Court: Oregon Supreme Court
• Decision Date: 06 March 2008

179 P.3d 645

344 Or. 232

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

No. CC 9005-03204.

No. CA A118750.

No. SC S053405.

Supreme Court of Oregon, En Banc.

Argued and Submitted January 4, 2007.

Decided March 6, 2008.

On review from the Court of Appeals.^*

Jeffrey M. Batchelor, Markowitz, Herbold, Glade & Mehlhaf PC, Portland, argued the cause and filed the briefs for petitioner on review. With him on the briefs were William A. Barton and Kevin K. Strever, of Barton & Strever, PC, Newport, and David W. Melville, Portland.

James N. Westwood, Stoel Rives LLP, Portland, argued the cause and filed the brief for respondent on review. With him on the brief was Thomas H. Tongue, Dunn Carney Higgins Allen & Tongue LLP, Portland.

William F. Gary and Sharon A. Rudnick, Harrang Long Gary Rudnick PC, Eugene, filed a brief on behalf of amicus curiae Associated Oregon Industries.

GILLETTE, J.

This case involves a constitutional challenge to a punitive damages award that a jury imposed on a liability insurance company, based on the company's bad faith failure to settle a third-party's claim against one of its insureds within policy limits.

The underlying case is a wrongful death proceeding. The insured, John Munson, caused an automobile accident in 1987 while driving under the influence of alcohol. The accident killed Marc Goddard. Goddard's mother (plaintiff) brought a wrongful death action against Munson. Munson's insurer, Farmers Insurance Company of Oregon (defendant), undertook Munson's defense, but failed to settle plaintiff's wrongful death action within policy limits, after which a jury returned a verdict that resulted in a judgment against Munson for $863,274. Munson, who asserted that defendant's failure to settle was an act of bad faith, assigned his bad faith claim against defendant to plaintiff, who prosecuted the action. A jury awarded plaintiff $863,274 in compensatory damages and $20,718,576 in punitive damages. Defendant moved to reduce both awards. The trial court reduced the compensatory damages award in certain respects, but left the punitive damages award in place. Both sides appealed. The Court of Appeals reinstated two amounts that the trial court had deducted from the compensatory damages award, but also significantly reduced the punitive damages award. Goddard v. Farmers Ins. Co., 202 Or.App. 79, 120 P.3d 1260 (2005), modified and adh'd to as modified on recons, 203 Or.App. 744, 126 P.3d 682 (2006). Plaintiff sought review, which we allowed. For the reasons that follow, we affirm the decision of the Court of Appeals.

I. FACTS

Plaintiff's "failure to settle" action against defendant is based on defendant's conduct in the wrongful death action against Munson, so we begin there. For the most part, the parties do not contest the facts as set out in the Court of Appeals opinion,¹ from which we quote liberally.

A. Wrongful Death Action

The accident at issue was a collision between a truck (which Munson was driving) and a car driven by the deceased. The accident potentially was covered by two separate insurance policies issued by defendant. First, Munson himself had a $100,000 automobile insurance policy with defendant. Second, the truck that Munson was driving was owned by Helen Foley, who also had a $100,000 automobile insurance policy with defendant. Separate litigation would eventually determine that the accident was covered only by Foley's policy.

"The fatal accident occurred on October 29, 1987. Munson, who had consumed a large quantity of alcohol, made a left turn into a tavern parking lot and collided with Marc Goddard's oncoming vehicle, killing Goddard. Shortly after the collision, Foley, who was to meet Munson at the tavern, arrived on the scene. Both Munson and Foley told a police officer that Munson had been driving Foley's truck with Foley's permission. Although Munson believed that he was not impaired by alcohol at the time of the collision, his blood alcohol level taken at the hospital was more than twice the legal limit for operating a motor vehicle."

Goddard, 202 Or.App. at 86, 120 P.3d 1260.

On November 2, 1987, Foley and Munson both told the defendant's claim representative, Sellers, that Munson had been driving the truck with Foley's permission. Id. Munson also admitted to Sellers that he had "eight to ten beers" before the accident. Id. Despite strong evidence that Munson was at fault in the collision, defendant's employees resisted plaintiff's attempts to resolve liability:

"On November 5, 1987, [attorney] Carl Amala wrote to Sellers, stating that he had been retained by Marc Goddard's estate and seeking to discuss liability, property damage, and medical and burial expenses. Sellers spoke with Amala by telephone, indicating that Sellers did not believe Munson was at fault in the collision. By early December, Sellers had verified through the police that Goddard had his headlights on at the time of the collision.

"On December 10, 1987, Amala again wrote to Sellers, stating that the physical evidence demonstrated that the collision occurred in Goddard's lane of travel, that Goddard's headlights were on, and that criminal charges against Munson were contemplated. Amala asked for any information that called into question Munson's liability. He also asked for information about what Farmers policies were involved and what their limits were. By December 10, 1987, Sellers had concluded that Munson's liability for the collision was clear. However, neither Sellers nor any other employee of defendant responded to Amala's letter.

"On December 16, 1987, Sellers wrote an investigation report for his supervisor, Doug Heatherington, indicating that both Foley's and Munson's policies were potentially involved, that Munson admitted to having consumed nine beers prior to the accident, and that the case `has policy limits potential.' The following day, Sellers wrote a claim status report, stating that the Goddard estate `will want policy limits' and that `[w]e have two policies involved with $200,000 exposure. I feel we should let things "ripen" a bit before making any settlement talk.'

"On January 5, 1988, Heatherington wrote to Don McClure, the regional claims manager in Portland, noting that both Foley's and Munson's policies were potentially involved but also noting that Munson's policy might not apply if Munson used Foley's vehicle regularly. That letter further stated that Munson admitted having eight to ten beers before the collision; that Marc Goddard had been 19 years old and was single with no children; and that Goddard was believed to have been recently released from jail. The letter concluded that, although ordinarily liability would be clear for making a left turn in front of an oncoming vehicle, Munson had suggested that Goddard might not have had his headlights on. Heatherington requested that a reserve, or settlement value, of $30,000 be established for the case and suggested that police reports, blood alcohol tests, and information on Goddard's headlights be obtained.

"On January 12, 1988, Amala again wrote to Sellers, indicating that he had not received a response to his earlier correspondence and seeking a response. Again, defendant provided no response."

Id. at 87-88, 120 P.3d 1260.

Meanwhile, internal memoranda show that defendant's employees had little doubt about Munson's liability for Goddard's death.

"Sellers provided a status report to [Randy] Voth[, who had replaced Heatherington in the Salem office,] on January 22, 1988, indicating that Goddard's vehicle had its lights on and that Munson had simply made a left turn in front of Goddard's vehicle after consuming nine beers. Sellers stated, `I think we should get some offer out on this if possible soon, or perhaps we should answer a lawsuit and find out facts on [Marc Goddard] through discovery process.'

"Munson was charged with second-degree manslaughter. On March 3, 1988, Amala wrote again to Sellers, noting that he had received no response to his three earlier letters, that the police reports indicated that Munson was at fault in the collision, and that Munson had been charged with manslaughter. He again sought information about the policies involved and asked that defendant respond in writing concerning the settlement of the property damage portion of the case. In late March, Amala spoke on the phone with Sellers, and Sellers confirmed that Foley and Munson each had $100,000 of coverage. Sellers also represented to Munson's [criminal] attorney, Feitelson, that both Foley's and Munson's policies would apply."

Id. at 88, 120 P.3d 1260.

At that point, the noncooperative nature of the relationship between plaintiff and defendant became more formal.

"On March 28, 1988, Amala sent a demand letter to Sellers, indicating that he would recommend to his client that she accept $200,000 to settle all claims against Munson, giving a three-week response time. On March 31, 1988, Sellers wrote a claim status report noting the $200,000 demand and requesting authority to settle for up to $50,000. The report stated that Sellers was awaiting an accident reconstruction report and that Munson's [criminal] attorney, Feitelson, was trying to obtain information on Marc Goddard's criminal history."

Id. at 88-89, 120 P.3d 1260.

In April 1988, Sellers received an accident reconstruction report and information about Goddard's criminal history. Id. at 89, 120 P.3d 1260. The accident reconstruction report confirmed that Munson had turned in front of Goddard and that Goddard had been traveling at approximately the speed limit, but the report could not specify whether Goddard had been using his headlights. Id. The criminal history investigation by Feitelson indicated that, at the time of the collision, Goddard had been on probation and that his probation was in jeopardy. Id.

"...