Gov't Emps. Ins. Co. v. Gonzalez

• Decision Date: 25 August 2017
• Docket Number: Supreme Court No. S-15637, Supreme Court No. S-15657.
• Citation: 403 P.3d 1153
• Parties: GOVERNMENT EMPLOYEES INSURANCE COMPANY and Michael J. Lina Jr., Appellants and Cross-Appellees, v. Sandra GONZALEZ, Appellee and Cross-Appellant.
• Court: Alaska Supreme Court

403 P.3d 1153

GOVERNMENT EMPLOYEES INSURANCE COMPANY and Michael J. Lina Jr., Appellants and Cross-Appellees,

v.Sandra GONZALEZ, Appellee and Cross-Appellant.

Supreme Court No. S-15637, Supreme Court No. S-15657.

Supreme Court of Alaska.

August 25, 2017

Rebecca J. Hozubin, Hozubin, Moberly, Lynch & Associates, Anchorage, for Appellants/Cross-Appellees.

W. Michael Moody and Sarah A. Marsey, Atkinson, Conway & Gagnon, Anchorage, and Dennis M. Mestas, Law Offices of Dennis M. Mestas, PC, Anchorage, for Appellee/Cross-Appellant.

Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

OPINION

WINFREE, Justice.

I. INTRODUCTION

An insured sued her auto insurer and one of its adjusters, alleging that the insurer breached the insurance contract and committed tortious bad faith by withholding underinsured motorist benefits and that the adjuster negligently handled her claim for those benefits. The insurer then paid all available underinsured motorist benefits to the insured, including interest. The insured continued her tort claims, alleging additional financial and emotional harm from the delayed benefits payment. The insured proposed a jury instruction addressing the effect of the insurer's belated payment, but the superior court rejected that instruction. After trial the jury determined that (1) the insurer had acted in bad faith, but its conduct was not a substantial factor in causing the insured's asserted harm, and (2) the adjuster had not been negligent. The superior court subsequently ordered the jury to award the insured nominal damages. The jury then awarded the insured $2 in nominal damages and later awarded $450,000 in punitive damages.

The superior court awarded the insured prevailing party costs and attorney's fees against the insurer. The court also awarded the adjuster prevailing party attorney's fees against the insured. The court rejected the insured's request that judgment against the insurer be entered nunc pro tunc to the date of the jury verdict so that post-judgment interest on the punitive damages award would start earlier.

The insurer appeals the nominal and punitive damages awards and the prevailing party determination. The insured cross-appeals the adjuster's attorney's fees award, the jury's failure to award compensatory damages, the court's rejection of the insured's proposed jury instruction, and the court's refusal to enter judgment effective from the jury verdict date. We affirm all aspects of the decision except the adjuster's attorney's fees award—we remand for further proceedings on that issue.

II. FACTS AND PROCEEDINGS

Sandra Gonzalez was injured in a 1996 car accident. Gonzalez's sister was driving the car and pulled into the path of an oncoming vehicle; the other vehicle struck the car's passenger side where Gonzalez was seated. Gonzalez's mother, the car's owner, had an insurance policy with Government Employees Insurance Company (GEICO), and GEICO paid Gonzalez $58,593.75—the bodily injury liability coverage policy limit with interest—to release all bodily injury claims against her mother and sister.

In the months following the accident Gonzalez repeatedly requested payment under the policy's underinsured motorist (UIM) coverage as well, but GEICO did not respond to her requests. Gonzalez explicitly stated that by accepting the bodily injury settlement she was "not waiving any right to an underinsured motorist claim later on." Gonzalez requested UIM coverage again in 1998, and GEICO responded only by questioning her status as an insured. In 2000, after Gonzalez again requested UIM coverage, GEICO adjuster Michael Lina reviewed Gonzalez's UIM claim and paid her $83,487.50, including the UIM coverage policy limits and interest. But by then Gonzalez already had filed suit against GEICO and Lina.

Gonzalez initially tried to bring two class action claims against GEICO, but our holding in a previous appeal effectively eliminated one,¹ and she later voluntarily dismissed the other. That left two claims relevant to this appeal: (1) a negligent adjusting claim against Lina, and (2) a claim that GEICO acted in bad faith by failing to timely investigate and pay her UIM coverage benefits.

GEICO moved for partial summary judgment, asserting that at the time Gonzalez's claim arose an insurer could not, as a matter of law, be liable for bad faith failure to pay both bodily injury and UIM claims (known as "stacking"). GEICO noted that Progressive Insurance Co. v. Simmons —holding that Alaska law required stacking—had not yet been decided.² GEICO relied on an earlier unpublished memorandum decision in Peter v. Progressive Corp. , upholding a decision not to hold an insurer liable for bad faith failure to stack.³ The superior court determined that our Peter decision had limited precedential value because it was an unpublished decision⁴ and because it was based partly on the insurer's alternative grounds for denying coverage.⁵ The court denied summary judgment because Gonzalez had presented evidence of GEICO's potential bad faith, showing that "GEICO offered some insureds, but not others, standstill agreements pending resolution of Simmons ." Consequently the "insurer could honestly believe that [Alaska law] required stacking but conceal that information from some insureds in bad faith."⁶

A jury trial began in August 2012. Gonzalez testified about the accident and its consequences. Prior to the accident she had worked as a housekeeper and at an office supply store; she briefly resumed housekeeping after the accident, but the pain and swelling in her leg and ankle prevented her from working even part time. In addition to physical challenges, she suffered financial hardship and emotional distress between 1996 and 2000. Because she was unable to work, her family lived on her husband's $1,200 monthly income. During that time period she financially relied on her mother, who loaned Gonzalez about $30,000; housed Gonzalez's family for three months; and helped pay for a crib, diapers, a baby dresser, and expensive auto repairs. Gonzalez said that asking her mother for money felt "terrible" and embarrassing.

After the close of evidence the parties submitted final objections to proposed jury instructions. Gonzalez objected to the court's rejection of her proposed Jury Instruction 38; it stated that an insurer's belated payment of contract benefits does not relieve the insurer from liability for bad faith. The superior court nonetheless declined to give the disputed instruction.

The next day the jury issued a special verdict finding that (1) Lina did not negligently adjust Gonzalez's claim, and (2) GEICO acted in bad faith, but its conduct was not "a substantial factor in causing harm to ... Gonzalez." The bad faith finding is at the heart of this dispute.

After the verdict Gonzalez asserted that, given the finding of bad faith, the jury must award her at least nominal damages. The parties and the court discussed the issue, and the court—to create a full record for appeal—gave the jury a supplemental instruction on nominal damages. The instruction directed the jury to assume that GEICO's bad faith was a substantial factor in causing Gonzalez's harm and to award Gonzalez nominal damages, describing those as "a trivial sum of money awarded to a litigant who has established a cause of action but has not established that she is entitled to compensatory damages." The jury asked the court whether $0 could be a trivial sum; the court responded that the jury must award at least $1. The jury returned a verdict awarding Gonzalez $1 for "[m]ental suffering, anxiety, humiliation, and emotional distress" and $1 for financial hardship. The jury then found Gonzalez also was eligible for punitive damages. After more trial testimony and a supplemental instruction, the jury awarded Gonzalez $450,000 in punitive damages. The jury then was excused.

The parties later disputed how to treat the jury's supplemental verdict and damages awards. In June 2013 the superior court rejected GEICO's assertion that it was improper for the jury to award nominal and punitive damages after finding GEICO's conduct was not a substantial factor in causing Gonzalez's harm. The court reasoned the jury's finding that GEICO acted in bad faith meant Gonzalez was entitled to nominal damages under our holding in Ennen v. Integon Indemnity Corp.⁷ The court interpreted the jury's verdict to mean "the jury found that there was harm but that [Gonzalez] had failed to prove the amount of harm to the requisite degree of certainty," consistent with our nominal damages explanation in Anchorage Chrysler Center, Inc. v. DaimlerChrysler Motors Corp.⁸

The superior court then assessed the jury's punitive damages award under the United State Supreme Court's due process guideposts outlined in BMW of North America, Inc. v. Gore .⁹ The court also assessed whether the jury's punitive damages award impermissibly punished GEICO for its conduct toward other insureds, as well as whether the statute allowing punitive damages was unconstitutional as applied, and found the punitive damages award constitutional in all respects.

In November 2013 the superior court issued a judgment and an accompanying order explaining that Gonzalez was entitled to 10.5% pre- and postjudgment interest, with prejudgment interest accruing from August 15, 1996. The judgment accordingly awarded Gonzalez prejudgment interest on her nominal damages and post-judgment interest on her total judgment, including nominal and punitive damages. Gonzalez then moved for judgment notwithstanding the verdict and a partial new trial. She asked the court to change the jury's answer to the question whether GEICO's conduct was a substantial factor in causing her harm from "no" to "yes." She sought a new trial on "compensatory damages because the jury's failure to award any compensatory damages was against the weight of the evidence." The court denied those motions in a June 2014 order.

The parties also had sought...