Heil Co. v. Evanston Ins. Co.

• Decision Date: 03 August 2012
• Docket Number: No. 11–6252.,11–6252.
• Citation: 690 F.3d 722
• Parties: The HEIL CO., d/b/a Heil Environmental, Plaintiff–Appellee, v. EVANSTON INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

690 F.3d 722

The HEIL CO., d/b/a Heil Environmental, Plaintiff–Appellee,

v.EVANSTON INSURANCE COMPANY, Defendant–Appellant.

No. 11–6252.

United States Court of Appeals,Sixth Circuit.

Argued: July 18, 2012.

Decided and Filed: Aug. 3, 2012.

ARGUED:Michael J. King, Woolf, McClane, Bright, Allen & Carpenter, PLLC, Knoxville, Tennessee, for Appellant. M. Todd Lowther, Balch & Bingham LLP, Birmingham, Alabama, for Appellee. ON BRIEF:Michael J. King, W. Kyle Carpenter, Latisha J. Stubblefield, Woolf, McClane, Bright, Allen & Carpenter, PLLC, Knoxville, Tennessee, for Appellant. M. Todd Lowther, R. Bruce Barze, Jr., Balch & Bingham LLP, Birmingham, Alabama, for Appellee.

Before: SILER and KETHLEDGE, Circuit Judges; MURPHY, District Judge.^*

OPINION

STEPHEN J. MURPHY, III, District Judge.

Evanston Insurance Company (“Evanston”) appeals the denial of its post-trial motion for judgment as a matter of law, or in the alternative to alter or amend the judgment. For the following reasons, we VACATE the jury's verdict on The Heil Company's claim for bad faith failure to settle and the associated $2 million punitive damages award, and REMAND for a new trial on those issues. We AFFIRM the jury's finding that Evanston is liable under Tennessee Code Annotated § 56–7–105.

I.

This litigation stems from a wrongful death action brought against The Heil Company (“Heil”) in 2003, for which Evanston, as Heil's insurer, assumed Heil's defense.

In 2003, Bob Ronske's widow sued Heil after a dump truck body, manufactured by Heil and mounted onto Mr. Ronske's truck, lowered onto Mr. Ronske causing his death. At the time of the accident, Heil held a commercial general liability policy issued by Evanston that covered the suit. Under the policy, Evanston agreed to insure the first $1 million loss incurred by Heil, in excess of a $500,000 self-insured retention (“SIR”). The policy required Heil to “provide, at [its] own expense, proper defense and investigation of any claim and to accept any reasonable offer of settlement within the [$500,000] Self–Insured Retention.” Am. Compl. at ¶ 8, R. 18. The policy also provided that Evanston, if it chose, had the right to assume charge of the defense and settlement of an action.

Heil retained attorney Craig Pelini to defend it in the Ronske litigation. Pelini defended the matter for over two years, until April 5, 2005, when Evanston notified Heil that it wanted to assume charge of Heil's defense. Over Heil's objection, Evanston appointed Larry Sutter to replace Pelini as lead counsel. Heil and Evanston agreed, however, that Pelini could remain involved in the defense of the action, that Pelini's fees would count toward exhaustion of the SIR, and that Evanston would pay any of Pelini's fees in excess of the SIR. Evanston paid $1 million of the settlement, as required under Heil's policy. This left Heil responsible for the remaining $4,711,000, including its $500,000 SIR. Heil also incurred $63,533.79 in attorney fees and costs expended in excess of its SIR. Heil unsuccessfully sought payment of the attorney fees and costs from Evanston.

Heil initiated the instant litigation in 2008. It brought claims against Evanston for (1) breach of contract, for Evanston's failure to pay the attorney fees and costs; (2) violation of Tenn.Code Ann. § 56–7–105, providing statutory damages for an insurer's bad faith refusal to pay amounts owed; and (3) bad faith failure to settle the Ronske litigation. Heil sought $63,533.79 plus prejudgment interest for breach of contract; the 25% penalty on that amount for the statutory claim; and up to $4.7 million in compensatory damages for Evanston's failure to settle, plus punitive damages.

The jury found that Evanston “did” breach the contract and refuse in bad faith to pay Heil amounts owed under the policy, but “did not” fail to settle the wrongful death action against Heil in bad faith. The jury awarded Heil compensatory damages plus prejudgment interest for the breach of contract, $15,883.44 in statutory damages for Evanston's bad faith refusal to pay, and also awarded punitive damages of $2 million.

II.

The punitive damages award and the § 56–7–105 claim are the subjects of this appeal. Evanston asks us to review (1) whether the district court erred in affirming the jury's award of punitive damages because there are no legally sufficient grounds, in law or fact, to support it; (2) whether the punitive damages award violated due process; and (3) whether sufficient evidence supported the jury's finding of liability for bad faith refusal to pay.

A.

Evanston argues that there are no legally sufficient grounds to support the punitive damages award because the jury found Evanston not liable “on the only claim submitted to the jury for which punitive damages could be awarded.” Appellant's Br. at 15 (emphasis in original). Specifically, Evanston argues that under Tennessee law, punitive damages may not be awarded absent an award of compensatory damages. Heil sought punitive damages on its failure-to-settle claim, but the jury found Evanston not liable and did not award Heil any compensatory damages on that claim. Although the jury did award compensatory damages for breach of contract, the punitive damages award cannot be attributed to that claim, Evanston argues, because Tenn.Code Ann. § 56–7–105 provides the exclusive extracontractual remedy for breach of contract based on an insurer's failure to pay amounts owed under the policy.

1.

Before proceeding, we must clarify which Civil Rules govern our analysis. First, Evanston raised the above arguments to the district court under both Civil Rule 50(b) and Civil Rule 59(e), but the district court properly deemed the arguments waived under Civil Rule 50(b). See American and Foreign Ins. Co. v. Bolt, 106 F.3d 155, 159–60 (6th Cir.1997) (“[A] motion for directed verdict made at the close of the evidence is a prerequisite to a motion for judgment as a matter of law on the same grounds.”). Evanston did not—nor could it—argue pre-verdict that the punitive damages award was unsupported as a matter of law because of the jury's failure to award compensatory damages. Accordingly, we will address the arguments under Civil Rule 59(e), and not Civil Rule 50(b).

Second, Heil contends, and the district court concluded, that Evanston's arguments are best characterized as an objection to the inconsistency of the verdict, which Evanston waived by not raising at the proper time. Civil Rule 49(b) lists the options available to a district court when a jury returns an inconsistent verdict. SeeFed.R.Civ.P. 49(b)(2)-(4). In Radvansky v. Olmsted, 496 F.3d 609 (6th Cir.2007), we held that a party waives its objection to an inconsistent verdict under Civil Rule 49, when it does not object before the court discharges the jury. See Radvansky, 496 F.3d at 618–19.

Evanston concedes that it has waived any objection under Civil Rule 49 to the inconsistency of the punitive damages award with the jury's finding of no liability. But Evanston argues that its Civil Rule 49 waiver does not preclude it from challenging the legality of the punitive damages award on other grounds. We agree. See, e.g., Hometown Folks, LLC v. S & B Wilson, Inc., 643 F.3d 520 (6th Cir.2011) (finding defendant's Civil Rule 49(b) objection waived, but reviewing the sufficiency of the evidence to support the verdict). Rather than recharacterize Evanston's argument as one brought under Civil Rule 49, and then dismiss it as waived, we will address it on its merits.

2.

We review the denial of a Civil Rule 59(e) motion for an abuse of discretion. Morse v. McWhorter, 290 F.3d 795, 799 (6th Cir.2002). A court abuses its discretion when it “relies on clearly erroneous findings of fact or when it improperlyapplies the law.” Nolfi v. Ohio Kentucky Oil Corp., 675 F.3d 538, 552 (6th Cir.2012).

A district court may alter or amend a judgment under Civil Rule 59(e) to correct a clear error of law; account for newly discovered evidence or an intervening change in the controlling law; or otherwise prevent manifest injustice. GenCorp, Inc. v. Am. Int'l Underwriters, 178 F.3d 804, 834 (6th Cir.1999). Evanston argued to the district court that because punitive damages are not available on the breach of contract claim, and the jury found that Evanston was not liable for bad faith failure to settle, “there is no basis in law or fact in this case from which to award punitive damages.” Mem. in Supp. of Mot. for J. at 1, R. 67. Evanston concluded that under those circumstances, allowing the award to stand would be clear error and the court should strike or set aside the award to prevent manifest injustice.

The district court found that it was not a clear error of law to enter the award because “there are legally sufficient grounds on which the jury could award punitive damages.” Order at 24, R. 72. It held that punitive damages could have been awarded for breach of contract under Tennessee law, or—given the structure of the form and jury's questions during deliberation—the jury could have “believed that the punitive damages instruction subsumed the simple bad faith failure to settle claim. It is even possible, given the structure and the content of the jury instructions, that the jury collapsed punitive and compensatory damages in its $2 million punitive damages award.” Id.

The jury's award of punitive damages absent a predicate award of compensatory damages was a clear error under Tennessee law. See Whittington v. Grand Valley Lakes, Inc., 547 S.W.2d 241, 243 (Tenn.1977) (noting “the general rule in this jurisdiction that actual or compensatory damages must be found as a predicate for the recovery of punitive damages.”). And, contrary to the district court's conclusion, the breach of contract claim is not a legally sufficient alternate basis for the award. Tennessee does permit a plaintiff to recover punitive damages for breach of contract, when he or she shows “fraud, malice, gross negligence, or...