Inland Group v. Providence Wash. Ins.

• Decision Date: 12 August 1999
• Docket Number: No. 23875.,23875.
• Citation: 133 Idaho 249,985 P.2d 674
• Court: Idaho Supreme Court
• Parties: The INLAND GROUP OF COMPANIES, INC., and G & L Forest Products, Inc., Plaintiffs-Respondents-Cross-Appellants, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Defendant-Appellant-Cross Respondent. and Hoyle and Associates Insurance, Inc.; and John Quapp, Defendants.

985 P.2d 674

133 Idaho 249

The INLAND GROUP OF COMPANIES, INC., and G & L Forest Products, Inc., Plaintiffs-Respondents-Cross-Appellants, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Defendant-Appellant-Cross Respondent. and Hoyle and Associates Insurance, Inc.; and John Quapp, Defendants.

No. 23875.

Supreme Court of Idaho, Boise, December 1998 Term.

August 12, 1999.

Brassey, Wetherell, Crawford & McCurdy, Boise and Moffatt, Thomas, Barrett, Rock & Fields, Boise, for appellant. William A. McCurdy argued.

Law Offices of Comstock & Bush, Boise, for respondents. John A. Bush argued.

WALTERS, Justice.

This is an appeal from a judgment awarding compensatory and punitive damages against Providence Washington Insurance Company for bad faith in adjusting an insurance claim arising out of a fire at a wood remanufacturing plant operated by G & L Forest Products, Inc. (G & L) in Emmett, Idaho. The judgment was entered upon a jury's verdict. We affirm.

BACKGROUND AND PROCEDURAL HISTORY

On August 15, 1991, an accidental fire destroyed a significant portion of the equipment utilized in G & L's wood remanufacturing plant, causing G & L to cease operations. G & L made a claim for property loss and loss of business income under a commercial insurance policy issued by Providence Washington Insurance Company. Because of delays in settling its claim, G & L never reopened its doors after the fire.

Prior to the fire, G & L had been experiencing financial difficulties. However, G & L was still a going concern, and, primarily due to an advantageous contract with TJ International and a new management style, G & L had recently begun to show signs that business was improving. Nevertheless, because it could not operate after the fire, G & L was in a precarious financial position. The seriousness of the financial situation was communicated to Providence along with G & L's claim under the policy.

Shortly after the fire, both parties hired independent adjusters. Anthony Kounalis of Colorado Casualty, which is wholly owned by Providence, supervised the adjustment of the claim for Providence. Kounalis retained Bruce Van Curen of Idaho Intermountain Claims, an independent adjusting service, because neither Colorado Casualty nor Providence had offices in Idaho. G & L hired Drew Lucurell to assist with the preparation of its claim.

G & L received estimates for repairing the equipment, and computed its loss under the business income coverage. On August 30, approximately two weeks after the fire, G & L submitted a settlement proposal to Kounalis together with estimates for the equipment repair and copies of balance sheets for the previous two months. Kounalis called Van Curen, and on September 3, authorized him to hire an accountant to look at the business income loss. Kounalis apparently did not discuss G & L's settlement offer with Van Curen or provide Van Curen with the accompanying documentation at that time. Although Kounalis was aware that G & L could not operate its plant and was in a precarious financial position after the fire, there was no deadline set for the accountant to complete his work.

On September 3, Van Curen met with the repair contractor and agreed upon $68,579 as the amount for necessary repairs. Van Curen advised Kounalis of this amount, but Kounalis did not authorize payment. Kounalis did, however, authorize an advance to G & L of $50,000. This exhausted the limit of Kounalis' authority; any further payments on G & L's claim would have required further authorization from someone at Providence. Kounalis did not contact Providence to obtain any further authorization.

On September 4, Van Curen hired Jerry Bermensolo to look into G & L's business loss. However, since he had not yet done anything with regard to the business income loss, Van Curen could not provide any information to Bermensolo other than the coverage form from the policy. Van Curen had not been given the documentation that accompanied G & L's settlement proposal. Through Van Curen, Bermensolo sent G & L a comprehensive request for financial records including a request for all financial statements since the inception of the company. It took G & L until September 26 to gather the documentation requested by Bermensolo. On the 26th, Bermensolo met with Wayne Eskridge from G & L and reviewed the documentation. He left two hours later, without requesting any copies or additional information.

G & L was planning to move its plant to a new location. Consequently, Kounalis and Van Curen hired an attorney to determine whether Providence would be required under the policy to pay for the reassembly of equipment that G & L had planned to move. Although they had been aware for some time that G & L intended to relocate, they did not request the legal opinion until September 30.

Both Bermensolo and the attorney completed their work on October 14. Van Curen reviewed their reports when he returned from vacation on October 21. Van Curen sent a letter to Lucurell indicating that the accountant had calculated the business loss, but that the payment would be allowed for only two months of business loss even though approximately ten to twelve weeks would transpire before the repairs could be completed. Van Curen testified that the figure was limited to two months because G & L had delayed providing the financial records, although Van Curen acknowledged that there was no connection between the financial records and the time necessary to complete repairs. Van Curen also stated a figure for repair, but failed to advise Lucurell that the figure did not include reassembly of the equipment. Lucurell responded that they appeared to be close on the property loss, but that G & L disagreed with the business income calculation. He also requested that Providence tender the undisputed amounts.

Van Curen's letter was not a settlement offer because he lacked authority to make such an offer. On October 30, Providence made a formal offer of settlement. It did not, however, tender the undisputed amounts under the property loss claim until December 5, 1991, and because G & L had not made repairs, Providence offered the actual cash value of the equipment rather than the amount necessary to repair or replace. Providence did not tender the undisputed amounts under the business loss coverage.

While waiting to settle its claim and reopen the plant, G & L went out of business. On October 1, G & L was notified that its primary contract with TJ International was being cancelled because G & L could not provide a sufficiently certain date when it might be able to complete repairs and reopen its plant. The TJ contract was an important contract for G & L; those familiar with the company testified that G & L was essentially out of business when the contract with TJ was cancelled. G & L filed a complaint against Providence on January 15, 1992, alleging breach of contract and breach of the obligation of good faith and fair dealing. G & L sought damages for breach of contract, including the amount due under its business income loss coverage. G & L also sought damages for the lost value of the business as a going concern under the bad faith claim.

Approximately five months after answering the complaint, Providence moved to compel arbitration. The district court granted Providence's motion, and an arbitration was conducted pursuant to the policy. Following the arbitration, the case proceeded to trial on G & L's bad faith claim for loss of the business itself. The jury found in favor of G & L and awarded $453,702 in compensatory damages and $680,553 in punitive damages. Following the denial of its motion for new trial or for judgment notwithstanding the verdict, Providence appealed.

ISSUES

We address the following issues on appeal:

1. Whether the evidence presented by G & L was sufficient to support the jury verdict of bad faith when viewed in light of this Court's recent decisions in Walden v. Nationwide Ins. Co., 131 Idaho 18, 951 P.2d 949 (1998), and Anderson v. Farmers Ins. Co. of Idaho, 130 Idaho 755, 947 P.2d 1003 (1997).

2. Did the district court err by placing the obligation of good faith and fair dealing solely upon Providence, and was Providence entitled to an instruction on comparative negligence?

3. Whether the district court abused its discretion and allowed evidence of speculative damages.

4. Was it improper to allow the use of the Unfair Claims Settlement Practices Act as a standard of care?

5. Was the jury improperly instructed concerning damages?

6. Was the punitive damages question appropriately submitted to the jury?

ANALYSIS

1. The jury verdict is supported by substantial and competent evidence, and neither Anderson nor Walden dictate a different result in this case.

Providence argues that an insured may not bring a bad faith action without first complying with all terms of the insurance policy. Because G & L did not demand arbitration, and, according to Providence, responded slowly to requests for financial records, Providence argues that G & L should not have been allowed to proceed with its bad faith claim. Providence also argues that the evidence presented by G & L merely shows that Providence relied upon its rights under the policy to request documentation of the loss, investigate the nature of the loss, and arbitrate disputed claims. Providence asserts that it cannot be held in bad faith for this reliance upon its rights under the policy as a matter of law.

Providence relies upon this Court's recent decisions in Walden v. Nationwide Ins. Co., 131 Idaho 18, 951 P.2d 949 (1998), and Anderson v. Farmers Ins. Co. of Idaho, 130 Idaho 755, 947 P.2d 1003 (1997) to support both arguments. We hold that neither Anderson nor Walden dictate that Providence may not be held liable for bad faith as a matter of law and conclude that the jury's verdict is supported by substantial and competent evidence.

A. Standard of review.

This Court exercises free review over questions of law....