Jacobsen v. Allstate Ins. Co., DA 07-0170.

Docket NºNo. DA 07-0170.
Citation2009 MT 248, 351 Mont. 464, 215 P.3d 649
Case DateJuly 23, 2009
CourtUnited States State Supreme Court of Montana
215 P.3d 649
2009 MT 248
351 Mont. 464
Robert JACOBSEN, Plaintiff, Appellee and Cross-Appellant,
v.
ALLSTATE INSURANCE COMPANY, Defendant and Appellant.
No. DA 07-0170.
Supreme Court of Montana.
Argued September 24, 2008.
Submitted November 18, 2008.
Decided July 23, 2009.
Rehearing Denied September 10, 2009.

[215 P.3d 653]

For Appellant: Dennis J. Tighe (argued), Paul R. Haffeman; Davis, Hatley, Haffeman & Tighe, P.C.; Great Falls, Montana.

For Appellee: Daniel P. Buckley (argued), Lucas J. Foust; Foust Buckley Law Office, P.C.; Bozeman, Montana.

For Amicus Curiae: Lawrence A. Anderson (argued); Attorney at Law, Great Falls, Montana (for Montana Trial Lawyers Association).

Justice W. WILLIAM LEAPHARTdelivered the Opinion of the Court.


¶ 1 Robert Jacobsen ("Jacobsen") filed a complaint against Allstate Insurance Company ("Allstate") alleging, inter alia, statutory and common law bad faith, intentional and negligent infliction of emotional distress, and actual malice. Jacobsen prevailed in a jury trial on his bad faith claims, and was awarded both compensatory and punitive damages. Allstate now appeals from various rulings of the Eighth Judicial District Court, Cascade County. Jacobsen cross-appeals from the District Court's decision not to compel discovery, and from its determination that Jacobsen's emotional distress was not sufficiently severe to be legally compensable. We affirm in part, reverse in part, and remand to the District Court for proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 Jacobsen sustained injuries in an auto accident caused by Allstate's insured. Allstate accepted liability for the claim, and began negotiating a settlement with Jacobsen. Allstate's claims adjuster processed Jacobsen's claim pursuant to Allstate's Claim Core Process Redesign ("CCPR"), which implemented certain policies and guidelines designed to promote quick settlements with unrepresented claimants. Six days after the accident, Jacobsen settled with Allstate for $3,500 and 45 days of "open medicals"1, and

215 P.3d 654

signed a written release. Nearly a month later, Jacobsen asked Allstate to rescind the release because he had experienced shoulder pain while mowing his lawn. Allstate refused to rescind the release, and Jacobsen retained Great Falls attorney Richard Martin to assist him. After Martin was retained, Allstate rescinded the release, and settled the claim for approximately $200,000.

¶ 3 Jacobsen subsequently retained new counsel, and filed a complaint against Allstate seeking compensatory damages for, inter alia, violation of the Montana Unfair Trade Practices Act ("UTPA"), common law bad faith, intentional and negligent infliction of emotional distress, and actual malice.

¶ 4 Prior to trial, Allstate moved the District Court for summary judgment on Jacobsen's negligent and intentional emotional distress claims. The court granted Allstate's motion on the grounds that Jacobsen failed to prove serious or severe emotional distress as required by this Court's decision in Sacco v. High Country Independent Press, 271 Mont. 209, 896 P.2d 411 (1995). Just prior to trial, the court clarified that its ruling also prohibited Jacobsen from presenting evidence of emotional distress damages arising out of Allstate's alleged bad faith and actual malice. In the court's view, our decision in Sacco imposed a duty upon a trial court to determine, as a threshold matter of law, that a plaintiff has proven his emotional distress is serious or severe before allowing any evidence of such to be presented to the jury, notwithstanding that the damages claimed are parasitic to the plaintiff's underlying cause of action. Acting as the gatekeeper, the court concluded that Jacobsen had not met the serious or severe threshold.

¶ 5 On the eve of Jacobsen's trial, we issued our decision in Sampson v. Nat'l Farmers Union Property and Casualty Co., 2006 MT 241, 333 Mont. 541, 144 P.3d 797, holding that attorney fees were not recoverable as compensatory damages under the UTPA. Allstate moved the District Court to reconsider its prior ruling that Jacobsen could claim attorney fees as compensatory damages. In denying Allstate's motion, the District Court recognized that our decision in Sampson would generally preclude Jacobsen from recovering attorney fees under the UTPA. However, the court determined that Jacobsen's claim for attorney fees fell within an equitable exception to the generally applicable American Rule applied in Sampson. The District Court's decision was crucial to Jacobsen's case, because Jacobsen sought only two types of compensatory damages— emotional distress and attorney fees—and the court had already concluded that Jacobsen could not recover damages for emotional distress. Had it determined that Jacobsen's attorney fees were not recoverable as compensatory damages, he would have lacked a predicate offense upon which to base his claim for punitive damages, and his lawsuit would have been subject to dismissal for lack of damages.

¶ 6 The jury returned a verdict in favor of Jacobsen, finding that Allstate was liable for both common law and statutory bad faith, awarding as compensatory damages the attorney fees and costs incurred by Jacobsen in settling the underlying claim. The jury also awarded $350,000 in punitive damages based upon its finding that Allstate acted with actual malice in settling Jacobsen's claim.

¶ 7 Both prior to and during the jury trial, the District Court made several discretionary rulings now on appeal: 1) granting Jacobsen's motion to exclude evidence that he signed a release in initially settling his claim, and refusing Allstate's proposed jury instruction regarding the legal effect of a release; 2) denying Allstate's motion to exclude testimony or argument that Allstate should or could have "advance paid" Jacobsen's wages in accordance with industry standards; 3) denying Allstate's motion for judgment as a matter of law on the grounds that Jacobsen presented sufficient evidence of actual malice to support an award of punitive damages; and 4) denying Jacobsen's various motions to compel discovery of the "McKinsey documents." In the interest of brevity, facts relevant to those issues are set forth where necessary below.

215 P.3d 655
ISSUES

¶ 8 We restate the issues on appeal:

¶ 9 1. In the context of a common law bad faith claim against an insurer, are a third-party plaintiff's attorney fees and costs incurred in settling the underlying claim recoverable as an element of damages?

¶ 10 2. Did the District Court err in allowing Jacobsen to introduce testimony regarding Allstate's refusal to "advance pay" Jacobsen's lost wages, and disallowing Allstate's proposed jury instruction regarding liability for refusing to advance pay the lost wages?

¶ 11 3. Did the District Court err in concluding there was sufficient evidence of actual malice to support an award of punitive damages?

¶ 12 4. Did the jury instructions and jury verdict form misstate the law and unfairly prejudice Allstate?

¶ 13 5. Did the District Court err in granting Jacobsen's motion to exclude evidence of the legal effect of the release and refusing Allstate's proposed jury instruction regarding the release?

¶ 14 6. Did the District Court err in denying Jacobsen's various motions to compel discovery of the "McKinsey documents?"

¶ 15 7. Did the District Court err in ruling that Jacobsen was required to prove serious or severe emotional distress in order to recover emotional distress damages arising out of the underlying bad faith claim?

DISCUSSION

¶ 16 1. In the context of a common law bad faith claim against an insurer, are a third-party plaintiff's attorney fees and costs incurred in settling the underlying claim recoverable as an element of damages?

¶ 17 Generally, we review a district court's decision regarding an award of attorney fees for abuse of discretion. In re G.M., 2009 MT 59, ¶ 10, 349 Mont. 320, 203 P.3d 818. However, judicial discretion must be guided by the rules and principles of law; thus the appellate standard of review is plenary to the extent a discretionary ruling is based upon a conclusion of law. State v. Mackrill, 2008 MT 297, ¶ 37, 345 Mont. 469, 191 P.3d 451. The District Court's determination that Jacobsen's attorney fees were recoverable as an element of damages is a conclusion of law which we review for correctness. Ruhd v. Liberty Northwest Ins. Corp., 2004 MT 236, ¶ 13, 322 Mont. 478, 97 P.3d 561.

¶ 18 There is no dispute that Montana follows the well established American Rule, which provides that a party prevailing in a lawsuit is generally not entitled to attorney fees absent a specific contractual provision or statutory grant. Sampson, ¶ 15. The UTPA does not contain a statutory grant of attorney fees for insurance bad faith actions. Sampson, ¶ 22. We held in Sampson that pursuant to the American Rule, a third-party claimant may not recover attorney fees incurred in settling a claim for bad faith as an element of damages under the UTPA. Specifically, we noted that "[t]he Legislature did not construct the UTPA to provide for the recovery of attorney fees and therefore we cannot construe it to do so." ¶ 22.

¶ 19 As in Sampson, Jacobsen is a third-party claimant who incurred attorney fees in settling an underlying claim, and claimed those fees and costs as an element of damages in a subsequent action for insurance bad faith. Jacobsen apparently concedes, and we agree, that pursuant to Sampson, his claim for attorney fees is subject to the American Rule. However, he argues the District Court correctly awarded attorney fees under an exception to the American Rule. Our analysis of this issue is therefore premised on the following: attorney fees are not a recoverable element of damages in a claim for insurance bad faith, whether brought under the UTPA or the common law, absent an exception to the American Rule.

¶ 20 The District Court relied on two...

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