Johnson v. Allstate Ins. Co.

Decision Date29 July 2008
Docket NumberNo. WD 68169.,WD 68169.
Citation262 S.W.3d 655
PartiesEdward JOHNSON and Virginia Johnson, Respondents, and Wayne Davis, Jr., Respondent, v. ALLSTATE INSURANCE COMPANY, Appellant.
CourtMissouri Court of Appeals

Curtis E. Woods, Kansas City, MO, for appellant.

Kirk Rowan Presley, Kansas City, MO and Timothy McDuffey, Camdenton, MO, for respondents.

PAUL M. SPINDEN, Presiding Judge.

This lawsuit results from Allstate Insurance Company's failing to settle a demand for insurance policy limits of $50,000 made against its insured, Wayne Davis, Jr. Edward and Virginia Johnson made the demand after the pickup that Davis was driving crossed the center line of a Camden County highway on March 24, 2000, and crashed head on into the Johnsons' car. The Johnsons suffered life-threatening injuries that required extensive hospital treatment.

After Allstate failed to settle with the Johnsons, the Johnsons sued Davis. Represented by a lawyer hired by Allstate, Davis consented to a judgment for approximately $5 million, including $1.5 million in punitive damages, and negotiated a settlement agreement. As part of the settlement, the Johnsons agreed not to collect any of the judgment from Davis in exchange for his assigning to the Johnsons 90 percent of his claim against Allstate for bad faith refusal to settle.

The Johnsons and Davis jointly sued Allstate for bad faith refusal to settle a claim and for equitable garnishment. After a jury trial, the circuit court entered judgment awarding approximately $5.8 million in compensatory damages and $10.5 million in punitive damages against Allstate.

In appealing this judgment, Allstate claims that the Johnsons and Davis did not make a submissible case. It asserts that they did not establish that it had acted in bad faith in refusing to settle the Johnsons' claim against Davis or that it had acted with malice, a necessary element for punitive damages. We disagree and affirm the circuit court's judgment.

The Johnsons were severely injured in the crash, a major cause of which appeared to be Davis's drunken driving. Officers tested Davis's blood alcohol content at more than twice the legal limit. The Johnsons' compact car was pushed back almost 100 feet after the impact with Davis's pickup. Rescue workers had to cut the Johnsons out of the wreckage before transporting them separately by helicopter to a Springfield hospital.

Edward Johnson was in the hospital for 35 days. He spent 21 of those days in a neuro-intensive care unit (NICU) and was in a coma during part of that time. His injuries included a fractured arm, a crushed pelvis, the tearing of his left hip from its socket, a fractured femur, a crushed sternum, a fractured right collar bone, and a partially severed thumb, which had to be amputated. His hospital bills totaled $185,000.

Virginia Johnson was in the hospital for 40 days and spent part of this time in NICU. She underwent six surgeries. Her injuries included a crushed right ankle and kneecap, a fractured femur, a dislocated ankle, and cut eyelid. Her hospital bills totaled $135,000.

Three days after the crash, Davis informed his insurance agent, Farmer Foster, of the crash, and Foster notified Allstate. Foster told Allstate that Davis had been drinking, drove on the wrong side of the road, hit another car head on, and that the two persons in the other car were seriously injured and had been taken to the hospital by helicopter.

Allstate assigned investigation of Davis's claim to Mary Greene. Davis admitted to Greene that he had drunk beer before the crash. He told her that he did not recall the crash and that he did not know the names of the persons in the other car.

Greene discovered the Johnsons' names, where Virginia Johnson was employed, that the Johnsons' car was a total loss, and that both of the Johnsons were being treated in a hospital NICU. On March 28, Greene called the hospital and spoke to the Johnsons' 16-year-old daughter, who agreed to Greene's going to the hospital the next day to check on the Johnsons.

Before Greene went to the hospital, she received a telephone message from a lawyer, David Sexton, who said that he represented the Johnsons. Sexton advised that Allstate should make no further contact with the Johnson family. Because of Sexton's representing the Johnsons, Greene transferred the file to Bobby Ray Waldrup, a staff claims representative with 20 years' experience. Waldrup's duties included handling of bodily injury claims in which a claimant was represented by an attorney.

On March 30, 2000, Waldrup reviewed the file of Davis's claim, which included the information that Greene had obtained. Waldrup noted that Davis carried minimum limits of coverage, $25,000 per person and $50,000 per occurrence. After reviewing the file, he entered a note in the file: "Needed to know how extensive injuries are; may be policy limit case."

Waldrup assigned the task of completing the liability investigation to Bob Bernard. Bernard concluded that Davis was 100 percent at fault for the accident.

Waldrup received a lien letter from Sexton notifying Allstate that he had a minimum of one-third interest in the proceeds of any settlement. Sexton told Waldrup that his investigation of the facts indicated "that the incident was caused solely by [Davis's] negligence." Sexton also told Waldrup that the Johnsons were receiving medical treatment and that he would forward medical records and bills as they became available.

Waldrup directed Jackie Glenn to determine the extent of the Johnsons' injuries so Waldrup could respond to Sexton's letter. Waldrup told Glenn to send a letter to Sexton acknowledging Sexton's lien. In the letter, Glenn enclosed a medical and wage authorization form and asked Sexton to have the Johnsons sign and return it to her so she could "secure medical reports and other information needed to properly evaluate this claim." Glenn mailed the letter to Sexton on April 4, 2000.

On April 7, 2000, Waldrup left a message on Sexton's telephone, telling him what Davis's policy limits were and asking Sexton to send the Johnsons' medical records and bills so Allstate could evaluate them. On April 13, 2000, Allstate received a demand letter from Sexton. It was addressed to Waldrup and had been sent by certified mail. In the letter, Sexton offered to settle all of the Johnsons' claims against Davis for the limits of his insurance with Allstate. Sexton told Waldrup that the Johnsons' demand would remain open for 60 days from Allstate's receipt of the letter.

The Johnsons were still in the hospital when Sexton sent the demand letter. Virginia Johnson testified that she and her husband needed money at that time and wanted to settle the case because they had household bills and needed to provide for their daughter. No one at Allstate responded to the Johnsons' demand letter.

The next correspondence between the parties was on June 19, 2000, when Sexton sent a letter in which he demanded that Allstate pay the Johnsons for the loss of their vehicle. Glenn responded by sending Sexton a letter, dated June 26, 2000, in which she said that Allstate needed the Johnsons to sign the medical authorizations so it could evaluate their claim. Sexton did not answer the letter. On November 7, 2000, Glenn sent Sexton another letter that was identical to her letter of June 26, 2000.

On November 16, 2000, Sexton sent a letter to Glenn informing her that the Johnsons still were receiving treatment and that his offer to settle the claim for policy limits had expired. Glenn referred to Sexton's letter in the file of Davis's claim and added, "I never did receive a demand package? ? ? [sic]." Waldrup and Glenn never discussed Sexton's demand letter or Glenn's statement that she never received a demand package or the expiration of the Johnsons' demand.

On December 20, 2000, Sexton sent Glenn a box containing the Johnsons' medical records and bills. In a cover letter, Sexton said that both of the Johnsons still were receiving treatment "so the medical is not complete." Sexton noted that, up to that point, Edward Johnson's medical bills were approximately $120,386, and Virginia Johnson's were approximately $86,567. Sexton told Glenn that medical records and bills were still forthcoming and that he would send them to her as they became available. Sexton also advised that he believed that the Johnsons' medical bills would total $400,000 to $500,000.

On January 15, 2001, Waldrup left a message on Sexton's telephone in which he offered to pay the Johnsons the $50,000 policy limits of Davis's policy. On February 8, 2001, Sexton sent a letter rejecting Waldrup's offer and noting that the Johnsons' demand for Davis's policy limits had expired. Sexton advised Allstate that the Johnsons' new demand was for $3 million and that this demand would remain open for 30 days. Allstate rejected the Johnsons' new demand on April 4, 2001.

On November 20, 2002, the Johnsons sued Davis, and Allstate hired a lawyer to defend Davis. On February 4, 2004, a month and a half before the March 22, 2004, trial, Waldrup sent a letter to Davis informing him of his potential exposure for liability in excess of the policy limits. This was the first time that Allstate told Davis that he could be liable personally for a judgment in excess of policy limits plus prejudgment interest and punitive damages.

The Johnsons' suit against Davis did not go to trial. Instead, on November 29, 2004, the Johnsons and Davis entered into an agreement that they titled, "Assignment and Settlement Agreement Pursuant to Mo.Rev.Stat. Section 537.065 (1986)." In the agreement, Davis admitted that he negligently had allowed his vehicle to cross the highway center line and to collide with the Johnsons' car head on, that his blood alcohol content was .203 percent, and that his conduct of driving while intoxicated showed complete indifference to,...

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