Monahan v. GMAC Mortg. Corp.

• Decision Date: 16 November 2005
• Docket Number: No. 03-508.,03-508.
• Citation: 2005 VT 110,893 A.2d 298
• Court: Vermont Supreme Court
• Parties: William MONAHAN and Lisa Monahan v. GMAC MORTGAGE CORPORATION, Allstate Insurance Company and The Holden Agency, Inc.

893 A.2d 298

2005 VT 110

William MONAHAN and Lisa Monahan v.GMAC MORTGAGE CORPORATION, Allstate Insurance Company and The Holden Agency, Inc.

No. 03-508.

Supreme Court of Vermont.

September 16, 2005.

Motion for Reargument Denied November 16, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Allan R. Keyes and R. Joseph O'Rourke of Ryan Smith & Carbine, Ltd., Rutland, for Plaintiffs-Appellees.

Andre D. Bouffard of Downs Rachlin Martin PLLC, Burlington, for Defendant-AppellantGMAC Mortgage Corp.

JOHNSON, J.

¶ 1.DefendantGMAC Mortgage Corporation(GMAC) appeals from the superior court's denial of its renewed motion for a judgment as a matter of law following a jury verdict awarding plaintiffs compensatory, consequential, and punitive damages for their claims of breach of escrow and breach of the implied covenant of good faith and fair dealing.GMAC asserts that the court erred by failing to set aside the verdict on the implied covenant count, and the punitive damages award, because plaintiffs' evidence was legally insufficient to justify submission of these issues to the jury.As part of its argument, GMAC asserts that the claim for breach of the implied covenant of good faith and fair dealing should have been analyzed under the standard for bad faith handling of a first-party insurance claim.We reject GMAC's general sufficiency argument on the good-faith-and-fair-dealing claim because we conclude that, although the evidence supported competing inferences, a reasonable jury was entitled to draw those inferences in favor of plaintiffs.We also decline GMAC's invitation to analyze the case as a first-party bad-faith insurance claim because, due to GMAC's breach of contract, plaintiffs did not enjoy a first-party insurance relationship with the insurer involved here.Accordingly, we affirm the jury's verdict on the good-faith-and-fair-dealing count, and the award of compensatory and consequential damages.GMAC also challenges the sufficiency of plaintiffs' evidence to support the punitive damages award.We vacate the punitive damages award because none of the evidence of GMAC's direct conduct and the conduct of other entities attributable to it demonstrate actual malice sufficient to support plaintiffs' claim for punitive damages.GMAC also appeals the decision to award plaintiffs attorney's fees.We reverse and remand for recalculation of the fee award.

¶ 2.On appeal from the denial of a motion for judgment as a matter of law under Vermont Rule of Civil Procedure 50(b), we must review all the evidence in the light most favorable to the nonmoving party, excluding the effect of any modifying evidence.Gero v. J.W.J. Realty,171 Vt. 57, 59, 757 A.2d 475, 476(2000).Modifying evidence is that evidence which the jury is free to disbelieve because of questions about its credibility.9A C. Wright and A. Miller, Federal Practice and Procedure§ 2527, at 282-88 (2d ed.1995).When, as here, the defendant challenges the sufficiency of plaintiff's evidence, we must determine whether the plaintiff has produced evidence that fairly and reasonably supports all elements of the disputed claims.Id.;V.R.C.P. 50(a).Where the evidence supports multiple reasonable inferences, we leave it for the jury to choose among them.

¶ 3.To carry their burden for the good-faith-and-fair-dealing count, plaintiffs were required to produce evidence that could lead a reasonable jury to conclude that, in attempting to remedy its clear breach of contract, GMAC also breached an implied-in-law promise not to do anything to undermine or destroy plaintiffs' rights to receive the benefit of the parties' escrow agreement.SeeCarmichael v. Adirondack Bottled Gas Corp.,161 Vt. 200, 208, 635 A.2d 1211, 1216(1993)(explaining the purpose of the implied covenant of good faith and fair dealing).Plaintiffs could have met this burden with evidence showing that GMAC's conduct in settling its clear breach of the escrow contract violated community standards of decency, fairness or reasonableness, demonstrated an undue lack of diligence, or took advantage of plaintiffs' necessitous circumstances.Id. at 209, 635 A.2d at 1216-17.

¶ 4.To support the award of punitive damages, plaintiffs needed to show that GMAC's breach of the contract, or the covenant of good faith implied in the contract, demonstrated actual malice.Murphy v. Stowe Club Highlands,171 Vt. 144, 155, 761 A.2d 688, 696(2000).Actual malice may be shown by "conduct manifesting personal ill will, evidencing insult or oppression, or showing a reckless or wanton disregard of plaintiff's rights."Id.With the foregoing procedural and substantive standards of review in mind, we recount the evidence in the record.

¶ 5.In September 1997, plaintiffs William and Lisa Monahan purchased a residential property in Pittsford.They chose GMAC as the mortgage lender.Prior to the closing, a GMAC representative at the Rutland branch discussed various requirements of the mortgage with plaintiffs.Because the property was located in a flood zone, plaintiffs were required to purchase flood insurance, and to bring proof of this insurance and all other required coverage to the closing.Plaintiffs procured the necessary insurance, including flood insurance, from Allstate.Plaintiffs brought an insurance binder, prepared by their insurance agent, to the closing as proof that they had satisfied their obligation to insure the property against flood damage.

¶ 6.GMAC assumed responsibility, through an escrow agreement, for ensuring that all of plaintiffs' insurance premiums and tax bills were timely paid and renewed.GMAC established an escrow account into which plaintiffs were required to make monthly payments for this purpose.GMAC was to use the escrow funds to pay the premiums when they came due.Over the first three years of the mortgage, plaintiffs faithfully made all of their escrow payments.

¶ 7.Initially, plaintiffs lived in the home along with tenants in the second floor unit.Some time prior to December 2000, plaintiffs moved into another home nearby and used the first home exclusively as a rental property.In December 2000, both rental units were occupied by tenants.Plaintiffs depended on the rental income to make the mortgage payments.

¶ 8.On December 17, 2000, a nearby stream overflowed, causing extensive flooding at plaintiffs' rental property.William Monahan testified that there was between seven and eight feet of water in the basement when he arrived at the property on the day of the flood.At this height, the water reached the support beams below the first floor.The fire department responded and assisted in the process of pumping the water out of the basement, which took until the next day.As a result of damage done to the electrical and heating systems, the fire department ordered the tenants to vacate the premises until the electrical issues were resolved.

¶ 9.William Monahan promptly called Allstate, the flood insurance carrier, to report the loss.On December 20, Allstate representatives informed plaintiffs that they no longer had flood coverage from Allstate because the 1997 policy plaintiffs purchased for the closing had expired at the end of its term in 1998, and no renewal had been secured by GMAC.The evidence shows that plaintiffs had remitted sufficient escrow funds to GMAC for the cost of the flood insurance premiums.

¶ 10.As a result of data entry errors by personnel in GMAC's branch office, no one who monitored the escrow accounts at GMAC was alerted to the fact that plaintiffs' account should have had flood coverage, and that the coverage had expired due to nonpayment by GMAC.Due to the data entry error and certain incorrect address information on the insurance binder, which branch employees failed to notice and correct, GMAC neither received the renewal notices from Allstate, nor realized that it should have been expecting them for plaintiffs' account.An internal GMAC company email sent on January 23 acknowledges that GMAC's branch employees were responsible for these errors.

¶ 11.After learning about the lack of insurance, plaintiffs also called Voice of the Customer (VOC), the call center that handled customer contacts for GMAC.Plaintiffs notified GMAC that the rental property had flooded and that Allstate had disclaimed coverage.Apparently, Julie Goodwin of GMAC's vendor management group in Waterloo, Iowa, began addressing the situation.On December 20, unbeknownst to plaintiffs, Goodwin contacted Wilshire National Company(WNC), the claims administrator for a blanket insurance policy held by GMAC, for the purpose of protecting its interest in mortgaged properties.An email sent by Goodwin to a WNC representative on December 21 recognizes that there should have been coverage and that "this customer currently doesn't have flood insurance and we need to provide him the coverage and submit his claim to be paid."In response to GMAC's inquiry, WNC sent GMAC a "reservation of rights" letter on December 22, 2000.WNC also sent plaintiffs a copy of this letter.The letter stated, in part, that

On behalf of GMAC's insurer, we acknowledge our obligation to thoroughly investigate GMAC's loss to determine whether there may exist facts that will allow coverage to be afforded under the terms of the master policy.We are unable to make a decision whether to accept or reject GMAC's claim until we have completed our investigation.

The letter also indicated that WNC would be sending an adjuster from VALCO-USA to investigate the claim.WNC ultimately confirmed that GMAC's blanket policy, which was issued to GMAC by Lloyd's of London, would be used to cover plaintiffs' loss.GMAC and WNC failed to timely communicate this decision directly to plaintiffs.

¶ 12.Unlike the Allstate policy originally purchased by plaintiffs that named plaintiffs and GMAC as insureds, the blanket policy named GMAC as the...