Newport v. USAA, 89,791.

• Decision Date: 18 July 2000
• Docket Number: No. 89,791.,89,791.
• Parties: Sammie Lou NEWPORT, individually and as personal representative of the Estate of Bobby D. Newport, deceased, Appellee, v. USAA, an unincorporated reciprocal insurance association, Appellant, v. Donavan Terry, Third-Party Defendant.
• Court: Oklahoma Supreme Court

11 P.3d 190

2000 OK 59

Sammie Lou NEWPORT, individually and as personal representative of the Estate of Bobby D. Newport, deceased, Appellee, v. USAA, an unincorporated reciprocal insurance association, Appellant, v. Donavan Terry, Third-Party Defendant.

No. 89,791.

Supreme Court of Oklahoma.

July 18, 2000.

As Corrected August 1, 2000.

D. Lynn Babb, Haven Tobias, Pierce, Couch, Hendrickson, Baysinger & Green, L.L.P., Oklahoma City, Oklahoma, for Appellant.

Linda G. Alexander, Harris A. Phillips, Niemeyer, Alexander, Austin & Phillips, P.C., Oklahoma City, Oklahoma, for Appellant.

Michael G. Smith, D. Craig Shew, Laura J. Corbin, Smith, Shew, Scrivner & Corbin, P.C., Ada, Oklahoma, for Appellee.

Clyde A. Muchmore, Kevin D. Gordon, Crowe & Dunlevy, Oklahoma City, Oklahoma, for Amicus Curiae, State Farm Mutual Automobile Insurance Company.

Rex K. Travis, Oklahoma City, Oklahoma, for Amicus Curiae, Oklahoma Trial Lawyers Association.

HODGES, J.

¶ 1 This litigation arose from an automobile collision on icy roads between an insured of United Services Automobile Association (USAA) and an uninsured motorist. On Thanksgiving Day, November 23, 1993, Bob Newport was driving home in a sleet storm. The roads in Pontotoc County were visibly icy and slick. Donovan Terry, age 16, was traveling on an intersecting road. When Terry was unable to stop his car at a stop sign, he slid into the intersection and into the path of Mr. Newport's car. Terry's car was hit on the driver's side by the front of Mr. Newport's car. Once Terry was able to get out of his car on the passenger side, he exclaimed: "It wasn't my fault, I just couldn't stop. I tried to stop but just kept sliding."

¶ 2 Mr. Newport was taken by ambulance to a local hospital. There, he was determined to have suffered a cervical spinal cord injury. When his condition worsened, he was transferred to a hospital in Oklahoma City on December 6th He died there on January 3, 1994, at the age of 59. He left behind his wife, emancipated children, and a new business.

¶ 3 Mr. Newport and his wife Sammie, were insured with USAA. Terry was uninsured. The Newports maintained uninsured motorist (UM) coverage with stacked policy limits totaling 1.5 million dollars. The Newports elected no medical benefits coverage (med-pay). Their health plan with CHAMPUS specifically excluded payment of medical claims covered by a UM policy until the UM carrier "has issued its payment toward [the] medical bills."

¶ 4 Within a few days after the collision, one of USAA's senior claims examiners, John Folgate, was assigned to handle the Newport claim, the Newports hired a local attorney, Denver Davison, and USAA hired Lee Lancaster of General Adjustment Bureau in Ada, Oklahoma, to investigate the matter. In early December, 1993, USAA made the UM portion of the Newport's policy "available" for the payment of medical bills and other out of pocket expenses incurred as a result of the collision. In late December, USAA made a $5,000 advance to help cover additional living expenses while the Newport family was in Oklahoma City. But when the Newport's lawyer repeatedly requested payment of specific medical expenses and funeral expenses, no payment was forthcoming and no explanation as to why was given.

¶ 5 In May, 1994, USAA set the value of the Newport claim at $750,000 to $900,000, taking into account its determination of liability as 80% on the part of Terry and 20% on the part of Mr. Newport. USAA hired an attorney and gave him $750,000 authority to negotiate a settlement. Three offers below that authority and one at that amount were made and were rejected by Mrs. Newport. This action was filed on October, 11, 1994.

¶ 6 Mrs. Newport brought this action against USAA to recover the policy limits under the UM provisions of the insurance contract. She also brought a "bad-faith" claim based upon USAA's failure to deal fairly and in good faith in the handling of the UM claim. USAA added Terry, the uninsured motorist, as a third-party defendant. He is not a party to this appeal. Trial of these claims resulted in a unanimous jury verdict of 1.5 million dollars on the claim for policy proceeds, 7.5 million dollars in actual damages on the claim for bad faith, and 7.5 million dollars in punitive damages.

¶ 7 USAA brought this appeal asserting several errors in the trial of this matter. The Court of Civil Appeals affirmed the trial court's refusal to give an "unavoidable accident" instruction but reversed the trial court's submission of the bad-faith claim to a jury. USAA's other assertions of error were not addressed by the Court of Civil Appeals. This Court granted certiorari review and now vacates in part the opinion of the Court of Civil Appeals and affirms in part and reverses in part the judgment of the trial court. The cause is remanded with directions. Additional facts appear with the analysis of the issues to which they relate.

I. BAD FAITH

¶ 8 USAA argues that Ms. Newport failed to make out a prima facie case on her claim for breach of the duty of good faith and fair dealing. Thus, it urges error in the trial court's submission of the claim to a jury. USAA asserts it was entitled to judgment as a matter of law because its actions were understandable and reasonable under the circumstances.

¶ 9 An insurer has an "implied-in-law duty to act in good faith and deal fairly with the insured to ensure that the policy benefits are received." Christian v. American Home Assurance Co., 577 P.2d 899, 901 (Okla.1977). The essence of a bad-faith action "is the insurer's unreasonable, bad-faith conduct, including the unjustified withholding of payment due under a policy." McCorkle v. Great Atl. Ins. Co., 637 P.2d 583, 587 (Okla.1981).

¶ 10 The tort of bad faith does not foreclose the insurer's right to deny a claim, resist payment, or litigate any claim "to which the insurer has a legitimate defense." Buzzard v. Farmers Ins. Co., 824 P.2d 1105, 1109 (Okla.1991) (Buzzard II). "A [bad faith] cause of action will not lie where there is a legitimate dispute." Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762 (Okla.1984). However, when presented with a claim by its insured, an insurer "must conduct an investigation reasonably appropriate under the circumstances" and "the claim must be paid promptly unless the insurer has a reasonable belief that the claim is legally or factually insufficient." Id. The decisive question is whether the insurer had a "good faith belief, at the time its performance was requested, that it had justifiable reason for withholding payment under the policy." Id. (quoting Buzzard v. McDanel, 736 P.2d 157, 159 (Okla.1987) (Buzzard I).) "The knowledge and belief of the insurer during the time period the claim is being reviewed is the focus of a bad-faith claim." Id. (citing Buzzard I, 736, P.2d at 159).

¶ 11 An insurer is entitled to have any dispute concurring the reasonableness of its actions settled by a jury. "[I]f there is conflicting evidence from which different inferences may be drawn regarding the reasonableness of insurer's conduct, then what is reasonable is always a question to be determined by the trier of fact by a consideration of the circumstances in each case." McCorkle, 637 P.2d at 586-87. Thus, the question in this matter is whether a jury could reasonably infer that USAA was acting unreasonably and in bad faith.

A. Low-Ball Offers

¶ 12 By May 16, 1994, USAA's investigation had established that Terry was an uninsured motorist who lacked any assets to satisfy a judgment, that Terry was at least 80% negligent, and that the value of the Newport claim, taking into consideration the 80/20 evaluation of comparative negligence was between $750,000 and $900,000. A litigation supervision at USAA was given authority to settle the claim for up to $900,000. However, the lawyer hired by USAA was given authority to settle the claim for up to $750,000.

¶ 13 On May 27, 1994, USAA respond to Mrs. Newports March 11th demand letter for policy limits by a offering a structured settlement with a present value later estimated to be $500,000. The proposal was rejected. On June 17, 1994, USAA responded with a second proposed settlement, also dated May 27, 1994, with a present value of approximately $600,000. Mrs. Newport rejected the second offer and offered to settle the matter for $1,325.000. Her attorney would later testify at trial that she was beginning to feel harried and was "caving in." A third settlement proposal from USAA was made on June 27th with a present value of approximately $700,000. In this proposal USAA began to assert "the possibility and extent of negligence" in assessing the amount of loss. At trial, Mrs. Newport would assert that this was for the purpose of instilling fear. The offer was rejected and a counter offer was made for $1,175,000. In that response, Mrs. Newport's lawyer complained that USAA continued to make its offers in the form of a structured settlement without disclosing the present value of the offers. On August 3, 1994, USAA made a "once and for all" offer with a present value latter estimated to be $750,000. In it, USAA's lawyer stated: "I have tried several cases in which the jury found for the defendant under similar weather and road conditions due to an unexpected ice and snow storm." This was the first indication that USAA believed it had an unavoidable accident defense. USAA's attorney also asserted that "USAA ha[d] not revealed the actual cost of the annuities offered [present value] because to do so would possibly subject the entire settlement to taxation." At trial Mrs. Newport's former attorney testified that this was simply not true. On October 7, 1994, Mrs. Newport rejected the offer and withdrew all previous settlement offers she had made. Four days later, this suit was filed.

¶ 14 Mrs. Newport maintains that she established a prima facie case of bad faith with undisputed evidence of "low balling," an insurer's intentional offer...