Nunn v. Mid-Century Ins. Co.
| Decision Date | 11 December 2008 |
| Docket Number | No. 06CA0954.,06CA0954. |
| Parties | Nicole NUNN, Plaintiff-Appellant, v. MID-CENTURY INSURANCE COMPANY, a California corporation; Michelle Solich; Doug Compton; Frank Crow; and Bud Cole, Defendants-Appellees. |
| Court | Colorado Court of Appeals |
Ogborn, Summerlin & Ogborn L.L.C., Murray Ogborn, Thomas Neville, Denver, Colorado, for Plaintiff-Appellant.
White and Steele, P.C., John P. Craver, John M. Lebsack, Denver, Colorado, for Defendants-Appellees.
Roberts Levin Rosenberg, P.C., Bradley A. Levin, Denver, Colorado, for Amicus Curiae.
Opinion by Judge J. JONES.
This is an insurance bad faith action. Plaintiff, Nicole Nunn, the assignee of the insured, Bryan James, appeals the district court's summary judgment against her and in favor of the insurer, Mid-Century Insurance Company.
The district court entered summary judgment because it concluded that James had not assigned any actual damages to Nunn. Though James purported to assign a claim for the unpaid portion of a judgment in excess of policy limits to which he and Nunn had stipulated before trial, because Nunn simultaneously covenanted not to execute on that stipulated judgment, the district court reasoned that James did not face any actual exposure to the stipulated excess judgment. We agree with the district court's reasoning, and therefore we affirm.
James was the driver of an automobile involved in a single-car accident in July 1999. Nunn was one of five teenage passengers in the car. She suffered severe injuries, including a broken back, resulting in paralysis from the waist down. It appears to have been undisputed at all relevant times that James was at fault. Mid-Century admitted coverage from the outset and recognized, in internal documents, that the accident was "a case of aggravated liability" from which Nunn's damages could be between $2,000,000 and $5,000,000.
In September 2000, Mid-Century filed an interpleader action and deposited $300,000, the limit of its per occurrence liability under the insurance policy, in the court's registry. Mid-Century named all five passengers as parties, but did not serve Nunn, ostensibly because she lived in Florida and her attorney would not accept service on her behalf. Mid-Century settled with the other four passengers, paying them a total of $200,000 in return for releases from liability. Mid-Century retained $100,000, the limit of its liability to any single injured party under the insurance policy, to resolve Nunn's claim.
In November 2000, following unsuccessful efforts to settle with Mid-Century in excess of the policy limit, Nunn filed a lawsuit against James in federal court in Colorado. Mid-Century provided James a defense at its own expense, as required by the insurance policy. Nunn and James reached a settlement in August 2002, prior to trial. The following terms of that settlement agreement are relevant to the issue in this appeal:
• James, through Mid-Century, would pay Nunn $100,000.
• James and Nunn agreed that Nunn's damages as a result of the accident were $4,000,000.
• James assigned to Nunn all claims he might have against Mid-Century for "the unpaid portion of the judgment...."
• Nunn agreed "not to record, execute on or otherwise attempt to enforce the judgments [sic] entered against James ... so long as James reasonably performs his obligations under [the settlement agreement] in good faith."
• James agreed to cooperate in a reasonable manner with Nunn and her attorneys in the prosecution of the bad faith suit against Mid-Century.
• Nunn would file a satisfaction of judgment even if she did not succeed in her bad faith suit against Mid-Century.
• The agreement stated: "Nothing in this agreement shall be construed as a release of any claim or party."
James sought and obtained Mid-Century's consent to enter into the settlement agreement, as required by the terms of the insurance policy to preserve James's coverage. Mid-Century's letter to Nunn's counsel stated: "Though Mid-Century ... is not a party to [the settlement agreement], we are granting ... James permission to enter the agreement as drafted." Mid-Century did not indicate that it agreed to the stipulated judgment or to pay any part of it.
Mid-Century paid Nunn $100,000 on James's behalf as contemplated by the settlement agreement. The federal court entered the stipulated judgment against James in the amount of $4,000,000, and dismissed Nunn's suit.
Nunn then filed this action against Mid-Century, claiming, as relevant here, that Mid-Century had breached its contractual duty to act in good faith toward James by failing to settle her case against him. As noted, the district court granted summary judgment for Mid-Century on the ground James did not suffer any recoverable damages by virtue of Mid-Century's failure to settle because he "faces no personal exposure under the settlement agreement" for the excess judgment.
Colorado recognizes a cause of action in tort for an insurer's bad faith breach of its obligations under its contract with its insured. Goodson v. Am. Std. Ins. Co., 89 P.3d 409, 414 (Colo.2004); Vaughan v. McMinn, 945 P.2d 404, 406 (Colo.1997); Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.1984). The basis for such tort liability "is grounded upon the special nature of the insurance contract and the relationship which exists between the insurer and the insured." Trimble, 691 P.2d at 1141; accord Goodson, 89 P.3d at 414-15. This relationship, however, is not "a true fiduciary relationship ..., but only a `quasi-fiduciary' relationship when handling third-party claims." Brodeur v. Am. Home Assurance Co., 169 P.3d 139, 151 (Colo.2007).
The insurer's duty to its insured to act in good faith includes the obligation to act reasonably in the payment and settlement of claims. Goodson, 89 P.3d at 415; Trimble, 691 P.2d at 1142. Thus, an insurer that unreasonably refuses to settle a claim against its insured, or unreasonably delays in settling such a claim, may be liable to its insured for bad faith breach of the insurance contract. See, e.g., Trimble, 691 P.2d at 1138.
Recovery of damages for the tort of bad faith breach of an insurance contract is "based upon traditional tort principles of compensation for injuries actually suffered...." Ballow v. PHICO Ins. Co., 878 P.2d 672, 677 (Colo.1994) (emphasis in original); accord Herod v. Colo. Farm Bureau Mut. Ins. Co., 928 P.2d 834, 837 (Colo.App. 1996); see also Goodson, 89 P.3d at 415. Actual damages are an essential element of a claim for bad faith breach of an insurance contract, which the insured must prove by a preponderance of the evidence. Goodson, 89 P.3d at 415. Colorado law on this point is therefore consistent with the "fundamental maxim of the Anglo-American tort law that a wrong without damage ... is not actionable ...." 1 Stuart M. Speiser, Charles F. Krause & Alfred W. Gans, The American Law of Torts § 1:11 (1983); see also Restatement (Second) of Torts §§ 903, 912 cmt. a (1979).
The fact of actual damages must be proved with reasonable certainty. See Tull v. Gundersons, Inc., 709 P.2d 940, 943 (Colo. 1985). The amount of actual damages sought cannot be based on mere speculation or conjecture. See Western Cities Broadcasting, Inc. v. Schueller, 849 P.2d 44, 48 (Colo.1993); Tull, 709 P.2d at 943.
Where an insurer has breached its obligation to act in good faith, "[c]ompensatory damages for economic and non-economic losses are available to make the insured whole and, where appropriate, punitive damages are available to punish the insurer and deter wrongful conduct by other insurers." Goodson, 89 P.3d at 415 (emphasis added). Economic compensatory damages may include, among other things: (1) a judgment within policy limits payable by the insured to a victim where the insurer has unreasonably denied coverage or refused to settle; (2) a judgment in excess of policy limits payable by the insured to the victim where the insurer has unreasonably denied coverage or refused to settle; (3) attorney fees and costs incurred by the insured in defending against the victim's claim where the insurer has unreasonably refused to provide the insured a defense; and (4) damage to an insured's credit caused by the recording of the victim's judgment against the insured where the insurer has unreasonably denied coverage or refused to settle. See 1 Allan D. Windt, Insurance Claims and Disputes §§ 4:33-4:35, 5:17, 5:21, 6:39, 6:40 (4th ed.2006) (hereinafter, Windt); William M. Shernoff, Sanford M. Gage & Harvey R. Levine, Insurance Bad Faith Litigation §§ 3:08[1]-[3], 7:04[3] (1992) (hereinafter, Shernoff).
Noneconomic compensatory damages recoverable for the insurer's bad faith breach "include emotional distress; pain and suffering; inconvenience; fear and anxiety; and impairment of the quality of life." Goodson, 89 P.3d at 415; see also Shernoff, §§ 3.08[4], 7:04[2]. These types of damages may be incurred by an insured where the insurer acted in bad faith by denying coverage, failing to settle or unreasonably delaying in settling, or refusing to provide a defense for the insured.
In Colorado, punitive damages are not recoverable in the absence of actual (i.e., compensatory) damages. See § 13-21-102(1)(a), C.R.S.2008; White v. Hansen, 837 P.2d 1229, 1236 (Colo.1992); Palmer v. A.H. Robins Co., Inc., 684 P.2d 187, 213-14 (Colo. 1984). Thus, in the context of a claim for bad faith breach of an insurance contract, the insured must prove compensatory damages as a threshold matter before punitive damages may be awarded.
In Northland Ins. Co. v. Bashor, 177 Colo. 463, 494 P.2d 1292 (1972), aff'g 29 Colo.App. 81, 480 P.2d 864 (1970), a victim of an automobile accident sued the driver and...
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