Robinson v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 10 April 2002
• Docket Number: No. 24952.,24952.
• Citation: 45 P.3d 829,137 Idaho 173
• Parties: Cindy ROBINSON, Plaintiff-Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.
• Court: Idaho Supreme Court

45 P.3d 829

137 Idaho 173

Cindy ROBINSON, Plaintiff-Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.

No. 24952.

Supreme Court of Idaho, Idaho Falls, September 2001 Term.

April 10, 2002.

Elam & Burke, P.A., Boise, for appellant. Bobbi K. Dominick argued.

Harris Law Offices, Boise; Feldman & Orlansky, Anchorage, Alaska; Friedman, Rubin & White, Anchorage, Alaska, for respondent. Jeff Feldman argued.

SCHROEDER, Justice.

ON REHEARING

State Farm Mutual Automobile Insurance Company appeals the district court's judgment entered upon a jury verdict of approximately $9.6 million dollars arising from a complaint of bad faith in the handling of a claim by its insured, Cindy Robinson. The Court issued an opinion in this case on December 28, 2000 (Robinson I). State Farm Mutual Automobile Insurance Company petitioned the Court for rehearing and the Court granted that petition.

I. BACKGROUND AND PRIOR PROCEEDINGS

In 1991, Cindy Robinson (Robinson) purchased a standard automobile insurance policy from State Farm Mutual Automobile Insurance Company (State Farm), which included a cap provision of $25,000 on medical payment coverage (MPC).

In January of 1992, the left rear wheel of Robinson's automobile fell off as she was driving on the interstate, resulting in a jolt as the automobile dropped several inches to the ground. Robinson maintained control of the vehicle and brought it to a stop. She experienced no immediate symptoms, but later noticed pain in her back and within a few days sought medical attention. She was treated conservatively in January and early February of 1992, and was eventually diagnosed with a herniated disc for which she underwent surgery in late February of 1992.

Robinson reported the incident to State Farm in April of 1992 and requested payment of the medical bills under the MPC provision of her policy. State Farm paid $1,662 of pre-surgery medical bills in July of 1992 but declined to pay any bills related to the surgery due to questions regarding causation.

State Farm sent Robinson's file to Medical Claims Review Service (MCRS), a medical records review company on State Farm's list of approved reviewers, asking for an opinion as to whether Robinson's herniated disc was causally related to the January 17th incident. State Farm routinely used the paper review services provided by MCRS in lieu of conducting more costly independent medical exams. MCRS issued a report to State Farm indicating that its review of the medical documentation did not support a causal relationship between the January 17th incident and the subsequent medical care for Robinson's herniated disc.

A physician chosen by State Farm and a forensic chiropractor chosen by Robinson subsequently examined her. The results of both exams were sent to MCRS which again indicated a lack of causal relationship with the January 17th incident. Based upon the review by MCRS, State Farm denied Robinson's claim for surgery costs.

In August of 1994, Robinson filed suit against State Farm alleging breach of insurance contract and bad faith handling of her claim. Subsequently, the district court permitted her to amend the complaint to include a claim for punitive damages.

Robinson's claim was reassigned to another claim representative in March of 1995. State Farm paid the remaining limits of her policy to her medical care providers after a review of her medical records by an orthopedic surgeon indicated that there was a causal connection between her injuries and the January 17th accident.

At trial Robinson introduced evidence that State Farm had engaged in a practice of referring claims to MCRS and other paper review companies, knowing that these companies would return a review favorable to State Farm. She also presented evidence that State Farm failed to conduct a reasonable investigation of her claim before denying payment under the policy. State Farm introduced evidence attempting to rebut Robinson's assertion that it had acted in bad faith as well as evidence of misrepresentation on the part of Robinson in filling out her insurance application.

On April 2, 1998, the jury returned a general verdict in favor of Robinson, finding that State Farm had breached its insurance contract with her, that State Farm acted in bad faith in delaying payment of the claim, and that its acts or omissions warranted the imposition of punitive damages. The jury awarded compensatory damages of $102,520 and $9,500,000 for punitive damages. State Farm filed post-judgment motions for judgment notwithstanding the verdict, a new trial and remittitur of the amount of punitive damages. The district court denied State Farm's post-judgment motions. State Farm appealed asserting numerous issues. This Court will address those that are dispositive of the appeal.

II. THE DISTRICT COURT MISPLACED THE BURDEN OF PROOF ON THE QUESTION OF WHETHER ROBINSON'S CLAIM WAS FAIRLY DEBATABLE

A. Standard of Review

The question of where a burden of proof lies is a question of law. This Court exercises free review over the district court's conclusions of law and may substitute its view for that of the district court on a legal issue. Peasley Transfer & Storage Co. v. Smith, 132 Idaho 732, 737, 979 P.2d 605, 610 (1999); Marshall v. Blair, 130 Idaho 675, 679, 946 P.2d 975, 979 (1997).

When reviewing jury instructions on appeal, the Court is guided by several well-established general rules of construction. On appeal, the review of jury instructions is generally limited to a determination of whether the instructions, when considered as a whole and not individually, fairly and adequately present the issues and state the applicable law. Sherwood v. Carter, 119 Idaho 246, 256, 805 P.2d 452, 462 (1991). If the instructions fairly and adequately present the issues and state the law, no reversible error is committed. Id. An erroneous instruction does not constitute reversible error where the instruction taken as whole neither misleads nor prejudices a party. Id. Only instructions which are pertinent to the pleadings and the evidence should be given, but where it appears that the giving of the instruction did not result in any substantial injury, though not founded on the issues, the case will not be reversed. Id. at 260, 805 P.2d at 466. Additionally, the giving of an erroneous jury instruction does not generally justify granting a new trial unless the appellant can establish that he or she was prejudiced thereby, and that the error affected the jury's conclusion. Id.

Highland Enterprises, Inc. v. Barker, 133 Idaho 330, 343, 986 P.2d 996, 1009 (1999).

B. This Court Has Previously Determined That The Burden Of Proof Is On The Insured In A Bad Faith Claim

In White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986), the Court addressed the issue of first-party bad faith insurance claims and stated that the plaintiff must show: 1) the insurer intentionally and unreasonably denied or withheld payment; 2) the claim was not fairly debatable; 3) the denial or failure to pay was not the result of a good faith mistake; and 4) the resulting harm is not fully compensable by contract damages. This Court has consistently followed the lead in White v. Unigard and held that the insured has the burden of showing that the claim was not fairly debatable. See Simper v. Farm Bureau Mut. Ins. Co., 132 Idaho 471, 474, 974 P.2d 1100, 1103 (1999),Lucas v. State Farm Fire & Cas. Co., 131 Idaho 674, 677, 963 P.2d 357, 360 (1998), and McGilvray v. Farmer's New World Life Ins. Co., 136 Idaho 39, 28 P.3d 380, 386 (2001) which were decided after trial in this case. White v. Unigard and Anderson v. Farmers Ins. Co., 130 Idaho 755, 947 P.2d 1003 (1997) were decided prior to trial in this case and state the applicable law: "In order to recover on her bad faith claim Anderson must show: (1) the insurer intentionally and unreasonably denied or withheld payment, (2) the claim was not fairly debatable ..." Anderson, 130 Idaho at 759,947 P.2d at 1007. (emphasis added). It was the clear pronouncement of this Court that the burden of proof is upon the insured to show that the claim was not fairly debatable.

The district court shifted the burden to the insurer to show that the claim was fairly debatable. In its memorandum decision denying State Farm's post-judgment motions, the district court explained its allocation of the burden of proof by stating:

The plaintiff's burden is to prove as a fundamental element of the case and in the first instance, that the delay in payment was unreasonable.... The defense of a fairly debatable issue only arises after the plaintiff has proved generally that the delay was unreasonable, under all circumstances. This specific defense entitles the defendant to explain that the unreasonable delay was excused by the presence of a fairly debatable problem .... To require the plaintiff to disprove the defense theory as part of its case-in-chief ... would require the plaintiff to prove a specific negative proposition which is already generally embedded within the affirmative proposition of "unreasonable delay."

The Court is presented with the issue of whether the jury instructions, considered as a whole, fairly and adequately presented the issues and applicable law. At trial, the district court instructed the jury on the burden of proof as follows:

When I say that a party has the burden of proof on any proposition, or use the expression "if you find" or "if you decide," I mean you must be persuaded, considering all the evidence in the case, that the proposition on which the party has the burden of proof is more probably than not true.

Jury Instruction No. 4.

The district court instructed the jury on the issue of bad faith as follows:

On plaintiff's claim that the defendant breached the implied duty of good faith and fair dealing, the plaintiff has the burden of proof on the following proposition:

1. That in failing to pay the benefits due under the

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