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

• Decision Date: 29 September 1994
• Docket Number: 93-27,Nos. 93-26,s. 93-26
• Citation: 882 P.2d 813
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Mutual Company, Appellant (Defendant), v. Donna R. SHRADER and Terry Shrader, Appellees (Plaintiffs). Donna R. SHRADER and Terry Shrader, Appellants (Plaintiffs), v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Mutual Company, Appellee (Defendant).
• Court: Wyoming Supreme Court

Page 813

882 P.2d 813

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Mutual Company, Appellant (Defendant), v. Donna R. SHRADER and Terry Shrader, Appellees (Plaintiffs).

Donna R. SHRADER and Terry Shrader, Appellants (Plaintiffs), v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Mutual Company, Appellee (Defendant).

Nos. 93-26, 93-27.

Supreme Court of Wyoming.

Sept. 29, 1994.

Lawrence A. Yonkee and Lynne A. Collins of Yonkee & Toner, Sheridan, for State Farm Mut. Auto. Ins. Co.

R. Douglas Dumbrill of Hughes & Dumbrill, Sundance, for Donna R. Shrader and Terry Shrader.

George E. Powers, Jr. and John A. Coppede of Godfrey & Sundahl, Cheyenne, for amicus curiae Farmers Ins. Exchange.

Before THOMAS, CARDINE, ^* MACY, ^** and TAYLOR, JJ., and ROONEY, Ret.J.

TAYLOR, Justice.

These consolidated appeals follow a jury's verdict that an insurer breached a contract of insurance, breached the implied covenant of good faith and fair dealing and breached statutory duties. The jury also found the insurer had engaged in willful and wanton misconduct in delaying payment of the insured's claim for benefits following an accident caused by an uninsured motorist. The insurer contends numerous errors of law and procedure occurred which require reversal. The insured brings a cross-appeal to challenge a directed verdict granted in favor of the insurer on one issue. The district court ruled the evidence did not support the verdict of willful and wanton misconduct; therefore, no punitive damages were available.

We reverse and remand for a new trial on all issues.

I. ISSUES

In Appeal No. 93-26, appellant, State Farm Mutual Automobile Insurance Company, states numerous claims of error:

1. Is an insurer entitled to reasonably pursue a debate respecting the amount of damages the insured is legally entitled to recover from an uninsured motorist, when the amount of damages has not been determined, without exposure to a claim of violation of the duty of good faith and fair dealing?

2. Does the insured have the burden of proving that the other motorist was uninsured, legally liable for damage to the insured, and the amount of this liability?

3. Does a claim for uninsured motorist benefits become ex contractu and thus payable only after the extent of damages recoverable from the uninsured motorist has been determined?

4. Under Wyoming law can an insured bring a direct action against the insurer to adjudicate the amount of damages an insured is legally entitled to collect from the driver of an uninsured vehicle?

5. Can attorney fees and interest be recovered under W.S. § 26-15-124(c) for an insurer's refusal to pay a fairly debatable claim?

6. Did the District Court err by denying Appellant's motion under W.R.C.P. Rule 42(b) for a separate trial of Appellee's claim for injuries arising out of the automobile accident?

7. In an uninsured motorist case is it permissible to litigate in the same jury trial, over the objection of the insurer, issues respecting the negligence of the uninsured motorist; the amount insureds were legally entitled to recover from the uninsured motorist; alleged bad faith refusal to settle uninsured motorist claims alleged unreasonable refusal to pay an uninsured motorist claim; the elements and amount of damages insureds sustained as a result of bad faith; and, alleged wrongdoing which would justify an award of punitive and exemplary damages?

8. Under the circumstances of this case, was it error to instruct the jury that obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary; that insurers hold themselves out as fiduciaries, etc.?

9. Was Instruction No. 23 defining good faith and fair dealing inconsistent, misleading and confusing in relation to other instructions given by the court?

10. Did the District Court err in Instruction No. 25 concerning the role of investigation in insurer good faith, because it omitted the principle that lack of investigation without more is not sufficient basis for recovery if the insurer had a reasonable basis to deny or delay payment; and if such basis exists, there is no bad faith?

11. Was it error to give Instruction No. 26 concerning the duty of an insurer to make disclosure of all benefits and coverage provided by an applicable policy for the reason that the disclosure duties set out in the instruction are too broad and contrary to the rule contained in Darlow?

12. Where Appellant had neither refused to pay a claim nor made any subsequent payment, was it error to instruct the jury: "Only a showing of an initial bad faith refusal to pay a claim, not a showing of its ultimate nonpayment, is a required element of the breach of the duty of good faith?"

13. Did the District Court err in instructing the jury on the elements of loss of enjoyment of life, emotional distress or mental anguish as damages recoverable for bad faith?

14. Did the District Court commit error by refusing to instruct the jury on the full text of W.S. § 26-15-124 concerning the 45-day rule and unreasonable failure to pay a claim?

15. Was it error to give a special verdict form under the circumstances of this case with a question whether State Farm breached its statutory duty by unreasonably and without cause refusing to pay the full amount of the loss covered by the policy?

16. Did the District Court err in awarding prejudgment interest beginning from December 21, 1989?

17. Did the District Court err in awarding attorney fees greater than the amount Appellees agreed to pay pursuant to a contingent fee agreement?

Appellees, Donna R. Shrader and Terry Shrader, summarize the issues in Appeal No. 93-26:

1.) Given the public policy of Wyoming Statute § 31-10-101, must the insureds under uninsured motorist coverage reduce their claim to judgment before they can proceed against their insurance company for its breach of contract and bad faith?

2.) Does the commission of the tort of bad faith recognized in McCullough carry the responsibility of damages generally assessed for tortuous conduct in Wyoming?

3.) Are uninsured motorist carriers entitled to special procedural privileges in bad faith cases?

4.) Did the jury instructions as given prejudice the rights of State Farm under the law?

5.) Did the trial court abuse its discretion in assessing costs and attorney's fees against State Farm?

In Appeal No. 93-27, appellants, Donna R. Shrader and Terry Shrader, state one issue:

When a jury verdict of first party bad faith is supported by substantial evidence and that bad faith was intentional, dishonest, and institutionalized, should the trial court be allowed to disregard that same jury's verdict of willful and wanton misconduct.

Appellee, State Farm Mutual Automobile Insurance Company, rephrases:

Was the jury's finding that the Shraders were entitled to punitive damages unsupported by substantial evidence, such that the District Court correctly granted Appellee State Farm's motion for directed verdict on the issue of punitive damages?

In Appeal No. 93-27, amicus curiae, Farmers Insurance Exchange, finds three issues:

1. Did the district court properly determine that the evidence adduced at trial would not sustain [a] finding of willful and wanton misconduct or an award of punitive damages.

2. Did the Plaintiffs have a valid cause of action for bad faith or should their claims have been limited to an action for contractual benefits, thereby making any claim for punitive damages moot as a matter of law.

3. Did the district court commit error when it instructed the jury that insurers are "fiduciaries" and does this error compromise the jury's finding of bad faith, thereby rendering the jury's finding of willful and wanton misconduct erroneous as well.

II. FACTS

On September 18, 1989, Donna Shrader (Shrader) drove through an intersection in Newcastle, Wyoming known as "thrill hill." At the same time, a sixteen-year-old youth driving a truck careened through the intersection ignoring a stop sign. The truck hit Shrader's car broadside.

Shrader's injuries included a fractured pelvis, a fractured clavicle, abrasions and a hematoma on her forehead. She spent ten days in the hospital and another seven weeks on crutches recovering from her injuries. Shrader returned to work in January of 1990. However, Shrader quit her job in May of 1990 partly because of the constant pain and fatigue from her injuries.

The sixteen-year-old youth was an uninsured motorist. Shrader, however, was insured by State Farm Mutual Automobile Insurance Company (State Farm). Shrader's policy with State Farm included a provision requiring coverage of claims for benefits as a result of an accident with an uninsured motorist.

[State Farm] will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle. The bodily injury must be caused by [an] accident arising out of the operation, maintenance or use of an uninsured motor vehicle.

(Emphasis in original.) The policy limited coverage for accidents involving an uninsured motorist to $25,000.00 per person and $50,000.00 per accident.

State Farm Claim Representative Kevin Holt (Holt) investigated the accident. He determined that the sixteen-year-old youth was driving an uninsured vehicle. Holt also concluded that the uninsured motorist had failed to stop at the stop sign. Despite his findings, Holt initially assigned between zero to ten percent of the fault for the accident to Shrader. Holt told Shrader and her husband Terry Shrader (collectively Shraders) that their State Farm policy provided uninsured motorist coverage, coverage for medical payments and for towing charges. State Farm eventually paid $5,326.39 in medical bills under the medical payment provisions of the policy.

On December 21, 1989, State Farm offered to settle the Shraders' uninsured motorist claims for $9,400.00. The settlement offer was in addition to...