State Farm Mut. Auto. Ins. Co. v. Peaton
| Decision Date | 15 November 1990 |
| Docket Number | No. 1,CA-CV,1 |
| Parties | STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant, Cross Appellee, v. Judy Sue PEATON, an individual; Deborah Hoffman, individually and as conservator/guardian ad litem for Joseph S. Wheeler, a minor; Larry L. Wheeler, father of Joseph S. Wheeler, an individual, Defendants-Appellees, Cross Appellants. 88-557. |
| Court | Arizona Court of Appeals |
O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by Steven D. Smith and Larry L. Smith, Phoenix, for plaintiff-appellant, cross appellee.
Crowe & Scott, P.A. by Paul M.B. de Blank, Phoenix, for defendants-appellees, cross appellants Hoffman & Wheeler.
Langerman, Begam, Lewis & Marks by Robert G. Begam, Phoenix, for defendant-appellee, cross appellant Peaton.
The primary issue in this appeal is whether an insured whose insurer has offered its policy limits to an injured plaintiff is absolutely entitled to enter into a "Damron" 1 agreement with the plaintiff against the wishes of the insurer.
State Farm Mutual Automobile Insurance Company appeals from a summary judgment in which the trial court declared that it was liable for the full extent of its $50,000 insurance policy issued to appellee Judy Sue Peaton. The court also found that State Farm owed interest on a judgment which the appellees-claimants had recovered against Peaton in the amount of $5,350,251.20. The appellees have cross-appealed from the trial court's determination that interest would cease to accrue once State Farm paid the policy limits.
The appellees in this case are Joseph S. Wheeler (Joey), his mother, Deborah Hoffman (Hoffman), and his father, Larry L. Wheeler (Wheeler), referred to collectively as the "claimants," and Judy Sue Peaton, State Farm's insured. 2 This case arises from a collision occurring on January 7, 1986 between Peaton, in her car, and Joey, on his bike. The accident severely injured Joey, leaving him a severely retarded, brain-damaged, spastic quadriplegic. Hoffman hired attorney Paul M.B. de Blank to pursue any legal remedies.
On February 11, de Blank wrote a letter to State Farm's claims department regarding the accident. After setting forth his version of the facts of the accident and describing Joey's current condition, Mr. de Blank wrote:
I recognize that in any case of this nature, the defense will try to claim that the accident was unavoidable or that the victim was contributorily negligent. I am sure you will agree that the accident was not unavoidable. Furthermore, given Joey's age, the defense of contributory negligence will be very difficult. Under the doctrine of comparative negligence, even a finding of some fault on the part of Joey will still result in an astronomical verdict. Accordingly, unless the coverage is extremely high, this clearly is a policy limits case.
... I now have been told that only $50,000 of coverage exists.... On behalf of Joey Wheeler, I therefore demand that State Farm tender the policy limits immediately, and in any event, no later than February 21, 1986. If tendered on or before that date, the policy limits will be accepted in exchange for a release of your insured's liability, provided the following conditions are met.
First, the policy limits are to be placed into a segregated, interest-bearing account pending final resolution of the claim.
Second, within a reasonable time, State Farm is to submit a certified policy to provide written proof of the policy limits.
Third, Ms. Peaton must provide a sworn financial statement showing personal assets (and marital community assets, if applicable) of less than $30,000, and must agree to a sworn examination, to be recorded by a court reporter, during which she will be asked about the financial statement and the existence of other entities or policies which may provide compensation.
Guardianship proceedings for Joey were initiated in Iowa, Joey's permanent residence. No settlement could be made final until the Iowa court had approved the settlement and appointed a conservator to sign it.
On February 20, State Farm claims representative Jane Rockwell phoned Peaton to advise her of de Blank's settlement demand and the possible need for her to retain separate legal counsel. She also sent Peaton a letter dated February 21, 1986 which stated:
As per our telephone conversation on Thursday, February 20, 1986, I am attaching, with this letter, correspondence received from Attorney Paul M.B. de Blank, who represents Joey Wheeler and his mother, Deborah Hoffman, for injuries received in the accident on January 7, 1986.
As discussed with you, Mr. de Blank has made a demand for our policy limits of $50,000. I am also enclosing our letter of response to the attorney.
Because of the possible exposure to you, you may feel it necessary to retain counsel to represent you.
On February 21, Rockwell responded to de Blank's letter. She disputed de Blank's version of who was at fault and requested more time to investigate. On February 21, de Blank wrote Rockwell a letter responding to her hand-delivered letter. He wrote that he found it hard to believe that State Farm would not realize that Joey's injuries would certainly exceed the policy limits, as evidenced by his prolonged (and not-yet-ended) hospital stay. He continued:
However, to answer any concern that the injuries may not warrant tender of the $50,000.00 policy limits, I am happy to agree that it will be sufficient for State Farm to tender its policy limits expressly conditioned on its thereafter receiving proof that Joey Wheeler 1) is in a coma and 2) suffered a severe brain injury. That way, State Farm can take it as established, for purposes of the demand, that such injuries have indeed been sustained. (Emphasis added.)
On February 24, de Blank and Rockwell had a telephone conversation regarding the settlement proposal. De Blank confirmed the conversation with a letter of the same date:
I do not believe it is reasonable to hold up the settlement determination for medical reasons.
However, I will try to obtain copies of Joey's most important medical records, and hope to have those by the end of this week. Even if those records are not yet available, the revised policy limits demand expressly permits State Farm to tender its policy limits contingent upon thereafter receiving proof that Joey Wheeler is in a coma and suffered severe brain injury. In other words, should it later be learned that somehow Joey Wheeler's injuries are not as described, acceptance of the settlement demand could be revoked by State Farm.
This way, Joey's mother will have the peace of mind of knowing that that case has been settled and that the necessary funds have been set aside, at interest. She can then approach her own carrier for the Underinsured Motorist benefits, and commence arrangements for Probate court approval. Minimizing the delay is a primary reason why she would be willing not to pursue your insured's personal assets. (Emphasis added.)
Accordingly, I repeat the demand that (even in the absence of complete medical proof) State Farm convey its (conditional) tender of the policy limits.
The deadline for responding to this demand is hereby formally extended to 5:00 p.m., Friday, March 7, 1986.
... Also enclosed is a copy of the Complaint to be filed against your insureds [sic] in the near future. Filing and service of the Complaint does not affect the settlement demand, provided State Farm conveys its acceptance thereof prior to the above deadline.
The complaint was filed on February 27, in cause No. C-571345. (That suit will be referred to as the "liability" suit.)
On March 5, 1986, Rockwell and de Blank had a telephone conversation in which they thought they reached a settlement. According to Rockwell, she told de Blank that State Farm agreed to pay the $50,000 on the express condition that de Blank first obtain approval from the probate court in Iowa, and that the conservator be authorized to execute a full release. Rockwell maintains that de Blank accepted this with only two conditions: (1) that State Farm certify that the policy limit was $50,000; and (2) that State Farm make Peaton available for a sworn examination to show that she had no further substantial assets with which to satisfy Joey's damages. According to Rockwell, the previous demand for interest on the $50,000 had been dropped as of de Blank's "revised" offer of February 21 and was not included in the settlement agreed to on March 5. De Blank, on the other hand, claims that his "revised" settlement demand included interest on the $50,000.
There were further conversations between Rockwell and de Blank after the March 5 "agreement," but the issue of interest apparently was not discussed. Rather, Rockwell and de Blank set about making arrangements to finalize the settlement. Then, on April 8, 1986, de Blank wrote a letter to Rockwell:
I just learned that a hearing has been set for Probate Court proceedings in Iowa on May 9, 1986. Presumably, at that time the Court will approve the policy limits settlement previously arrived at and shortly thereafter I hope to be able to send you a certified copy of the Iowa Probate Court's Order directing State Farm to issue its check for the proceeds....
One issue which has not yet been nailed down is the question of interest. As I mentioned in the first paragraph of page 3 of my letter dated February 11, 1986, one of the conditions of the policy limits settlement was that the proceeds would be placed into a segregated, interest-bearing account pending the final resolution of the claim. The Probate Court proceedings are being conducted at the expense of the Wheelers, even though they are really for the benefit of Ms. Peaton and State Farm, to protect them against possible and consistent [sic] li...
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