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

• Decision Date: 11 February 2021
• Docket Number: Court of Appeals No. 19CA1108
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellee, v. Susan A. GODDARD, Defendant-Appellant.
• Court: Colorado Court of Appeals

484 P.3d 765

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellee,

v.Susan A. GODDARD, Defendant-Appellant.

Court of Appeals No. 19CA1108

Colorado Court of Appeals, Division VI.

Announced February 11, 2021

Spencer Fane LLP, Evan Stephenson, Kayla Leigh Scroggins-Uptigrove, Denver, Colorado, for Plaintiff-Appellee

Franklin D. Azar & Associates, P.C., Natalie A. Brown, DezaRae D. LaCrue, Elisabeth Owen, Aurora, Colorado, for Defendant-Appellant

Opinion by JUDGE BROWN

¶ 1 This insurance bad faith case requires us to explore the circumstances under which an insured may protect itself from an insurer's apparent bad faith conduct — by stipulating to a judgment and assigning its claims against its insurer to a third-party claimant — without breaching its insurance contract.

¶ 2 State Farm Mutual Automobile Insurance Company (State Farm) sued its insured, Gary J. Griggs, seeking a declaration that Griggs breached his insurance contract by, among other things, entering into an agreement with third-party claimant Susan Goddard, whereby Griggs stipulated to entry of a judgment against him in an amount to be determined by binding arbitration and assigned to Goddard any claims he had against State Farm. Goddard, as Griggs's assignee, brought a bad faith counterclaim against State Farm.

¶ 3 Goddard contends that the district court erred by allowing the jury to consider the breach of contract claim because it was required to determine as a matter of law whether Griggs's conduct violated the insurance policy. And she argues that Griggs could not have violated the insurance policy by entering into the agreement because his conduct was expressly authorized by the Colorado Supreme Court in Nunn v. Mid-Century Insurance Co. , 244 P.3d 116 (Colo. 2010).

¶ 4 We reject Goddard's contention. Before an insured is justified in stipulating to a judgment and assigning its claims against its insurer to a third-party claimant, it must first appear that the insurer has unreasonably refused to defend the insured or to settle the claim within policy limits. And whether an insurer appears to have acted unreasonably is a question of fact. Thus, whether an insured has breached an insurance contract by entering into such an agreement is, like any other alleged breach of contract, a question for the fact finder.

¶ 5 Because we also reject the balance of Goddard's contentions on appeal, we affirm the district court's entry of judgment on a jury verdict in favor of State Farm.

I. Background

¶ 6 State Farm insured Griggs under an auto insurance policy (the policy) with liability limits for bodily injury of $25,000 per person and $50,000 per accident.

¶ 7 On November 30, 2013, Griggs injured Goddard and two other persons in a four-vehicle accident. Goddard and the other two injured persons each made a claim under the policy.

¶ 8 On December 16, 2013, Goddard retained Franklin D. Azar & Associates, P.C. (the Azar firm) as her counsel under a written contingent-fee agreement (the Azar fee agreement).

¶ 9 On March 5, 2014, the Azar firm sent State Farm a settlement demand letter seeking to resolve Goddard's claim for the $25,000 policy limit. The letter claimed that Goddard had incurred $2,410.00 in documented medical expenses; that records reflecting the charges she incurred at the hospital remained pending; and that she missed two days of work for a total wage loss of $141.60. The letter did not claim that Goddard would continue to incur medical expenses or suffer future damages. The letter further provided as follows:

We hereby demand your insured's policy limits and Ms. Goddard will settle for policy limits if offered to us by 5 p.m. on April 4, 2014. If not offered by that date and time, then consider our offer to be automatically withdrawn at the expiration of that time period. Our offer is conditioned on you providing proof of your insured's policy limits for all coverages available to Ms. Goddard for this claim, as well as the underinsured motorist carrier granting permission to settle for the underlying liability limits.

¶ 10 On April 4, 2014, the date Goddard's settlement offer expired, State Farm offered $5,000 to settle her claim based on the documentation she had provided by that date. According to State Farm, Goddard never responded to the offer.

¶ 11 Approximately two months later, Goddard provided State Farm with additional medical records, including emergency room and physical and massage therapy records. The records indicated that Goddard had an MRI on April 8, 2014, and thereafter received a referral for a neurological evaluation and psychotherapy.

¶ 12 As of February 2015, after State Farm had settled with the two other injured persons, only $18,500 remained under the policy's per accident limit. State Farm offered Goddard the remaining $18,500 to settle her claim. Goddard did not respond.

¶ 13 Meanwhile, Goddard had sued Griggs on November 11, 2014. Goddard did not serve Griggs with the complaint and State Farm did not learn of the lawsuit until mid-March 2015, after the $18,500 settlement offer had been made. State Farm hired an attorney to defend Griggs against Goddard's claims.

¶ 14 In June 2015, Goddard informed Griggs's attorney that she was "no longer willing to accept a settlement offer within policy limits" and, "[i]n the interest of protecting [Griggs] from an excess verdict," offered him the opportunity to enter into an agreement whereby Griggs would assign "his rights to any potential bad faith claim against State Farm" to Goddard and, in exchange, Goddard would agree "not to pursue [Griggs's] personal assets."

¶ 15 In January 2016, the trial court granted Goddard leave to add a claim for punitive damages against Griggs because he admitted to driving under the influence of alcohol when he ran a red light and caused the accident that injured Goddard.

¶ 16 In June 2016, Griggs and Goddard entered into the agreement Goddard had proposed a year earlier (the assignment agreement). Under the assignment agreement, Griggs admitted liability for the accident and agreed to have Goddard's damages determined through a binding, nonappealable arbitration conducted by a specific arbitrator; to have judgment entered against him in the amount determined by the arbitrator; and to assign any claims he may have against State Farm to Goddard. In exchange, Goddard agreed to initiate any "necessary proceedings" against State Farm, including pursing claims for breach of contract and bad faith, and not to execute on or enforce the judgment that would be entered against Griggs. Griggs further agreed to cooperate with Goddard in prosecuting any claims against State Farm.

¶ 17 Goddard and Griggs arbitrated the amount of Goddard's damages. State Farm paid counsel to defend Griggs at the arbitration. The arbitrator entered an award in favor of Goddard in the amount of $837,193.36. As contemplated by the assignment agreement, judgment entered against Griggs in that amount.

¶ 18 After arbitration, State Farm initiated the underlying declaratory judgment action against Griggs and Goddard, as Griggs's assignee, seeking a determination that Griggs breached the insurance policy by, among other things, entering into the assignment agreement with Goddard. Griggs disclaimed any interest in the litigation. Goddard counterclaimed that State Farm had breached the insurance policy and engaged in bad faith by, among other things, failing to settle Goddard's claims within the policy limits. State Farm asserted various affirmative defenses to Goddard's counterclaim, including, as relevant here, that the arbitration award and the resulting judgment were unreasonable and the product of fraud and collusion.

¶ 19 Ultimately, the case proceeded to a six-day jury trial and the jury returned a verdict in favor of State Farm. First, the jury found by a preponderance of the evidence that State Farm proved its claim for breach of contract against Griggs. Second, the jury found by a preponderance of the evidence that Goddard had not proved her counterclaim for bad faith breach of insurance contract against State Farm. The jury did not reach the merits of State Farm's affirmative defenses.

II. Discussion

¶ 20 Goddard contends that the district court erred by (1) denying her motion for a directed verdict on State Farm's breach of contract claim; (2) denying her motion for a directed verdict on State Farm's collusion affirmative defense; and (3) admitting irrelevant and prejudicial evidence at trial. We affirm.

A. The District Court Did Not Err by Allowing the Jury to Consider State Farm's Breach of Contract Claim

¶ 21 Goddard contends that the district court erred by denying her motion for directed verdict on State Farm's breach of contract claim because the claim (1) raised exclusively legal questions the court should have resolved and (2) failed on the facts. We disagree.¹

1. Additional Background

¶ 22 At the close of State Farm's evidence, Goddard moved for a directed verdict on the breach of contract claim pursuant to C.R.C.P. 50, asking the district court to resolve the claim as a matter of law rather than submit it to the jury. Among other things, Goddard argued that Griggs's conduct — entering into the assignment agreement — was legally authorized by Nunn , and could not, as a matter of law, amount to a breach of the insurance contract. She also argued that State Farm's breach of contract claim failed for want of evidence because nothing Griggs did breached a policy provision.

¶ 23 State Farm countered that Nunn did not hold that an insured can never breach an insurance contract by entering into a stipulated judgment and assigning its claims to a third-party claimant; instead, there must be a showing that the insurer acted unreasonably, engaged in bad faith, or gave its consent to such an agreement before the stipulated judgment can be enforced against the insurer.

¶ 24 The district court denied Goddard's motion, highlighting a series of disputed facts regarding Griggs's compliance...