The Doctors Co. v. Vincent

• Decision Date: 13 October 2004
• Docket Number: No. 36838.,36838.
• Citation: 120 Nev. 644,98 P.3d 681
• Parties: THE DOCTORS COMPANY, an Inter-Insurance Exchange, Appellant, v. Robert L. VINCENT, Respondent.
• Court: Nevada Supreme Court

98 P.3d 681

120 Nev. 644

THE DOCTORS COMPANY, an Inter-Insurance Exchange, Appellant, v. Robert L. VINCENT, Respondent.

No. 36838.

Supreme Court of Nevada.

October 13, 2004.

John H. Cotton & Associates, Ltd., and John H. Cotton, Las Vegas, for Appellant.

Jones Vargas and Ryan W. Herrick and Albert F. Pagni, Reno, for Respondent.

Before SHEARING, C.J., ROSE and MAUPIN, JJ.

OPINION

MAUPIN, J.

In this appeal, we consider the procedures for perfecting, as part of a settlement, claims for contribution among joint tortfeasors and implied indemnity. As discussed below, these remedies allow persons extinguishing their individual tort liabilities to seek reimbursement in part or in full from other responsible parties.

The resolution of this appeal centers in large part upon several related statutory principles.¹ First, a joint tortfeasor seeking to perfect a contribution claim in the context of a settlement must first extinguish the liabilities of the other joint tortfeasors against whom contribution recovery is sought. Second, a tortfeasor seeking to perfect an implied indemnity claim in the context of a settlement is not required to extinguish the liabilities of joint tortfeasors against whom indemnity recovery is sought. Third, any joint tortfeasor in a multi-defendant tort action may obtain protection from claims of contribution and implied indemnity by settling with the tort claimant in good faith under NRS 17.245. Fourth, the district court's discretion in determining the good or bad faith of a particular settlement is not talismanic, but rather, must be exercised based upon a myriad of considerations.

SUMMARY OF THE PROCEEDINGS IN DISTRICT COURT

Samuel Woods, Jr., brought the action below against respondent, Robert Vincent, and appellant The Doctors Company (TDC), TDC's affiliate, National Marketing Administration (NMA), and NMA's agents, David Hemphill and Edwin Hemphill.² The suit concerned attempts by Vincent, an independent insurance agent, to place medical insurance coverage for Woods with TDC, TDC's acceptance of that coverage, and its ultimate rejection of a claim for benefits. Shortly before trial, Woods settled with the TDC defendants for $2.75 million and with Vincent for $20,000. Both settlements were approved by the district court as in good faith under NRS 17.245. In this appeal, TDC contends that the district court abused its discretion in approving Vincent's settlement, which effectively cut off TDC's claims against Vincent for contribution and implied indemnity. Woods is not a party to this appeal.

FACTUAL AND PROCEDURAL BACKGROUND

In February 1998, Woods sought short-term medical coverage through Vincent, an independent insurance agent. After some inquiries, Vincent assisted Woods in completing a TDC form application for coverage. Woods claimed that he paid the initial premium to TDC by delivering a check to Vincent on February 7, 1998. Vincent claimed that he or his assistant mailed the check with the TDC application form to TDC's insurance administrator, NMA, shortly before midnight on February 9, 1998. The forwarding envelope bore Vincent's private meter postage mark of that date. Because Vincent was not a formally designated agent of TDC at that time, he included his own written application to act as a TDC agent with Woods' insurance application. Either Vincent or Woods checked a box on the TDC application form indicating that the effective date of coverage was to be "the date after postmark." Notwithstanding Vincent's representations concerning the date of mailing, the United States Postal Service (USPS) did not place its postmark on the envelope until February 12, 1998.

NMA received the envelope on February 17, 1998, and processed the application. Evidence indicated that NMA initially accepted the coverage as of February 10, 1998, apparently based upon Vincent's postage meter mark of the previous day. However, based upon the USPS postmark, coupled with the request that the effective date of the coverage commence "the date after postmark," NMA changed the effective date of the policy to February 13, 1998.

Ironically, Woods was seriously injured in an accident at his home on February 11, 1998, between the two possible starting dates for coverage, February 10 and 13, 1998. Based upon the USPS postmark date of February 12, 1998, TDC ultimately denied Woods' claims for approximately $350,000 in medical expenses. In this, TDC relied on a preexisting-condition exclusion in its policy.

Woods filed his complaint in district court against Vincent and the TDC defendants seeking special, general and punitive damages. The suit against Vincent included claims of negligence, breach of fiduciary duty and intentional infliction of emotional distress. The claims against the TDC defendants included: (1) negligence, (2) breach of contract, (3) estoppel, (4) breach of the implied covenant of good faith and fair dealing, (5) unfair trade practices, (6) breach of fiduciary duty, and (7) infliction of emotional distress. Woods also alleged that TDC was vicariously liable for Vincent's actions on an agent/principal theory.

The question of which postage mark triggered coverage became central to the controversy during discovery. On one hand, the decisions to change the effective date of coverage and reject Woods' claim for benefits could reasonably be justified by the questionable circumstances under which Vincent forwarded the application and Woods' coincidental accident within the disputed coverage window. In this, testimony from postal service witnesses implied that Vincent backdated his postage meter to conceal his failure to timely submit the application. On the other hand, several NMA employees gave conflicting deposition testimony as to what constituted a postmark for purposes of establishing effective dates for such policies, and TDC apparently lacked policies and procedures governing which postmark triggered the effective date of coverage under such circumstances. In its totality, evidence against TDC supported Woods' claims that (1) TDC originally accepted coverage as of February 10, 1998, thus initially recognizing Vincent's postage meter mark as stimulating commencement of coverage; (2) TDC only rejected coverage upon learning of Woods' claim for medical benefits; (3) TDC's separate conduct led to its contractual and extra-contractual exposure; and (4) given the initial acceptance of coverage as of February 10, 1998, and given that the TDC application form seemingly empowered Vincent to set the coverage commencement date, TDC treated Vincent as its agent for the purpose of placing coverage. TDC moved for summary judgment on the coverage and vicarious liability issues.³ After the district court denied the motion in its entirety, TDC evaluated the potential risk of a substantial compensatory and punitive damages verdict. Shortly before trial, based upon the potentially negative evidence that surfaced during discovery, TDC settled with Woods for $2.75 million. The TDC settlement did not, by its terms, extinguish Vincent's liability.

All parties stipulated in open court to the statutory good faith of the settlement between Woods and the TDC defendants. At the hearing memorializing the TDC settlement, Vincent's counsel reported that he too had settled with Woods, but for the relatively nominal sum of $25,000.⁴ After TDC refused to agree to the good faith of Vincent's settlement, Vincent moved for its approval under NRS 17.245. The briefs for and against approval comprehensively summarized the history of the case. Although noting the disparity between the two settlements, Vincent argued that he had done nothing wrong, and that his liability was only tangential in relation to TDC's mishandling of the claim, i.e., TDC's wrongful refusal to pay benefits in connection with Woods' accident. TDC argued that the Vincent/Woods' settlement was not an arm's-length arrangement, that the settlement was improperly calculated to cut off its vested contribution and indemnity rights, that its exposure was entirely related to Vincent's failure to timely forward Woods' insurance application, and that Vincent's nominal settlement was grossly disproportionate to the relative degree of his exposure to Woods. TDC underscored its arguments that Vincent's settlement was entered into in bad faith with the fact that Vincent's errors-and-omissions insurance provided liability coverage with policy limits of $500,000.

Thereafter, without a hearing, the district court determined that Vincent settled with Woods in good faith:

[Woods] has determined that settlement with Vincent is in his economic best interest. Therefore, [Woods] is willing to settle this matter for the amount of [$25,000]. Based upon the record or the lack thereof at this point, TDC has failed to show that the [$25,000] settlement agreed to by [Woods] is disproportionately lower than Vincent's fair share of the damages.

Accordingly, the district court approved Vincent's settlement and entered a final judgment. On appeal, TDC challenges the order of approval because it effectively barred TDC's claims for contribution or implied indemnity against Vincent.⁵

We affirm in part, reverse in part and remand for further proceedings consistent with this opinion. TDC failed to perfect its contribution rights, thus rendering moot the question of whether the good-faith ruling barred TDC's potential contribution claims against Vincent. Accordingly, we affirm the good-faith determination below insofar as it relates to TDC's contribution claims. However, the district court apparently failed to assess the good faith of Vincent's settlement as it related to TDC's potential claims for implied indemnity. Thus, the matter is reversed in part and remanded for the district court to determine whether the settlement was in good faith for the purpose of extinguishing TDC's potential implied indemnity rights.

DISCUSSION

Although we recognize that TDC's separate...