Case Title: Arnold v. Mountain West Farm Bureau Mut. Ins. Co., Inc.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1985-10-09T00:00:00Z

Document:
Arnold v. Mountain West Farm Bureau Mut. Ins. Co., Inc.1985 WY 158707 P.2d 161Case Number: 84-252Decided: 10/09/1985MARTHA ARNOLD AND PAUL H. ARNOLD, APPELLANTS (PLAINTIFFS), 

v. 

MOUNTAIN WEST FARM BUREAU MUTUAL INSURANCE COMPANY, INC., APPELLEE (DEFENDANT).

Supreme Court of Wyoming
MARTHA ARNOLD AND PAUL H. 
ARNOLD, APPELLANTS (PLAINTIFFS), 

v. 

MOUNTAIN WEST FARM BUREAU 
MUTUAL INSURANCE COMPANY, INC., APPELLEE (DEFENDANT).

Rehearing Denied November 
1, 1985.

 
 
Appeal from the District 
Court, AlbanyCounty, Arthur T. Hanscum, 
J.

 
 
John E. 
Stanfield (argued) of Smith, Stanfield & Scott, Laramie, and Sharon A. Fitzgerald (argued), Cheyenne, for appellants.

Paul B. Godfrey 
and George E. Powers, Jr. (argued) of Godfrey & Sundahl, Cheyenne, for appellee.

Before THOMAS, C.J., and 
ROSE, ROONEY, BROWN and CARDINE, JJ.

CARDINE, 
Justice.

[¶1.]     This appeal is from a 
judgment entered upon a jury verdict awarding the appellants thirty-two thousand 
dollars ($32,000). Appellants' appeal raises four issues which are set out in 
the following fashion:

"I. Did the trial court 
err when it instructed the jury that the only basis upon which punitive damages 
could be awarded is upon a finding that appellee was guilty of `willful and 
wanton misconduct' and refused to allow consideration of punitive damages on the 
basis of fraud or misrepresentation or oppression or 
malice?

"II. Did the trial court 
err when it instructed the jury that attorney's fees could only be recovered for 
a `refusal' to pay benefits and by rejecting an instruction that an unreasonable 
delay or failure to pay benefits is equivalent to a refusal to pay 
benefits?

"III. Did the trial court 
err when it refused to admit into evidence crucial correspondence between 
appellee and its attorney and correspondence between appellee's attorney and 
appellants' attorneys, relating to the merits of the claim and reasons for 
nonpayment, and excluded pertinent pleadings and orders which demonstrated the 
manner in which the claim was handled after the complaint was 
filed?

"IV. Given the policy 
provisions and the applicable rules of construction, did the trial court err 
when it ruled that Mr. Arnold's claim for loss of consortium is a mere 
consequential damage arising from the bodily injury claimed by the injured 
spouse and that the amount recoverable is limited to the `per person' amount of 
the policy?"

[¶2.]     We 
affirm.

[¶3.]     On February 22, 1981, 
appellants, Paul Arnold (the driver) and Martha Arnold (a passenger), were 
travelling in their automobile heading west out of Scottsbluff, Nebraska. When Mr. Arnold stopped to turn left 
off the highway, a pickup rear-ended the Arnold automobile. The driver of the pickup was 
Glenn Ford, an uninsured motorist.

[¶4.]     As a result of the 
accident, the Arnold automobile was damaged and Mrs. Arnold 
suffered physical injury. One doctor testified that she had a "chronic cervical 
sprain." He indicated that some permanent damage had been done, and Mrs. Arnold 
would always experience some discomfort because of the 
injury.

[¶5.]     At the time of the 
accident the Arnolds insured three vehicles, including the automobile involved 
in the accident, through the defendant, Mountain West Farm Bureau Mutual 
Insurance Company (hereinafter Mountain West). Separate premiums were paid on 
each of the three policies. Each policy provided for uninsured motorist coverage 
in the amount of $10,000 per person and $20,000 per 
occurrence.

[¶6.]     Following the accident, 
the Arnolds 
submitted a Notice of Loss to Mountain West. In response, Mountain West's claim 
representative contacted Mrs. Arnold on February 23, 1981. The claim 
representative advised the Arnolds that they would need to get bids on the 
cost of repairing the automobile and discussed the policy coverage with Mrs. 
Arnold, explaining that under the terms of the insurance policy Mountain West 
would provide only excess medical coverage, i.e., medical coverage for those 
bills not paid under any primary medical coverage. Mrs. Arnold indicated that 
she did have primary coverage through Blue Cross and Blue Shield. As a result, 
it was Mountain West's position that it would only pay medical bills that Blue 
Cross and Blue Shield refused to pay.

[¶7.]     Subsequently, a dispute 
developed concerning Mountain West's obligations. Initially the dispute 
concerned the Arnold's claim for damages to their car. At 
that time the Arnolds engaged an attorney to represent them. 
The parties then also disagreed regarding Mountain West's obligations for Mrs. 
Arnold's medical bills.

[¶8.]     On April 2, 1981, the 
Arnolds' 
attorney wrote Mountain West demanding payment of the sum of $10,000 which he 
believed was the maximum coverage under the uninsured motorist provision of the 
policy. Mountain West responded by requesting certain documentation in support 
of the claim which included, among other things, proof of damages and proof that 
Glenn Ford was an uninsured motorist. During the ensuing one-year period, the 
parties exchanged letters discussing what documentation was 
necessary.

[¶9.]     As of May 1982, 
Mountain West had paid the Arnolds the following:

1. March 24, 1981 
(highway 

    report) .................... 
                       
$        
2.00

2. July 9, 1981 (medical 

    expenses) .................. 
              60.11

3. September 23, 1981 
(medical 

    report) .................... 
                       
        85.00

4. October 2, 1981 
(medical 

    expenses) .................. 
            143.50

5. October 15, 1981 
(automobile 

    repair) 
....................                        
$ 2,246.84

6. April 26, 1982 
(medical 

    expenses) .................. 
              76.50

On May 5, 1982, 
appellants' attorney, by letter, again demanded the full amount of uninsured 
motorist coverage under the policy limits, which he believed was $10,000. 
Shortly after this letter, settlement negotiations began between the Arnolds' attorney and an 
attorney for Mountain West. The Arnolds received a settlement offer of $6,000 
but rejected it.

[¶10.]  In August 1982, the Arnolds' attorney 
discussed the matter with Mountain West's director of claims. During the 
conversation both men lost their tempers. As a result, the Arnolds' attorney withdrew 
from their representation and was replaced by a second attorney who, in October 
1982, initiated this lawsuit.

[¶11.]  The matter was tried to a jury commencing 
July 26, 1984. The trial took six days to complete. In its verdict the jury 
found:

(1) Martha Arnold 
suffered $75,000 in damages for personal injury as a result of the automobile 
accident;

(2) Paul Arnold suffered 
$7,500 in damages as a result of loss of consortium;

(3) Mountain West did not 
act in good faith in handling the Arnolds' claims;

(4) As a result of the 
bad faith, each of the Arnolds were awarded $1,000 in 
damages;

(5) Mountain West's 
misconduct was not willful or wanton;

(6) Mountain West's 
refusal to pay benefits was not unreasonable or without cause; 
and

(7) At the time of the 
accident three insurance policies were in effect which provided uninsured 
motorist benefits.

[¶12.]  As a result of the verdict, the district 
court determined that the insurance policies should be stacked such that 
Mountain West was obligated up to the $10,000 limit on each policy. Thus, 
Mountain West was found obligated to pay $30,000 under the terms of the 
insurance policy. In addition, Mountain West was ordered to pay $2,000 for its 
breach of the implied covenant of good faith.

I

[¶13.]  The first issue raised by the Arnolds on appeal concerns 
the jury's decision denying an award of punitive damages. The Arnolds contend that the 
trial court erred in instructing over objection that punitive damages could only 
be awarded if the jury found Mountain West guilty of willful and wanton 
misconduct. The Arnolds argue that the trial court erred in 
refusing to instruct that punitive damages may also be awarded upon a finding of 
fraud, malice, misrepresentation, or oppression.

[¶14.]  However, this argument must fail. 
"Punitive damages are not a favorite of the law * * *." Town of Jackson v. Shaw, Wyo., 
569 P.2d 1246, 1252 (1977). They are awarded only in extraordinary circumstances 
in order to "publicly condemn some notorious action or inaction * * *." 
Campen v. Stone, Wyo., 635 P.2d 1121, 1123 
(1981).

[¶15.]  Punitive damages are generally not 
recoverable in an action upon a contract where the parties have made a written 
agreement between themselves setting their respective rights and obligations. 
Punitive damages may be recoverable in an action in tort if the conduct 
constituting the breach rises to the level of an independent tort, but that 
claim is not here presented nor is it decided by us. In United 
States v. 
Redland, Wyo., 
695 P.2d 1031 (1985), we held that punitive damages are not proper in an action 
upon a contract to recover damages resulting from a breach of the contract. We 
said that to recover punitive damages in an action upon a contract, "there must 
be evidence of spite, ill will or willful and wanton misconduct at the inception 
of a fraudulent contract * * *." Id. at 1039. The proper remedy for wrongful 
acts occurring afterwards is compensatory damages. Waters v. Trenckmann, Wyo., 
503 P.2d 1187 (1972). Where one party breaches the contract in bad faith, the 
injured party can seek damages for breach of the implied covenant of good faith. 
The jury found bad faith and awarded each of the Arnolds $1,000 in 
damages.

[¶16.]  There was no evidence of willful or 
wanton misconduct at the time the parties entered into their contractual 
agreements. All the evidence which was produced concerned Mountain West's 
conduct following the receipt of the Notice of Loss. To the extent that the 
trial judge failed to instruct the jury that willful and wanton misconduct had 
to occur at the contract's inception, the Arnolds received the benefit of a more 
favorable instruction than that to which they were entitled. They will not now 
be heard to argue that they were entitled to an even more favorable instruction. 
We find no reversible error in appellants' first 
contention.

II

[¶17.]  The second issue raised on appeal 
concerns the jury's finding that Mountain West's refusal to pay benefits was not 
unreasonable or without cause. The Arnolds contend that the trial court erred in 
refusing "to instruct the jury that an unreasonable or unjustifiable failure to 
timely pay benefits to its insured is the equivalent of a `refusal to pay' 
benefits."

[¶18.]  The significance of this question arises 
by virtue of § 26-15-124(c), W.S. 1977, June 1983 replacement, which 
provides:

"In any actions or 
proceedings commenced against any insurance company on any insurance policy or 
certificate of any type or kind of insurance, or in any case where an insurer is 
obligated by a liability insurance policy to defend any suit or claim or pay any 
judgment on behalf of a named insured, if it is determined that the company 
refuses to pay the full amount of a loss covered by the policy and that the 
refusal is unreasonable or without cause, any court in which judgment is 
rendered for a claimant may also award a reasonable sum as an attorney's fee and 
interest at ten percent (10%) per year."

Under this 
provision the Arnolds could have recovered attorney's fees if 
Mountain West's refusal to pay benefits was unreasonable or without 
cause.

[¶19.]  At trial the Arnolds sought to have the 
jury instructed that a delay or failure to pay benefits was equivalent to a 
refusal to pay. However, the court chose instead to instruct as 
follows:

"The Wyoming Statutes 
provide, in part, as follows:

"`* * * if it is 
determined that the [insurance] company refuses to pay the full amount of a loss 
covered by the policy and that the refusal is unreasonable or without cause, any 
court in which judgment is rendered for a claimant may also award a reasonable 
sum as an attorney's fee and interest at ten percent (10%) per 
year.'

"You will answer a 
question dealing with this issue in the Special Verdict 
form."

[¶20.]  The third question of the special verdict 
form asked: "In accordance with Instruction No. 16, was the refusal to pay 
benefits by Defendant unreasonable or without cause?" This question presupposed 
that there was a refusal to pay benefits. It told the jury that there was a 
refusal and asked whether the refusal was unreasonable or without 
cause.

[¶21.]  "Errors in instructions not injurious or 
prejudicial are not cause for reversal * * *." Mainville v. State, Wyo., 607 P.2d 339, 343 
(1980). Here the Arnolds cannot complain about the court's 
decision not to instruct that refusal to pay included failure to pay. The jury 
was told that there was a refusal. The only question that the jury was asked to 
resolve was whether in the language of the statute, § 26-15-124(c), the refusal 
was "unreasonable or without cause." Further defining or explaining for the jury 
the meaning of "unreasonable or without cause" is unnecessary. It would serve 
only to further confuse the issue. The terms have a plain meaning commonly 
understood. The company can refuse to pay if reasonable or for cause, but not 
otherwise. What appellants ask says no more. The instruction in the language of 
the statute was sufficient. Accordingly, there was no prejudice; the alleged 
error is not cause for reversal.

III

[¶22.]  The third issue raised by the Arnolds concerns the trial 
court's refusal to admit into evidence correspondence between Mountain West and 
its attorney and between the litigants' attorneys as well as certain of Mountain 
West's pleadings. The Arnolds contend that the correspondence between 
Mountain West and its attorney was relevant "upon the issues of a lack of good 
faith and fair dealing" and "the propriety and necessity of punitive 
damages."

[¶23.]  In Thomas v. Harrison, Wyo., 
634 P.2d 328 (1981), we recognized that the preservation of the attorney-client 
privilege is essential to the operation of our judicial process. As Justice 
Raper said in his concurring opinion, encroachment upon the attorney-client 
privilege "would discourage honesty by a client to his attorney and intrude upon 
the right of privacy between a lawyer and his client." Id. at 334. For the 
system to properly function the attorney-client privilege must be 
protected.

[¶24.]  The Arnolds respond that the purpose of the 
privilege

"is to protect and foster 
the client's freedom of expression. It is not to permit an attorney to conduct 
his client's business affairs in secret." Matter of Fischel, 557 F.2d 209, 211 
(9th Cir. 1977).

[¶25.]  However, here the trial court found 
otherwise. It concluded that the communications between Mountain West and its 
attorney were privileged. Rule 501, W.R.E. Implicit in that ruling is a finding 
that Mountain West's attorney was not conducting that company's business 
affairs. On appeal, evidentiary rulings will not be reversed absent a showing of 
an abuse of discretion. McCabe v. R.A. 
Manning Construction Company, Wyo., 674 P.2d 699, 712 (1983). On the facts 
presented to us we cannot find an abuse of discretion.

[¶26.]  The Arnolds also challenge the trial court's 
refusal to admit into evidence pretrial pleadings filed by Mountain West as well 
as correspondence between the parties' respective attorneys. They specifically 
claim that the pleadings and correspondence were relevant on Mountain West's bad 
faith. However, the jury found that Mountain West acted in bad faith without the 
evidence. "A party seeking reversal must establish that the error was 
prejudicial * * *." Pure Gas and Chemical 
Company v. Cook, Wyo., 526 P.2d 986, 992 (1974). Since the 
Arnolds 
prevailed on the question of Mountain West's bad faith, they cannot show 
prejudice on the issue of whether bad faith was present. Furthermore, the 
evidence could not properly be admitted to establish that punitive damages were 
appropriate because the evidence did not demonstrate misconduct at the time the 
contract was entered. Since no prejudice has been shown, we do not address the 
merits of the issue of whether correspondence between opposing counsel is 
admissible.

IV

[¶27.]  The final issue raised by the Arnolds concerns the trial 
court's decision that Paul Arnold's claim for loss of consortium was subject to 
the per person liability limit. The court's ruling was premised upon its 
construction of the terms of the contracts here involved. The contracts were 
three identical insurance policies which provided in pertinent 
part:

"LIMITS OF 
LIABILITY

"(a) The limit of 
liability stated in the declarations as applicable to `each person' is the limit 
of the company's liability for all damages, including damages for care and loss 
of services, arising out of bodily injury sustained by one person in any one 
accident, and subject to this provision, the limit of liability stated in the 
declarations as applicable to `each accident' is the total limit of the 
company's liability for all such damages for bodily injury sustained by two or 
more persons in any one accident."

The limits of 
liability under the uninsured motorist coverage was $10,000 per person and 
$20,000 per occurrence. Here the contract provided that the $10,000 per person 
limit was "the limit of [Mountain West's] * * * liability for all damages * * * for care and loss of 
services, arising out of bodily injury 
sustained by one person in any one accident * * *" (Emphasis added.) The 
trial court determined that loss of consortium fit within the phrase "loss of 
services" and was thus recoverable. No challenge to that ruling is before us. 
However, the Arnolds argue that the loss of consortium should be recoverable as 
a separate injury to Paul Arnold not resulting from Martha Arnold's injury and 
thus not within Martha Arnold's $30,000 limit ($10,000 for each of the three 
policies).

[¶28.]  If a contract is clear on its face, we 
must assume it reflects the intent of the parties. Schacht v. First Wyoming Bank, 
N.A.-Rawlins, Wyo., 620 P.2d 561 (1980). We are not free to rewrite 
contracts under the guise of interpretation. Adobe Oil & Gas Corp. v. Getter 
Trucking, Inc., Wyo., 676 P.2d 560 (1984). So long as there is no ambiguity, 
we are bound to apply the contract as it is written. Rouse v. Munroe, Wyo., 658 P.2d 74 
(1983).

[¶29.]  The Arnolds' argument flies square in the 
face of the unambiguous language of the contract. All damages arising out of 
bodily injury sustained by one person are lumped together for purposes of the 
liability limit. Paul Arnold's claim for loss of consortium was derivative of 
Martha Arnold's injury for which she claimed coverage. It arose out of bodily 
injury sustained by one person (Martha Arnold) and is subject to the $10,000 
coverage limitation. Accordingly, the trial court correctly limited the recovery 
under the insurance policy to $30,000.

[¶30.]  Affirmed.