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

State: wyoming

Issuer: Wyoming Supreme Court

Document:

State Farm Mut. Auto. Ins. Co. v. Shrader1994 WY 89882 P.2d 813Case Number: 93-26, 93-27Decided: 09/29/1994Supreme Court of Wyoming
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).

Appeal 
from District Court, Weston County, Dan R. Price, II, 
J.

 

Representing 
Appellant/Appellee:

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

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

Representing 
Appellees/Appellants:

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

 

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

* 
Retired July 6, 1994.

** 
Chief Justice at time of oral argument.

TAYLOR, 
Justice.

[¶1]      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.

[¶2]      We reverse and 
remand for a new trial on all issues.

I. 
ISSUES

[¶3]      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?

[¶4]      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?

[¶5]      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.

[¶6]      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?

[¶7]      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

[¶8]      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.

[¶9]      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.

[¶10]   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.

[¶11]   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.

[¶12]   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 the medical payments. The Shraders rejected 
the offer and demanded the policy limits. After the Shraders hired an attorney, 
State Farm increased the settlement offer by $3,500.00. In the revised offer, 
State Farm admitted that while Shrader's injuries were healing, she would suffer 
mild residual pelvic pain on a long term basis. The Shraders again rejected the 
offer and rejected non-mandatory arbitration to determine the uninsured 
motorist's liability. Various negotiations continued until September of 1990 
when the Shraders demanded $24,900.00 and attorney's fees. To support their 
claim, the Shraders provided a detailed accounting of damages, including: 
medical costs; past and future loss of earnings; pain, suffering and emotional 
distress; disability and loss of enjoyment of life; and damages to their car. 
The estimated total was $197,840.49 for damages to Shrader and $20,000.00 in 
loss of consortium damages for Terry Shrader. State Farm responded with a 
counter-offer to settle the claim for $13,000.00. 

[¶13]   In October of 1990, the Shraders 
filed a complaint in district court seeking damages from State Farm for breach 
of contract; breach of the implied covenant of good faith and fair dealing; 
breach of statutory duty; and breach of the insurer's duty to investigate the 
claim. The Shraders also alleged they had a right to recover attorney's fees and 
interest under Wyo. Stat. § 26-15-124(c) (1991).

[¶14]   In its answer, State Farm admitted 
that the proximate cause of the damages the Shraders suffered was the negligence 
of an uninsured motorist. State Farm also admitted that as the Shraders' 
insurer, State Farm had a coverage obligation under its policy but maintained 
that a determination of the liability of the uninsured motorist was a "condition 
precedent" to a direct action against the insurer. State Farm averred that since 
no determination of the uninsured motorist's liability had been made, the 
Shraders' direct action was premature.

[¶15]   During discovery, State Farm filed 
a motion for summary judgment arguing again that a determination of the 
uninsured motorist's liability was a "condition precedent" to maintaining a 
direct action against the insurer. State Farm contended that until the liability 
determination had been made, the Shraders could not maintain an action for 
breach of contract or breach of the implied covenant of good faith and fair 
dealing. State Farm also asserted that until the liability of the uninsured 
motorist was determined, the amount of damages due to the Shraders remained 
fairly debatable precluding a recovery for breach of the implied covenant. The 
district court denied the motion for summary judgment. The district court ruled 
that since the negligence of the uninsured motorist was "so clear in this case," 
State Farm's argument that liability must be determined prior to any direct 
action against the insurer was "untenable." The district court also denied a 
State Farm motion to reconsider.

[¶16]   State Farm then filed a motion to 
bifurcate the proceedings. State Farm again maintained that an insured could not 
bring a direct action against the insurer until the liability of the uninsured 
motorist had been determined. As a result, State Farm sought a separate trial to 
determine the liability of the uninsured motorist. State Farm also argued that, 
unless proceedings were bifurcated, it would be prejudiced in the liability 
proceeding by the introduction of evidence of insurance and settlement 
information. The district court denied the motion. A single trial was held on 
all issues.

[¶17]   The jury returned a special verdict 
finding that the uninsured motorist's liability for the damages caused to 
Shrader was $70,000.00. The jury also found that the uninsured motorist's 
liability for loss of consortium damages suffered by Terry Shrader was 
$9,500.00. The jury found that State Farm had tortiously breached the implied 
covenant of good faith and fair dealing. As a result, the jury determined that 
the Shraders should each receive $25,000.00 for the breach of the implied 
covenant. The jury found that State Farm breached its statutory duty by 
unreasonably and without cause refusing to pay the full amount of covered loss 
under the policy. In addition, the jury found that State Farm had engaged in 
willful and wanton misconduct, so that punitive damages could be 
awarded.

[¶18]   Following the verdict, State Farm 
renewed a motion for a directed verdict or a judgment notwithstanding the 
verdict. State Farm argued that there was insufficient evidence to support a 
finding of willful and wanton misconduct. The district court agreed and granted 
a directed verdict. Therefore, no punitive damages were 
awarded.

[¶19]   In its final judgment, the district 
court awarded the Shraders: damages of $25,000.00 for breach of contract minus 
$2,016.00 previously paid; damages totaling $50,000.00 for breach of the implied 
covenant of good faith and fair dealing; and costs, attorney fees and interest 
totalling $49,779.43 for breach of statutory duties.

III. 
DISCUSSION

[¶20]   These consolidated appeals follow 
the entry of a special verdict and judgment and a directed verdict. State Farm 
does not challenge the admissibility of the evidence or the sufficiency of the 
evidence to support the special verdict and judgment. Therefore, the dispositive 
issues in Appeal No. 93-26 are those which challenge: errors of law in rulings 
of the district court; the fairness of the procedure used at trial; or the 
errors of law contained in the instructions given to the 
jury.

[¶21]   In the presentation of the numerous 
issues, however, the parties have generally failed to discuss points of law 
which are critical to this court and to the outcome of many appeals. See Fox 
v. C.I.R., 718 F.2d 251, 253 (7th Cir. 1983). The standards of appellate 
review utilized to test the proceedings in district court were disregarded. See 
W.R.A.P. 7.01(f). Therefore, we find it necessary to address the issues in a 
different progression than that stated by the parties.

A. 
Denial of Summary Judgment

[¶22]   We begin with the contention that 
the district court erred in denying State Farm's pretrial motion for partial 
summary judgment. We need not consider this argument.

[¶23]   The denial of a motion for summary 
judgment is not an appealable order. St. Paul Fire and Marine Ins. Co. v. 
Albany County School Dist. No. 1, 763 P.2d 1255, 1257 (Wyo. 1988); 
Kimbley v. City of Green River, 663 P.2d 871, 888 (Wyo. 1983); Boyles 
Galvanizing & Plating Co. v. Hartford Acc. & Indem. Co., 372 F.2d 310, 312 (10th Cir. 1967). When a motion for summary judgment is denied, an 
interlocutory order is issued after the district court rules that genuine issues 
of material fact are disputed and the moving party is not entitled to a judgment 
as a matter of law. W.R.C.P. 56(c). Generally, interlocutory orders are not 
appealable. W.R.C.P. 54(b). The unresolved issues presented in a motion for 
summary judgment which is denied merge with the final judgment which is subject 
to appeal. Morgan v. American University, 534 A.2d 323, 327 (D.C.App. 
1987). However, even in an appeal of a final judgment, the pre-trial denial of a 
motion for summary judgment is not generally reviewed. All-States Leasing Co. 
v. Pacific Empire Land Corp., 31 Or. App. 733, 571 P.2d 192, 194 (1977). 
See R.F. Chase, Annotation, Reviewability of Order Denying Motion For 
Summary Judgment, 15 A.L.R.3d 899 (1967) (collecting cases). The denial of 
the summary judgment becomes, in effect, moot except in rare cases. E.E.O.C. 
v. Sears, Roebuck & Co., 839 F.2d 302, 353 n. 55 (7th Cir. 1988); 
Fleitz v. Van Westrienen, 114 Ariz. 246, 560 P.2d 430, 433 
(1977).

[¶24]   We find convincing policy reasons 
to support this view:

The 
final judgment in a case can be tested upon the record made at trial, not the 
record made at the time summary judgment was denied. Any legal rulings made by 
the trial court affecting that final judgment can be reviewed at that time in 
light of the full record. This will prevent a litigant who loses a case, after a 
full and fair trial, from having an appellate court go back to the time when the 
litigant had moved for summary judgment to view the relative strengths and 
weaknesses of the litigants at that earlier stage. Were we to hold otherwise, 
one who had sustained his position after a fair hearing of the whole case might 
nevertheless lose, because he had failed to prove his case fully on an 
interlocutory motion.

Evans 
v. Jensen, 
103 Idaho 937, 655 P.2d 454, 459 (1982). Accord Home Indem. Co. v. Reynolds 
& Co., 38 Ill. App.2d 358, 187 N.E.2d 274, 278 
(1962).

B. 
Direct Action Against The Insurer

[¶25]   State Farm contends that the 
district court committed an error of law by permitting a direct action against 
an insurer prior to a determination of the liability of the uninsured motorist. 
State Farm takes the position that until the Shraders establish the degree of 
fault and the amount of damages caused by the uninsured motorist, the Shraders 
are not legally entitled to recover damages under the policy. Accordingly, State 
Farm argues no direct action against State Farm is permitted until this 
"condition precedent" is satisfied. We disagree.

[¶26]   This court accords no deference to 
and is not bound by the district court's rulings on issues of law. True Oil 
Co. v. Sinclair Oil Corp., 771 P.2d 781, 788-89 (Wyo. 1989). State Farm's 
arguments required the district court to interpret the language of the parties' 
agreement, the insurance policy. Therefore, in reviewing the district court's 
decision to permit a direct action, this court will apply our established rules 
of contract interpretation to the language of the State Farm policy. A complete 
review of the applicable rules is contained in Doctors' Co. v. Insurance 
Corp. of America, 864 P.2d 1018, 1023-27 (Wyo. 1993).

[¶27]   Before considering the specific 
language of the State Farm policy, however, we must examine the statutory 
requirements that place public policy limitations on uninsured motorist 
coverage. State Farm argues that, under Wyoming law, the fault of the uninsured 
motorist and the amount of damages an insured is entitled to collect cannot be 
determined in a direct action against the insurer. We 
disagree.

[¶28]   In Wyoming, the legislature has 
mandated the availability of uninsured motorist coverage:

No 
policy insuring against loss resulting from liability imposed by law for bodily 
injury or death suffered by any natural person arising out of the ownership, 
maintenance or use of a motor vehicle shall be delivered or issued for delivery 
in this state with respect to any motor vehicle registered or principally 
garaged in this state unless coverage is provided therein or supplemental 
thereto, in limits for bodily injury or death as provided by W.S. 
31-9-102(a)(xi), under provisions approved by the insurance commissioner for the 
protection of persons insured thereunder or legally entitled to recover damages 
from owners or operators of uninsured motor vehicles because of bodily injury, 
sickness or disease, including death resulting therefrom. The named insured may 
reject the coverage. Unless the named insured requests the coverage in writing, 
the coverage need not be provided in or supplemental to a renewal policy where 
the named insured had rejected the coverage in connection with the policy 
previously issued to him by the same insurer.

Wyo. 
Stat. § 31-10-101 (1994). The Wyoming Uninsured Motorist Act, Wyo. Stat. §§ 
31-10-101 to 31-10-104 (1994), is designed to furnish protection, by insurance, 
for the victims of uninsured motorists. Ramsour v. Grange Ins. Ass'n, 541 P.2d 35, 38 (Wyo. 1975). Uninsured motorist coverage compliments financial 
responsibility legislation, Wyo. Stat. §§ 31-9-101 to 31-9-414 (1994), by 
providing coverage to innocent persons who suffer damages because of the 
wrongful conduct of uninsured motorists who are not financially responsible and, 
therefore, cannot be made to respond in damages. Winner v. Ratzlaff, 211 
Kan. 59, 505 P.2d 606, 610 (1973). This court has determined that the provisions 
of the Wyoming Uninsured Motorist Act are remedial in nature and ambiguous 
language should be liberally construed in favor of the insured with a strict and 
narrow construction given to exclusions. Ramsour, 541 P.2d  at 38; 12A 
Ronald A. Anderson, Couch Cyclopedia of Insurance Law, § 45:625 at 39 
(2nd ed. 1981).

[¶29]   We do not find language in Wyo. 
Stat. § 31-10-101 which would prevent a direct action by the insured against an 
insurer to recover a claim for uninsured motorist benefits. Conversely, we do 
not find language in Wyo. Stat. § 31-10-101 which would require a tort action by 
the insured against the uninsured motorist as a "condition precedent" to a 
direct action against the insurer. A fundamental rule of statutory construction 
states "an absurd result, whenever apparent, is to be avoided." Stauffer 
Chemical Co. v. Curry, 778 P.2d 1083, 1093 (Wyo. 1989). It would create an 
absurd result if an insured, denied the protection of uninsured motorist 
coverage, was prohibited by the statute that mandates coverage from seeking 
judicial relief in a direct action against the insurer. If the legislature had 
intended to restrict the right of a party to the insurance contract to contest a 
claim for benefits by requiring a tort action against the uninsured motorist 
prior to instituting a direct action against the insurer, explicit language in 
the Wyoming Uninsured Motorist Act would be required. Winner, 505 P.2d  at 
610. See also Helmbolt v. LeMars Mut. Ins. Co., Inc., 404 N.W.2d 55, 59 
(S.D. 1987) (concerning underinsured motorist coverage actions). We hold that as 
a matter of public policy, the fault of the uninsured motorist and the amount of 
damages suffered by the insured may be determined in a direct action against the 
insurer.

[¶30]   Further support for our position is 
provided in the holdings of other jurisdictions. See Dag E. Ytreberg, 
Annotation, Insured's Right to Bring Direct Action Against Insurer for 
Uninsured Motorist Benefits, 73 A.L.R.3d 632 (1976 & Supp. 1994) 
(collecting cases). We presume that when the legislature enacts a statute, it is 
done with full knowledge of the existing condition of the law and as part of a 
general and uniform system of jurisprudence. Parker Land and Cattle Co. v. 
Wyoming Game and Fish Com'n, 845 P.2d 1040, 1044 (Wyo. 1993). The language 
of Wyo. Stat. § 31-10-101 is substantially similar to legislative enactments of 
thirty-five other states, including: Kansas, K.S.A. § 40-284 (1993); Oklahoma, 
Okla. Stat. Ann. tit. 36, § 3636 (West Cum.Supp. 1994); and Texas, Tex. Ins. 
Code Ann. art. 5.06-1 (West 1993). See 1 Alan I. Widiss, Uninsured and 
Underinsured Motorist Insurance, § 2.2 n. 1 (2nd ed. 1992) (listing other 
states).

[¶31]   In a persuasive and comprehensive 
analysis of other jurisdictions, the Supreme Court of Kansas concluded that the 
majority of states reject the position urged by State Farm that an insured must 
first obtain a determination of the fault and damages caused by an uninsured 
motorist before filing a direct action against the insurer. Winner, 505 P.2d  at 609-611 (collecting cases). Specifically, the Kansas Supreme Court 
concluded that uninsured motorist coverage was promulgated to eliminate the 
"condition precedent" of unsatisfied judgment insurance. Id. at 610. In the 
antecedent of uninsured motorist coverage, unsatisfied judgment insurance, 
indemnification was provided only when the insured showed that a claim had been 
reduced to judgment and the insured was unable to collect the judgment. 1 
Widiss, supra, § 1.9.

[¶32]   In Associated Indem. Corp. v. 
Cannon, 536 P.2d 920, 923 (Okla. 1975), the Supreme Court of Oklahoma 
determined an insured had a right to direct action against the insurer without 
first obtaining a judgment against an uninsured motorist. The holding was 
reaffirmed in Keel v. MFA Ins. Co., 553 P.2d 153, 158 (Okla. 1976). 
See also Roberts v. Mid-Continent Cas. Co., 790 P.2d 1121, 1122 (Okla. 
App. 1989). Texas courts also agree that an insured disputing a claim for 
benefits under an uninsured motorist policy has a right to bring a direct action 
against the insurer in which the fault and damages caused by the uninsured 
motorist are determined. Government Employees Ins. Co. (Geico) v. Lichte, 
792 S.W.2d 546, 548 (Tex. App. 1990).

[¶33]   Authoritative commentary also notes 
the general acceptance of the right of the insured to bring a direct action 
against the insurer to litigate a disputed claim for benefits under uninsured 
motorist coverage:

In 
a few states, whether an insured is entitled to secure indemnification under the 
uninsured motorist insurance without first bringing an action against the 
uninsured motorist continues to be raised as an issue. Unless legislation 
requires an adjudication of the tort claim against the uninsured motorist, the 
right of the insured to proceed with the uninsured motorist claim should be 
beyond dispute given the coverage terms and the historical developments that led 
to the development of this coverage.

2 
Widiss, supra, § 29.1 at 447 (footnote omitted).

[¶34]   Despite the failure of Wyo. Stat. § 
31-10-101 to expressly exclude a direct action against the insurer or require an 
action against the uninsured motorist, State Farm argues that being "legally 
entitled" to collect or recover damages requires the fault and damages caused by 
the uninsured motorist to be determined in a separate action. Again, we 
disagree.

[¶35]   Both Wyo. Stat. § 31-10-101 and the 
State Farm policy with the Shraders utilize similar language to state the right 
of an insured to recover under uninsured motorist coverage. The statute refers 
to being "legally entitled to recover damages from owners or operators of 
uninsured motor vehicles because of bodily injury, sickness or disease, 
including death resulting therefrom." The State Farm policy refers to being 
"legally entitled to collect from the owner or driver of an uninsured motor 
vehicle." 

[¶36]   This court has never interpreted 
this language, in either the statute or a similar policy; however, other 
jurisdictions have considered similar language to determine if it would restrict 
the right of an insured to institute a direct action against the insurer prior 
to a determination of the fault and damages caused by an uninsured motorist. In 
Winner, 505 P.2d  at 610, the court construed the words "legally entitled 
to recover as damages" to mean "the insured must be able to establish fault on 
the part of the uninsured motorist which gives rise to the damages and to prove 
the extent of those damages." The court in Uptegraft v. Home Ins. Co., 
662 P.2d 681, 685 (Okla. 1983) held "legally entitled to recover" to mean "that 
the insured must be able to establish fault on the part of the uninsured 
motorist which gives rise to damages and prove the extent of those damages." The 
common thread in these and other judicial constructions of the "legally 
entitled" language is that the insured is indemnified when damages are 
proximately caused by the negligence of an uninsured motorist. 1 Widiss, 
supra, § 7.2 at 247. The limitation of this language is that 
indemnification is not available under uninsured motorist coverage in the 
absence of negligence. Id.

[¶37]   The Shraders' complaint against 
State Farm alleged: (1) the existence of insurance for uninsured motorist 
coverage by State Farm; (2) the extent of damages suffered by the Shraders; and 
(3) the negligence of the uninsured motorist. This was a sufficient showing that 
the Shraders were "legally entitled to recover damages" under the language of 
Wyo. Stat. § 31-10-101 or "legally entitled to collect" under the language of 
the State Farm policy. See 1 Widiss, supra, § 7.3 at 250. Even 
prior to filing the complaint, the Shraders presented a sufficient showing that 
they were "legally entitled" to collect or recover damages. State Farm 
acknowledged the existence of insurance coverage for the Shraders and the 
negligence of the uninsured motorist. The Shraders offered a specific showing of 
damages they suffered as a result of the accident as a part of their claim for 
benefits of $24,900.00. We hold that the Shraders established that they were 
"legally entitled" to seek indemnification for the damages proximately caused by 
the negligence of the uninsured motorist.

[¶38]   State Farm argues that while it 
never disputed the existence of the coverage or the negligence of the uninsured 
motorist, it has always disputed the extent of the damages suffered by the 
Shraders. State Farm contends that the Shraders had to exhaust their options 
under the policy to establish the extent of their damages before initiating a 
direct action against State Farm. According to State Farm, the Shraders had 
three choices to determine the fault and the extent of damages caused by the 
uninsured motorist: obtaining a judgment against the uninsured motorist; 
negotiating with State Farm until an agreement was reached; or submitting to 
non-mandatory arbitration. The policy language does not support State Farm's 
position.

[¶39]   The State Farm policy with the 
Shraders includes the following relevant language in the uninsured motorist 
provision:

Deciding 
Fault and Amount

Two 
questions must be decided by agreement between the insured and 
us:

1. 
Is the insured legally entitled to collect damages from the owner 
or driver of the uninsured motor vehicle; 
and

2. 
If so, in what amount?

If 
there is no agreement, these questions shall be decided by arbitration upon 
written request of the insured. Each party shall select a 
competent and impartial arbitrator. These two shall select a third one. If 
unable to agree on the third one within 30 days either party may request a judge 
of a court of record in the county in which the arbitration is pending to select 
a third one.

The 
cost of the arbitrator and any expert witness shall be paid by the party who 
hired them. The cost of the third arbitrator and other expenses of arbitration 
shall be shared equally by both parties.

The 
arbitration shall:

1. 
take place in the county in which the insured resides unless the 
parties agree to another place; 

2. 
use state court rules governing procedure and admission of evidence; 
and

3. 
not be binding without the right of appeal unless we and the 
insured make a separate agreement to be 
bound.

(Emphasis 
in original.)

[¶40]   The language of the policy 
misinformed the Shraders of their rights. State Farm does not dispute that if 
the Shraders had desired, they could have filed a lawsuit against the uninsured 
motorist to determine fault and the amount of damages. See, e.g., 
Ramsour, 541 P.2d  at 35; Winner, 505 P.2d  at 611; and Keel, 
553 P.2d  at 158. We interpret the language of the State Farm policy as 
attempting to restrict this right.

[¶41]   In Wyoming, the Department of 
Insurance has promulgated regulations addressing uninsured motorist 
coverage:

Section 
8. Consent to Sue Clause. In no instance shall any uninsured motorists 
coverage circulated within the State of Wyoming contain any policy language 
which forbids the insured to prosecute an action against an uninsured motorist 
without the written consent of the insurer. The insurer, however, shall be 
entitled to a copy of the complaint and summons forthwith in the event the 
insured decides to initiate a lawsuit.

Wyo. 
Dept. of Insurance Reg., Chap. XXIII, § 8 (1989). The intent of this regulation 
is to protect the right of the insured to seek a determination of fault and 
damages by filing a tort action against the uninsured 
motorist.

[¶42]   The mandatory language of the State 
Farm policy declares: "Two questions must be decided by 
agreement between the insured and us * * *." (Emphasis added.) 
This language attempts to restrict the insured's right to sue the uninsured 
motorist by requiring either agreement between State Farm or arbitration to 
determine the fault and extent of damages caused by the uninsured motorist. The 
language of the policy also fails to preserve the insured's right, under Wyo. 
Stat. § 31-10-101, to file an action directly against the insurer to determine 
the fault caused by the uninsured motorist and the amount of damages suffered. 
We hold that the language of the State Farm policy as it attempts to limit the 
rights of the insured to institute action against the uninsured motorist and to 
institute action against the insurer is void as against public policy. See 
Boughton v. Farmers Ins. Exchange, 354 P.2d 1085, 1089 (Okla. 1960) (holding 
provisions of uninsured motorist policy void because policy restricted insured 
from enforcing his rights in court).

[¶43]   From our analysis, we are able to 
determine that the Shraders had several alternatives available to determine the 
fault of the uninsured motorist and extent of their damages after making a claim 
for benefits under the uninsured motorist coverage issued by State 
Farm:

1. 
Reaching an agreement on the issues of fault and damages by negotiation between 
the insured and the insurer.

2. 
Submitting the fault and damages issues to arbitration in accord with Wyo. Dept. 
of Insurance Reg., Chap. XXIII, § 9 (1989) which prohibits mandatory arbitration 
between the insured and the insurer and permits binding arbitration without the 
right of appeal only by separate agreement.

3. 
Filing a tort action against the uninsured motorist and litigating issues of 
fault and damages after providing the insurer with a copy of the complaint and 
summons. Wyo. Dept. of Insurance Reg., Chap. XXIII, § 8 
(1989).

4. 
Filing a direct action against the uninsured motorist and joining the insurer as 
a party defendant. See Ramsour, 541 P.2d  at 35.

5. 
Filing a direct action against the insurer in which issues of fault and damages 
are determined as part of the breach of contract claim. Winner, 505 P.2d  
at 611; Keel, 552 P.2d  at 158.

We 
hold the district court did not commit an error of law in permitting the 
Shraders to institute a direct action against State Farm prior to a 
determination of the liability of the uninsured motorist. 

C. 
Implied Covenant of Good Faith and Fair Dealing

[¶44]   State Farm contends that the 
district court erred as a matter of law in permitting the Shraders to state a 
cause of action for breach of the implied covenant of good faith and fair 
dealing. We do not agree.

[¶45]   The implied covenant of good faith 
and fair dealing is present in every contract:

§ 
205 Duty of Good Faith and Fair Dealing

Every 
contract imposes upon each party a duty of good faith and fair dealing in its 
performance and its enforcement.

Restatement 
(Second) of Contracts § 205 (1981). Wyoming has recognized that a breach of the 
implied covenant of good faith and fair dealing may be actionable in contract 
for compensatory damages. Arnold v. Mountain West Farm Bureau Mut. Ins. Co., 
Inc., 707 P.2d 161, 164 (Wyo. 1985). Wyoming has also acknowledged that a 
breach of the implied covenant of good faith and fair dealing which rises to the 
level of an independent tort is actionable for compensatory and punitive damages 
under proper circumstances. McCullough v. Golden Rule Ins. Co., 789 P.2d 855, 860-61 (Wyo. 1990). A recovery in tort for the breach of the duty of good 
faith and fair dealing is premised upon the existence of a special relationship 
created by the unequal bargaining power that an insurer has over an insured. 
McCullough, 789 P.2d  at 858.

[¶46]   In McCullough, 789 P.2d  at 
855, this court adopted the independent tort theory expressed in Gruenberg v. 
Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973). In 
Gruenberg, the Supreme Court of California recognized that the duty of 
good faith and fair dealing imposes an obligation "`that neither party will do 
anything which will injure the right of the other to receive the benefits of the 
agreement.'" Id. 108 Cal. Rptr.  at 484, 510 P.2d  at 1036 (quoting 
Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 328 P.2d 198, 
200 (1958)). Liability, in tort, is imposed not for a bad faith breach of 
contract, but for the failure to comply with the duty of good faith and fair 
dealing. Id. 108 Cal. Rptr.  at 485, 510 P.2d  at 1037. The duty of good faith and 
fair dealing is not a requirement mandated by the terms of the 
policy.

It 
is the obligation, deemed to be imposed by the law, under which the insurer must 
act fairly and in good faith in discharging its contractual 
responsibilities. Where in so doing, it fails to deal fairly and in good faith 
with its insured by refusing, without proper cause, to compensate its insured 
for a loss covered by the policy, such conduct may give rise to a cause of 
action in tort for breach of an implied covenant of good faith and fair 
dealing.

Id. 
(emphasis in original). The Supreme Court of California concluded that when an 
insurer unreasonably and in bad faith withholds payment of the claim for 
benefits made by its insured, the insurer is subject to liability in 
tort.

[¶47]   In McCullough, Wyoming 
adopted an objective standard of care as a measure of the required conduct of 
insurers as stated in Anderson v. Continental Ins. Co., 85 Wis.2d 675, 
271 N.W.2d 368 (1978). Under this standard, "where a claim was not fairly 
debatable, refusal to pay would be bad faith and, under appropriate 
facts, could give rise to an action for tortious refusal to honor the claim." 
Id. 271 N.W.2d  at 374 (emphasis added). A claim is "fairly debatable" 
when a reasonable insurer would have denied or delayed payment of the claim for 
benefits under the facts and circumstances. McCullough, 789 P.2d  at 860; 
Anderson, 271 N.W.2d  at 376. Therefore, to establish a breach of the duty 
of good faith and fair dealing, the insured must show: (1) the absence of any 
reasonable basis for denying a claim for benefits; and (2) the insurer's 
knowledge or reckless disregard of the lack of a reasonable basis for denying 
the claim for benefits. Darlow v. Farmers Ins. Exchange, 822 P.2d 820, 
824 (Wyo. 1991); McCullough, 789 P.2d  at 860 (quoting Anderson, 
271 N.W.2d at 376).

[¶48]   Wyoming has recognized that a 
breach of the duty of good faith and fair dealing may give rise to actions for 
independent torts of "first party" or "third party" bad faith: 

A 
cause of action for "third party" bad faith will lie when a liability insurer 
fails in bad faith to settle a third-party claim within policy limits against 
its insured. Western Casualty and Surety Company v. Fowler, 390 P.2d 602 
(Wyo. 1964). Bad faith in this context would occur if an excess judgment were 
obtained under circumstances when the insurer failed "to exercise intelligence, 
good faith, and honest and conscientious fidelity to the common interest of the 
[insured] as well as of the [insurer] and [to] give at least equal consideration 
to the interest of the insured." Id. at 606. A cause of action for "first 
party" bad faith will lie when an insurer in bad faith refuses to pay its 
insured's direct claim for policy benefits. McCullough v. Golden Rule 
Insurance Co., 789 P.2d 855 (Wyo. 1990). Bad faith in this context would 
occur if an insurer knowingly or recklessly denied a first-party claim for 
insurance benefits without having a reasonable basis for doing so. Id. at 860. 
An action for "first party" bad faith will also lie when an insurer fails to 
inform its insured of first-party policy benefits where the insured brings a 
third-party liability claim against another of the insurer's insureds and "it is 
apparent to the insurer that (1) there is a strong likelihood that its insured 
only can be compensated fully under her own policy and (2) the insured has no 
basis to believe that [she] must rely upon [her] policy for coverage." Darlow 
v. Farmers Insurance Exchange, 822 P.2d 820, 828 (Wyo. 
1991).

Herrig 
v. Herrig, 
844 P.2d 487, 490-91 (Wyo. 1992).

[¶49]   State Farm broadly contends that it 
owed no duty of good faith and fair dealing to the Shraders as a matter of law. 
State Farm reaches this position by arguing that a claim for uninsured motorist 
benefits should be treated as a third party claim until the liability of the 
uninsured motorist is determined. This is not a correct statement of the law in 
Wyoming.

[¶50]   Uninsured motorist insurance 
provides first party coverage. Uptegraft, 662 P.2d  at 684; 12A Anderson, 
supra, § 45:624 at 35. The insured involved in an accident with an 
uninsured motorist makes a direct claim for benefits to the insurer. This type 
of claim conforms with the traditional definition of a first party claim which 
is that the insured personally files a claim for benefits against the insurer 
under the policy. Herrig, 844 P.2d at 490-91; White v. Unigard Mut. 
Ins. Co., 112 Idaho 94, 730 P.2d 1014, 1016 (1986). Strong public policy 
arguments under Wyo. Stat. § 31-10-101 support our 
position:

Unlike 
any other type of first party insurance, the uninsured motorist coverage is the 
subject of a legislative mandate in forty-nine states. The various state 
insurance laws - that establish the requirements for uninsured motorist 
insurance - are clearly intended to benefit all insureds, and the attainment of 
this goal certainly encompasses requiring the fair and equitable settlement of 
uninsured motorist insurance claims. Unreasonable conduct by an insurer 
frustrates the public policy embodied in the applicable state insurance 
legislation, as well as breaching the implied-in-law duty to deal fairly and in 
good faith. Thus, the standard by which the conduct of insurers is judged 
arguably should be higher for uninsured motorist claims than it is for first 
party insurance coverages that are not mandated by statute. In other words, 
given the fact that uninsured motorist insurance is the subject of statutory 
requirements in forty-nine states, a persuasive argument can be made for the 
proposition that the duty of an insurer to act in good faith and fairly should 
be of the highest order in regard to claims arising under this coverage. The 
public interest in this coverage means that insurers should be obligated to 
exercise the greatest care and highest level of good faith and fair 
dealing.

2 
Widiss, supra, § 20.4 at 161-62 (footnote omitted). Accord Escalante 
v. Sentry Ins., 49 Wn. App. 375, 743 P.2d 832, 838 n. 7 (1987) (quoting 2 
Widiss, supra, § 20.3).

[¶51]   State Farm relies upon two Alabama 
cases to illustrate the distinction in coverage they contend is present in 
uninsured motorist coverage. In Quick v. State Farm Mut. Auto. Ins. Co., 
429 So. 2d 1033 (Ala. 1983), the court found there was an inherent difference 
between uninsured motorist coverage and first party insurance. "The provisions 
of uninsured motorist coverage reorder the normal postures between an insured 
and an insurer. Thus, until the liability of the uninsured motorist has been 
determined, the insurer and insured occupy an adversary position toward each 
other." Id. at 1035. In LeFevre v. Westberry, 590 So. 2d 154, 159 
(Ala. 1991), the court determined that uninsured motorist coverage in Alabama is 
a "hybrid" blend of features of both first party and third party 
coverage.

[¶52]   We decline to adopt the "hybrid" 
view of uninsured motorist coverage urged by State Farm. We agree with the view 
expressed by the Supreme Court of Idaho in Sullivan v. Allstate Ins. Co., 
111 Idaho 304, 723 P.2d 848, 850 (1986). After noting the various arguments 
about the relationship of the parties under uninsured coverage, the Idaho court 
stated it did not agree with courts such as in Quick that consider the 
legal relationship between the insured and the insurer to be adversarial until 
the liability of the uninsured motorist is determined.

[¶53]   The premise of the adversarial 
relationship argument is that the insurer occupies a position of "substituted 
liability" for the uninsured motorist. While this is true with regard to the 
ability of the insurer to assert the defenses that would be available to the 
uninsured motorist, including the comparative negligence of the insured, 
Winner, 505 P.2d  at 610, "substituted liability" does not obviate the 
insurer's duty of good faith and fair dealing. In Craft v. Economy Fire & 
Cas. Co., 572 F.2d 565, 568 (7th Cir. 1978), Judge Harlington Wood, Jr. 
considered the "substituted liability" contentions of an insurer applying 
Indiana law:

We 
conclude that there is nothing inherent in the nature of uninsured motorist 
protection that is inconsistent with a requirement that the insurance company 
attempt in good faith to reach agreement with its insured and that any attempt 
to force the insured to settle for less than his claim be predicated on a bona 
fide dispute as to the amount of liability.

[¶54]   We hold an insurer providing 
uninsured motorist coverage under Wyo. Stat. § 31-10-101 owes a duty of good 
faith and fair dealing to the insured at all times. In Darlow, 822 P.2d  
at 827, we cited with approval the decision of the Supreme Court of Tennessee in 
MFA Mut. Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn. 1978). In MFA Mut. 
Ins. Co., the court held that "an insurer is under the duty of dealing with 
its insured `fairly and in good faith' in settling a claim by its insured under 
the uninsured motorist provision of an automobile liability insurance contract." 
Id. at 721. The MFA Mut. Ins. Co. court correctly assessed the 
scope of the duty of good faith and fair dealing and held that an insurer as a 
part of its duty of good faith is required to inform the insureds of the extent 
of the coverage afforded them under their policy before negotiating a 
settlement, especially when it is apparent that the insured does not know the 
extent of available coverage. Id. at 722. The court found that the 
failure of the insurer to inform the insureds of their right to compensation for 
past or future pain and suffering, future loss of earning capacity, or past or 
future loss of enjoyment as a result of the permanent injuries the insureds 
suffered had breached the duty of good faith and fair dealing. Id. In 
Craft, the court held that an insurer who attempts to force the insured 
to settle an uninsured motorist claim for less than the amount claimed, without 
a reasonable basis to deny the claim, breaches its duty of good faith and fair 
dealing. Craft, 572 F.2d  at 571. We join these jurisdictions in accepting 
the proposition that the duty of good faith and fair dealing acknowledges the 
unequal bargaining power and reasonable expectations of the insured seeking 
indemnification under terms of uninsured motorist 
coverage.

[¶55]   State Farm also contends that the 
Shraders' cause of action for breach of the implied covenant of good faith and 
fair dealing was barred as a matter of law because the extent of damages 
remained fairly debatable until the liability of the uninsured motorist was 
determined. The primary support State Farm cites for this position is Wilson 
v. State Farm Mut. Auto. Ins. Co., 795 F. Supp. 1077 (D.Wyo. 1992). We do 
not read the holding in Wilson as broadly as State Farm urges. 

[¶56]   In Wilson, the United States 
District Court for the District of Wyoming held that the insured had failed to 
prove the extent of the damages he suffered; therefore, the amount of his claim 
for benefits remained "fairly debatable." Id. at 1081. As a result, the 
court granted a partial summary judgment in favor of the insurer on a claim for 
breach of the duty of good faith and fair dealing. Id. The insured was 
injured in an accident caused by an uninsured motorist. The insured refused a 
settlement offer and demanded the policy limits from the insurer. However, the 
insured failed to determine that his injuries were in fact worth the policy 
limits of all available coverage. Id. Also, evidence of loss of income 
was disputed by federal income tax returns which showed a substantial 
discrepancy between the claimed loss and actual income of the insured. 
Id.

[¶57]   The reading that State Farm gives 
to Wilson, and similar cases, would make any claim for benefits "fairly 
debatable," as a matter of law, until the insured secured a judgment against the 
uninsured motorist, obtained an agreement with the insurer on liability issues, 
or submitted to arbitration. The public policy of Wyo. Stat. § 31-10-101 and the 
objective view "fairly debatable" standard do not comprehend this degree of 
certainty.

[¶58]   The Shraders presented State Farm 
with a specific and detailed accounting of damages they had suffered as a part 
of their claim for benefits of $24,900.00. The Shraders' unchallenged proof of 
damages exceeded the amount claimed by a substantial amount. Therefore, the 
Shraders had satisfied their initial burden of proving the absence of a 
reasonable basis for the insurer to deny the claim for benefits. Darlow, 
822 P.2d  at 824. If State Farm disputed the amount of this claim, it had a duty 
to inform the Shraders of the reasonable basis it asserted for denying the 
claim, such as specific facts it contended were erroneous or inflated. In other 
words, to establish that the claim remained "fairly debatable," as a matter of 
law, the burden of persuasion shifted to State Farm to show that a bona fide 
dispute remained. Without a sufficient showing, such as that demonstrated in 
Wilson, the jury was entitled to receive evidence on the cause of action 
for breach of the implied covenant of good faith and fair 
dealing.

[¶59]   State Farm maintains that the 
district court erred in permitting the Shraders to argue that a failure to 
investigate or evaluate a claim was sufficient to establish a breach of the duty 
of good faith and fair dealing. In presenting this argument, State Farm relies 
upon unpersuasive authority from other jurisdictions and ignores the mandatory 
authority of this court in Hatch v. State Farm Fire and Cas. Co., 842 P.2d 1089 (Wyo. 1992) and Darlow, 822 P.2d  at 826.

[¶60]   In Darlow, we accepted the 
view that the subsequent payment of a denied or unreasonably delayed claim does 
not absolve an insurer from compliance with the duty of good faith and fair 
dealing. Darlow, 822 P.2d  at 826. Hatch used this framework to 
recognize that even if a claim for benefits is fairly debatable, the insurer may 
breach the duty of good faith and fair dealing by the manner in which it 
investigates, handles or denies a claim. Hatch, 842 P.2d  at 1099. The 
conclusion drawn from both Darlow and Hatch is that while an 
insured may state causes of action for breach of contract and breach of the duty 
of good faith and fair dealing, the insured does not need to prevail on the 
contract claim to prevail on the claim for breach of the duty of good faith and 
fair dealing. Hatch, 842 P.2d  at 1099 (quoting Deese v. State Farm 
Mut. Auto. Ins. Co., 172 Ariz. 504, 838 P.2d 1265, 1270 
(1992)).

[¶61]   We hold the district court did not 
commit an error of law in permitting the Shraders to state a cause of action for 
breach of the duty of good faith and fair dealing.

D. 
Motion to Bifurcate the Proceedings

[¶62]   State Farm argues that if there 
were valid causes of action for breach of contract and breach of the implied 
covenant of good faith and fair dealing, those causes of action and other issues 
should have been tried separately from the portion of the trial dealing with the 
liability of the uninsured motorist. The argument State Farm presented at the 
district court in favor of bifurcated proceedings contained several components. 
Many of those issues have already been addressed; therefore, we need only 
address issues related to the introduction of evidence of insurance and evidence 
of settlement offers.

[¶63]   In certain circumstances, the 
district court may order a bifurcated trial:

(b) 
Separate trials. - The court, in furtherance of convenience or to avoid 
prejudice, or when separate trials will be conducive to expedition and economy, 
may order a separate trial of any claim, cross-claim, counterclaim, or 
third-party claim, or of any separate issue or of any number of claims, 
cross-claims, counterclaims, third-party claims, or 
issues.

W.R.C.P. 
42(b). The decision to order separate trials is within the discretion of the 
district court and will not be disturbed on appeal unless an abuse of discretion 
is found. Carlson v. Carlson, 836 P.2d 297, 305 (Wyo. 1992); Tremblay 
v. Reid, 700 P.2d 391, 398 (Wyo. 1985). On appeal, this court considers an 
abuse of discretion to have occurred when a court exceeds the bounds of reason 
or commits an error of law. Combs v. Sherry-Combs, 865 P.2d 50, 55 (Wyo. 
1993); Martinez v. State, 611 P.2d 831, 838 (Wyo. 
1980).

[¶64]   State Farm asserts that evidence of 
insurance was not admissible in the portion of the trial in which the liability 
of the uninsured motorist was determined. State Farm contends it suffered 
prejudice by the introduction of evidence of insurance because of the automatic 
bias of a jury against insurers. We disagree.

[¶65]   Our rules of evidence prohibit the 
introduction of evidence to the jury of liability insurance in certain 
circumstances:

Evidence 
that a person was or was not insured against liability is not admissible upon 
the issue whether he acted negligently or otherwise wrongfully. This rule does 
not require the exclusion of evidence of insurance against liability when 
offered for another purpose, such as proof of agency, ownership, or control, or 
bias or prejudice of a witness.

W.R.E. 
411. The purpose of this rule is to prevent the introduction of evidence of 
insurance in tort actions premised on negligence. Carlson v. BMW Indus. 
Service, Inc., 744 P.2d 1383, 1388 (Wyo. 1987).

[¶66]   We hold W.R.E. 411 does not 
prohibit the introduction of evidence of insurance in a direct action on a 
disputed claim for uninsured motorist benefits brought by the insured against 
the insurer. State Farm misconceives the determination of the uninsured 
motorist's liability to be a negligence action. The substance of the Shraders' 
complaint against State Farm is a coverage dispute under terms of the State Farm 
policy. Considered from this perspective, the determination of the liability of 
the uninsured motorist is but an element of the prima facie case for breach of 
contract. The Shraders had to establish they were "legally entitled" to collect 
or recover damages to seek indemnification under the contract. The terms of the 
insurance coverage are material to the determination of the right to 
indemnification. Winner, 505 P.2d  at 612; Cannon, 536 P.2d  at 
922-23.

[¶67]   Other courts have permitted 
evidence of insurance to be introduced when the insured has stated a direct 
cause of action for negligence against the uninsured motorist and a cause of 
action against the insurer for breach of contract in the same trial. The court 
in Wheeler v. Creekmore, 469 S.W.2d 559, 563 (Ky. 1971) 
observed:

It 
is our opinion that the considerations which have prompted the rule against 
mention of ordinary liability insurance in an automobile negligence case must 
yield in uninsured-motorist cases to the procedural desirability of letting the 
jury know who are the parties to the litigation where the uninsured motorist 
carrier elects to participate actively in the trial.

In 
Stanfield v. Kroll, 484 S.W.2d 603, 608 (Tex.Civ.App. 1972), the court 
ruled that evidence of insurance did not require reversal of a case in which all 
parties were joined including the uninsured motorist and the insurer. The court 
said that facts concerning liability insurance coverage were relevant to a 
material issue and admissible.

[¶68]   We hold that the introduction of 
evidence of insurance did not result in prejudice to State Farm. The terms of 
coverage issues were not distinct and independent issues which would permit 
bifurcation under W.R.C.P. 42(b). Carlson, 836 P.2d  at 
305.

[¶69]   Next, State Farm maintains the 
introduction of evidence of settlement offers required separate trials on the 
cause of action for breach of contract and the cause of action for breach of the 
implied covenant of good faith and fair dealing. We agree.

[¶70]   W.R.E. 408 
provides:

Evidence 
of (1) furnishing or offering or promising to furnish, or (2) accepting or 
offering or promising to accept, a valuable consideration in compromising or 
attempting to compromise a claim which was disputed as to either validity or 
amount, is not admissible to prove liability for or invalidity of the claim or 
its amount. Evidence of conduct or statements made in compromise negotiations is 
likewise not admissible. This rule does not require exclusion when the evidence 
is offered for another purpose, such as proving bias or prejudice of a witness, 
negativing a contention of undue delay, or proving an effort to obstruct a 
criminal investigation or prosecution.

The 
purpose of W.R.E. 408 is to encourage the settlement, outside the courthouse, of 
disputes. Hursh Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 36 (Wyo. 
1983). The reason evidence of settlement negotiations is irrelevant in most 
proceedings is that the offer of settlement may be motivated by a desire to 
avoid litigation time and expenses, rather than by any concession of weakness. 
Id.

[¶71]   State Farm admits that the evidence 
of settlement negotiations was relevant to the cause of action for breach of the 
implied covenant of good faith and fair dealing to refute claims of undue delay. 
However, State Farm argues that it suffered prejudice from the introduction of 
evidence of settlement negotiations during the breach of contract portion of the 
trial when it was determined that the Shraders were "legally entitled" to 
indemnification under the State Farm policy. State Farm asserts that the jury's 
verdict on the breach of contract claim was impermissibly influenced by the 
settlement offers. The Shraders respond by broadly contending that bifurcation 
in this case would have resulted in a special procedural advantage for State 
Farm and would have produced a hardship for the Shraders by requiring additional 
proceedings.

[¶72]   In State Farm Mut. Auto. Ins. 
Co. v. Wilborn, 835 S.W.2d 260, 261 (Tex. App. 1992), the court considered 
whether evidence of settlement offers required separate trials for causes of 
action of breach of contract and breach of the implied covenant of good faith 
and fair dealing. An insured sued State Farm to recover a disputed claim for 
uninsured motorist benefits. State Farm argued that the introduction of evidence 
of settlement offers during the breach of contract phase of the trial would be 
highly prejudicial. However, State Farm admitted that the introduction of 
evidence of settlement offers would be relevant and admissible during the 
portion of the trial dealing with breach of the implied covenant. The court 
agreed with State Farm and held that the introduction of evidence of settlement 
offers would be prejudicial to a defense of the breach of contract claim. 
Id. at 262. Separate trials were ordered. Id. Accord U.S. Fire 
Ins. Co. v. Millard, 847 S.W.2d 668, 673 (Tex. App. 
1993).

[¶73]   Separate trials are not 
automatically required when an insured brings an action against an insurer for 
breach of contract and breach of the implied covenant of good faith and fair 
dealing. Allstate Insurance Co. v. Hunter, 865 S.W.2d 189, 193 (Tex. App. 
1993). Prejudice is only found when the trial of all causes of action unfairly 
forces the insurer "to choose between 1) insisting on its right to exclude 
evidence of settlement negotiations and coverage determinations (thereby losing 
the advantage of showing that it was attempting to be reasonable in defense of 
the bad faith claims) and 2) putting on such evidence and risking a prejudicial 
inference that it has admitted liability on the contract action." Id. at 
193-94. The Hunter court determined that severance was not required in 
that instance because the insurer had failed to meet its burden of alleging 
specific settlement negotiations or offers which would result in prejudice. 
Id. at 194. The Hunter court relied upon the holding of the court 
in Progressive County Mut. Ins. Co. v. Parks, 856 S.W.2d 776, 779 (Tex. 
App. 1993), which ruled that separate trials were not required in an action 
where there was no evidence of settlement offers.

[¶74]   There is no dispute that State Farm 
presented the Shraders with several offers to settle their claim for benefits. 
Under W.R.E. 408, State Farm had a right to exclude evidence of the settlement 
offers to avoid possible prejudice from the seeming admission that the Shraders 
were "legally entitled" to at least some indemnification under the terms of the 
State Farm policy. This is the essence of the breach of contract claim. On the 
other hand, State Farm had a right to introduce evidence of settlement offers 
during the trial to refute the claims of unreasonable delay inherent in the 
cause of action for breach of the implied covenant of good faith and fair 
dealing. W.R.E. 408. The introduction of evidence of settlement offers in a 
single trial, therefore, was sufficiently prejudicial to State Farm to require 
bifurcation under W.R.C.P. 42(b). We hold, under Wyoming law, a cause of action 
for breach of a contract of insurance and a cause of action for breach of the 
implied covenant of good faith and fair dealing sounding in tort are 
sufficiently distinct and independent to permit bifurcation of the proceedings 
when the admission of evidence of settlement negotiations would be prejudicial. 
Carlson, 836 P.2d  at 305; W.R.E. 408. See Hunter, 865 S.W.2d  at 
194 and Wilborn, 835 S.W.2d  at 262.

[¶75]   We do not agree with the Shraders' 
contention that bifurcation results in a special procedural advantage for the 
insurer. The exclusion of evidence of settlement negotiations also operates to 
prevent the jury from making an impermissible inference that the amount of 
damages claimed by the insured for breach of contract is excessive or that the 
claim for benefits was excessive because the insurer did not offer a comparable 
amount. W.R.E. 408. We also do not agree that separate trials on the cause of 
action for breach of contract and the cause of action for breach of the implied 
covenant of good faith and fair dealing create a hardship. While some insurers 
have not objected to a single trial on all issues, see Arnold, 707 P.2d  
at 163-64, separate trials heard by the same jury will not create an undue 
hardship. Carlson, 836 P.2d  at 306.

[¶76]   We hold the district court 
committed an error of law and, therefore, abused its discretion in failing to 
order bifurcation of the cause of action for breach of contract and the cause of 
action for breach of the implied covenant of good faith and fair dealing. As we 
noted in Carlson, fairness, logic and case law support a decision to 
remand the entire case for retrial due to the failure to grant separate trials. 
Carlson, 836 P.2d  at 306-07. To facilitate the retrial, we find it 
necessary to address some of the remaining claims of error. Rhoades v. K-Mart 
Corp., 863 P.2d 626, 631 (Wyo. 1993); Danculovich v. Brown, 593 P.2d 187, 194 (Wyo. 1979).

E. 
Instructions To The Jury

[¶77]   State Farm challenges the content 
of a number of instructions to the jury. The primary contentions are that the 
challenged instructions contain errors of substantive law. We agree that one 
instruction was prejudicial.

[¶78]   In reviewing challenges to jury 
instructions, we are conducting both a procedural review and a substantive 
review. The procedural component is stated by W.R.C.P. 51 which requires, in 
pertinent part: "No party may assign as error the giving or the failure to give 
an instruction unless that party objects thereto before the jury retires to 
consider its verdict, stating distinctly the matter objected to and the grounds 
of the objection." Therefore, on appeal, this court considers a claim of error 
in jury instruction only where a proper objection is raised. Triton Coal Co., 
Inc. v. Mobil Coal Producing, Inc., 800 P.2d 505, 510 (Wyo. 1990) 
(collecting cases). When a party fails to properly object, our review is limited 
to the application of the plain error doctrine. Id. at 511. The purpose 
of requiring an objection under W.R.C.P. 51 is to inform the district court of 
the nature of the contended error and the specific grounds of objection so that 
the district court may exercise judicial discretion in reconsidering the 
instruction to avoid error. Davis v. Consolidated Oil & Gas, Inc., 
802 P.2d 840, 843 (Wyo. 1990). 

[¶79]   Errors of substantive law contained 
in the language of an instruction require reversal if the error is prejudicial. 
Bigley v. Craven, 769 P.2d 892, 895 (Wyo. 1989) (quoting Cervelli v. 
Graves, 661 P.2d 1032, 1036 (Wyo. 1983)). In reviewing the content of a 
challenged jury instruction, the charge is considered as a whole. Kemper 
Architects, P.C. v. McFall, Konkel & Kimball Consulting Engineers, Inc., 
843 P.2d 1178, 1182 (Wyo. 1992). To measure the degree of prejudice, jury 
instructions are viewed in the light of the entire trial, including the 
allegations of the complaint, conflict in the evidence on critical issues and 
the arguments of counsel. City of Cheyenne v. Simpson, 787 P.2d 580, 
581-82 (Wyo. 1990) (quoting Condict v. Whithead, Zunker, Gage, Davidson & 
Shotwell, P.C., 743 P.2d 880, 886 (Wyo. 1987)). The goal of our review is to 
determine if the charge presents a comprehensive, balanced and fundamentally 
accurate statement of the governing law to the jury. Kemper Architects, 
P.C., 843 P.2d  at 1182; Sims v. General Motors Corp., 751 P.2d 357, 
365 (Wyo. 1988) (quoting Norman v. State, 747 P.2d 520, 523 (Wyo. 1987)). 
The charge is deemed adequate if it is not likely to confuse or mislead the 
jury. Bigley, 769 P.2d  at 895. "The fact that an instruction may have 
been more precisely drafted or drafted in a way more favorable to a party does 
not warrant reversal for a new trial." Triton Coal Co., Inc., 800 P.2d  at 
512.

[¶80]   State Farm objected to the giving 
of Instruction No. 23 because the instruction misinformed the jury about the 
nature of the relationship between the Shraders and State Farm. Instruction No. 
23 stated:

In 
the interest of the public, the law declares that there are certain classes of 
contracts where a duty of good faith and fair dealing is imposed in addition to 
any duties stated in the agreement. The public service nature of the insurance 
business and the unequal bargaining relationship between insurer and insured 
make the first party insurance contract an agreement where this duty of good 
faith and fair dealing is imposed.

The 
obligations of good faith and fair dealing encompass qualities of decency and 
humanity inherent in the responsibilities of a fiduciary. Insurers hold 
themselves out as fiduciaries, that is, as entities having a duty to act 
primarily for the benefit of those they undertake to serve. 
With that public trust must go appropriate private 
responsibility.

(Emphasis 
added.) State Farm asserts that the giving of Instruction No. 23 created 
prejudicial error by stating State Farm had a fiduciary relationship to the 
Shraders.

[¶81]   The Shraders argue that the 
language of Instruction No. 24, when read together with Instruction No. 23, 
"very clearly" expressed the exact relationship between insured and insurer. 
Instruction No. 24 stated:

There 
is implied within every insurance policy a duty of good faith and fair dealing. 
While this duty is fiduciary in nature, it does not create a fiduciary 
relationship. In the insurance context, the implied covenant of good faith and 
fair dealing requires that each party is prevented from interfering with the 
other's right to benefit from the contract. The insurer is not required to place 
the insured's interest above its own as would be the case where * * * the 
insurer were a fiduciary.

The 
Shraders read Instructions No. 23 and 24 as stating that State Farm did not have 
a fiduciary relationship to the Shraders, but rather had some duties which are 
fiduciary in nature or like a fiduciary.

[¶82]   A duty that is "fiduciary" in 
nature arises when the insurer exercises an element of control over the 
insured's litigation. See Western Casualty and Surety Co. v. Fowler, 390 P.2d 602, 606 (Wyo. 1964). The court in Craft, 572 F.2d  at 569 properly 
summarized:

Under 
third party liability coverage, when the insured is sued by a third party, the 
insurance company takes over the defense of the suit and the insured cannot 
settle the matter without the permission of the insurer. It is this control of 
the litigation by the insurer coupled with differing levels of exposure to 
economic loss which gives rise to the "fiduciary" nature of the insurer's duty. 
See Crisci v. Security Co. of New Haven, Conn., 66 Cal. 2d 425, 58 Cal. Rptr. 13, 426 P.2d 173 (1967). In the uninsured motorist situation there is 
no element of "control" of the insured's side of the litigation by the insurance 
company which would give rise to a "fiduciary" duty. It does not necessarily 
follow that the insurer is completely free of any obligation of good faith and 
fair dealing to its insured, since the latter duty is based on the reasonable 
expectations of the insured and the unequal bargaining positions of the 
contractants, rather than the insurance company's "control" of the litigation. 
See Richardson v. Employers Liability Assurance Corp., 25 Cal. App. 3d 232, 
102 Cal. Rptr. 547 (1972).

Accord 
Braesch v. Union Ins. Co., 
237 Neb. 44, 464 N.W.2d 769, 772-73 (1991) and MFA Mut. Ins. Co., 574 S.W.2d  at 721.

[¶83]   We hold Instruction No. 23 misled 
the jury and resulted in prejudicial error. The language of Instruction No. 23 
states that State Farm had a "fiduciary" duty to the Shraders. This is an 
inaccurate statement of the law. State Farm did have a duty of good faith and 
fair dealing to the Shraders, but not a "fiduciary" duty. Craft, 572 F.2d  
at 569; MFA Mut. Ins. Co., 574 S.W.2d  at 720-21.

[¶84]   State Farm also objected to 
Instruction No. 31, which stated:

If 
you find for the Plaintiffs that the Defendant has breached its duty of good 
faith and fair dealing, then you should award such sum as you believe will 
fairly and justly compensate the Plaintiffs for the damages you believe they 
sustained as a result of the breach of duty by the 
Defendant.

In 
determining the Plaintiffs' damages, you should consider any of the following 
elements for each Plaintiff which you find resulted from the 
breach:

a. 
Emotional distress or mental anguish caused by the breach.

b. 
Loss of enjoyment of life resulting from the breach. This should not duplicate 
any other element of damages.

c. 
Loss of earnings caused by the breach.

State 
Farm argues that only economic damages, such as loss of earnings, should be 
recoverable in tort for a breach of the implied covenant of good faith and fair 
dealing. This is not a correct statement of the law in 
Wyoming.

[¶85]   In McCullough, 789 P.2d  at 
861, we acknowledged that recovery of compensatory damages in tort was permitted 
for the breach of the duty of good faith and fair dealing. Damages in tort 
"`provide necessary compensation for insureds and incentive for insurers to 
settle valid claims.'" Id. at 859 (quoting White, 730 P.2d at 
1018). The proper measure of compensatory damages is "the amount which will 
compensate a claimant for all detriment proximately caused by the 
tortfeasor's breach of duty." Atlas Const. Co. v. Slater, 746 P.2d 352, 
359 (Wyo. 1987) (emphasis in original). The scope of damages includes all the 
direct injury suffered "`whether it could have been anticipated or 
not.'" White, 730 P.2d  at 1018 (quoting Crisci v. Security 
Ins. Co. of New Haven, Conn., 66 Cal. 2d 425, 58 Cal. Rptr. 13, 18, 426 P.2d 173, 178 (1967)) (emphasis in original). The Restatement (Second) of Torts § 903 
(1979) defines compensatory damages as "the damages awarded to a person as 
compensation, indemnity or restitution for harm sustained by him." Compensatory 
damages include those damages for harm to pecuniary interests and damages 
sustained when a tort causes bodily harm, emotional distress, humiliation, and 
fear and anxiety. Restatement (Second) of Torts, supra, at §§ 903-905. 
The position State Farm urges would unfairly restrict the recovery of 
compensatory damages by an injured insured.

[¶86]   We hold the scope of available 
compensatory damages for a breach of the duty of good faith and fair dealing 
includes damages for harm to pecuniary interests and emotional distress. 
Crisci, 58 Cal. Rptr.  at 19, 426 P.2d  at 179. There is a limitation, 
however, upon the recovery of damages for emotional distress for a breach of 
this duty. Gruenberg, 108 Cal. Rptr.  at 489, 510 P.2d  at 1041; 
Anderson, 271 N.W.2d  at 378. We agree with the court in Gruenberg, 
that to recover damages for emotional distress, the insured must allege that as 
a result of the breach of the duty of good faith and fair dealing, the insured 
has suffered substantial other damages, such as economic loss, in addition to 
the emotional distress. Gruenberg, 108 Cal. Rptr.  at 489, 510 P.2d  at 
1041. See Restatement (Second) of Torts, supra, at § 905 cmt. c. 
The economic losses may include loss of earnings, inability to pay creditors, 
loss of business, costs of litigation brought against the insured as a result of 
the breach and medical expenses. Gruenberg, 108 Cal. Rptr.  at 489-90, 510 P.2d  at 1041-42. This limitation is imposed to prevent fictitious claims for 
emotional distress and preserve judicial resources. Crisci, 58 Cal. Rptr. 
at 19, 426 P.2d  at 179.

[¶87]   The Shraders alleged substantial 
damages for loss of earnings as a part of their cause of action for breach of 
the duty of good faith and fair dealing. Therefore, the jury was entitled to 
receive evidence of damages for emotional distress. We do not find prejudicial 
error in the giving of Instruction No. 31.

[¶88]   We have considered the remaining 
issues regarding jury instructions and find no prejudicial error. We also find 
no abuse of discretion in submitting the special verdict form to the jury. 
W.R.C.P. 49.

F. 
Attorney's Fees

[¶89]   State Farm disputes the right of 
the Shraders to recover attorney's fees for breach of the statutory duties 
stated in Wyo. Stat. § 26-15-124. State Farm broadly contends that the insured 
seeking to recover on a claim for benefits under uninsured motorist coverage 
should be treated as a third party claimant for purposes of this provision. We 
do not read Wyo. Stat. § 26-15-124 in such a restrictive 
manner.

[¶90]   The legislature, in adopting Wyo. 
Stat. § 26-15-124, has chosen to provide a statutory means of protecting an 
insured who has suffered a loss from annoying and expensive litigation. State 
Sur. Co. v. Lamb Const. Co., 625 P.2d 184, 188 (Wyo. 1981) (quoting 
Schweigert v. Beneficial Standard Life Ins. Co., 204 Or. 294, 282 P.2d 621, 
626 (1955)). Wyo. Stat. § 26-15-124 provides, in pertinent 
part:

(a) 
Claims for benefits under a life, accident or health insurance policy shall be 
rejected or accepted and paid by the insurer or its agent designated to receive 
the claims within forty-five (45) days after receipt of the proofs of loss and 
supporting evidence. Exceptions to the time of forty-five (45) days shall be 
made for accident and health insurance claims if there is any question as to the 
validity or the amount of the claim and the question is referred to the Wyoming 
state medical peer review committee for adjudication.

* 
* * * * *

(c) 
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.

The 
purpose of this statute is to encourage the prompt settlement of justifiable 
claims. Herrig, 844 P.2d  at 495. See Caroll J. Miller, Annotation, 
What Constitutes Bad Faith On Part of Insurer Rendering It Liable For 
Statutory Penalty Imposed for Bad Faith In Failure to Pay, Or Delay In Paying, 
Insured's Claims, 33 A.L.R.4th 579 (1984 & Supp. 1994) (discussing 
similar statutory provisions in other states). The statute permits the recovery 
of attorney's fees and interest as a form of compensatory damages in contract 
when an insurer commits a breach of the parties' agreement by unreasonably or 
without cause refusing to pay the full amount of a covered loss. Herrig, 
844 P.2d  at 495; State Sur. Co., 625 P.2d  at 188. Wyo. Stat. § 26-15-124 
does not provide the same scope of remedies that compensatory damages in tort 
permit for a breach of the duty of good faith and fair dealing. 
McCullough, 789 P.2d  at 860.

[¶91]   State Farm relies upon our holding 
in Herrig to argue that attorney's fees should not have been recoverable 
until the liability of the uninsured motorist was determined by litigation or 
settlement. In Herrig, third party claimants brought an action directly 
against the insured's automobile insurer seeking attorney's fees and other 
damages. We held that a court may award a third party claimant attorney's fees 
under Wyo. Stat. § 26-15-124(c) only under limited circumstances 
when:

(1) 
the third-party claimant has reduced his liability claim against an insured to 
judgment or has reached a settlement agreement with the insured and insurer; (2) 
the insurer subsequently has refused to pay the judgment or the settlement 
amount to the extent covered by the policy; and (3) the refusal to pay has been 
determined to be unreasonable or without cause in an action to collect on the 
judgment or to enforce the settlement agreement.

Herrig, 
844 P.2d  at 495 (footnote omitted). The holding of Herrig, however, is 
not applicable to the Shraders' claim for uninsured motorist 
benefits.

[¶92]   Uninsured motorist coverage, as we 
have determined, is first party insurance. As a matter of public policy, the 
insured, paying for the uninsured motorist coverage mandated by Wyo. Stat. § 
31-10-101 is entitled to expect prompt payment of justifiable claims resulting 
from an accident as required by Wyo. Stat. § 26-15-124(a). If the insurer 
questions the validity of a claim for uninsured motorist benefits or the amount 
of damages sought, the insurer is permitted to reject the claim. 
Id.

[¶93]   The Shraders submitted a claim for 
benefits as the insureds of State Farm. They were not third party claimants. 
State Farm admits that during the months following the Shraders' claim, State 
Farm "never denied coverage or refused to pay any claim." Instead, State Farm 
contends the parties could not settle on the amount of the damages suffered by 
the Shraders. Under Wyo. Stat. § 26-15-124(a), the statutory period for the 
payment of first party insurance benefits payments began when the insurer 
received proof of loss and the supporting evidence. Darlow, 822 P.2d  at 
824. The jury was entitled to receive evidence of the Shraders' submission and 
demand for payment to determine if State Farm's refusal to pay was "unreasonable 
or without cause."

[¶94]   In Arnold, 707 P.2d  at 
164-65, this court determined that an insured seeking attorney's fees under Wyo. 
Stat. § 26-15-124(c) could recover if the refusal to pay a claim for uninsured 
motorist benefits was unreasonable or without cause. We reaffirm that attorney's 
fees and interest may be recoverable under Wyo. Stat. § 26-15-124(c) when an 
insurer unreasonably or without cause refuses to pay a justifiable claim for 
uninsured motorist benefits.

[¶95]   State Farm also contends that the 
amount of attorney's fees awarded by the district court was erroneous because it 
exceeded the amount the Shraders agreed to pay in a contingent fee agreement. We 
need not address this argument. Because all issues of this case are being 
remanded for a retrial, the district court will be free to apply its discretion 
to any award of attorney's fees under Wyo. Stat. § 26-15-124(c), should the 
Shraders again prevail. The existence of a contingent fee agreement is merely 
one of the factors which may be considered to assess the reasonableness of any 
award under the lodestar test adopted by this court in UNC Teton Exploration 
Drilling, Inc. v. Peyton, 774 P.2d 584, 595 (Wyo. 
1989).

G. 
Directed Verdict Or Judgment Notwithstanding The 
Verdict

[¶96]   Finally, we turn to Appeal No. 
93-27. The Shraders argue that the district court erred in granting a directed 
verdict in favor of State Farm. The district court ruled, as a matter of law, 
that the evidence did not support the jury's finding of willful and wanton 
misconduct. Therefore, no punitive damages were awarded to the Shraders. We 
reverse the district court's decision and remand for a new 
trial.

[¶97]   At the time of trial, W.R.C.P. 
50(a), 818-822 Wyo.Rptr. CXI (1992) (hereinafter Former Rule 50) permitted the 
district court to grant a motion for a directed verdict either at the close of 
an opponent's evidence or at the close of all evidence. Carey v. Jackson, 
603 P.2d 868, 876-77 (Wyo. 1979). See W.R.C.P. 50(a) (effective Jan. 12, 
1993 and permitting court to grant a judgment as a matter of law). A directed 
verdict precluded consideration by the jury of a cause of action in which the 
facts were so sufficiently clear that the law required a particular result. 
Carey, 603 P.2d  at 877 (quoting 9 Charles A. Wright and Arthur 
Miller, Federal Practice & Procedure, Civil § 2521 at 537 
(1971)). When a verdict was returned, Former Rule 50 permitted the district 
court to grant a judgment notwithstanding the verdict following the entry of 
judgment:

(b) 
Motion for judgment notwithstanding the verdict. - Whenever a motion for 
a directed verdict made at the close of all the evidence is denied or for any 
reason is not granted, the moving party may move not later than 10 days after 
the entry of judgment to have the verdict and judgment entered thereon set aside 
and to have judgment entered in accordance with the party's motion for a 
directed verdict; or if a verdict was not returned such party, within 10 days 
after the jury has been discharged, may move for judgment in accordance with the 
party's motion for a directed verdict.

Former 
Rule 50(b).

[¶98]   State Farm made a motion for a 
directed verdict at the close of the Shraders' presentation of evidence. The 
motion for a directed verdict was renewed at the close of all the evidence. 
However, the district court did not act on these motions. Instead, the issue was 
presented to the jury. The jury returned a special verdict finding willful and 
wanton misconduct. State Farm then filed a motion seeking a "Directed Verdict on 
the issue of punitive damages, with judgment for defendant on Plaintiffs' claim 
for punitive damages, notwithstanding the verdict."

[¶99]   The State Farm motion was filed on 
September 8, 1992. The entry of final judgment did not occur until December 2, 
1992. In Chopping v. First Nat. Bank of Lander, 419 P.2d 710, 716 (Wyo. 
1966), cert. denied, 387 U.S. 935, 87 S. Ct. 2061, 18 L. Ed. 2d 998 (1967), 
we held that the premature filing of a motion for judgment notwithstanding the 
verdict did not deprive the court of jurisdiction to consider the motion. 
However, we must treat the district court's ruling as a judgment notwithstanding 
the verdict rather than a directed verdict.

[¶100] Motions for a judgment notwithstanding the 
verdict should be "cautiously and sparingly granted." Erickson v. Magill, 
713 P.2d 1182, 1186 (Wyo. 1986). Appellate review of a judgment notwithstanding 
the verdict requires this court to determine "whether the evidence is such that 
without weighing the credibility of the witnesses, or otherwise considering the 
weight of the evidence, there can be but one conclusion reasonable persons could 
have reached * * *." Id. See Rhoades, 863 P.2d  at 629 (stating similar 
standard of review for directed verdicts). We consider the evidence in the light 
most favorable to the party against whom the motion is directed, giving all 
reasonable and legitimate inferences to such evidence. Rhoades, 863 P.2d  
at 629; Carey, 603 P.2d  at 877.

[¶101] The Shraders argue that the evidence produced 
at trial disclosed a lengthy and calculated course of conduct by State Farm 
which was intentionally directed to deprive the Shraders of the full amount due 
for their claim for benefits. The evidence supporting this course of conduct 
included: arbitrarily assigning a percentage of fault for the accident to 
Shrader during the initial investigation despite proof that the accident was 
entirely the fault of the uninsured motorist; the failure to disclose to Terry 
Shrader his potential damages for lack of consortium; the practice of State Farm 
which evaluates the performance of adjusters based on the average dollar amount 
of settlements and encourages minimum offers; and the pattern of State Farm's 
misrepresentations about the conduct of the accident investigation and the value 
of the Shraders' claim. Overall, the Shraders argue that this evidence 
demonstrates a pattern of misconduct by State Farm sufficient to sustain an 
award of punitive damages. State Farm responds that the evidence does not 
support a finding of willful and wanton misconduct. In essence, State Farm 
contends the evidence does not establish outrageous 
conduct.

[¶102] Punitive damages may be awarded when an insurer 
breaches the duty of good faith and fair dealing. McCullough, 789 P.2d  at 
860-61. However, to award punitive damages for the intentional tort, willful and 
wanton misconduct must be proven. Id. at 861. We recognize: "Sometimes 
the line between conduct justifying punitive damages and less culpable conduct 
is fine." Mayflower Restaurant Co. v. Griego, 741 P.2d 1106, 1116 (Wyo. 
1987). However, our system of justice utilizes the ability of the fact finder, 
the jury, to make precisely such "fine" distinctions. See Danculovich, 
593 P.2d  at 191 (discussing jury's role in finding sufficient evidence of 
willful and wanton misconduct).

[¶103] Punitive damages are not favored but should be 
allowed "with caution [and] within narrow limits." Weaver v. Mitchell, 
715 P.2d 1361, 1369 (Wyo. 1986). Therefore, the purpose of punitive damages, to 
publicly condemn some notorious action or inaction of a tortfeasor and deter 
others, requires that punitive damages be awarded only for "conduct involving 
some element of outrage, similar to that usually found in crime." Id. at 
1369-70 (citing Restatement (Second) of Torts § 908 cmt. b (1979)). In 
Danculovich, 593 P.2d  at 193, we examined the intent necessary to support 
a finding of willful and wanton misconduct:

The 
intent in willful and wanton misconduct is not an intent to cause the injury, 
but it is an intent to do an act, or an intent to not do an act, in reckless 
disregard of the consequences, and under such circumstances and conditions that 
a reasonable [person] would know, or have reason to know, that such conduct 
would, in a high degree of probability, result in substantial harm to 
another.

Punitive 
damages should not be awarded for "mere mistake resulting from inexperience, 
excitement or confusion, and more than mere thoughtlessness or inadventure, or 
simple inattention." Id. at 191.

[¶104] Conceptually, an award of punitive damages 
represents a response to circumstances of aggravation present in the character 
of the conduct of an actor. Restatement (Second) of Torts, supra, at § 
908 cmt. b; 2 Stuart M. Speiser, Charles F. Krause & Alfred W. Gans, The 
American Law Of Torts, § 8:45 at 805-811 (1985). Other jurisdictions have 
chosen different language to define the aggravating circumstances. For example, 
in McCullough, 789 P.2d  at 861, we quoted from the Supreme Court of 
Wisconsin's decision in Anderson, 271 N.W.2d  at 379 to illustrate that 
aggravating circumstances are required for punitive damages for a breach of the 
duty of good faith and fair dealing. The Wisconsin court requires proof of 
oppression, fraud, or malice to recover punitive damages. Anderson, 271 N.W.2d  at 379. However, this court has chosen to "remain consistent" with 
existing Wyoming law and award punitive damages on proof of willful and wanton 
misconduct. McCullough, 789 P.2d  at 861 (citing Wyoming cases 
adopting this standard for punitive damages in tort and 
contract).

[¶105] Considered from this perspective, we are unable 
to say that reasonable persons would reach only one conclusion from the evidence 
presented. Erickson, 713 P.2d  at 1186. Viewed in the light most favorable 
to the Shraders, as we must on appeal, a jury could reasonably find willful and 
wanton misconduct in the settlement practices used by State Farm when taken as a 
whole. It is also conceivable that the jury could find insufficient evidence to 
support a finding of willful and wanton misconduct when properly instructed. We 
are satisfied, therefore, that the district court erred, as a matter of law, in 
granting a judgment notwithstanding the verdict in favor of State Farm on this 
issue. The jury's finding of willful and wanton misconduct, however, cannot be 
allowed to stand. The prejudice from the failure to bifurcate the proceedings 
and the erroneous instruction on fiduciary duty requires a new trial on all 
issues.

IV. 
CONCLUSION

[¶106] The complex issues presented in this appeal 
involved many previously undecided questions of Wyoming law. The parties chose 
to present these legal questions during a jury trial instead of seeking a 
declaratory judgment to interpret their respective rights and duties under the 
policy of insurance. The unsettled nature of the law made the proceedings below 
more difficult because of the varied precedent from other jurisdictions and the 
extensive argument from each party over the most desirable standard to apply. In 
accord with the principles of law contained in this opinion, we must return this 
case to the district court for further proceedings.

[¶107] Reversed and remanded for a new 
trial.

MACY, 
Justice, dissenting in part and concurring in part.

[¶108] I disagree with part of the majority opinion 
and with the disposition of this case. I would affirm the trial court's judgment 
in all respects except that I would reverse the trial court's judgment 
notwithstanding the punitive damages verdict.

[¶109] Before trial, State Farm moved for separate 
trials because, in part, the evidence of its offers to settle was not admissible 
to prove the Shraders' claim for damages under the uninsured motorist policy. 
W.R.C.P. 42(b); W.R.E. 408. The trial court denied the motion. Although State 
Farm filed a detailed motion in limine to exclude twelve other categories of 
evidence, it never moved to exclude the evidence of its settlement offers. Nor 
did State Farm request that instructions be given to the jury which would 
caution it that the evidence was inadmissible to prove one of the Shraders' 
claims.

[¶110] The majority holds that the trial court abused 
its discretion by denying the motion for separate trials because State Farm was 
thereby prejudiced by the introduction of the evidence of its settlement offers. 
I disagree for several reasons.

[¶111] First, a district court has only limited 
discretion under W.R.C.P. 42(b) to allow separate trials of multiple claims. 
Carlson v. Carlson, 836 P.2d 297, 305 (Wyo. 1992). We have held: "A trial 
may be bifurcated only when the issues are clearly distinct and the bifurcation 
will not work a hardship against either party." Id. The issues are 
rarely, if ever, clearly distinct when, as here, a case combines a tort claim 
for breach of an implied contractual duty of good faith and fair dealing with a 
breach-of-contract claim, both of which arose from a breach of the same contract 
term. Cf. Ames v. Sundance State Bank, 850 P.2d 607 (Wyo. 1993) (party 
asserting a tort claim of bad faith must prove that the contract was 
enforceable).

[¶112] In this case, I would not second-guess the 
trial court's sound decision. The issues at trial were unavoidably interwoven, 
and State Farm has demonstrated no hardship which was caused by the trial 
court's ruling. I cannot reconcile the majority's holding with our opinion in 
Carlson. Considering the rule in Carlson which favors consolidated 
trials, I cannot agree with the majority that the trial court abused its 
discretion. The majority's holding leaves an aftermath of uncertainty for a 
judge who has been presented with a motion for separate 
trials.

[¶113] Second, the trial court committed no cognizable 
error by admitting the evidence of State Farm's settlement offers. "We adhere to 
the rule that a limiting instruction, if desired, must be clearly requested by 
counsel." Carlson v. BMW Industrial Service, Inc., 744 P.2d 1383, 1389 
(Wyo. 1987). See W.R.E. 105. "As a matter of trial strategy, counsel may decide 
against a limiting instruction to avoid emphasizing unfavorable testimony. . . . 
It is not the function of the trial judge to second-guess the strategy of 
counsel." Sybert v. State, 724 P.2d 463, 467 (Wyo. 
1986).

[¶114] At trial, State Farm never moved to exclude the 
evidence of its settlement offers, although it did file an extensive motion to 
exclude other evidence. Nor did State Farm request, either during trial or at 
the close of the case, that instructions be given to the jury which would inform 
the jury that the evidence of its settlement offers was not to be considered on 
the breach-of-contract claim. Instead, State Farm utilized an all-or-nothing 
strategy toward the evidence: If the trial court denied its motion for separate 
trials, State Farm would permit the introduction of the evidence without making 
an objection.

[¶115] We should not expect a trial court, on its own 
motion, to caution the jury when the trial attorneys have failed to alert the 
trial court to the need for a cautionary or limiting instruction. I would hold 
that the trial court committed no error by admitting the evidence of State 
Farm's settlement offers.

[¶116] Third, excluding State Farm's offers to settle, 
found by the jury to have been extended in bad faith, would in no way further 
the purpose of W.R.E. 408. Both W.R.E. 408 and the tort of breach of duty of 
good faith and fair dealing were adopted, in part, to encourage dispute 
settlement. Hursh Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 36 
(Wyo. 1983); McCullough v. Golden Rule Insurance Co., 789 P.2d 855, 859 
(Wyo. 1990).

[¶117] I see no reason to encourage the making of 
settlement offers of the sort made by State Farm in this case. Yet, by remanding 
the case for a second trial, the majority rewards State Farm with a second 
chance to avoid liability for its actions.

[¶118] I also disagree with the majority's holding 
that the instructions which mentioned fiduciary duty constituted prejudicial 
error. An improper jury instruction is reversible error only when an appellant 
demonstrates that he has been prejudiced. Kemper Architects, P.C. v. McFall, 
Konkel & Kimball Consulting Engineers, Inc., 843 P.2d 1178, 1182 (Wyo. 
1992). The factors which are considered in determining the degree to which an 
appellant was prejudiced are:

"`(1) 
the extent to which there is conflict in the evidence on critical issues; (2) 
whether or not the respondent's argument to the jury may have contributed to the 
instruction's misleading effect; (3) whether or not the jury requested a 
rereading of the erroneous instruction or of related evidence; (4) the closeness 
of the jury's verdict; and (5) the effect of other instructions in curing the 
error.'"

Condict 
[v. Whitehead, Zunker, Gage, Davidson & Shotwell, P.C.], 
743 P.2d [880,] 886 [(Wyo. 1987)] (quoting 1 California Forms of Jury 
Instruction, Procedures and Instructions § 1.13[3] (1987) (footnotes 
omitted)).

843 P.2d  at 1182.

[¶119] State Farm has failed to meet its burden to 
show prejudice. Instruction No. 23, which mentioned fiduciary duties, when 
considered alone, is misleading. State Farm does not cite to anything in the 
record which indicates that it was prejudiced. State Farm does not even allege 
that it was prejudiced by the jury instructions. Apparently, and without any 
authority, State Farm asks us to conclude that the instructions which were given 
were per se reversible error. I cannot agree.

[¶120] The jury did not ask any questions about the 
challenged instructions. No evidence indicates that the vote on the verdict was 
close. Instruction No. 24 clarifies Instruction No. 23 by indicating that an 
insurer is not a fiduciary. None of the other Kemper Architects, P.C. 
factors seems to favor State Farm's contention in this case. I, therefore, must 
disagree with the majority's conclusion that these instructions constituted 
prejudicial error.

[¶121] Finally, I would affirm the trial court's award 
of attorney's fees as being a proper exercise of discretion under WYO. STAT. § 
26-15-124(c) (1991).

[¶122] I concur in the remaining portions of the 
majority opinion. I would affirm the trial court's judgment and reverse only the 
ruling on punitive damages, and I would allow the verdict, along with the 
punitive damages award, to stand.

ROONEY, 
Justice (Retired), dissenting in part and concurring in 
part.

[¶123] I dissent in Case No. 93-27, and I concur in 
Case No. 93-26, concurring in the result only as to one issue 
therein.

[¶124] Donna R. Shrader and Terry Shrader (hereinafter 
"Insureds") brought an action against their insurance carrier, State Farm Mutual 
Automobile Insurance Company (hereinafter "Insurer"), for damages occasioned to 
them in a collision between their automobile, in which they were riding, and an 
automobile owned and operated by Seth T. Barbour, who was not insured. The 
insurance policy issued to Insureds by Insurer required payment to Insureds by 
Insurer for "damages for bodily injury an insured is 
legally entitled to collect from the owner or driver of an uninsured motor 
vehicle" up to the coverage limit of $25,000 per person or $50,000 per 
accident.

[¶125] The matter was tried to a jury in district 
court. The jury answered the issues presented to it by the district court in a 
special verdict form as follows:

1. 
What are the amount of damages the Shraders are legally entitled to collect from 
the owner or driver of the uninsured vehicle? (Exclude medical 
expenses)

 

Donna 
R. Shrader     $ 
70,000 

Terry 
Shrader            
$ 9,500 

2. 
Did the defendant[,] State Farm[,] breach its duty of good faith and fair 
dealing owed to the plaintiffs?

Yes 
X    No 
____

3. 
If your answer to question 2 was "yes[,"] what total amount of damages do you 
find [was] sustained by the plaintiffs from the breach 
for:

Donna 
R. Shrader       
$ 25,000 

Terry 
Shrader              
$ 25,000 

4. 
Did the defendant, State Farm, breach its statutory duty by unreasonably and 
without cause refusing to pay the full amount of a loss covered by the 
policy?

Yes 
X     No 
____

5. 
Did the defendant, State Farm, through its officers, and/or employees, engage in 
willful and wanton misconduct so that punitive damages should be awarded 
later?

Yes 
X      No 
____

Thereafter, 
the court granted Insurer's motion, which had been previously taken under 
advisement, for a directed verdict on the issue of willful and wanton misconduct 
- the basis for the award of punitive damages.

[¶126] The matter is before us on an appeal by each 
party. Farmers Insurance Exchange filed an amicus curiae brief in support of 
Insurer's position in Insureds' appeal.

Case 
No. 93-27: Insureds' Appeal

Insureds 
word the issue in this appeal:

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[?]

Insurer 
words it:

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?

[¶127] Dissenting from the majority of the Court, I 
would affirm the granting of a directed verdict by the trial court against 
Insureds on the issue of punitive damages.

[¶128] The impropriety of the recognition of a bad 
faith tort and of an award of punitive damages under the circumstances of this 
case was adequately addressed in the well reasoned dissents of Justice Thomas 
and Justice Golden in McCullough v. Golden Rule Insurance Co., 789 P.2d 855 (Wyo. 1990), a case relied upon herein by the majority of the Court. That 
said in those dissents does not need to be repeated here. This case exemplifies 
the difficulty, if not the impossibility, of establishing a clear line between 
right and wrong under the holding of the majority in McCullough. The 
potential for inconsistencies and uncertainties under the majority holding in 
McCullough should be removed.

[¶129] Accordingly, I would overrule McCullough and 
affirm the grant of a directed verdict by the trial court in this 
case.

Case 
No. 93-26: Insurer's Appeal

[¶130] Insurer presents seventeen issues in this 
appeal. Among them are:

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?

The 
other issues concern "bad faith" or "good faith and fair 
dealing."

[¶131] Insureds present five issues, 
including:

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?

. 
. . .

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?

The 
other two issues concern the tort of bad faith.

[¶132] As stated in the majority opinion, the question 
is whether or not the fault of the uninsured motorist and the amount of damages 
suffered by Insureds may be determined in a direct action against Insurer. The 
majority of the Court holds that they can, referring to similar holdings in 
other states. It notes that the language of the policy provides for payment of 
that amount which Insureds are "legally entitled to collect from the owner or 
driver of an uninsured motor vehicle" and that such requires the 
ability to establish fault on the part of the uninsured motorist which gives 
rise to damages and to prove the extent of those damages. As long as the factual 
issues as to liability and damages can be properly placed by the fact finder, I 
agree with the majority of the Court that a direct action would be permissible. 
However, I believe that it would be difficult to properly place such issues. The 
danger of over emphasis on the contractual situation to the detriment 
consideration of the tort liability is great. A just result would seem to be 
more certain if the tort issues were first established in an action between 
Insureds and the uninsured motorist. I believe that such would not only be 
proper but be preferred. Something seems to be wrong in allowing the uninsured 
motorist to depart without penalty if he was the cause of the damages. In the 
event he is worth millions of dollars, why should an insurance company, a 
stranger to him, be required to pay for the damages caused by him? A more just 
outcome would seem to result in mandating the establishment of liability and 
amount of damages in a separate action, with the amount "legally entitled to 
collect" being that subject to collection but not collectible from the uninsured 
motorist as a practical matter.

[¶133] In any event, the amount "legally 
entitled to collect" was not properly determined in this case. The extent of 
fault, and therefor the amount of damage award, was not properly determined. 
Wyoming is a comparative negligence state. The jury was not properly instructed 
to determine the degree of the negligence of each party and thus the amount of 
damages Insureds were "legally entitled to collect." Such may more exactly be 
inquired into in a direct action against Insurer, and the damages adjusted 
accordingly. Consequently, I specially concur with the result 
reached by the majority of this Court for the return of this case to the 
district court, but I would return it only because of the failure to have the 
comparative negligence of the parties properly determined and not for the reason 
recited in the majority opinion. However, I emphasize, as stated supra, my 
belief that a more just result would be obtained if the issues were first 
determined through an action between the parties to the 
incident.

[¶134] With reference to the failure to properly 
consider the comparative negligence of the parties in this case, as noted 
supra, the special verdict form made no reference or provision for 
allocating fault. The verdict form offered by Insureds contained a 
question requiring a determination of the percentage of fault "attributable to 
each of" the drivers of the vehicles, but it was refused.

[¶135] The court gave thirty-four separate 
instructions. Instruction No. 20 provided in part pertinent to comparable 
fault:

The 
plaintiffs' damages caused by bodily injury in this case must be determined on 
the basis of comparable fault of the parties involved in the accident. . . 
.

The 
Wyoming law applicable to this case would require a reduction in the amount of 
damages awarded to any party by the percentage of fault[,] if any, that is 
attributable to that party. The percentage of fault, if any, of the parties 
seeking to recover damages is compared to each of the persons involved in an 
accident. The damages of an injured party are reduced by the percentage of fault 
found attributable to that recovering party.

There 
was nothing in the instruction directing the jury to apportion 
fault, and there was no other instruction given with reference to 
it.

[¶136] Several other instructions emphasize only the 
necessity to determine causation of the accident by Insureds 
without any reference to the percentages thereof attributable to each driver, 
e.g.:

2. 
. . . In order to determine what is owed on the cont[r]act of insurance, you 
will need to determine all of the plaintiffs' damages caused by the bodily 
injury to Donna Shrader.

Instruction 
No. 4.

Damages 
must be reasonable. If you should find that the Plaintiffs are entitled to a 
verdict, you may award them only such damages as will reasonably compensate them 
for such damages as you find, from a preponderance of the evidence in the case, 
that they have sustained.

Instruction 
No. 13.

In 
this action, the Plaintiffs have the burden of proving by a preponderance of the 
evidence the following:

1. 
That the negligence of the uninsured motorist was a proximate cause of injury 
and damage to the Plaintiffs; and

2. 
The nature and extent of the injuries claimed to have been so suffered, the 
elements of Plaintiffs' damage and the amount thereof.

Instruction 
No. 15.

If 
you find that Donna R. Shrader is entitled to damages from the accident by the 
evidence and instructions, then you may award her spouse[,] Terry Shrader[,] a 
sum which will constitute fair and reasonable compensation to him for the loss 
or impairment of his wife's ability to perform services as a wife due to her 
injuries.

Instruction 
No. 19.

[¶137] Accordingly, I specially concur only in 
the result reached by the majority of the Court on the issue concerning 
the propriety of a direct action against Insurer.

Addendum

[¶138] I concur with the majority of the Court with 
reference to the other issues in this case.

THOMAS, 
Justice, dissenting.

[¶139] I find I also must dissent from the opinion of 
the majority of the Court in this case. Essentially, my views are quite like 
those of Justice Rooney, except for the fact that I would not approve the direct 
action against the insurer in such an instance.

[¶140] It is an anathema that, in a jurisdiction in 
which the very mention of insurance in a trial between individuals can result in 
a mistrial, the evils justifying that rule can be readily avoided by a 
first-party action against the insurer. While insurance carriers are used to 
running uphill in litigation, it does seem oppressive to require them to climb 
the wall.

Furthermore, 
strong public policy considerations support the denial of an insurer's 
application to intervene in underlying tort litigation. "Clearly the policy of 
the law is to keep the issue of insurance out of personal injury litigation." 
Cromer v. Sefton, 471 N.E.2d 700, 704 (Ind. App. 1984) (holding insurer 
is not permitted to intervene in underlying tort action to litigate coverage 
issues). W.R.E. 411 reflects this policy by generally prohibiting the 
introduction of evidence of insurance. As the court noted in Allstate 
Insurance Co. v. Atwood, 319 Md. 247, 572 A.2d 154, 159 (1990), permitting 
insurance companies to intervene and become a party to a tort proceeding leads 
to multiple problems, including forcing the insured to defend against both the 
resources of the plaintiff and the insurer.

State 
Farm Mut. Auto. Ins. Co. v. Colley, 
871 P.2d 191, 195 (Wyo. 1994).

[¶141] In the popular vernacular, the playing field 
hardly seems level in this instance. In fact, it seems more vertical with the 
insurer at the bottom. Truly, the only way to distinguish the policy articulated 
in Colley is to note that the insurance carrier cannot intervene when it 
wants to, but it must participate as a party when it does not want to. 

[¶142] I am troubled by the following features of the 
court's opinion:

1. 
Permitting the direct action against the insurer, rather than requiring tort 
liability to be determined between the insured and the alleged 
tortfeasor.

2. 
A statement in the majority opinion, which seems to serve as the fulcrum, is 
articulated as a holding that "the Shraders established that they were `legally 
entitled' to seek indemnification for the damages proximately caused by 
the negligence of the uninsured motorist." (Emphasis added.) The language of the 
policy is "legally entitled to collect."

3. 
The conclusion that the language of the State Farm policy attempts to restrict 
the right to bring an action against the uninsured motorist. The policy 
addresses only resolution of the question between State Farm and the insured, 
and it seems clear to me it does not violate WYOMING DEPARTMENT OF INSURANCE 
REGULATIONS, Ch. 23, § 8 (1989).

4. 
In light of the regulatory authority of the insurance commissioner, I do not 
think the unequal bargaining power is a factor in this case as the court found 
in McCullough v. Golden Rule Ins. Co., 789 P.2d 855 (Wyo. 
1990).

5. 
I am not satisfied that the accounting of damages provided by the Shraders to 
State Farm necessarily serves as unchallenged proof of damages in the context of 
good faith or bad faith.

6. 
The number of complexities, as illustrated by the majority opinion, arising from 
the joinder of the several claims is very troublesome.

[¶143] Perhaps, as much as anything, this case 
demonstrates the wisdom of the views espoused by Justice Golden and me in our 
dissenting opinions in McCullough. It demonstrates, almost to the 
ultimate, the product of permitting an insured to assert the independent bad 
faith tort cause of action against his own insurer.

[¶144] The critical error in the majority opinion 
starts with the support it finds in other jurisdictions for the right of the 
insured to bring the action for uninsured motorist benefits directly against the 
insurance company. Our McCullough precedent is invoked to justify the 
right to bring the first-party bad faith tort action. It then justifies the 
joinder of those two causes of action. I cannot find among the authorities cited 
by the majority any jurisdiction in which heretofore these claims have been 
joined in one trial.

[¶145] Permitting the action for uninsured motorist 
benefits to be tried at the same time as the action for first-party bad faith 
tort puts the insurer in a truly untenable position. From this day forward, in 
the absence of legislative relief, an insurance carrier will be unable to do 
anything about uninsured motorist coverage benefits other than to pay the policy 
limits to its insured. The result in this case is related to neither good faith 
nor bad faith. It simply establishes that good faith and bad faith are both 
irrelevant. The risk of being wrong in its determination as to liability or the 
amount of damages simply subsumes the right of the carrier to test either issue 
with its insured as long as these claims can be tried 
together.

[¶146] I would much prefer resorting to the rule in 
the more conservative jurisdictions that requires the resolution of the tort 
liability arising out of the accident prior to the pursuit of contract claims by 
the insured against the insurer. E.g., Baxter v. Royal Indem. Co., 285 So. 2d 652 (Fla. Dist. Ct. App. 1973), cert. discharged, 317 So. 2d 725 
(Fla. 1975); Craig v. Iowa Kemper Mut. Ins. Co., 565 S.W.2d 716 (Mo. Ct. 
App. 1978); Pemberton v. Farmers Ins. Exch., 109 Nev. 789, 858 P.2d 380 
(1993); Radlein v. Indus. Fire & Cas. Ins. Co., 117 Wis.2d 605, 345 N.W.2d 874 (1984). As pointed out in Pemberton, a judgment against the 
uninsured motorist is not required to establish the insured is legally entitled 
to collect, but that right can be established by a settlement with the insurance 
company, a settlement with the uninsured motorist, arbitration with the 
insurance company, or an action against the insurance company. I recognize 
statutory provisions were relied upon in some of these decisions, but it may be 
that the only recourse now open to insurance carriers in Wyoming is to seek 
legislative relief. If we are to recognize the right of the insured to bring an 
action directly against the insurer for uninsured motorist benefits, then we 
clearly should require that claim to be resolved before proceeding to deal with 
the contract claims. I am satisfied any other approach turns out to be so unfair 
to insurance carriers as to be unreasonable.

[¶147] With respect to some of the additional concerns 
I have with the majority opinion - the majority asserts that the policy language 
attempts to restrict the right of the Shraders to bring an action against the 
other motorist. I cannot agree the policy rationally can be given that effect. A 
much more logical construction is that the policy language would only apply if 
no such action were brought, as in this case. Given the statutory language and 
the regulations of the insurance commissioner, the policy language cannot 
possibly have the effect of restricting the right of the insureds to sue the 
tortfeasor and, consequently, I would not declare the contractual provision 
void. Instead, it should be given effect if any lawful construction is possible. 
I submit I have suggested a lawful construction, and the contractual language 
does result in a condition precedent to the action of the Shraders. It should 
not be ignored that the insurance commissioner approves the policy language 
under Wyoming statute. WYO. STAT. § 31-10-101 (1989).

[¶148] The majority relies upon the provisions of WYO. 
STAT. § 31-10-101 to hold public policy of Wyoming requires a direct action 
against the insured. The statute clearly is intended to eliminate any unequal 
bargaining power between the parties since the coverage is required, and the 
coverage must be written under provisions approved by the insurance 
commissioner. The majority invokes McCullough, pointing out that the 
"recovery in tort for the breach of the duty of good faith and fair dealing is 
premised upon the existence of a special relationship created by the unequal 
bargaining power that an insurer has over an insured." State Farm Mut. Auto. 
Ins. Co. v. Shrader, No. 93-26, and Shrader v. State Farm Mut. Auto. Ins. 
Co., 882 P.2d 813, 825 (Wyo. 1994). I respectfully submit the majority is 
stacking public policies in this instance, and it should be recognized that the 
regulatory power attached to uninsured motorist coverage erases the policy 
justification found in McCullough, in this 
instance.

[¶149] I believe the justification for joining the 
action against the insurer for the uninsured motorist benefits with the claim 
for first-party bad faith tort is not adequately justified by the precedents 
injected in the majority opinion, and it seems to me we have gone too far in 
this case to attempt to penalize an insurance carrier. While, like all of us, 
insurance companies may have their faults, I do not think they are such bad 
citizens in our society that we need to create special rules to deprive them of 
fairness and justice in our legal institutions.

[¶150] I would reverse the ruling joining the claim 
for uninsured motorist benefits with the tort claim for first-party bad faith. 
Those claims must be tried separately to achieve any sort of 
fairness.