Opinion ID: 1433963
Heading Depth: 1
Heading Rank: 5

Heading: bad faith and punitive damages claims

Text: A. Bad Faith. The Vaughts assert that the district court erred in granting summary judgment in favor of Dairyland on the bad faith claim. The Vaughts argue that Dairyland's refusal to pay their uninsured motorist claim was bad faith because Dairyland had objective knowledge in the form of the federal court judgment that it owed the Vaughts benefits and because Dairyland subjectively knew it owed benefits. Dairyland counters that it is not bad faith to litigate a fairly debatable claim. An insurer commits the tort of bad faith when it intentionally and unreasonably denies or delays payment on a claim, and in the process harms the claimant in such a way not fully compensable at contract.... White v. Unigard Mut. Ins. Co., 112 Idaho 94, 98, 730 P.2d 1014, 1018 (1986) (quotes and citation omitted). However, [a]n insurer does not commit bad faith when it challenges the validity of a `fairly debatable' claim, or when its delay results from honest mistakes. Id. at 100, 730 P.2d at 1020. Likewise, when a claim involves a legal question of first impression, an insurer does not commit bad faith by litigating the claim even if the insurer does not prevail. Squire v. Exchange Ins. Co., 116 Idaho 251, 253, 775 P.2d 143, 145 (Ct.App.1989). Assuming, without deciding, that a bad faith action can arise from an uninsured motorist claim, we do not find that Dairyland's actions constituted bad faith. The question of whether Dairyland was bound by the decision in the federal tort action was a legal question of first impression in Idaho and, therefore, it was fairly debatable whether Dairyland would be bound. The Vaughts argue that Dairyland's offer to settle the state court action for the policy limits amounts to an admission by Dairyland that it was liable and, therefore, Dairyland's refusal to pay benefits unless the Vaughts signed a liability release was bad faith. We cannot agree. Dairyland's adjustor testified that the $25,000 figure was not an estimate of liability, but was instead based on a number of factors. The case cited by the Vaughts in support of their argument, Chester v. State Farm Insurance Co., 117 Idaho 538, 789 P.2d 534 (Ct.App.1990), is inapposite. In Chester, the insurer conceded that it owed benefits to the insured. In this case, Dairyland contends that because it was not bound by the federal court decision and because, based on its investigation it had concluded that Mrs. Vaught was at fault, Dairyland did not owe the Vaughts any benefits under the uninsured motorist provision of the policy. We agree with the district court that the question of Dairyland's liability under the uninsured motorist provision was fairly debatable and we conclude that it was not error to grant summary judgment in favor of Dairyland on the issue of bad faith. B. Punitive Damages. The Vaughts contend that the district court erred in denying their motion to amend their complaint to add a claim for punitive damages. On this issue the Vaughts simply restate their bad faith arguments. The Vaughts argue that Dairyland's actions constituted bad faith and that Dairyland's actions were the result of a policy not to pay valid claims; therefore, punitive damages are justified. Punitive damages are not favored in the law and should only be awarded in the most unusual and compelling circumstances. The policy behind punitive damages is deterrence rather than punishment. O'Neil v. Vasseur, 118 Idaho 257, 265, 796 P.2d 134, 142 (Ct. App.1990) (citations omitted). To support a motion to add punitive damages under I.C. § 6-1604, the Vaughts needed to show a reasonable likelihood that they could prove by a preponderance of the evidence that Dairyland acted oppressively, fraudulently, wantonly, maliciously or outrageously. Using the criteria set forth in Sun Valley Shopping Ctr. v. Idaho Power, 119 Idaho 87, 803 P.2d 993 (1991), we find no abuse of discretion in the district court's denial of the Vaughts' motion to add punitive damages.