Opinion ID: 835320
Heading Depth: 2
Heading Rank: 2

Heading: Action Against Defendant for Failure to Settle within Policy Limits

Text: After the trial court entered judgment against him in the wrongful death action, Munson assigned to plaintiff all of his potential claims against defendant. Id. at 83, 120 P.3d 1260. In May of 1990, plaintiff brought the present action against defendant under the assignment, contending that defendant breached its duty to Munson to make reasonable efforts to settle the wrongful death action. Id. at 83, 85, 120 P.3d 1260. Plaintiff sought, as compensatory damages, the $863,274 awarded in the wrongful death action, plus $450 million in punitive damages. Id. at 83, 120 P.3d 1260. In addition to the evidence summarized above, plaintiff presented expert testimony regarding defendant's conduct in handling the wrongful death case: James Nelson, an attorney with extensive experience in insurance cases, testified that insurance companies sometimes engage in the practice of `stonewalling,' which involves refusing to negotiate settlement because claimants often have very limited resources and mounting medical and legal bills; `stonewalling' puts psychological and financial pressure on such claimants to accept settlements that are less than reasonable. Nelson further testified that another negotiation strategy, `low-balling,' involves making minimal settlement offers to signal that the insurance company is willing to fight the claim and to lower the claimant's expectations. In Nelson's opinion, defendant had used both strategies in handling the Goddard claim. According to Nelson, the $30,000 offer was a `low-ball' offer because the Goddard claim should, reasonably, have been valued at over $200,000. Plaintiff also presented expert testimony from John Partlow, who rendered an opinion as to whether the claim against Munson was handled properly. Partlow had worked as a claims auditor for a large insurance company. In that position, he examined claims files to determine if the claims had been handled properly, and he subsequently performed similar functions as a consultant. Partlow testified that coverage limits should be communicated promptly and that mistakes about coverage limits should be disclosed promptly. He further testified that defendant's failure to respond to the time-limited settlement demand violated the company's own policies and did not comport with industry standards. Partlow concluded that defendant had failed to make a timely and sufficient investigation of the collision and had failed to negotiate fairly throughout its handling of the Goddard claimand, indeed, that, in his 15 years of evaluating claims, the handling of the Goddard claim was among the worst he had ever seen. Plaintiff also presented expert testimony from Jeffrey Jacobs, an attorney who had significant experience working as in-house counsel in Oregon for an insurance company. Jacobs testified that defendant's conduct in failing to respond to communications from the attorneys for the Goddard estate for many months after the collision fell below the industry standard of care. He further testified that a decision to let the claim `ripen' rather than respond to an attorney under these circumstances very seriously jeopardizes the protection of the person who has paid the insurance premiums. In Jacobs's view, liability and the value of the case as in excess of policy limits was clear by June 1988, when defendant failed to respond to the time-limited demand that was made by the Goddard estate, and failing to respond was not in keeping with industry standards. According to Jacobs, the case should have been valued in the range of $500,000 to $750,000. Plaintiff also presented evidence of defendant's use of `low-balling' tactics in another case involving a collision where an injury resulted from the conduct of a drunk driver insured by defendant. In that case, in which Bauer also represented the insured, the injured party accepted an offer of less than policy limits due to financial pressures, even though his attorney believed the case to be worth more than policy limits. That attorney testified that Bauer had told him, `Voth doesn't pay policy limits.' Id. at 96-98, 120 P.3d 1260 (footnote omitted). The jury returned a special verdict for the plaintiff. The jury concluded that defendant was 80 percent at fault for entry of the $863,274 wrongful death judgment against Munson. The jury also concluded that Munson's actions after the accident made him 20 percent responsible for the wrongful death judgment. The jury determined that, because of its wrongdoing in failing to settle the wrongful death case, defendant should pay plaintiff $20,718,576 in punitive damages. In its judgment, the trial court reduced the compensatory damages award in several ways. Starting with the $863,274 awarded against Munson in the wrongful death judgment, the trial court subtracted 20 percent for Munson's comparative fault, as determined by the jury. The court also subtracted defendant's 1998 payment of $175,960, i.e., the $100,000 policy limit plus interest. In doing so, the court credited $100,000 of that payment against principal, rather than interest. Finally, the trial court subtracted $325,000, an amount that had been paid to plaintiff on an underinsured motorist policy that she held through another insurer. On the other hand, and although defendant contended that it was unconstitutionally large, the trial court refused to reduce the punitive damages award. In sum, the trial court entered judgment against defendant for $265,619.20 economic damages, plus prejudgment interest thereon in the amount of $343,573.62; and $20,718,576 in punitive damages plus interest thereon. Id. at 83-84, 120 P.3d 1260. Plaintiff and defendant both appealed to the Court of Appeals. Defendant contended that the trial court erred in admitting evidence of a pooling agreement between defendant and other related insurance companies. Defendant also argued that the punitive damages award was unconstitutionally large. Plaintiff contended that the trial court erred in calculating the amount of compensatory damages. Id. at 84, 120 P.3d 1260. The Court of Appeals rejected defendant's evidentiary argument. Id. at 100-03, 120 P.3d 1260. Respecting the issue relating to the calculation of compensatory damages, the court agreed with plaintiff. The court concluded that defendant was not entitled to a $325,000 credit for the amounts paid by the other insurance company. Id. at 103-07, 120 P.3d 1260. The court also held that defendant's entire $175,960 payment to plaintiff should have been applied to interest. Id. at 107-10, 120 P.3d 1260. While leaving the final calculation of interest to be made by the trial court on remand, the court estimated total economic damages at approximately $1,280,000, representing $690,619.20 in principal (80 percent of the $863,274 awarded in the wrongful death judgment), plus approximately $589,000 in pre-judgment interest. Id. at 110, 120 P.3d 1260. The Court of Appeals also agreed with defendant that the punitive damages award was grossly excessive and therefore unconstitutional under the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Id. at 111-22, 120 P.3d 1260. Finally, the court concluded that the highest permissible punitive damages award that the jury could have made was three times the compensatory damages award (as correctly calculated). Id. at 121-22, 120 P.3d 1260. Defendant petitioned the Court of Appeals to reconsider, arguing (among other things) that the court had erred in the way in which it had dealt with the roughly $589,000 in prejudgment interest on the $690,619.20 of principal. Goddard v. Farmers Ins. Co., 203 Or.App. 744, 746, 126 P.3d 682 (2006). Defendant noted that the trial court's judgment identified the prejudgment interest separately from plaintiff's economic damages and that the court had refused a proposed form of judgment that would have lumped prejudgment interest and principal together. Defendant contended that punitive damages had to be calculated using only the $690,619.20 in principal identified as economic damages in the judgment. Doing otherwise, defendant claimed, gave plaintiff relief on a matter that she did not assign as error on cross-appeal. The Court of Appeals agreed that it should not have referred to the entire $1,280,000 as economic damages. The court altered its earlier opinion to refer to that amount as compensatory loss. But the court otherwise rejected defendant's argument, concluding that the prejudgment interest should be included in the amount used to evaluate the constitutionality of the punitive damages award. Id. at 747-49, 126 P.3d 682. Plaintiff sought review, challenging the Court of Appeals' determination that the punitive damages award was unconstitutional, and we allowed review.