Court Opinion

ID: 154537
Source: CourtListenerOpinion
Date Created: 2010-08-14 03:59:38+00
Date Added: 2024-06-11T15:02:02.050821
License: Public Domain

F I L E D
                                                                       United States Court of Appeals
                                                                               Tenth Circuit

                                                                               FEB 21 1997

                      UNITED STATES COURT OF APPEALS                      PATRICK FISHER
                                                                                   Clerk
                                    TENTH CIRCUIT

 ULA TALMADGE, individually and as
 conservator on behalf of Michelle
 Talmadge,                                                  No. 96-8044
                                                            D. Wyoming
               Plaintiff - Appellant,                  (D.C. No. 95-CV-1035)
          v.
 STATE FARM MUTUAL
 AUTOMOBILE INSURANCE
 COMPANY,

               Defendant - Appellee.

                              ORDER AND JUDGMENT*

Before ANDERSON, McWILLIAMS, and BRISCOE, Circuit Judges.

      *
        This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
       Michelle Talmadge1 appeals the district court’s grant of summary judgment in

favor of State Farm Mutual Automobile Insurance Company (“State Farm”) in this

diversity case. She contends that the court erred in ruling that, as a matter of law:

(1) State Farm did not breach its duty of good faith and fair dealing in handling a third

party claim against her; (2) she has no cause of action against State Farm for negligence

and spoilation of evidence; and (3) she was not entitled to punitive damages. We affirm.

                                     BACKGROUND

       On April 27, 1993, Talmadge was driving her mother’s pick-up truck when she

rear-ended a car driven by Mrs. Kim Bilodeau. According to Talmadge, she could not

stop because the truck’s brakes, which had been repaired the previous day, would not

work. Talmadge’s mother insured the truck with State Farm, and Talmadge was also

named on the policy. After the accident, Talmadge’s mother replaced the truck’s master

brake cylinder. As requested, she gave the original master cylinder to a State Farm

representative, who placed it in a locked closet. However, at some later time, the

representative could not find the cylinder in the closet, and he concluded it was

inadvertently lost.

       1
         At all relevant times, Michelle Talmadge was a minor. Her mother, Ula
Talmadge, acting individually and as conservator of Michelle Talmadge, filed this suit.
Ula Talmadge, individually, is not part of the appeal. For convenience, we refer to the
plaintiff-appellant as Michelle Talmadge or “Talmadge.”

                                            -2-
          When State Farm interviewed Talmadge immediately following the accident, she

recounted her unsuccessful efforts to stop the car and also stated that neither she nor any

other passenger in her car was injured.2 Based on its investigation and its review of the

police report, State Farm concluded that brake failure, rather than Talmadge’s negligence,

caused the accident, and therefore it denied Bilodeau’s claim for damages against

Talmadge. Mr. and Mrs. Bilodeau (collectively “Bilodeau”) then sued Talmadge. State

Farm defended. The trial judge allowed Bilodeau to present evidence concerning State

Farm’s loss of the master cylinder, thereby alerting the jury to insurance coverage.

          Before the verdict came in, State Farm told Talmadge’s mother that State Farm

would take care of any excess over the policy’s $100,000 limit. Supp. App. at 8. The

jury returned a $750,000 verdict in favor of Bilodeau; judgment was entered on May 26,

1995. Again after the judgment, defense counsel wrote Talmadge’s mother a letter which

reaffirmed State Farm’s prior position, indicating that it would post an appeal bond and

fully pay the judgment if it were affirmed on appeal. However, before any of State

Farm’s post judgment motions were heard, State Farm settled with Bilodeau. A

satisfaction of judgment was entered on July 24, 1995. Talmadge then brought this

action.

       When State Farm later learned that Talmadge had medical complaints resulting
          2

from the collision, it obtained and paid all medical bills. App. at 227.

                                             -3-
                                       DISCUSSION

       We review de novo the grant of summary judgment, applying the same standard as

the district court. First Savings Bank, F.S.B. v. First Bank System, Inc., 101 F.3d 645,

650 (10th Cir. 1996). Essentially, we ask "whether the evidence presents a sufficient

disagreement to require submission to a jury or whether it is so one-sided that one party

must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52

(1986). Summary judgment is proper, if, viewing the record in the light most favorable to

the nonmovant, there is no genuine issue as to any material fact. Fed. R. Civ. P. 56(c);

United States v. City and County of Denver, 100 F.3d 1509, 1512 (10th Cir. 1996).

       A. Bad Faith.

       When an insurance company breaches its duty of good faith and fair dealing

respecting its insured, Wyoming permits an action for the independent intentional torts of

first party or third party bad faith. State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d

813, 825 (Wyo. 1994). Thus, if an insurance company knowingly or recklessly, and

without a reasonable basis, denies its insured’s direct claim for policy benefits, its insured

may bring a cause of action for first party bad faith. Shrader, 882 P.2d at 826 (citing

Herrig v. Herrig, 844 P.2d 487, 490-91 (Wyo. 1992)). If an insurance company fails to

act in good faith to settle a third-party’s claim against its insured within policy limits, and

                                             -4-
that failure results in a judgment against the insured that exceeds policy limits, the insured

may bring an action for third party bad faith.3 Id.

       Since Talmadge’s claim arises from State Farm’s handling of a third party’s claim

against her, under Wyoming law, she must show that State Farm’s bad faith failure to

settle that claim resulted in an excess judgment against her. Talmadge disputes neither

State Farm’s ready willingness to pay, nor its actual payment of, the excess judgment.

Rather, she contends that State Farm breached its duty of good faith because of the way it

“investigate[d], handle[d] or denie[d]” the claim. Appellant’s Br. at 13 (citing Hatch v.

State Farm Fire & Cas. Co., 842 P.2d 1089, 1099 (Wyo. 1992) (“[Insurer] cannot properly

go beyond a reasonable denial of the claim and engage in unreasonable or unfair behavior

to gain an unfair advantage.”)). Echoing Hatch’s factual background in part, Talmadge

       3
        For purposes of applying the New Mexico statute of limitations, we have
previously held that a third party bad faith claim does not accrue until an excess judgment
becomes final. Torrez v. State Farm Mut. Auto. Ins. Co., 705 F.2d 1192, 1202 (10th Cir.
1982). We note, however, that Wyoming has ruled that a claim for bad faith arises at the
time the insurer initially refuses to pay. Darlow v. Farmers Ins. Exchange, 822 P.2d 820,
826 (Wyo. 1991) (citing, inter alia, Berry v. United of Omaha, 719 F.2d 1127, 1129 (11th
Cir.1983) (first party claim) and Schlauch v. Hartford Acc. and Indem. Co., 194 Cal.
Rptr. 658 (Cal. Ct. App. 1983) (third party claim)). See also Larraburu Bros., Inc. v.
Royal Indem. Co., 604 F.2d 1208, 1215 (9th Cir. 1979) (finding that, under California
law, an insurer which has caused damages in addition to the excess judgment may not
avoid bad faith liability by paying excess judgment before it becomes final); Campbell v.
State Farm Mutual Auto. Ins. Co., 840 P.2d 130, 139-40 (Ut. Ct. App. 1992) (holding that
insurer’s eventual payment of excess judgment does not cure damages sustained as a
result of its unreasonable failure to settle); Farmers Group, Inc. v. Trimble, 691 P.2d
1138, 1142 (Colo. 1984) (holding that an actual excess judgment is not a necessary
prerequisite to a claim for third party bad faith.)

                                            -5-
contends that “[t]he real brunt of [her] claim of bad faith is . . . that State Farm improperly

investigated the claim and that State Farm did not properly involve [her] in settlement

negotiations at any stage and even after the jury verdict was entered.” Appellant’s Br. at

16. Thus, Talmadge argues that she presented sufficient facts to create a jury question

regarding bad faith.

       In response, State Farm argues that Hatch’s ruling was limited to claims of first

party bad faith. However, whether or not its ruling may apply to third party bad faith

cases generally, this case does not satisfy Hatch’s criteria of “oppressive and intimidating

claim practices” by which the insurer seeks to “gain an unfair advantage” over its insured.

Hatch, 842 P.2d at 1099.

       That is, Talmadge has failed to present facts suggesting State Farm engaged in any

oppressive and intimidating practice toward her, and she has failed to point to any act by

which State Farm gained any unfair advantage over her. Except for the loss of the master

cylinder, Talmadge points to no specific failure in State Farm’s investigation which

affected the case.4 Nor does the single fact that State Farm allowed the judgment to be

entered demonstrate bad faith, in light of its readiness to post a bond and its actual

settlement of the judgment within two months of its entry. We conclude that the alleged

       The instances she does cite are either unsupported or irrelevant. For example, she
       4

mentions State Farm’s failure to get a statement from all passengers in Talmadge’s car
when State Farm had information that one of the passengers was contradicting the others’
exculpatory statements. However, the record reveals that defense counsel deposed all
witnesses who appeared at trial. Appellee’s Supp. App. at 9.

                                             -6-
facts do not satisfy the requirements for bad faith under Hatch’s definition. Drawing

every inference in Talmadge’s favor, we find that this case does not create a jury question

as to whether State Farm’s actions constituted oppressive or intimidating claim practices

toward her or otherwise sought to gain an unfair advantage over her.

       Furthermore, Talmadge has not claimed damages for which she may recover. As

the district court succinctly stated:

               In this case, State Farm paid the excess amount, so Michelle has not
       suffered any pecuniary harm. Boiled down to its essence, Michelle’s claim
       is that State Farm should compensate her for the emotional trauma she
       suffered by sitting through a trial. However, to recover damages for
       emotional distress, Michelle must demonstrate that State Farm’s bad faith
       caused her to suffer “substantial other damages, such as economic loss, in
       addition to the emotional distress.” Shrader, 882 P.2d at 833. Michelle
       cannot demonstrate any such damages. State Farm paid for the defense of
       the trial, and it has satisfied the excess verdict.

Appellant’s Br., App. at 7. We agree. Shrader specifically requires substantial other

damages as “a limitation . . . upon the recovery of damages for emotional distress for a

breach of this duty [of good faith and fair dealing].”5 Shrader, 882 P.2d at 833 (citing

Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1041 (Cal.1973); Anderson v. Continental

Ins. Co., 271 N.W.2d 368, 378 (Wis. 1978)). Inasmuch as the record reveals no

       5
        Talmadge argues that Shrader’s limitation was overruled by Daily v. Bone, 906
P.2d 1039, 1044 (Wyo. 1995) (allowing, in a case of negligent impact, recovery for
mental injury unaccompanied by physical injury). However, Shrader and Daily concern
very distinct torts. Accordingly, we conclude that Daily does not implicitly overrule
Shrader’s specific damages limitation for the intentional economic tort of bad faith.

                                           -7-
substantial damages, either physical or economic, in addition to emotional distress,

Talmadge’s claim fails.

       B. Spoilation6 of Evidence.

       The term “spoilation” encompasses a third party’s intentional or negligent

destruction or loss of tangible evidence, which destruction or loss impairs a person’s

ability to prove or defend a prospective civil action.7 Bush v. Thomas, 888 P.2d 936, 939

(N.M. Ct. App. 1994) (collecting cases). Although her complaint alleges both intentional

and negligent spoilation, Talmadge’s appeal concerns only negligent spoilation.

       As both parties note, Wyoming has not recognized the tort of spoilation. Lacking

a precedent from the state’s highest court, a federal court sitting in diversity must predict

how the state’s supreme court would rule if it were presented with the issue.

Adams-Arapahoe School Dist. No. 28-J v. GAF Corp., 959 F.2d 868, 871 (10th Cir.

1992). We review de novo this state-law determination. Id.

       6
        Courts also refer to the tort as “spoliation.”
       7
        Although not relevant to Talmadge’s claim, spoilation also encompasses a party’s
loss or destruction of evidence related to an action involving that party. See, e.g., Burns
v. Cannondale Bicycle Co., 876 P.2d 415, 419 (Ut. App. 1994). Rather than permit a tort
claim in such cases, courts may, inter alia, allow an adverse inference to be drawn against
the party responsible for the evidence’s loss or destruction. Id. Without specifically
using the term spoilation, Wyoming appears to allow such an inference. Continental
Sheep Co. v. Woodhouse, 256 P.2d 97, 99-100 (Wyo. 1953); cf. Kieffer v. Weston Land,
Inc., 90 F.3d 1496, 1500 (10th Cir. 1996) (approving the Wyoming district court’s denial
of defendant’s objection to expert’s foundation, which objection was created by
defendant’s removal of allegedly defective machine, and also approving district court’s
ruling that plaintiff could admit evidence of that removal, and that jury could accept or
reject defendant’s explanation).

                                             -8-
       The district court did not determine whether Wyoming would recognize the tort of

negligent spoilation.8 Nor need we decide the issue, since, in any event, Talmadge has

not presented a sufficient showing to invoke its application. At a minimum, a person

claiming negligent spoilation must establish the following elements: (1) existence of a

potential civil action; (2) a legal or contractual duty to preserve evidence relevant to that

action; (3) destruction of that evidence; (4) significant impairment in the ability to prove

the lawsuit; (5) a causal relationship between the evidence destruction and the inability to

prove the lawsuit; and (6) damages. Continental Ins. Co. v. Herman, 576 So. 2d 313, 315

(Fla. Dist. Ct. App. 1990); accord Foster v. Lawrence Mem. Hosp., 809 F. Supp. 831, 836

(D. Kan. 1992).

       Essentially, Talmadge claims that State Farm’s loss of the master cylinder

(1) impaired her defense of unavoidable accident; and (2) prevented her from bringing a

products liability action against the manufacturer and repair shop. Regarding her first

claim, State Farm does not dispute that it had a duty to preserve the master cylinder for

the Bilodeau trial. However, as noted above, Talmadge has presented no damages which

can be recovered as a result of State Farm’s breach of that duty.9 Regarding her claim

       8
        Applying the rationale of adverse inference cases, see n.7 supra, the district court
held that spoilation was unavailable since Talmadge was not an adverse party at the time
State Farm lost the master cylinder. However, as we have noted, a cause of action for
spoilation can be brought against a third party who destroys evidence relevant to a
prospective lawsuit.
       9
           As the district court noted: “Talmadge may well be correct in arguing that State
                                                                               (continued...)

                                             -9-
that State Farm’s loss of the master cylinder has prevented her from bringing a products

liability suit, she concedes that she never advised State Farm that she intended to bring a

such an action. Moreover, the record provides no indication that State Farm should have

known, in the absence of actual notice, that Talmadge had any uncompensated damages

which could be pursued against others.10 Since Talmadge lacks the essential elements of

damage and duty respectively, summary judgment was proper as a matter of law on both

spoilation claims.11

       C. Punitive Damages.

       As the district court correctly noted, punitive damages “are a remedy, not an

independent cause of action.” Appellant’s Br., App. at 9. We have already held that State

Farm did not breach its duty of good faith and fair dealing respecting Talmadge, and that

its loss of the master cylinder is not actionable. We agree with the district court’s

       (...continued)
       9

Farm ‘bungled the case’ and caused the judgment to be higher than [it] otherwise would
have been. However, State Farm is the one who paid for this ‘bungle’ when it settled
Bilodeau’s claim.” Appellant’s Br., App. at 9.
       10
         Although Talmadge points to provisions in State Farm’s claims manual which
establish a procedure for preserving evidence, those provisions speak to State Farm’s
duties in handling claims against its insureds. They do not create a general duty
respecting claims against third parties.
       11
         Talmadge also asserts that her claim sounds in simple negligence. However, in
order to prevail on a negligence claim, Talmadge must show the breach of a duty which
proximately caused her damages. Our conclusion that she lacks essential elements
applies equally to a negligence claim.

                                            - 10 -
conclusion. Having no claim for actual damages, Talmadge has no claim for punitive

damages.

      AFFIRMED.

                                                 ENTERED FOR THE COURT

                                                 Stephen H. Anderson
                                                 Circuit Judge

                                        - 11 -