Court Opinion

ID: 9851366
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:11:26.088198+00
Date Added: 2024-06-11T09:20:54.576938
License: Public Domain

WALTERS, Justice, dissenting. SOSA, Senior Justice, concurring in dissent. We concur with the opinion of Justice Riordan in its discussion of Policy Coverage and Compensatory Damages. We agree with Judge Bivins’s discussion regarding the award of prejudgment interest. We disagree on the denial of punitive damages and attorneys fees and, therefore, respectfully dissent from the opinion of the majority on those questions. 1. Punitive Damages. We have no quarrel with what has been said regarding the standard of proof to be applied in assessing a claim for punitive damages. Consequently, in determining whether substantial evidence supports the trial court’s findings, that Allendale's conduct was “wilful, wanton, malicious and in reckless disregard of the rights of the insured,” we are required to view the evidence in the light most favorable to the prevailing party, F & T Co. v. Woods, 92 N.M. 697, 594 P.2d 745 (1979), and to indulge all reasonable inferences in support of the trial court’s decision. Texas National Theaters, Inc. v. City of Albuquerque, 97 N.M. 282, 639 P.2d 569 (1982). Contrary to the well-established rules that it is not the function of an appellate court to weigh the evidence or its credibility, nor to substitute its judgment for the trial court’s when the findings are supported by substantial evidence, Getz v. Equitable Life Assurance Society of the United States, 90 N.M. 195, 561 P.2d 468, cert. denied, 434 U.S. 834, 98 S.Ct. 121, 54 L.Ed.2d 95 (1977), that is what the majority has done in this case. Judge Bivins contends that, according to the trial court’s findings, all of the evidence regarding Allendale’s “wrongful conduct,” relied on by the trial court was documentary and thus subject to reweighing by the reviewing court. We do not believe the findings on the insurer’s conduct can be so narrowly circumscribed, nor do we agree that the reviewing court is so unlimited in assessing documentary evidence. What is not pointed out, moreover, is that some of those “documents” were depositions, and the testimony of witnesses is not within any exception to the rule that the court may not reweigh the evidence. Additionally, the case cited in support of the right to re-examine and re-weigh the evidence did not unequivocally so state. Kosmicki v. Aspen Drilling Co., 76 N.M. 234, 414 P.2d 214 (1966), was quoted in First National Bank in explication of an alleged exception relied on in First National Bank. Kosmicki made it clear that this court “has never countenanced a review of documentary evidence to the exclusion of the findings * * * To the contrary, we may only review the documentary evidence to determine whether it supports the findings, and we will not disturb the findings ‘unless such findings are manifestly wrong or clearly opposed to the evidence.’ [Citation omitted.]” 91 N.M. 11, 569 P.2d at 424. That means simply that if there is substantial evidence in the documents to support the findings, other contrary evidence in the documents cannot be used to overturn the findings. Amplifying on the evidence discussed by Justice Riordan and Judge Bivins in their separate opinions, the documents and testimony from Allendale’s witnesses established that UNO’s and Beker’s claims were not the only instances of concern to Allen-dale. Testimony of Allendale witnesses, as well as inter-company memoranda, disclose that at the time of the Churchrock dam failure, Allendale had been re-evaluating its liability exposure under the “collapse” peril in all of its outstanding policies, because the company had experienced “dramatic increases” (plural) in “catastrophic losses” (plural) far in excess of its estimated annual collapse losses. By its own admissions, those unanticipated claims were the result of Allendale’s reluctance to define what it recognized to be an ambigious collapse provision for fear that a definition protective of its liability would adversely affect marketing efforts. It decided, instead, to leave the ambiguity undefined and to deal with each collapse claim on an individual basis, resolute in its goal to reduce its losses under the collapse peril by $10,-000,000 per year. Allendale's internal records provided compelling evidence of its awareness that the collapse peril coverage invited confusion to its insureds with respect to the scope of their collapse coverages. Among Allendale’s documents was the legal opinion obtained by one of its affiliates, mentioned by Judge Bivins, that their policies’ collapse terms would be broadly construed against the insurer. Although that legal opinion was specifically directed to the gypsum dike failure of one of their insureds, the analysis was sufficient to alert Allen-dale and its affiliates that construction of the words “earth movement,” because it was ambiguous, would probably be restricted to natural occurrences. Interoffice memos recognized and cited cases discussing and holding “collapse” to be an ambiguous term. Still Allendale declined to write a definitive “collapse” coverage provision, preferring “to handle each sticky situation as it developed.” [I]f the insurer continues to issue, without change, policies, clauses of which have been judicially construed, it will be considered as issuing them with that construction placed on them* * *. Patterson v. United States, 233 F.Supp. 447, 449 (E.D.Tenn.1964) (quoting 44 C.J.S. Insurance § 293.) Allendale thus was charged with knowing the judicial construction of its unchanged provision. UNC was entitled to believe that it had purchased insurance coverage, not a lawsuit, when it entered into the insurance contract. See Gulf Atlantic Life Insurance Co. v. Barnes, 405 So.2d 916 (Ala.1981). Also among Allendale’s records was evidence that Allendale altered its original September, 1978, investigative report of the UNC dam failure to soften its language where inferences of collapse appeared. As examples, “rupture” was changed to “washout”; a reference to where the dam had “failed” was changed to “eroded away,” and the words “ruptured,” “removed a slice” and “breached” were changed to “washed out” and “eroded.” The changes fairly could have been regarded by the trial court as an attempt by Allendale to bolster its decision to deny coverage nine days after the accident and two months before the investigation was completed. There was evidence that Allen-dale also claimed a “flood damage” exception in coverage, and maintained its liability for businees interruption losses to be substantially lower than provided for, even after it had determined its position on that issue was wrong. Considering these examples and all of the evidence of Allendale’s “stonewalling” of its insured’s claim, the trial court did not act unreasonably in finding that the refusal to pay UNO’s claim was an act of bad faith. Punitive damages are meant to punish a wrongdoer and to discourage like behavior in others. NMSA 1978, UJI Civ. 18.27 (Repl.Pamp.1980). To be an effective punishment, the award must be high enough, in relation to the defendant’s assets, to hurt. Marriott v. Williams, 152 Cal. 705, 93 P. 875 (1908). Nonetheless, as with any system of punishment, there must be some correlation between the weight of the penalty and the nature and extent of the wrongdoing. Faubion v. Tucker, 58 N.M. 303, 270 P.2d 713 (1954). UNC contends that the court’s punitive award bears a reasonable relationship to the almost $25 million compensatory damages award. It cites Sierra Blanca Sales Co. v. Newco Industries, Inc., 84 N.M. 524, 541-43, 505 P.2d 867, 884-86 (Ct.App.) cert. denied, 84 N.M. 512, 505 P.2d 855 (1972), in support of its argument that a ratio of punitive to compensatory damages of approximately one-to-one does not necessarily indicate passion or prejudice, at the same time resisting Allendale’s argument on comparative awards in other cases as an inappropriate measure of the correctness of the amount awarded. Of course, it is no more acceptable to compare cases approving one-to-one ratios between compensatory and punitive damages to sustain the award, than it is to compare amounts to punitive awards granted in prior decisions. The appellate court is required, however, to consider the enormity of the wrongful acts committed when reviewing a claim of excessive punitive damages. In support of the trial court’s punitive award of $25 million, UNC points to its projection that Allendale had earned interest of nearly $19 million on the amount of the claimed but unpaid loss by the time of trial. If we consider, however, that the trial court’s award of pre-judgment interest should be taken into account as a claim against some of the interest earned by Allendale from date of loss to date of trial, it would be wrong to look at the entire $19 million earned as minimizing the “hurt” for the amount of punitive damages assessed. In the absence of evidence on the question, we have no assurance that interest of the amount suggested by UNC actually has been earned by Allendale, but we are not so isolated from reality that we cannot assume that, in the 6-plus years since the accident, the insurance company has established a loss reserve fund to cover this claim and has accumulated interest on the fund. If its 6-year average return equalled 12% — an unquestionably conservative average during the 1979-1984 period — its earnings on the loss reserve earmarked for the UNC claim would have approached $16.5 million. Prejudgment interest allowed of approximately $4 million would reduce Allendale’s earned interest available to apply on the punitive judgment to $12.5 million. There was evidence that Allendale’s total assets at the time were $859 million, and net assets plus cash on hand were approximately $936 million. A wrongdoer’s assets are relevant in determining the amount of punitive damages. Ruiz v. Southern Pacific Transportation Co., 97 N.M. 194, 638 P.2d 406 (Ct.App.), cert. quashed, 97 N.M. 242, 638 P.2d 1087 (1981). The $25 million punitive award exceeds Allendale’s likely minimum interest earnings, offset by its prejudgment interest liability, by $12.5 million; that amount constitutes less than 7.5% of the company’s total assets. We are unwilling to say that, even after offsetting the amount of earned interest that may be accounted for by the prejudgment interest award, a penalty equalling little more than 7% of the company’s tangible wealth is excessive punishment. When we consider the purposes for which punitive damages are imposed, and when there is no evidence of passion or prejudice in the trial court’s determination, we are obliged to affirm the award. 2. Attorneys’ Fees. The trial court awarded attorneys’ fees and costs by authority of NMSA 1978, Section 39-2-1, which allows judgment of attorneys’ fees if the court finds that an insurer has acted unreasonably in failing to pay plaintiff’s claim. From our discussion of punitive damages, we do not doubt that the trial court properly exercised its discretion in granting fees in this case. Our absence of doubt is enhanced, and our certainty regarding Allendale’s unreasonableness is bolstered, by the majority's observation that UNC’s damages were ascertainable. In arriving at the attorney fee award of $3,210,759, the court first determined the number of hours of legal work expended, and multiplied that figure by the attorneys’ hourly billing rates, yielding a base or "lodestar” figure of $1,070,253 for 13,738 hours. This amount was then increased by a multiplier of 3 which represented, in the trial court’s view, a proper enhancement for the exceptional success of plaintiffs’ attorneys in prosecution of the suit, and for the advancement of public policy in litigated insurance claims, as shown by the attainment of punitive damages. Allendale objects to the accuracy of the time and rate factors; it contends further that application of the enhancement factor of 3 was a gross abuse of discretion. Allendale tells us that the trial court included in its calculations the attorneys’ hours spent prior to commencement of litigation, and time used to devise the punitive damages argument. We are not told, however, why those hours should have been excluded, other than that Allendale reads Section 39-2-1 as limiting all fees to actual litigation time. It suggests that the punitive damage claim was separate from UNC’s “claim on any type of first party coverage” and for some reason, therefore, hours spent on the punitive claim should have been reduced. If all legal work undertaken before the filing of the complaint were excluded from charges, attorneys would be encouraged to file suit before first determining the validity, merits and strengths of their clients’ position. The claim for punitive damages, where one is indicated, is no less a part of the lawsuit nor to be treated any differently when determining attorneys’ fees. Indeed, the statute is specifically addressed to the case where an insured prevails on an insurance claim and the court finds that the insurer unreasonably failed to pay. It consequently contemplates proof of a sort that well may support a punitive damage claim. We are not persuaded that those hours complained of should be eliminated. Secondly, Allendale alleges error in the trial court’s allowance of a Washington, D.C. billing rate for UNC’s out-of-state counsel. The company insists that the rate must be adjusted to New Mexico billing standards. The case authority relied on for this proposition, however, specifically leaves such a downward adjustment to the judge’s discretion. The trial court acknowledged the special expertise of the Covington firm and considered the factor of local prevailing fees to be intended only as a guide and just one of many factors to be applied. In our view, the trial court carefully exercised its discretion in establishing the base hourly rates at $74 per hour for the Stephenson firm and $82 per hour for the Covington firm and, in light of the evidence produced on the question, the court may even have erred on the side of conservatism. Finally, Allendale argues that the court’s use of a multiplier to the base figure (termed throughout the briefs as the “lodestar” figure), has a respectable following in the federal courts. See, e.g., City of Detroit v. Grinnell Corp., 560 F.2d 1093 (2d Cir.1977); McDonald v. Johnson & Johnson, 546 F.Supp. 324, 335-36 (D.Minn.1982), rev’d in part on other grounds, 722 F.2d 1370 (8th Cir.1983); Bagel Inn, Inc. v. All Star Dairies, 539 F.Supp. 107 (D.N.J.1982); Municipal Authority of Bloomsburg v. Pennsylvania, 527 F.Supp. 982 (M.D.Pa.1981); Helfand v. Cenco, Inc., 519 F.Supp. 322 (N.D.Ill.1981). The influences for applying a multiplier are the quality of the work performed, the result obtained, the public policy served, and the risk of non-recovery of fees and costs. The trial court deferred to those influences in deciding to enhance the hourly rate basic figure. According to Allendale, those courts which have applied a multiplier have all done so in contingency fee cases. We think that is a distinction without a difference. Why a contingent fee lawyer is entitled to enhancement of his fees and a straight fee lawyer is not escapes us when we consider the multiplier factors mentioned in the preceding paragraph. The enhanced hourly fee in this case actually brings the hourly rate for experienced, competent and successful counsel more into line with prevailing rates locally, as well as throughout the country, and it is still much less than the evidence produced before the trial court from experts would have supported. We would not disturb the trial court's award for attorney’s fees. In our judgment, the trial court should be sustained on all points. SOSA, Senior Justice, concurs.