Court Opinion

ID: 9792524
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:30:22.707955+00
Date Added: 2024-06-11T07:37:43.456527
License: Public Domain

BAKES, Chief Justice,
dissenting:
The issue addressed in Part II of the majority opinion is framed as follows:
Was the trial court correct in allowing the jury to decide whether the insureds (the Garnetts) were entitled to payments from the insurance company (Transamerica) for repair or replacement of the damaged property before the Garnetts completed the reconstruction and documented the cost?
Ante at 771, 800 P.2d at 658 (emphasis added). In analyzing this issue, the first task is to determine whether the provisions of the policy are ambiguous and, if not, what the policy required of Transamerica. It is a principle firmly established in our case law that, where the provisions of an insurance policy are unambiguous, the interpretation of those provisions is a question of law for the court. See, e.g., Casey v. Highlands Ins. Co., 100 Idaho 505, 600 P.2d 1387 (1979); Parma Seed, Inc. v. General Insurance Co. of America, 94 Idaho 658, 496 P.2d 281 (1972); Unigard Ins. Group v. Royal Globe, etc., 100 Idaho 123, 594 P.2d 633 (1979).
The majority fails to answer this important first question concerning whether the pertinent provisions of this policy are ambiguous. As noted by the majority, there are two crucial provisions of the policy. The first reads:
9. Duties Of The Named Insured After A Loss. In case of loss the named insured shall ...
(e) submit to the Company within 60 days after requested a signed, sworn statement of loss that sets forth to the best of the named insured’s knowledge and belief:
(5) specifications of any damaged building and detailed estimates for repair of the damages;
The second relevant provision states:
3. The Company shall not be liable under this endorsement for any loss unless and until the property is actually repaired or replaced by the insured with due diligence and dispatch.
(Emphasis added.) Both of these provisions are straightforward and concise. Neither provision can fairly be described as ambiguous, and neither the trial court below nor the majority on appeal concludes that these two provisions are ambiguous. Accordingly, the trial court should have instructed the jury as to the specific meaning and effect of those provisions, i.e., that the insured had an obligation under the contract to furnish those proofs of loss and detailed estimates for repair of the damages and that Transamerica was not liable for any payment unless and “until the property is actually repaired.” Instead of providing such instructions, the trial court merely instructed the jury that, “There is nothing unreasonable or improper about an insurance company demanding compliance with the contract it has entered into with its insured. There can be no liability on the part of defendant Transamerica for simply requiring that plaintiffs fulfill their contractual obligations relating to proof of loss and reconstruction of the insured building.” With respect to this instruction, the majority states, “This instruction implicitly assumes that the two clauses of the policy invoked by Transamerica state duties that the Garnetts were obligated to fulfill under the policy. The only question presented for our consideration is whether there was substantial evidence to justify submitting the case to the jury.” Ante at 778, 800 P.2d at 665. However, instructing the jury that Transamerica could not be held liable for requiring the plaintiffs to fulfill their contractual obligations is a far cry from the instructions that Transamerica was entitled to. Transamerica was entitled to an instruction that no liability could be imposed upon Transamerica unless the insured submitted to the company *786proofs of loss within 60 days and “until the property is actually repaired or replaced by the insured with due diligence and dispatch.” If the plaintiff did not prove that it submitted its proofs of loss within sixty days as required by the policy, or did not prove that it had actually repaired the premises, then Transamerica was entitled to a directed verdict.
The two clauses of the insurance policy— Clause 9 requiring the submission of the “specifications of any damaged building and detailed estimates for repair of the damages,” and Clause 3 of the “Value Pacer Endorsement” providing that “the company shall not be liable under this endorsement for any loss unless and until the property is actually repaired or replaced by the insured with due diligence and dispatch” — are clear and unambiguous. The Court’s opinion does not conclude otherwise. The trial court initially, and this Court on appeal, should enforce them as written. Nevertheless, the Court chooses not to enforce them. The reason the Court gives for not enforcing the policy requirement that the Garnetts submit sworn statements as to proof of damage and estimate of repair is that “there was no purpose in the Garnetts furnishing the specifications of the building and detailed estimate of cost of repairs.” Ante at 778, 800 P.2d at 665. As to the policy provision that the company shall not be liable for any loss until the property is actually repaired, the Court’s reason for not enforcing that policy provision is the statement that, while “[a] literal reading of the value pacer endorsement might lead to that conclusion ... the evidence indicates that even Transamerica did not interpret the endorsement this way.” Ante at 778, 800 P.2d at 665. I believe the Court errs in its analysis when it finds “no purpose” in enforcing the first provision, and further errs in excusing compliance with the second because it concludes that “Transamerica did not interpret the endorsement this way.”
As we stated in Miller v. World Ins. Co., 76 Idaho 355, 283 P.2d 581 (1955):
It is the function of the court to construe a contract of insurance as it is written, and the court by construction cannot create a liability not assumed by the insurer, nor make a new contract for the parties, or one different from that plainly intended, nor add words to the contract of insurance to either create or avoid liability.
76 Idaho at 357, 283 P.2d at 582. In my opinion, the majority has effectively rewritten the contract for the parties in this case by describing the duties in that contract either as “without purpose,” or that “Transamerica did not interpret the endorsement this way.” It has thus not followed the requirement articulated in our cases that the Court cannot create a liability not assumed, or make a new contract for the parties.
With respect to the first provision, the Court elaborates on its conclusion that “there was no purpose in the Garnetts furnishing the specifications of the building and a detailed estimate of the cost of repairs” to Transamerica as required by the policy, by stating:
Under the policy, payment for damage to the building is limited to its actual cash value, unless the building is repaired and the cost of repair or replacement is greater than the actual cash value. If the cost of reconstructing the building were greater than the actual cash value, there was no purpose in the Garnetts furnishing the specifications of the building and a detailed estimate of the cost of repairs. They were entitled to at least the actual cost value. Whether they were entitled to more would depend on the actual cost of reconstruction.
Here, there is evidence that the Garnetts intended to repair or replace the building. Transamerica’s own estimates of the cost of repairing or replacing the building exceeded the actual cash value of the building. From this evidence the jury could have concluded that the Garnetts did not violate their duty under the policy to furnish specifications of the building and detailed estimates for repair of the damages, since any additional amount to which the Garnetts were entitled under the policy did not depend on the estimate *787of the cost of repairs, but on the actual cost of repairs.
Merely because Transamerica’s own estimates of the cost of repairing or replacing the building exceeded the actual cash value of the building did not excuse the Garnetts from complying with the requirement of the policy that they submit those proofs of loss within sixty days. The Court’s statement that, “From this evidence the jury could have concluded that the Garnetts did not violate their duty under the policy ...” is not a reference to evidence in the record at all, but rather the Court’s excusing the Garnetts’ performance under the policy because the Court finds “there was no purpose in the Garnetts furnishing the specifications ____” I believe the Court errs when it concludes that the jury was properly instructed on this issue and that there was evidence from which the jury could have concluded that the Garnetts did not violate their duty under the policy to submit proofs of loss.
As to the second provision in the contract, the provision in the Value Pacer Endorsement that “the company shall not be liable under this endorsement for any loss unless and until the property is actually repaired ...,” the majority states:
The more difficult question is whether the policy required the Garnetts to repair or replace the building at their own expense before being entitled to more than the actual cash value of the building. A literal reading of the Value Pacer Endorsement might lead to that conclusion. However, the evidence indicates that even Transamerica did not interpret the endorsement this way.
Ante at 778, 800 P.2d at 665 (emphasis added). In actuality, there is simply no evidence on this record to suggest that Transamerica interpreted their policy other than exactly as it was written. From beginning to end, Transamerica has interpreted the policy in only one way, i.e., literally. Transamerica’s position before, during, and after trial is that they were not required to make payments “unless and until repairs were actually complete.” That is the only interpretation that Transamerica has ever given to this policy, and that is the interpretation that the evidence on this record supports.
The “evidence” referred to and relied upon by the majority to support its conclusion is (1) a letter from Transamerica in which a claims adjuster stated that Transamerica was willing to make proportional payments toward the repair of the building after the $122,500 had been spent and additional repairs were completed; and (2) the fact that Transamerica actually paid $105,-630.43 toward the repair of the building. This evidence in no way suggests that Transamerica interpreted the policy as requiring them to make payments before repairs were complete. Merely because Transamerica. volunteered to make progress payments in advance of the completion of the repairs, does not mean that they believe they were required to do so. In fact, the record shows that Transamerica did everything within its power to ensure that their position — their interpretation of the policy — would not be misconstrued. When writing to the Garnetts explaining how the interim payment had been determined by the company, Transamerica’s attorney ended that correspondence by stating, “Finally, Transamerica continues to reserve all rights and defenses under its policy. No waiver or estoppel is intended, nor should be implied.” I believe the Court errs egregiously when it makes an appellate finding of fact that, “Even Transamerica did not interpret the endorsement this way.”
For Transamerica to have been bound to a “commitment” to make proportional payments, in the face of the unambiguous policy provision providing that it did not have to make any payments “until the property is actually repaired,” there would have to be a separate independent agreement between the parties supported by an additional consideration in order for there to be a binding contract or commitment to make proportional payments toward the cost of repairing the building as the work was completed. Brand S Corp. v. King, 102 Idaho 731, 639 P.2d 429 (1981); Massey-Ferguson Credit Corp. v. Peterson, 102 Idaho 111, 626 P.2d 767 (1981). No such *788agreement and consideration was alleged or proved, and the Court’s opinion points to none.
The record in this case shows that some interim payments were made for the repairs to the building. In addition to the $122,500 payment, which would have been the minimum amount due under the policy, being the actual cash value, Transamerica advanced an additional $105,630.43 toward the repair of the building, even in advance of those repairs being made. As the factual statement in the majority opinion demonstrates, at the time that Garnetts filed this lawsuit, and even at the time of trial, Richard Garnett testified that approximately $20,000 worth of work remained to be done to complete the reconstruction of the building. Under the clear and unambiguous provisions of the policy, Transamerica was not required to make any payment “until the property is actually repaired.” The mere fact that Transamerica attempted to accommodate the Garnetts’ needs by making proportional payments at or before the time the repairs were completed cannot constitute a binding modification of the policy to include a new “commitment” by Transamerica to pay prior to the time that the repairs were actually completed. There is no evidence of such an agreement, and there would be no consideration for it even if there were. Each of Transamerica’s letters expressly negated any such modification. If insurance companies are going to be penalized for advancing payments sooner than required under their policies, as has occurred here, then the natural effect of today’s decision will be to discourage insurance companies from making payments in advance of what would otherwise be required under a policy. That result will certainly be counterproductive to all insureds in the future.
In sum, the majority’s statement that “from this evidence the jury could have concluded that Transamerica did not fulfill its commitment to make proportional payments toward the cost of repairing the building as the work was completed,” is simply unsupported by the law or the facts. Further, it is unclear what the majority means by such a “commitment.” Does the Court mean a modification of the insurance contract? If so, it would be invalid as a modification because there was no agreement to such a modification by Transamerica, and Garnetts provided no consideration for such an early payment modification. Does the Court mean a waiver? If so, then the Court’s conclusion is incorrect because the correspondence forwarding the advance payments provided that “the insurance company continues to insist upon full and complete compliance with all of the terms and conditions of the policy of insurance and ... [n]o waiver or estoppel of any kind is intended or should be inferred from this letter.” Finally, as a factual matter, the Court’s opinion itself acknowledges that Transamerica made some payments before the work was completed. There is no factual or legal basis for a jury to find that a legal “commitment” was not fulfilled. All the evidence on the record — including that relied on by the majority— demonstrates that Transamerica made payments before they were required by the policy. The trial court should have granted Transamerica’s motion for j.n.o.v.
II
With regard to Part V of the majority opinion, and its treatment of the punitive damage issue, the majority sets out the standard for an award of punitive damages articulated in Cheney v. Palos Verdes Inv. Corp., 104 Idaho 897, 665 P.2d 661 (1983). The majority also notes that “the decision of whether to submit the question of punitive damages to the trier of fact rests within the discretion of the trial court.” Quoting Soria v. Sierra Pacific Airlines, Inc., 111 Idaho 594, 726 P.2d 706 (1986). The majority ultimately concludes that “applying these standards to the record in this case leads to the conclusion that the trial court did not abuse its discretion in submitting the issue of punitive damages to the jury.” Ante at 781, 800 P.2d at 668.
The evidence in this case simply does not reach the necessary threshold to warrant the submission of a punitive damage award to the jury. In order to assert a punitive damage claim, a plaintiff must meet a cer*789tain threshold by demonstrating that a defendant acted in a manner that was “an extreme deviation from reasonable standards of conduct,” or “acted with an extremely harmful state of mind, whether that state of mind be termed ‘malice, oppression, fraud or gross negligence ... Cheney v. Palos Verdes Investment Corp., 104 Idaho 897, 665 P.2d 661 (1983). In support of its conclusion that the evidence reached that threshold, the majority relies on (1) Transamerica’s failure to pay the full cost of reconstruction prior to completion of the building; and (2) the fact that Transamerica relied on a bid for the reconstruction of the building that failed to take into account the repair of the heating system; and (3) the testimony of Garnett’s expert witness. In my opinion, all three of these reasons fall far short of the standards articulated in Cheney.
Regarding the first, Transamerica's failure to pay the cost of reconstruction prior to completion, the clear and unambiguous provisions of the policy did not require payment “unless and until reconstruction was actually completed.” How can the claim that Transamerica failed to make payments before they were due under the policy be evidence to support a punitive damage award? In any event, as pointed out in Part I, Transamerica did make proportional payments even before the repairs were actually completed. There is simply no basis for claiming punitive damages based on the failure of Transamerica “to pay the full cost of reconstruction prior to completion of the building,” when the policy didn’t require it.
Regarding the second claim that Transamerica relied on an estimate that did not take into account the cost of the heating system, there was no obligation on the part of Transamerica to obtain any bid or estimate under the insurance contract — that obligation was on the Garnetts under Paragraph 9 of the policy, as pointed out on page 13 of the Court’s opinion. The Court has excused the Garnetts’ failure to comply with Paragraph 9’s requirement that the insured submit a bid within sixty days by stating, “There was no purpose in the Garnetts furnishing the specifications of the building and a detailed estimate of the cost of the repairs.” If the Garnetts can be excused from performing their policy obligation to obtain “specifications of any damaged building and detailed estimates for repair of the damages” because it served “no purpose,” how can Transamerica, which had no such obligation under the policy, be guilty of “an extreme deviation from reasonable standards of conduct” by obtaining an estimate which did not include repair to the heating system when it had no obligation to provide such an estimate or bid? Further, the Garnetts themselves relied on that Transamerica estimate which they presented to the City of Coeur d’Alene in order to establish that the building would meet the applicable zoning and building code in order to obtain a permit to rebuild the building. The Garnetts made no objection to the Transamerica estimate when they were using it to get their building permit. It is difficult to believe that the omission of one item in a complex bid (even if the omission could be found to be negligent), could ultimately provide the basis for a punitive damage award of $100,-000. If, as the Court’s opinion suggests, the Garnetts can be excused from their contract obligation to submit estimates within sixty days because those estimates would serve “no purpose” because the Garnetts were entitled to the actual cost of repair, how then can Transamerica be faulted for obtaining an estimate which did not cover one item, when Transamerica had no duty to obtain any estimate? That circumstance cannot be evidence supporting a claim for punitive damages. With respect to the majority’s treatment of the expert testimony, that testimony lends absolutely no support to the award of punitive damages. Here, the expert testified that the claims file of Transamerica was an extreme deviation from the reasonable standard of conduct. As the majority opinion observes,
This witness gave his opinion that “this file constitutes an extreme deviation of the standard of care in claims handling in this part of the country at this time.” It appears that the letters between the at*790tomey for the Garnetts and the attorneys for Transamerica were not included in the Transamerica claims file. On cross examination the witness testified that he would expect to find any correspondence between attorneys in the claims file.
Ante at 777, 800 P.2d at 664. However, to recover punitive damages for denial of an insurance claim, the insured must show (1) “that the company initially refused to pay a valid claim, (2) that the company’s refusal to make prompt payment was an extreme deviation from reasonable standards of conduct, and (3) that this extreme deviation occurred with an understanding of the probable consequences.” Greene v. Truck Ins. Exchange, 114 Idaho 63, 753 P.2d 274 (Ct.App.1988), review den., 116 Idaho 467, 776 P.2d 829 (1989). Here, the expert did not testify or even intimate that there was a “refusal to make prompt payment” by Transamerica which was an extreme deviation from the reasonable standard of conduct. Nor did the expert testify that the incompleteness of the “claims file” was in any way responsible for any claimed refusal by Transamerica to make prompt payment. This expert merely testified that, because the claims file did not contain the attorneys’ correspondence, that file was “ridiculous, it’s outrageous, it’s just unbelievable.” Without some showing that the incompleteness of this claims file contributed to some failure by Transamerica to pay money which was due under the policy, the expert’s opinion was totally irrelevant.
The irrelevance of this expert’s testimony to an award of punitive damages cannot be over-emphasized. The claims file was not on trial; rather, it was Transamerica’s conduct in allegedly failing to pay when the policy required it to pay which is on trial. However, the plaintiff in this case has failed to prove that Transamerica did not make prompt payments as they were due under the policy. Under Paragraph 3 of the Value Pacer Endorsement, Transamerica was not “liable under [that] endorsement for any loss unless and until the property is actually repaired or replaced by the insured. ...” Ante at 779, 800 P.2d at 666. Richard Garnett testified at trial that he estimated $20,000 worth of work remained to be done to complete the reconstruction of the building. Accordingly, under the Value Pacer clause, Transamerica had not breached its policy, and the omission in the claims file of the attorneys’ correspondence has no bearing on the question of whether Transamerica had breached its policy by failing to pay the claim under the policy when it became due. The expert’s opinion that Transamerica’s claims file was “ridiculous, it’s outrageous, it’s just unbelievable,” because it didn’t include the attorney correspondence was totally irrelevant to the issues.
The majority opinion cites the case of Sliman v. Aluminum Company of America, 112 Idaho 277, 731 P.2d 1267 (1986), in support of its approval of the expert testimony in this case to uphold the award of punitive damages. The majority opinion states, “This testimony is reminiscent of the testimony of the expert witness in Sliman v. Aluminum Company of America, ..., who described the conduct of the defendant in that case as ‘an extreme deviation from the customary practice in the industry.’ ” Ante at 781, 800 P.2d at 668. While in both cases the expert uttered the phrase “extreme deviation from the reasonable standard of care,” beyond that the similarities end. In Sliman, the plaintiff sued the defendant manufacturer for injuries she sustained from the use of defendant’s product, a 7-Up bottle with an aluminum twist-off cap.1 The plaintiff’s primary complaint in Sliman was that the defendant failed to warn of the risk inherent in the use of its product. At trial the expert was asked if he had an opinion as to whether the failure of the defendant ALCOA to warn was an extreme deviation from the customary and usual action taken *791by manufacturers of consumer products. In response to that question, the expert testified:
A. It’s my opinion that the failure to correct this problem, or to warn, at least warn the public about it, is an extreme deviation from the customary practice in the industry.
112 Idaho at 285, 731 P.2d at 1275 (emphasis added).
As is evident from the underscored language, the expert’s testimony in Sliman related directly to the defendant’s alleged tortious conduct at issue (failure to warn), which was the proximate cause of the plaintiff’s claim (injury from use of the product). It was that conduct of the defendant which caused the injury that the expert described as an extreme deviation from the reasonable standard of care. In this case the conduct of Transamerica which was at issue was whether Transamerica had breached its policy by failure to make payments before the repairs were actually completed. Garnetts had not alleged a cause of action against Transamerica for breaching its policy by failure to maintain the correspondence of the lawyers in its claim file, or any other deficiency in the claims file. Their claim was that Transamerica had failed to pay money when it was due under the policy. Nothing in the insurance contract imposed any duty on Transamerica to even maintain a claims file. There was no evidence from the expert witness, or anyone else, that if Transamerica had maintained a proper claims file it would not have breached its policy and would have paid money sooner than it did. In fact, the Garnetts’ own evidence shows just the contrary — that there was no money due under the policy because the property had not been “actually repaired” as required by Paragraph 3 of the Value Pacer Endorsement to the policy. The expert witness’s testimony in this case was unrelated to the plaintiffs’ claim that the defendant Transamerica had failed to pay money when it was due under the policy and was totally irrelevant.
We have on numerous occasions reiterated the principle that the ultimate justification for punitive damages is that the defendant acted with an extremely harmful state of mind, whether that state of mind be called malice, oppression, fraud or gross negligence. Cheney v. Palos Verdes Investment Corp., 104 Idaho 897, 665 P.2d 661 (1983). We have also indicated that the purpose of punitive damages is deterrence, not punishment. See, e.g., Sliman v. Aluminum Company of America, 112 Idaho 277, 731 P.2d 1267 (1986); Cheney v. Palos Verdes Investment Corp., 104 Idaho 897, 665 P.2d 661 (1983); Morrison v. Quality Product, Inc., 92 Idaho 448, 444 P.2d 409 (1968). After reviewing the record and briefs in this case, there is no evidence that Transamerica even breached its contract, much less did so with the “extremely harmful state of mind” required by our cases to establish a punitive damage claim. In the correspondence between the attorneys, Transamerica offered to pay money prior to when it would otherwise have been required to pay it under the policy, all the time asserting that it was not waiving its rights under the policy by making those payments in advance of when it was obligated to make them under the policy. I find it incomprehensible that the Court finds that Transamerica’s actions in this case meets the substantial threshold which we have required a claimant to meet before the issue of punitive damages can even be submitted to a jury. The award of punitive damages in this case should be set aside.

. In Sliman, the plaintiff attempted to open a plastic bottle of 7-Up. The bottle was capped with an aluminum twist-off cap. Neither the cap nor the bottle contained any warnings concerning the possibility of the cap blowing off, or any instructions on how to remove the cap. Believing that the pilfer-proof band at the bottom of the cap must be removed before removing the cap itself, the plaintiff pulled at the band with a pair of pliers. At this point, the cap exploded from the bottle and struck her in the left eye, causing permanent injury and loss of sight in that eye.