Nunn v. Mid-Century Insurance Co., 244 P.3d 116

Nunn, as assignee of James, sues Mid-Century for bad faith breach of an insurance contract.
James and Nunn entered a Bashor-like pretrial agreement: a $4,000,000 stipulated judgment with a covenant not to execute, in exchange for Nunn pursuing the bad-faith claim against Mid-Century.
Mid-Century had previously paid policy limits ($100,000 per person, $300,000 per accident) and faced a potential excess judgment.
The accident left Nunn permanently paralyzed; damages were appraised far above policy limits.
The trial court and court of appeals held that the covenant not to execute negated damages to assign, so summary judgment for Mid-Century was proper.
The Colorado Supreme Court held that entry of a judgment in excess of policy limits establishes actual damages for bad faith, even with a covenant not to execute, reversing the court of appeals.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a pretrial stipulated judgment with a covenant not to execute can support damages in a bad-faith claim.	Nunn: damages exist from excess judgment despite covenant.	Mid-Century: covenant prevents damages from being proven.	Yes; excess judgment supports damages despite covenant.
Whether the covenant not to execute defeats damages when the insured is defended by the insurer.	Nunn: damages traceable to insurer's bad faith.	Mid-Century: covenant bars damages assignment.	No; damages established by excess judgment can be assigned.
Whether the court should apply the judgment rule or the prepayment rule for damages.	Nunn argues excess judgment suffices.	Mid-Century advocates prepayment rule.	Judgment rule applies; excess judgment is sufficient damages.
What is the proper measure and reasonableness of damages when a stipulated judgment is involved?	Damages up to the stipulated amount may be awarded if reasonable.	Damages capped or undefined by stipulation; insurer may challenge reasonableness.	Damages are evidenced by the stipulated judgment but must prove reasonableness; jury may adjust.

Northland Ins. Co. v. Bashor, 177 Colo. 463 (Colo. 1972) (settlement with assignment and later stipulated judgment not per se invalid)
Old Republic Ins. Co. v. Ross, 180 P.3d 427 (Colo. 2008) (pretrial stipulation; insurer may challenge bad faith after trial; stipulation not binding without bad faith finding)
Hamilton v. Maryland Casualty Co., 41 P.3d 128 (Cal. 2002) (insurer not bound by post-defense stipulation; damages not ascertainable until excess judgment)
Carter v. Pioneer Mut. Cas. Co., 423 N.E.2d 188 (Ohio 1981) (judgment rule adopted; excess judgment damages principle explained)
Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004) (implied duty of good faith; damages include emotional distress)