Jessen v. National Excess Insurance
776 P.2d 1244
N.M.
1989
Check Treatment

*1 McCoun, Larry JESSEN and Michael

Plaintiffs-Appellees,

NATIONAL EXCESS INSURANCE COM-

PANY, corporation, a California Corbett, Individually,

Ruth K. Defen-

dants-Appellants.

No. 17197.

Supreme Court of New Mexico.

June 1989.

Rehearing Aug. Denied *2 and McCoun de-

In March Jessen buy the 310. Jessen tele- cided to Cessna he and and told her that phoned Corbett the same cov- McCoun wanted continue their previous had under erage the owners $25,- policy. policy provided National The damage to the coverage physical for April 1, to Cor- airplane. On Jessen went office, signed application, and an bett’s premium. year’s first paid one-third later, days passen- with as his Two McCoun airplane take-off ger, Jessen crashed the Ranch, airstrip New from a dirt at Ghost Although Jessen and McCoun Mexico. only injuries, airplane minor was ceived took noth- destroyed. Jessen and McCoun Civerolo, Wolf, Logan, Hansen & W.R. airplane them from the after with Albuquerque, defendants-appellants. for crashed; ninety within minutes two but Jr., Anuskewicz, Turner W. Roy A. employees the air- Forest Service searched Branch, Albuquerque, plaintiffs-appel- for bag, they plane and retrieved a blue which lees. museum for safe- left at Ghost Ranch keeping.

OPINION independent hired an insurance McManaman, investigate adjuster, Bill RANSOM, Justice. for the accident. McManaman searched Seeking compensatory and dam- logbook, pilot but was unable locate Larry McCoun ages, Jessen and Michael bag claimed was in the blue which Jessen Company National Excess Insurance sued logbook The the time of crash. (National) for contract and bad breach of only verifying single source contained the pay first-party failure to claim. a flight logged had hours. that Jessen a of Jessen jury returned verdict favor It was never recovered. McCoun, $25,000 compensa- awarding and gave and sworn Both Jessen McCoun $75,000 punitive damages against tory and about the circumstances statements attorney The trial National. court awarded signed Airman’s Records crash. Jessen an Na- and costs to and McCoun. fees Jessen authorizing to obtain Release McManaman appeals. tional We affirm. FAA. copies of his records from the Jes- as covered Jessen McCounfirst were sen, through attorney, offered to they rented a insureds National when an the 1200 give National affidavit that airplane February To Cessna flight application he in his for hours stated policy covered under the lessor’s with from National was an accurate insurance National, required provide Jessen was in the representation of the hours recorded pilot. a experience about his information missing pilot’s logbook. Corbett, By telephone, Jessen Ruth told 1, 1985, National offered to National, On October agent for that he had current $11,000. settle the claim approximately 1200 medical certificate and and, offer McCoun refused the settlement flying took hours total time. After Jessen on- December filed this lawsuit check in the a successful ride Cessna came to against lessor’s National.1 When the case he and McCoun were added to the years the air- policy. trial two after the crash of owner joined jury's under verdict in her 1. Corbett as a defendant favor. appeal negligence claim. from the There is no nor plane, ground National still had neither denied able believe a meritorious de- Id.; claim. Farm paid Jessen and McCoun’s State fense exists to the claim. Clifton, Gen. instructed, to establish *3 (1974). P.2d 798 contract, of and claim of breach Jessen proving burden Nation McCoun had the of argues reasonably it National acted in pay required by the claim the al failed to as delaying payment denying or the claim un- policy of the in deviation from terms verify Jessen 1200 hours til it could had the in acceptable standards of the insurance represented. flight time as We believe instructed, jury also to dustry. The argues insofar as National it acted reason- faith,2 claim of Jessen establish the ably, attempts it to have this Court proving had the and McCoun burden weigh decided by jury, matters the and this to a pay National’s failure the claim within See Hort v. General decline to do. we period of Bad faith was reasonable time. (Ct.App.1978), Elec. N.M. delay in pay as a refusal to or defined denied, t. 92 N.M. cer for unfounded paying the claim frivolous or Curtiss v. Aetna Ins. P.2d 554 not contest the reasons. does 105, 107, 560 P.2d compensatory award in the amount cert. damage policy, to physical covered the (1976). claim under plaintiffs limited their which that, in the McManaman testified two argues, how both contract and tort. It trial, spent years the crash and he between ever, an that the evidence did not warrant only seventy investigating hours punitive damages. on instruction Moreover, despite and McCoun’s claim. punitive dam Instruction pre- fact McManaman the knew of Jessen’s not error. supports puni Bad ages faith experience poten- flying vious and knew of damages upon finding a of entitlement might have tial sources of information that See United damages. to verify flight him to the allowed number Corp. v. Allendale Mut. Ins. Nuclear claimed, his sources check of such hours 480, 485, P.2d some incomplete. Additionally, while if it is that substantial Arguably, conceded appeared did to he check of the sources compen supported instructions on evidence against Jessen, McMana- have been biased faith, sup satory damages for bad then attempt to man did not corroborate damages ported instructions on provided by these sources. information Yet, here, faith. for bad testimony heard from Mr. or sought exclusively for reckless were Wallace, company that president of the vice conduct, limit and we our underwriting for National. Wallace did the such conduct. to evidence of considerations if Jessen had been able testified that below, supported by sub we discuss if As logbook flight time Na- produce evidence, justi such conduct would stantial paid the claim probably would have tional under fy an Acknowledging that a question. Further, without claim. the contract tort either de- may often lost or pilot’s logbook be tort, court contract as the under either crash, Na- testified stroyed in a Wallace in insurer an this instructed believed it should expo tional nonetheless a without right to refuse claim has a experi- flight claim until Jessen’s pay if it has a reason- sure proper company’s ac recognized reasonable and bad faith insurance has the tort of 2. This Court proceeds first-party claim. pay a to the an insurer’s refusal to establish entitlement in State Farm 759, tions Clifton, Gen'l Ins. See also justified the time and measures taken. for The claim Montoya, Co. v. Travelers alia, by may supported, evidence inter Chenoweth, relief 1977); (Ct.App. P.2d 105 Chavez pay any or unfounded refusal frivolous (Ct.App. delay paying proceeds insurance of the 1976) (claim delay paying for unreasonable However, adoption tort of contract. Id. stated proceeds an insurance contract under necessary to the bad faith was not insurance granted). upon which relief could be claim tort law, because, matter of decision as a Clifton jurisdiction’s gener- cases positively by depends McMana- ence was verified expert, Allen, award). plaintiffs’ man. The Mr. al standard for such words describing countered that the conduct of National culpable conduct to be taken are delaying payment of the for two if, claim disjunctive; example, defen- in the years McMana- pending the outcome of recklessly, unnecessary it is dant acts keeping investigation man’s was not Tree show intentional misconduct. Green accepted industry with standards because Acceptance. Jury Instruc- The Uniform “put inappropriate unduly it had provide appropriate language tions that harsh on the insured.” Allen testi- burden supported by selected investigation meth- fied McManaman’s *4 1986, evidence. SCRA 13-1827. produced ods had not results of sufficient reliability justify a de- or conclusiveness to theory Whether under a of contract of the misrepresentation tort, nial claim. No issue or we believe submission of the investiga- Jessen was established the punitive damages language on of either of tion, which amounted to no more than a negligence disregard for gross or reckless flying verify failure Jessen’s claimed especially of the insured is the interests in experience, de- to which testified when, here, appropriate as the evidence tail. utterly shows the insurer failed to exercise of in care for the interests the insured trial, the evidence adduced at we Given payment denying delaying on an insur correctly court instructed conclude the trial Here, policy. pursuant to the Uni ance jury punitive damages. the on the issue of Instructions, Jury the also was form Curtiss, N.M. at 173 560 P.2d at 90 Cf. puni purpose instructed that the limited of properly (punitive damages awarded when damages punish wrongdoers and physical ex- is to plaintiff insurer insisted take future, in that paying for medical similar conduct the amination before claim dissuade plaintiff un- expenses, knowing any aggravating that was take account it must into to heart at- circumstances, able to take examination due that an mitigating arose); Egan v. expenses out of rationally tack which must related to the Co., 24 Mutual Ins. Omaha Cal.3d See wrong nature of the committed. (inad- 141, 169 Cal.Rptr. (1979) P.2d 691 620 The 13-1827. instructions SCRA supported equate investigation award of punitive damages proper. were punitive damages). standard Instruction Mexico, punitive In New have grounds reversal. proof for when been awarded for breach of contract already argues this either has Court malicious, the conduct defendant’s was convincing adopt clear and stan the fraudulent, oppressive, reck- committed proof the dard of for award of for lessly disregard with a the wanton damages, citing Allendale. We disagree. Acceptance, Green Tree rights. plaintiff’s Allendale, sitting justices four Layton, 108 N.M. 171, 173, Inc. v. 769 P.2d agreed preponderance of the panel Fulkerson, Hood v. (1989) (quoting appropriate. evidence standard 677, 680, 699 P.2d 484, 497, 709 N.M. at P.2d at Clifton; (1985)); In an see also Curtiss. Bivins, sitting by on the Judge designation case, damages may appropriate unnecessary to it was panel, concluded con- when defendant’s awarded since, in proof reach the standard of issue v. Cil- negligent. Valdez duct opinion, evidence failed to Son, Inc., 105 N.M. lessen & under the the award Valdez v. (1987) injury); (personal preponderance of the Warner, lesser standard 305, 742 P.2d 517 495, 709 Na Id. P.2d at 664. evidence. quashed, rt. ce jurisdictions points out that other tional (1987) (negligent employment); adopted convincing evi clear and Dam- McCarthy, have generally, see J. See, v. e.g., Linthicum dence standard. ages Bad Faith Cases 1.51 Nationwide 1987) (award Ariz. (Brackets original.) Travelers Indem. Co. See also Clear v. (Ind.1982); Patterson, (Ct. Armstrong, 442 N.E.2d 349 (when Wangen App.1969) imposes duty, v. Ford Motor Wis.2d contract (1980). Notwithstanding, party may delegate independent 294 N.W.2d 437 work to thereby escape we inclined contractor are not to readdress the Allen but cannot issue, results). sponsibility duty good dale Court’s resolution of this nor apply dealing by parties would we a different rule to the to an insurance plaintiffs justifiably recognized in this who relied contract has been as a nondele- gable duty, supports on the Allendale standard. breach of See Norris which Saueressig, punitive damages. Timmons v. (Ct.App.1985), (Okla. aff'd, Royal Globe Ins. duty P.2d 52 company insurance duty includes “a to the insured to make a Here, trial court instructed the reasonably prompt investigation of all rele- order to award * * And, vant facts *. if the insurance preponderance had find more than a company give cannot its insured a valid the evidence in favor of Jessen and *5 claim, denying reason for it has a final If McCoun. this instruction was errone- duty promptly honor it.” Bankers Life ous, the error worked to the Na- favor of Crenshaw, 254, & Co. v. 483 Cas. So.2d 276 tional and does not form a basis for rever- (Miss.1985), 71, 486 U.S. 108 S.Ct. aff'd sal. 1645, (1988); 100 L.Ed.2d 62 see also Mize liability National not absolved be- of F.Supp. (W.D. v. 567 Harford independent per- cause an contractor Va.1982); McCarthy, J. Damages investigation. the actual Nation- formed in Bad Faith 1.11 Cases argues only grossly negli- al reckless or We hold National was not relieved of liabili- gent alleged acts in this case were those of ty indepen- because McManaman an was McManaman, punitive damages cannot dent contractor. against assessed National for the acts jury The trial court instructed the indepen- of McManaman because he was an could award if National dent contractor and because no evidence authorized, in, participated or ratified the presented was that someone in an execu- McManaman, acts of see Samedan Oil capacity at National ratified his acts. Neeld, Corp. N.M. v. below, For the reasons discussed we dis- 1986, 13-1826, SCRA or if the acts agree analysis. with this grossly negli- of National were themselves gent disregard or committed with reckless Although generally one is not liable rights for the and McCoun. Na independent for the conduct of an contrac object tional did not to the instructions on tor, Son, see Cillessen & 105 N.M. at grounds of insufficient evidence of au 734 P.2d at this Court noted in Bu participation; consequently, thorization or 116, 121, dagher Amrep Corp., 97 N.M. propriety do not we discuss the of instruct (1981), (quoting Pender partic on authorization or Lovelace, grass v. 57 N.M. ipation. (1953)), appeal re after mand, P.2d 972 years, For two National relied on denied, rt. ce the inconclusive results of McManaman’s (1983): delaying investigation as the reason for * * * payment One who owes an absolute and on Jessen and McCoun’s claim. positive duty public jury properly an individu- We believe the could find this or * * * escape responsibility independent wrongful an act. The al cannot by delegating properly could found this act independent it to an con- have * * * reck duty] tractor is im- or committed with whether [the law, statute, posed by disregard less for the interests of the in by the common * * by municipal *. sured. ordinance Alternatively, alleged jury. misrep- this same evidence instruct the provides adequate support finding part for a resentation or fraud on the of Jessen flight experience ratification. See North Public in reporting ap- Serv. when of N.M., (Ct.App. plying passing Without our insurance. 1982) precluded summary fact (question of evidence, upon sufficiency we note judgment employer ratified as whether that the court allowed the trial issue that was sufficient conduct misrepresentation go to the jury employer when conduct, that such had it been demonstrat- allegedly wrongful relied on acts of em jury, ed to the of the satisfaction would against ployees plaintiff), for claim as basis policy. have the insurance vitiated (Ct.App.1983), P.2d 603 modified, short, have this defense would barred com- t. recovery and, cer P.2d pletely requires Ratification ei hence, punitive damages. jury clearly knowledge facts or ther material misrepresentation found no such put sufficient to a reason circumstances presented made. No evidence was in this inquire person able on notice to into these case to demonstrate Jessen and McCoun Mining Corp. facts. v. National See-Tee cooperate investigation failed to with the Sales, Inc., otherwise acted in a manner indicative may implied Ratification ac bad faith conduct under a valid insurance quiescence in the results of unautho Therefore, contract. the refusal Nation- act, rized 417 P.2d at id. requested special al’s verdict was error. of the benefits of this act. Mor retention attorney proper. Award of fees Trucking, ris Oil Co. v. Rainbow Oilfield *6 argues improper National that it was Inc., 237, (Ct.App. 741 P.2d attorney the trial and court to award fees 1987). Here, officers those of National light plaintiffs costs to the of NMSA authority deny with the to or honor the which, 1978, 39-2-1, according to Section delayed pay and McCoun claim of Jessen National, precludes attorney the award of because, knowing that, ment and McMana finding by fees and the trial costs absent disproved man nor had neither verified Jes unreasonably court the insurer acted flight experience. sen’s From this stated failing Allendale, pay claim. to the See evidence, by National, uncontroverted the P.2d at 103 N.M. at see also jury properly could find National ratified Suggs v. Farm Fire & Cas. State the McManaman. conduct of (10th Cir.1987), denied, F.2d cert. jury compara- to instruct on Refusal — U.S. -, 108 S.Ct. 100 L.Ed.2d argues not error. National bad faith (1988). have the trial court should instructed case, jury In the awarded instant jury comparative fault and on the of Jessen damages. punitive both actual and On the jury on since the was instructed McCoun damages, in- punitive” issue court misrepresentations regarding made law that, jury structed the before it could by application on an for insur- insured damages, award such it had to find Nation- contentions, ance. To its al was reckless its Sup Welding cites v. New Mexico Bartlett pay failure the claim of and (Ct.App.), Inc., ply, punitive McCoun. The denied, rt. ce 794 implies finding thus unreasonableness (1982), compa- related New and Mexico tortious action is sub- since unreasonable cases, negligence as well as rative Califor egregious sumed under the more standards Casualty nia General Insurance Co. gross negligence of recklessness or and Court, Superior Cal.App.3d jury trial instructed the that reason- court (1985) (comparative ap- Cal.Rptr. 817 fault punitive dam- claims). ableness was a defense plies in We do not decide bad attorney fees ages. The award of is discre- necessarily whether such an instruction tionary trial court and with the will not be inappropriate in case. would be another Here, absent abuse of discretion. to so disturbed we hold there was need no Keeth Gas Jackson Creek Cattle determination a trial court should re- move the punitive issue of damages from Based implied finding jury on the of unreason- consideration.

ableness, the trial court did not abuse its The current New Mexico instruc- awarding discretion in attorney fees and tions damage awards, SCRA appellees costs to the in this action. 1986, 13-1827, are confusing judges jurors alike. A jury is instructed to award Section 39-2-1 does not limit an punitive damages if it finds “the acts of attorney only fees and costs [willful, wanton, defendant malicious, were trial. In appropriate party a first reckless, grossly negligent, fraudulent and prevails insured who appeal may SCRA In 13-1827. faith].” awarded reasonable attorney fees and Use”, “Directions for is told: appeal. costs for the See Stock v. ADCO “Bracketed words should be selected as Corp., Gen’l supported by the evidence.” Id. These cert. poorly instructions are drafted and invite We conclude misunderstanding. regard, agree this I Jessen and McCounshould be awarded rea with the Arizona court in Linthibum v. attorney sonable fees and costs for this Nationwide 150 Ariz. appeal. (1986): judgment rendered the district Having juries decide whether to award affirmed, court is and the cause remanded vs. to the solely district court to determine - vague based on verbal distinctions be- attorney reasonable fees and costs for Jes- tween mere negligence, gross negligence sen and appeal McCoun on and to amend and reckless indifference often futile and judgment accordingly. nothing more than semantic jousting by IT IS SO ORDERED. Further, opposing attorneys. it leads to

misapplication of the extraordinary civil SOSA, C.J., APODACA, J., remedy damages which Appeals, Court of concur. appropriately only restricted *7 egregious wrongs. most SCARBOROUGH, (dissents). J. “gross” “reckless,” Whether negli- a SCARBOROUGH, Justice, dissenting. gence punitive damages standard for is $50,000 The punitive damages Albuquer- overbroad. Loucks v. Contra by this affirmed majority, Bank, que must Nat’l (1966). fail for a making number of reasons. agree Supreme I with the Judicial award, its rely was instructed to “gross” negligence Court of Maine that a negligence on a standard that is vague overbroad standard is too broad and can and an evidence standard that is insuffi- result in unfair and inefficient Tuttle, cient. damages awards. 494 A.2d at Likewise, negligence a “reckless” failure of an insurer to virtually standard can “allow limitless im- investigation subject conclude a claim can position punitive damages.” Id. In- compensatory the insurer to a claim for stead, there should be a more narrow focus damages. damages depend Punitive on the on a defendant’s mental state rather than nature of a defendant’s mental state and Dobbs, conduct. D. outward Handbook are not recoverable if a defendant’s con- 3.9, (1973); on the Law Remedies 205 § merely negligent. duct is See Tuttle v. Gurule v. Illinois Mutual and Casu Life (Me.1985); Raymond, 494 A.2d 1360 (1987); alty 152 Ariz. Prosser, W. Handbook on the Law of Linthicum Nationwide Torts at 9-10 In the § (1986). 150 Ariz. case before us the trial court determined puni- the conduct aof defendant insurer The decision of whether to award damages upon was not malicious or fraudulent. should turn a defen- Such a Gurule, Annotation, in civil cases. 152 Ariz. at awards Stan dant’s state of mind. Underlying dard As to Conduct A must 734 P.2d at 87. defendant Proof Damage Awards —Modem Sta Punitive “consciously aware have been tus, (1987). Challenges A.L.R. 4th 878 wrongfulness con- harmfulness of his usually focus to the duct ... deliberate contravention (1) they eighth violate: amend whether rights” of a dam- plaintiff before against fines1 prohibition ment excessive Linthicum, ages can be awarded. (2) the fifth and fourteenth amendments Ariz. at P.2d at 679. If a defen Minzer, process guarantees. J. due 5 M. did what the Arizona dant not act with Kimball, Nates, D. Axelrod & R. Gold- C. Supreme described an “evil Court has Action, stein, Damages Tort mind”, plaintiff compen- a can be awarded (1988). damages Punitive § 40.15[1] [3]— satory damages punitive damages. but convictions, are similar to criminal awards can requisite “evil mind” be estab- proce should and defendants be accorded defendant, acting a lished evidence that safeguards dural similar to those crimi (1) knowing, culpable mind: intend- with a cases, including proof high nal a burden of (2) consciously injure plaintiff or ed to a at er the civil standard. Id. than despite pursued a course of conduct know- Kircher, 40.15[1]; J. J. see also Ghiardi & § ing signifi- risk of it created a substantial Practice, Damages Law and plaintiff. harm cant to a 3.03 by plaintiff faith a can sustain Bad alone currently a We allow damages compensatory award. Punitive a plaintiff preponder- if can meet a a however, damages, should not be awarded proof. ance of the evidence burden something than the “unless there is more Corp. v. Mutu Nuclear Allendale United required Ins., Id. P.2d conduct to establish tort.” al greater I a Contra, believe burden 723 P.2d at 681. Boudar required whereby plain- proof G., Inc., P.2d & v. E.G. compensatory tiff recover can 491, (1987). cases, unless bad “[I]n evi- upon preponderance proof that, in the evidence established addition punitive dam- dence can be awarded but faith, evil defendant acted with an ages proof by convinc- only upon clear and mind, unnecessary punitive damages are Linthicum, Ariz. E.g., evidence. damages adequately because Ray Tuttle Gurule, Ariz. at deter.” mond, (Me.1985); Wangen A.2d 1353 at 86. 97 Wis.2d v. Ford Motor Awarding primarily N.W.2d, awarding punitive 437. Before objectives which underlie furthers same *8 thus be damages a factfinder would Negligence cannot criminal law. Id. alone quired find there was clear and convinc- be- awards fraudulent- evidence a defendant acted quasi-criminal of their nature. cause ly, or malicious intent as construed with damages is not to com- purpose Aetna Curtiss v. punish pensate plaintiff, but cert. involving “conduct and to deter defendant outrage to that element of similar some forth, set I from For the reasons dissent usually in crime.” Restatement found majority opinion. (1979); Torts, (Second) 908 Comment b Prosser, Handbook on the Law also W. see at 9 Torts § Recently na there has been considerable

tional debate over (1986); ages, The Constitution- Massey, 72 Va.L.Rev. 1. See The Excessive Fines Clause Damages: Reforming Damages Lessons Histo- Proce- Punitive ry, Some From al dures, Punitive Case for Jeffries, A Com- 40 Vand.L.Rev. 1234 Va.L.Rev. 269 Constitutionality of Dam- ment on the