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Government Employees Insurance Co. v. Gonzalez

Supreme Court of Alaska

August 25, 2017

GOVERNMENT EMPLOYEES INSURANCE COMPANY and MICHAEL J. LINA JR., Appellants and Cross-Appellees,
v.
SANDRA GONZALEZ, Appellee and Cross-Appellant.

         Appeal from the Superior Court No. 3AN-00-12188 CI of the State of Alaska, Third Judicial District, Anchorage, Sen K. Tan, Judge.

          Rebecca J. Hozubin, Hozubin, Moberly, Lynch & Associates, Anchorage, for Appellants/Cross-Appellees.

          W. Michael Moody and Sarah A. Marsey, Atkinson, Conway & Gagnon, Anchorage, and Dennis M. Mestas, Law Offices of Dennis M. Mestas, PC, Anchorage, for Appellee/Cross-Appellant.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

          OPINION

          WINFREE, Justice.

         I. INTRODUCTION

         An insured sued her auto insurer and one of its adjusters, alleging that the insurer breached the insurance contract and committed tortious bad faith by withholding underinsured motorist benefits and that the adjuster negligently handled her claim for those benefits. The insurer then paid all available underinsured motorist benefits to the insured, including interest. The insured continued her tort claims, alleging additional financial and emotional harm from the delayed benefits payment. The insured proposed a jury instruction addressing the effect of the insurer's belated payment, but the superior court rejected that instruction. After trial the jury determined that (1) the insurer had acted in bad faith, but its conduct was not a substantial factor in causing the insured's asserted harm, and (2) the adjuster had not been negligent. The superior court subsequently ordered the jury to award the insured nominal damages. The jury then awarded the insured $2 in nominal damages and later awarded $450, 000 in punitive damages.

         The superior court awarded the insured prevailing party costs and attorney's fees against the insurer. The court also awarded the adjuster prevailing party attorney's fees against the insured. The court rejected the insured's request that judgment against the insurer be entered nuncpro tune to the date of the jury verdict so that post-judgment interest on the punitive damages award would start earlier.

         The insurer appeals the nominal and punitive damages awards and the prevailing party determination. The insured cross-appeals the adjuster's attorney's fees award, the jury's failure to award compensatory damages, the court's rejection of the insured's proposed jury instruction, and the court's refusal to enter judgment effective from the jury verdict date. We affirm all aspects of the decision except the adjuster's attorney's fees award - we remand for further proceedings on that issue.

         II. FACTS AND PROCEEDINGS

         Sandra Gonzalez was injured in a 1996 car accident. Gonzalez's sister was driving the car and pulled into the path of an oncoming vehicle; the other vehicle struck the car's passenger side where Gonzalez was seated. Gonzalez's mother, the car's owner, had an insurance policy with Government Employees Insurance Company (GEICO), and GEICO paid Gonzalez $58, 593.75 -the bodily injury liability coverage policy limit with interest - to release all bodily injury claims against her mother and sister.

         In the months following the accident Gonzalez repeatedly requested payment under the policy's underinsured motorist (UIM) coverage as well, but GEICO did not respond to her requests. Gonzalez explicitly stated that by accepting the bodily injury settlement she was "not waiving any right to an underinsured motorist claim later on." Gonzalez requested UIM coverage again in 1998, and GEICO responded only by questioning her status as an insured. In 2000, after Gonzalez again requested UIM coverage, GEICO adjuster Michael Lina reviewed Gonzalez's UIM claim and paid her $83, 487.50, including the UIM coverage policy limits and interest. But by then Gonzalez already had filed suit against GEICO and Lina.

         Gonzalez initially tried to bring two class action claims against GEICO, but our holding in a previous appeal effectively eliminated one, [1] and she later voluntarily dismissed the other. That left two claims relevant to this appeal: (1) a negligent adjusting claim against Lina, and (2) a claim that GEICO acted in bad faith by failing to timely investigate and pay her UIM coverage benefits.

         GEICO moved for partial summary judgment, asserting that at the time Gonzalez's claim arose an insurer could not, as a matter of law, be liable for bad faith failure to pay both bodily injury and UIM claims (known as "stacking"). GEICO noted that Progressive Insurance Co. v. Simmons-holding that Alaska law required stacking - had not yet been decided.[2] GEICO relied on an earlier unpublished memorandum decision in Peter v. Progressive Corp., upholding a decision not to hold an insurer liable for bad faith failure to stack.[3] The superior court determined that our Peter decision had limited precedential value because it was an unpublished decision[4] and because it was based partly on the insurer's alternative grounds for denying coverage.[5] The court denied summary judgment because Gonzalez had presented evidence of GEICO's potential bad faith, showing that "GEICO offered some insureds, but not others, standstill agreements pending resolution of Simmons." Consequently the "insurer could honestly believe that [Alaska law] required stacking but conceal that information from some insureds in bad faith."[6]

         A jury trial began in August 2012. Gonzalez testified about the accident and its consequences. Prior to the accident she had worked as a housekeeper and at an office supply store; she briefly resumed housekeeping after the accident, but the pain and swelling in her leg and ankle prevented her from working even part time. In addition to physical challenges, she suffered financial hardship and emotional distress between 1996 and 2000. Because she was unable to work, her family lived on her husband's $1, 200 monthly income. During that time period she financially relied on her mother, who loaned Gonzalez about $3 0, 000; housed Gonzalez's family for three months; and helped pay for a crib, diapers, a baby dresser, and expensive auto repairs. Gonzalez said that asking her mother for money felt "terrible" and embarrassing.

         After the close of evidence the parties submitted final objections to proposed jury instructions. Gonzalez objected to the court's rejection of her proposed Jury Instruction 38; it stated that an insurer's belated payment of contract benefits does not relieve the insurer from liability for bad faith. The superior court nonetheless declined to give the disputed instruction.

         The next day the jury issued a special verdict finding that (1) Lina did not negligently adjust Gonzalez's claim, and (2) GEICO acted in bad faith, but its conduct was not "a substantial factor in causing harm to ... Gonzalez." The bad faith finding is at the heart of this dispute.

         After the verdict Gonzalez asserted that, given the finding of bad faith, the jury must award her at least nominal damages. The parties and the court discussed the issue, and the court - to create a full record for appeal - gave the jury a supplemental instruction on nominal damages. The instruction directed the jury to assume that GEICO's bad faith was a substantial factor in causing Gonzalez's harm and to award Gonzalez nominal damages, describing those as "a trivial sum of money awarded to a litigant who has established a cause of action but has not established that she is entitled to compensatory damages." The jury asked the court whether $0 could be a trivial sum; the court responded that the jury must award at least $1. The jury returned a verdict awarding Gonzalez $1 for "[m]ental suffering, anxiety, humiliation, and emotional distress" and $1 for financial hardship. The jury then found Gonzalez also was eligible for punitive damages. After more trial testimony and a supplemental instruction, the jury awarded Gonzalez $450, 000 in punitive damages. The jury then was excused.

         The parties later disputed how to treat the jury's supplemental verdict and damages awards. In June 2013 the superior court rejected GEICO's assertion that it was improper for the jury to award nominal and punitive damages after finding GEICO's conduct was not a substantial factor in causing Gonzalez's harm. The court reasoned the jury's finding that GEICO acted in bad faith meant Gonzalez was entitled to nominal damages under our holding in Ennen v. Integon Indemnity Corp.[7] The court interpreted the jury's verdict to mean "the jury found that there was harm but that [Gonzalez] had failed to prove the amount of harm to the requisite degree of certainty, " consistent with our nominal damages explanation in Anchorage Chrysler Center, Inc. v. DaimlerChrysler Motors Corp.[8]

         The superior court then assessed the jury's punitive damages award under the United State Supreme Court's due process guideposts outlined in BMW of North America, Inc. v. Gore.[9] The court also assessed whether the jury's punitive damages award impermissibly punished GEICO for its conduct toward other insureds, as well as whether the statute allowing punitive damages was unconstitutional as applied, and found the punitive damages award constitutional in all respects.

         In November 2013 the superior court issued a judgment and an accompanying order explaining that Gonzalez was entitled to 10.5% pre- and post-judgment interest, with prejudgment interest accruing from August 15, 1996. The judgment accordingly awarded Gonzalez prejudgment interest on her nominal damages and post-judgment interest on her total judgment, including nominal and punitive damages. Gonzalez then moved for judgment notwithstanding the verdict and a partial new trial. She asked the court to change the jury's answer to the question whether GEICO's conduct was a substantial factor in causing her harm from "no" to "yes." She sought a new trial on "compensatory damages because the jury's failure to award any compensatory damages was against the weight of the evidence." The court denied those motions in a June 2014 order.

         The parties also had sought attorney's fees, and in the June 2014 order the court determined that both Gonzalez and Lina were prevailing parties. The court awarded Gonzalez attorney's fees and costs against GEICO in the amount of $164, 019.69. A final judgment was issued awarding Gonzalez a total of $614, 025.31, including nominal and punitive damages, attorney's fees, costs, and prejudgment interest.

         In August 2014 Gonzalez moved to amend the judgment nuncpro tune for post-judgment interest to accrue as of August 2012, when the jury verdict was issued, rather than as of the November 2013 judgment date. The court denied that motion. Finally, the court calculated Lina's attorney's fees. Because Lina was represented by GEICO's counsel in the proceedings and did not adequately segregate fees he incurred from fees GEICO incurred, the court chose to "apportion the fees in a reasonable manner to assign to Lina his share, " awarding him percentages of the requested fees for different litigation periods.

         GEICO appeals the nominal and punitive damages awards, pre- and post-judgment interest determination, and prevailing party determination. Gonzalez cross-appeals the denial of her proposed jury instruction, related denials of her post-trial motions, and Lina's attorney's fees award.

         III. STANDARD OF REVIEW

         "Jury instructions involve questions of law to which we apply our independent judgment."[10] "[W]e review de novo whether a punitive damages award is grossly excessive under the due process clause of the Fourteenth Amendment."[11] "The determination of when prejudgment interest begins to accrue presents a legal question that we review de novo."[12] "When applying the de novo standard of review, we apply our 'independent judgment to questions of law, adopting the rule of law most persuasive in light of precedent, reason, and policy.' "[13]

         We review for an abuse of discretion the denial of a motion for a new trial.[14]But "[m]otions for judgment notwithstanding the verdict present questions of law that are reviewed on appeal de novo rather than deferentially."[15] The parties agree that we should review for abuse of discretion the trial court's denial of Gonzalez's motion to amend the judgment nuncpro tune}[16]

         "We review for abuse of discretion a trial court's prevailing party determination. Prevailing party determinations will be overturned only if they are manifestly unreasonable."[17] We also review attorney's fees awards for abuse of discretion and "will not find an abuse of discretion absent a showing that the award was arbitrary, capricious, manifestly unreasonable, or stemmed from improper motive."[18]

IV. DISCUSSION

         The parties' points on appeal fall into four categories: jury instructions, damages, post-trial motions, and attorney's fees.

         A. Gonzalez's Proposed Jury Instruction

         Gonzalez contends that the superior court erred when it rejected her proposed Jury Instruction 38 and failed to instruct the jury about "the legal effect of GEICO's belated payment." The proposed instruction, based on our Ennen[19] decision, stated: "The fact that an insurer ultimately pays benefits due under the contract does not relieve it from liability for negligence or bad faith if, in its handling of the claim, it unreasonably delayed payment of those benefits or otherwise breached its obligation of good faith and fair dealing." Gonzalez argues that the instruction was necessary to ensure that the jury did not believe the belated UIM benefits payment with interest cured GEICO's bad faith. In support she notes GEICO's closing argument statement that it "corrected" its error and "fully compensated" Gonzalez.

         GEICO responds that Gonzalez mischaracterizes its closing argument and that no prejudice resulted because Jury Instructions 26 and 30 adequately informed the jury of the law regarding bad faith damages. Jury Instruction 26 described the bad faith cause of action, including the requirement that Gonzalez prove "[GEICO]'s bad faith actions were the legal cause of. . . Gonzalez's damages, if any." Jury Instruction 30 described Gonzalez's burden to prove damages. It stated that the jury "must decide how much money, if any, will reasonably compensate . . . Gonzalez for the harm." And it stated that "[t]he amount of damages must include an award for all harm that was caused by [GEICO], even if the particular harm could not have been anticipated." It placed the burden on Gonzalez to "prove the amount of her damages, if any, by a preponderance of the evidence." Neither instruction mentioned the effect of GEICO's post-lawsuit payment of UIM benefits with interest.

         We see no reason the superior court should not have issued the proposed instruction. It was a correct statement of the law and was consistent with Gonzalez's theory that GEICO's delayed payment did not absolve it of bad faith.[20] No other jury instruction expressly addressed the effect of GEICO's post-lawsuit payment, [21] and GEICO may have caused some confusion by stating at closing that "[Gonzalez] received all of the coverages in the file. She received every last penny from that policy of insurance. The $144, 000 fully compensated her.... GEICO did not act in bad faith."

         But we note that neither party discusses Jury Instruction 27 in this context. That instruction set out what Gonzales was required to prove for her bad faith delayed payment claim:

1). . . Gonzalez suffered a loss covered under an insurance policy with [GEICO];
2) [GEICO] was notified of the loss;
3) [GEICO] unreasonably, or without proper cause, denied or delayed payment of policy benefits;
4)... Gonzalez was harmed; and
5) [GEICO's] denial or delay in payment of policy benefits was a substantial factor in causing . . . Gonzalez's harm.

         By stating that mere delay can lead to bad faith liability, Instruction 27 presumes that late payment of benefits is no defense to a bad faith claim, perhaps filling much of the gap left by proposed Jury Instruction 38's absence.

         And even assuming the court's failure to issue the proposed instruction was error, we cannot say it caused prejudice.[22] Notwithstanding the proposed instruction's absence, the jury actually found that GEICO acted in bad faith.[23] And the jury's finding that GEICO's bad faith was not a substantial factor in causing Gonzalez's harm does not necessarily reflect a misunderstanding of the law. The harm alleged at trial-additional damages resulting from financial and emotional distress-was separate from the direct financial harm earlier remedied by GEICO's post-lawsuit contractual payment. In light of Instruction 27's language expressing that Gonzalez was entitled to recover for bad faith if GEICO had unreasonably delayed payment, we believe the jury's substantial factor finding reflects only its assessment of these additional damages. And even if the jury would have answered the substantial factor question differently had it received the disputed instruction, the superior court subsequently ordered the jury to assume the answer to that question was "yes, " correcting any prejudicial error relating to the substantial factor question.[24]

         Although the court probably should have issued the proposed instruction, no prejudice resulted from that decision and reversal of the compensatory damages award is not warranted.

         B. Damages

         GEICO disputes the awards of nominal and punitive damages, as well as the superior court's determination of the pre- and post-judgment interest rate for those damages.

         1. Gonzalez was entitled to nominal damages.

         The jury initially found that GEICO acted in bad faith but that its bad faith was not a substantial factor in causing Gonzalez the asserted additional harm beyond the delayed payment. The superior court then instructed the jury "to assume that the answer to [the substantial factor question] is 'YES' " and then "award a nominal amount of damages." GEICO contends that the superior court erred by ordering the jury to award nominal damages and that doing so relieved Gonzalez of the burden of proving causation.

         In its order addressing GEICO's arguments the superior court determined that "[g]iven the jury's finding that [GEICO] acted in bad faith, under Ennen, Gonzalez is entitled to an award of nominal damages, regardless of the jury's finding on causation and harm." The court reasoned that "there could be multiple explanations" for the jury's finding that GEICO's bad faith was not a substantial factor in causing Gonzalez's harm: "For example, it could be that the jury found that there was harm but that plaintiff had failed to prove the amount of harm to the requisite degree of certainty."

         We agree with the superior court that the jury's finding of bad faith compels a nominal damages award on the facts of this delayed-payment case. In Ennen we held that the insured was entitled to nominal damages when he received the insurance proceeds he was entitled to, plus interest, but only after years of delay.[25] We were concerned that allowing an insurance company to "arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed" would undermine the purpose of the bad faith cause of action.[26] We concluded that the insured "was deprived of the UIM benefits to which he was entitled under the policy, " and the insurer's eventual payment of those benefits did not cure its initial bad faith.[27]

         As in Ennen, Gonzalez was deprived of the benefits to which she was entitled, and her harm was not necessarily fully remedied by GEICO's 2000 post-lawsuit payment.[28] GEICO's post-lawsuit payment of all the monies due Gonzalez under the policy resolved Gonzalez's breach of contract claim. But the undisputed delay in payment and the jury's related bad faith finding demonstrate that GEICO's delay in paying the policy benefits caused a harm that, for bad faith tort claim purposes, cannot be vitiated. As we similarly discuss below in connection with the punitive damages award, an insurance company should not be allowed to buy immunity from a bad faith tort claim merely by belatedly paying all sums due under the contract.[29] Therefore the superior court correctly mandated that the jury award Gonzalez at least nominal damages for GEICO's bad faith, post-lawsuit UIM benefits payment.

         We further note that the jury instructions and the jury's verdict reflect that the jury found the original payment delay harmed Gonzalez. Again we look to Jury Instruction 27, which set out what Gonzalez had to prove for her bad faith claims:

Gonzalez must prove that it is more likely true than not true that:
1). . . Gonzalez suffered a loss covered under an insurance policy with [GEICO];
2)[GEICO] was notified of the loss;
3)[GEICO] unreasonably, or without proper cause, denied or delayed payment of policy benefits;
4)... Gonzalez was harmed; and
5) [GEICO]'s denial or delay in payment of policy benefits was a substantial factor in causing . . . Gonzalez's harm.

         By answering "yes" to the question "Did [GEICO] act in bad faith?" the jury by implication seems to have found that each of the first four elements was satisfied with respect to the undisputed original delay in payment, including that "Gonzalez was harmed." As we noted earlier, this jury instruction and the related jury verdict are precisely the reason there was no prejudice when Gonzalez's proposed Instruction 38 was not given.

         The special verdict form contains other questions that appear to be drawn from the elements listed in Instruction 27, such as "Was [GEICO]'s denial and/or delay in payment of policy benefits unreasonable or without proper cause?" and "Was [GEICO]'s bad faith a substantial factor in causing harm to .. . Gonzalez?" The jury in its verdict found both unreasonable payment delay and bad faith. Given Gonzalez's request only for damages over and above the post-lawsuit payment, the jury's answer of "no" to the causation question cannot be interpreted to mean that GEICO did not actually harm Gonzalez.[30] It is clear from the facts and the verdict that GEICO caused direct pecuniary harm by its bad faith delay in paying policy benefits. But the real question, again, is whether the post-lawsuit payment of the policy benefits can foreclose an award of at least nominal damages based on the tortious conduct.

         The superior court suggested that the jury's disputed substantial factor finding might mean that Gonzalez "failed to prove the amount of harm to the requisite degree of certainty." We interpret the superior court's statement to mean that Gonzalez failed to prove additional damages, such as those resulting from financial and emotional distress, with sufficient certainty;[31] under that interpretation nominal damages would still be available to Gonzalez. In Anchorage Chrysler we held "that nominal damages are typically awarded in two situations"; first as a result of "a technical invasion of a plaintiffs rights" such as a false arrest, or second "when actual loss or injury is shown, but plaintiff has failed to prove the extent and amount of damages."[32] We stated that "an award of nominal damages is appropriate where a party incurs a pecuniary loss of undetermined amount."[33] Therefore, ...


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