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Weinstein v. Prudential Property And Casualty Insurance Co.

June 1, 2010

LESLIE WEINSTEIN AND LINDA WEINSTEIN, HUSBAND AND WIFE, INDIVIDUALLY AND AS GUARDIANS AD LITEM FOR SARAH WEINSTEIN, PLAINTIFFS-RESPONDENTS-CROSS APPELLANTS,
v.
PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, PRUDENTIAL GENERAL INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, AND LM PROPERTY AND CASUALTY INSURANCE, DEFENDANTS-APPELLANTS-CROSS RESPONDENTS.



Appeal from the District Court of the Fourth Judicial District of the State of Idaho, in and for Ada County. The Hon. Darla S. Williamson, District Judge.

The opinion of the court was delivered by: Eismann, Chief Justice.

2010 Opinion No. 61

The judgment of the district court is affirmed in part and vacated in part.

This is an appeal from a judgment for compensatory damages for breach of an insurance contract, from an award of punitive damages for insurance bad faith, and from the award of attorney fees. The district court ordered a new trial on punitive damages unless the plaintiffs accepted a remittitur, and they cross appeal from that order. We affirm the judgment for compensatory damages, we vacate the award of attorney fees, we deny the cross appeal, we affirm the amount of punitive damages determined by the district court to be consistent with due process, and we vacate the plaintiffs' option to request a new trial on punitive damages.

I. FACTS AND PROCEDURAL HISTORY

On September 30, 2002, an uninsured, sixteen-year-old driver with a suspended license pulled out of a private driveway onto a public street and negligently failed to yield to a pickup, striking it and causing it to collide with an automobile in which Sarah Weinstein was a passenger. The automobile was owned by Sarah's parents, Leslie and Linda Weinstein (―the Weinsteins‖), and was being operated by Mrs. Weinstein. Both Sarah and Mrs. Weinstein were injured in the collision. They were taken by ambulance to a hospital, but were released that day.

At the time of the accident, they were insured under a policy of automobile insurance issued by Prudential Property and Casualty Insurance Company, which was later purchased by Liberty Mutual Insurance Company on November 1, 2003. In this lawsuit, the parties have treated the insurance companies as if they were one company, and so we will refer to them as one company called ―Liberty Mutual.‖ The insurance policy provided $5,000 in medical (―MedPay‖) coverage per person and $250,000 in uninsured motorist (―UM‖) coverage per person for bodily injury.

The Weinsteins promptly notified Liberty Mutual of the accident, and the following day it determined that the accident had been caused by an uninsured driver. It also sent ―Parent of Sarah Weinstein‖ a letter stating that the MedPay provision required that any medical bills first be submitted to the Weinsteins' health insurance carrier and that it would only pay for any uncovered or disallowed items, assuming they were reasonable and necessary expenses.

Liberty Mutual assigned a UM adjuster to be in contact with the Weinsteins. On November 11, 2002, the adjuster sent the Weinsteins a letter asking for copies of all of their medical bills and for them to sign and return a form authorizing Liberty Mutual to obtain medical records from Sarah's treatment providers. Mrs. Weinstein signed the medical release on December 5, 2002, and sent it to the adjuster along with a list of medical providers. At the adjuster's request, Mrs. Weinstein later provided two other medical authorizations, the last so the adjuster could obtain records from the MedPay unit. Liberty Mutual did not use any of the medical authorizations or attempt to obtain any medical records from any providers. Some of the medical bills and records submitted by the Weinsteins were received by the UM adjuster, who sent them to the MedPay unit. The UM adjuster later attempted unsuccessfully several times to have the MedPay unit send her the MedPay file.

On January 2, 2003, Mrs. Weinstein told the adjuster that the Weinsteins were receiving threatening telephone calls concerning unpaid medical bills and that she and Sarah were still receiving treatment. Liberty Mutual responded on February 12, 2003, by sending the Weinsteins a letter stating that if it did not receive any new medical bills within thirty days it would close the MedPay file. Twelve days later it closed the file because the Weinsteins had not yet responded to the letter.

Sarah had injured her left hip in the accident and had been receiving physical therapy. In February 2003, her therapist released her to resume physical activities as tolerated. When she resumed training for and playing soccer, her favorite sport, her hip pain returned. She was only able to play ten minutes per half, and ultimately had to quit playing entirely. Mrs. Weinstein sought further medical treatment for her.

In April 2003, Mrs. Weinstein notified the adjuster that a magnetic resonance imaging scan indicated that Sarah may require hip surgery. The following month, Mrs. Weinstein informed the adjuster that a second scan showed that Sarah had suffered a labial tear of her left hip and that she would need surgery. Liberty Mutual responded by increasing its reserve for Sarah's UM claim to $25,000. Sarah had the surgery on May 19, 2003.

Prior to April 2003, Liberty Mutual incorrectly believed that the insurance policy provided that it did not have to pay Sarah's medical expenses until the bills were first submitted to and denied or only partially paid by her health insurance carrier. In April 2003, it realized that such provision in the policy did not apply to Sarah. It only applied to the Weinsteins as the named insureds, not to passengers in their insured vehicles. Liberty Mutual did not make any payments under the MedPay coverage until April 2, 2003. Prior to that time, it had sent letters to Sarah's medical providers stating that it was ―unable to make payment for these charges at this time,‖ but if Sarah's health carrier denied payment or made only partial payment, the provider should ―resubmit the bill along with the health carrier's Explanation of Benefits.‖

Mr. Weinstein was self-employed in a business providing services to the airline industry, and his business was struggling financially as a result of the terrorist attacks of September 11, 2001. From May 2003 on, the Weinsteins received regular telephone calls and demand letters from medical billing departments and collection agencies regarding the overdue medical bills.

On one occasion as Mrs. Weinstein was leaving a doctor's office with Sarah, a staff member loudly and publicly told Mrs. Weinstein that if she did not pay her outstanding bill in full immediately, the doctor would no longer treat Sarah. Although Mrs. Weinstein notified Liberty Mutual of this incident, it did nothing. These events caused Mrs. Weinstein to feel depressed and cry, and the grief, stress, and embarrassment resulted in marital discord and family turmoil.

It was Liberty Mutual's policy to exhaust the MedPay coverage before making any payment under the UM coverage and to not make any payments under the UM coverage until the insured desired to settle the entire UM claim. Sarah's MedPay benefits of $5,000 were exhausted on September 3, 2003, when Liberty Mutual made a partial payment to the hospital for her surgery. Thereafter, Liberty Mutual sent Sarah's medical providers letters stating that her ―maximum policy limits of $5,000 for medical expenses related to this accident have been paid and no further payments can be made. You may wish to contact this patient or the appropriate health insurance carrier for payment of future bills.‖ Liberty Mutual did not include in these letters the fact that Sarah had ample UM coverage to pay the medical bills.

On September 3, 2003, Mrs. Weinstein called the adjuster and told her that collection agencies were after them, that their credit was ruined, that Liberty Mutual took a lot of time to decide to pay the bills under the MedPay coverage, and that it should pay the remaining bills under the UM coverage. The adjuster answered that Liberty Mutual would not pay under the UM coverage until the Weinsteins were ready to settle the entire claim.

The Weinsteins contacted attorney Bruce Bistline to represent them. By letter dated October 10, 2003, he informed Liberty Mutual that he was representing the Weinsteins. On October 21, 2003, Liberty Mutual increased its reserve for Sarah's UM claim to $50,000.

On October 28, 2003, Bistline sent the adjuster a letter seeking information, listing unpaid medical bills, and stating that he was not aware of any reason why the bills should not be paid from the UM coverage. The adjuster later responded that it was not Liberty Mutual's practice to do so.

On April 20, 2004, Bistline sent the adjuster a letter accompanied by a notebook containing medical bills and records. In the letter he demanded payment of $16,669.64, which represented the unpaid bills as of November 20, 2003, including interest. Liberty Mutual did not pay any of the bills, but on June 7, 2004, it did increase its reserve for Sarah's UM claim to $75,000.

On June 11, 2004, a new UM adjuster sent Bistline a letter stating that she was now handling Sarah's UM claim, that Liberty Mutual ―will afford the policy's Uninsured Motorist coverage with limits of $250,000 per person,‖ that it had ―no legal obligation‖ to pay Sarah's medical expenses, and that it ―will offer a $10,000 payment in advance on Ms Weinstein's future settlement‖ if her parents signed the enclosed form. The letter added, ―We will evaluate Ms Weinstein's damages when her medical treatment is completed or when you submit a settlement demand with all the medical documentation and proofs.‖

The form enclosed with the letter required the Weinsteins to agree, among other things, that the payment ―does not constitute an admission of any liability by the uninsured motorist . . . for any damages Sarah Weinstein has sustained in the above-described [9/30/02] accident‖ and that Liberty Mutual ―reserves all of its rights including, but not limited to, defenses which may be applicable to this claim.‖ Bistline responded by letter dated July 7, 2004, stating that the Weinsteins did not believe they had a duty to agree to anything in order to receive payments due under the policy and that they cannot wait any longer due to the statute of limitations. They had therefore instructed him to file a lawsuit, which he had done. He enclosed a copy of the complaint with the letter. Later, the Weinsteins' current counsel replaced Bistline. The above does not list all of the contacts between Liberty Mutual and the Weinsteins or their counsel before this lawsuit was filed.

On January 5, 2005, Liberty Mutual paid the Weinsteins the sum of $80,000. That payment was $60,000 for Sarah's injuries; $17,000 for prejudgment interest; and $3,000 for attorney fees.

This case was ultimately tried to a jury in September 2007. It returned a special verdict finding: (a) that Liberty Mutual had breached the MedPay provisions in the insurance policy but had not committed bad faith in handling the MedPay coverage; (b) that Liberty Mutual had breached the UM provisions in the insurance policy and had committed bad faith in handling the UM coverage; (c) that the Weinsteins have suffered damages totaling $210,000 as a result of Liberty Mutual's bad faith; (d) that they were entitled to punitive damages in the sum of $6,000,000; and (e) that Sarah sustained damages in the sum of $250,000 as a result of the accident.

On October 1, 2007, the court entered judgment in favor of the Weinsteins against Liberty Mutual in the sum of $6,210,000, and on October 19, 2007, it entered judgment in favor of Sarah against Liberty Mutual in the sum of $165,000. The court later entered an amended judgment in favor of Sarah in the sum of $182,225.48 to correct certain calculations and add prejudgment interest, and in addition it also awarded her $84,150.00 in attorney fees and $2,958.15 in court costs.

Liberty Mutual filed motions for a new trial, for judgment notwithstanding the verdict, and for a remittitur. The district court denied the motions, except that it granted a new trial on punitive damages if the Weinsteins would not accept a reduction in punitive damages to $1,890,000. Liberty Mutual appealed and the Weinsteins cross-appealed.

II. ISSUES ON APPEAL

1. Did the district court err in permitting the Weinsteins to amend their complaint to add a claim for punitive damages?

2. Did the district court err in failing to grant a mistrial or a new trial due to the Weinsteins providing annotated exhibits to the jury?

3. Did the district court err in instructing the jury?

4. Did the district court err in failing to grant Liberty Mutual's motions for a directed verdict, judgment notwithstanding the verdict, or new trial because the Weinsteins failed to prove a claim of bad faith?

5. Did the district court err in failing to grant Liberty Mutual's motions for a directed verdict, judgment notwithstanding the verdict, or new trial because the Weinsteins failed to prove or mitigate their damages?

6. Did the district court err in awarding Sarah attorney fees pursuant to Idaho Code § 41-1839?

7. Did the district court err in refusing to apply Idaho Code §§ 6-1604(1) & (3) to this action?

8. Did the district court err in failing to grant a new trial on the ground of juror misconduct?

9. Should this Court vacate the award of punitive damages on the ground that the Weinsteins failed to prove unconscionable conduct by clear and convincing evidence?

10. Should the award of punitive damages be set aside due to errors in jury instructions and in admitting evidence?

11. Did the remitted award of punitive damages in the sum of $1,890,000 violate due process? 12. Did the district court err in granting a new trial on punitive damages if the Weinsteins do not accept the sum of $1,890,000 in punitive damages?

III. ANALYSIS

A. Did the District Court Err in Permitting the Weinsteins to Amend Their Complaint to Add a Claim for Punitive Damages?

Liberty Mutual contends that the district court erred in permitting the Weinsteins to amend their complaint to add a claim for punitive damages. Liberty Mutual's argument, however, addresses two separate amendments of the complaint.

First, Liberty Mutual asserts, ―The court abused its discretion in allowing Plaintiffs to amend their Complaint to cure certain defects in their pleadings (i.e., limiting their cause of action to events after September 3, 2003) during the summary judgment hearing, and after the deadline set by the court for amended pleadings.‖ This rather cursory argument apparently refers to the district court permitting the Weinsteins to file a third amended complaint.

During argument on Liberty Mutual's motion for summary judgment on April 25, 2007, an issue arose as to whether the second amended complaint alleged a bad faith claim with respect to the MedPay coverage. Weinstein's counsel then orally moved to file a third amended complaint to eliminate any issue in that regard. During the hearing on that motion on May 2, 2007, Liberty Mutual objected that the motion was untimely and that Liberty Mutual would be prejudiced by the amendment. The district court found that the motion was made six or seven days after the deadline for filing motions, that Liberty Mutual had not shown any prejudice, and that there was adequate time to conduct any additional discovery that may be needed if the amendment was granted. The trial was scheduled to begin in mid-September. It also found that there was good cause for permitting the amendment because Liberty Mutual had been aware since at least December 2006 that MedPay was an issue and because the court had indicated during a hearing in December 2006 that the allegations in the second amended complaint were sufficient to raise the issue of Liberty Mutual's handling of the MedPay coverage.

Rule 16(b)(7) of the Idaho Rules of Civil Procedure states that a scheduling order may be modified for good cause. In addition, alleged errors not affecting substantial rights will be disregarded. Vendelin v. Costco Wholesale Corp., 140 Idaho 416, 426, 95 P.3d 34, 44 (2004). Liberty Mutual has failed to show either that the district court abused its discretion in considering the late-filed motion or that it was prejudiced by the granting of the motion.

Second, on May 2, 2007, the district court also heard the Weinsteins' motion to amend their complaint to add a claim for punitive damages. The court granted that motion, and the Weinsteins filed their fourth amended complaint adding that claim on the same date. Liberty Mutual contends, ―Allowing Plaintiffs to argue for punitive damages at trial changed the character of the trial and prejudiced Defendants as a result.‖ In this cursory allegation, Liberty Mutual does not attempt to explain how the character of the trial was changed or how it was allegedly prejudiced.

Idaho Code § 6-1604(2) provides, ―The court shall allow the motion to amend the pleadings [to add a claim for punitive damages] if, after weighing the evidence presented, the court concludes that, the moving party has established at such hearing a reasonable likelihood of proving facts at trial sufficient to support an award of punitive damages.‖ A trial court's ruling on a motion to amend a complaint to add a claim for punitive damages is reviewed for an abuse of discretion. Todd v. Sullivan Constr. LLC, 146 Idaho 118, 121, 191 P.3d 196, 199 (2008). Liberty Mutual's unsupported statement that it was prejudiced by the amendment is insufficient to show an abuse of discretion.

B. Did the District Court Err in Failing to Grant a Mistrial or a New Trial Due to the Weinsteins Providing Annotated Exhibits to the Jury?

During the second day of trial on September 18, 2007, Weinsteins' counsel asked if he could distribute to the jurors copies of a white binder containing exhibits that had been admitted. The district court asked Liberty Mutual's attorney if he had any objection, and he stated that he did not. Three days later, after the jury was excused for lunch, Liberty Mutual's counsel addressed the court stating that he had seen one of the jurors reviewing the exhibit list in his white binder and had noticed that the list had annotations on it. Counsel recited an example of the annotations as follows: ―Exhibit 63, Linda [Weinstein] mailed medical authorization form to Kempczenski [UM adjuster] to print. Kempczenski never used it. 9/2/03 UM adjuster log, first entry since 5/12/03.‖ Counsel then moved for a mistrial.

Weinsteins' counsel responded that there was nothing on the exhibit list that was not in the record; that when asking to distribute the binders to the jury he had stated that the binders included the chronology and exhibit list that had been provided to the court; and that Liberty Mutual's counsel had not objected. He suggested that they just collect the notebooks from the jurors, instruct them to disregard anything in them, and then address the issue at a later time. Liberty Mutual's counsel responded that he was sticking with his motion. The court stated that before ruling on the motion it wanted to listen to the tape recording of what occurred when the Weinsteins' counsel asked to distribute the binders to the jurors. Liberty Mutual's counsel suggested that they complete the day of testimony and address the issue the following Monday, and the court agreed.

After the jurors returned from lunch, the district court had the bailiff collect the notebooks from the jurors. The court then instructed the jury as follows, ―Ladies and gentlemen, in the event that you had read any of the narrative statements on that chronology and exhibit list, you are instructed at this time to disregard any of those statements that you read.‖

On the following Monday, the district court took up the motion for a mistrial. The court recited what had occurred as follows:

THE COURT: I went back and listened to the recording and Mr. Risch had asked that the plaintiffs' exhibit be published and be presented to the jury. There was no objection to that.

And then, right after that, you had asked for a sidebar, and then right after that, Mr. Risch indicated that he was also providing them a copy of the chronology and exhibit list, and there was no response in regards to that.

So I think probably, Mr. Anderson, you were distracted because you had asked for a sidebar. I think that's probably why you didn't say anything, but he did put that on the record that he was providing that document to them.

I have looked at these, all of the chronology and exhibit list. We've gotten all of these from the jury, and I couldn't find any of them that had been marked on or highlighted. I had instructed the jury to disregard them.

MR. ANDERSON: For the record, I saw the juror in front highlighting his copy.

THE COURT: Well, and he's the juror that we're going to excuse also.*fn1

The court then denied the motion for a mistrial for the following reasons: (1) it had instructed the jury to disregard the chronology and exhibit list; (2) the binders were retrieved from the jurors and it did not appear that any other juror had written or highlighted anything in the binders; (3) the juror who had highlighted in his binder was going to be excused anyway and what he had highlighted coincided with the evidence; and (4) Liberty Mutual's attorney had not objected to distributing to the jury the binders with the chronology and exhibit list.

Liberty Mutual moved for a new trial alleging, as one of the grounds, that distributing the notebooks to the jurors with the annotated exhibit list constituted an irregularity in the proceedings that deprived it of a fair trial. The district court refused to grant a new trial on the same grounds that it had denied the motion for a mistrial.

―[A] motion for mistrial is directed to the trial court's judicial discretion, and the trial court's ruling will not be disturbed unless there be shown such an abuse of discretion that defendant's rights are prejudiced.‖ Barry v. Arrow Transp. Co., 83 Idaho 41, 46-47, 358 P.2d 1041, 1045 (1960) (citations omitted). Liberty Mutual recites that the district court abused its discretion in denying the motion for mistrial, but it presents no argument to support that recital. During oral argument, counsel for Liberty Mutual was asked, ―Was there anything ever in those notations that was not proven by the plaintiff?,‖ and he responded, ―Most likely not.‖ Liberty Mutual has not shown that its substantial rights were affected by the distribution of the annotated exhibit list to the jurors or that the district court abused its discretion in denying the motion for a mistrial or for a new trial.

C. Did the District Court Err in Instructing the Jury?

1. Failing to give Liberty Mutual's requested instruction defining severe emotional distress.

The district court instructed the jury regarding the elements that must be proved in order for the Weinsteins to recover damages for emotional distress. The instruction was a verbatim statement of the elements that this Court listed in Evans v. Twin Falls County, 118 Idaho 210, 220, 796 P.2d 87, 97 (1990). Liberty Mutual requested as its supplemental jury instruction No. 9 an additional instruction stating, ―A defendant is liable for emotional distress only where the distress inflicted is so severe that no reasonable person could be expected to endure it.‖

The proposed jury instruction comes from comment j to Section 46 of the Restatement (Second) of Torts (1965), which this Court quoted in Evans v. Twin Falls County, 118 Idaho 210, 220, 796 P.2d 87, 97 (1990). It was included in the comment in juxtaposition to the statement ―Complete emotional tranquillity is seldom attainable in this world, and some degree of transient and trivial emotional distress is a part of the price of living among people‖ to explain that emotional distress must be severe, not simply the level of distress that people are expected to put up with in society. We have never held that the jury should be instructed regarding the text of comment j, and using Liberty Mutual's proposed instruction out of context could lead a jury to conclude that emotional distress is only severe if it leads to a psychological disorder. We have not required evidence of a psychological disorder in order to recover damages for emotional distress intentionally caused. See Walston v. Monumental Life Ins. Co., 129 Idaho 211, 220, 923 P.2d 456, 465 (1996) (award of damages for intentional infliction of emotional distress upheld where insurer ―impugned [insured's] character and drew him into a prolonged dispute when he was grieving the loss of his wife‖).

Liberty Mutual's entire argument in its opening brief regarding this alleged error is, ―The court also erred by not instructing the jury as to the elements required to prove the intentional infliction of emotional distress as requested by Defendants' Supplemental Jury Instruction No. 9.‖ It has not presented any argument as to why the trial court's instructions were not sufficient. ―We will not consider assignments of error not supported by argument and authority in the opening brief.‖ Hogg v. Wolske, 142 Idaho 549, 559, 130 P.3d 1087, 1097 (2006).

2. Instructing the jury on the Unfair Claim Settlement Practices Act

The district court instructed the jury regarding the provisions of the Idaho Unfair Claim Settlement Practices Act, I.C. § 41-1329. Liberty Mutual contends that the district court erred in doing so because the instruction ―improperly created a private cause of action in that the jury was essentially instructed that violation of the Act justified imposition of liability.‖ In White v. Unigard Mutual Insurance Co., 112 Idaho 94, 101, 730 P.2d 1014, 1021 (1986), we held that the Act ―does not give rise to a private right of action whereby an insured can sue an insurer for statutory violations committed in connection with the settlement of the insured's claim.‖ Accordingly, in this case the district court instructed the jury, ―Violation of any of the above [provisions of the Act] does not give rise to a right to sue. The above are the standards of the insurance industry and may be considered by you only in your deliberations to determine whether there was an extreme deviation from industry standards which warrants punitive damages.‖ The district court did not instruct the jury that the Act created a private cause of action.

Liberty Mutual also contends that the instruction ―constituted an improper statement of law and/or improper comment on the evidence by the judge by instructing the jury as to a standard of care.‖ It was not error for the judge to instruct the jury as to the applicable law. ―A trial court has the duty to properly instruct the jury on the law applicable to the case before it.‖ Sulik v. Central Valley Farms, Inc., 95 Idaho 826, 828, 521 P.2d 144, 146 (1974). In Inland Group of Companies, Inc. v. Providence Washington Insurance Co., 133 Idaho 249, 258, 985 P.2d 674, 683 (1999), we held that testimony regarding the Unfair Claim Settlement Practices Act to establish insurance industry standards was admissible in an insurance bad faith case. Liberty Mutual contends that while the provisions of the Act can be presented through testimony, it is improper for the court to instruct the jury regarding the Act's provisions. It argues, ―The trial court's inclusion of the Act in the jury instructions changed the Act from potential evidence of the industry standard to the law governing bad faith claims.‖ The Act is not simply ―potential evidence of the industry standard.‖ It is a legislative enactment establishing insurance industry standards. The district court did not err in instructing the jury as to its provisions. Interestingly, Liberty Mutual's manual entitled ―Uninsured and Underinsured Motorist Claims and the Process of Good Faith Claims Handling‖ affirms that a claim for violation of the implied covenant of good faith and fair dealing ―can also be supported by demonstrating violations of unfair claims settlement practices statutes . . . even though these statutes . . . don't independently support a private cause of action against an insurance company.‖

3. Failing to instruct the jury regarding corporate liability for punitive damages

In Griff, Inc. v. Curry Bean Co., Inc., 138 Idaho 315, 321, 63 P.3d 441, 447 (2003), this Court stated, ―To recover punitive damages against a corporation, one must show that an officer or director participated in, or ratified, the conduct underlying the punitive damage award.‖ Liberty Mutual submitted a proposed instruction stating, ―To recover punitive damages against the Defendants, Plaintiffs must show that an officer or director of the Defendant corporations participated in, or ratified, the conduct underlying the conduct underlying [sic] the punitive damage award, if any, having at the time knowledge of all material facts.‖ The district court refused to give the instruction on the ground that there was sufficient evidence in the record showing Liberty Mutual's corporate policies.

Although we have not addressed the issue of whether recovery of punitive damages for insurance bad faith requires evidence that an officer or director participated in, or ratified, the conduct constituting bad faith, neither party asserts that insurance corporations should be treated differently from other corporations with respect to this requirement, and we agree. The district court should have instructed the jury on this issue.

An error in the jury instructions that does not affect a substantial right of a party is disregarded as harmless error. Smith v. Mitton, 140 Idaho 893, 901, 104 P.3d 367, 375 (2004); Lubcke v. Boise City/Ada County Housing Auth., 124 Idaho 450, 459, 860 P.2d 653, 662 (1993); Neff v. Hysen, 72 Idaho 470, 474-75, 244 P.2d 146, 148-49 (1952). Liberty Mutual does not contend that there was any conflicting evidence on this issue. It contends that there was a lack of sufficient evidence to establish corporate liability for punitive damages.

The jury found that Liberty Mutual did not commit bad faith in handling the MedPay coverage, but it did commit bad faith in handling the UM coverage. The issue with respect to the UM coverage was whether Liberty Mutual committed the tort of bad faith by refusing to pay undisputed medical bills before settlement of the entire UM claim.

The adjuster who handled the claim in this case from its inception until June 11, 2004, had worked for the company since May 1975. She testified that the company had a standard practice for handling UM claims, that it was the company's practice not to pay undisputed medical bills from UM coverage until the entire UM claim was settled, and that to the best of her knowledge she handled this claim in the way the company wanted it handled. Her supervisor, who had worked for the company for about twenty-eight years, testified that it was the company practice not to pay undisputed medical bills under UM coverage until it settled the total UM claim, even if the insured was incurring medical bills for two or three years. A third witness had worked for the company from 1978 until September 2005 and was a UM adjuster during the time at issue in this case. She handled this claim beginning in June 2004 and testified that she had reviewed the handling of the UM claim in this case and it was handled in the way she was trained to handle claims.

Liberty Mutual contends that this testimony was not sufficient to show corporate liability for punitive damages. It apparently contends that the Weinsteins were required to present direct evidence that an officer or director approved of the corporate policy. It argues, ―Plaintiffs presented no evidence showing ratification, let alone knowledge, by officers and directors of any of the Defendant corporations.‖ It dismisses the testimony of the former employee because she was ―not a corporate officer/director.‖

There need not be direct evidence that an officer or director participated in or ratified the wrongful conduct in order to sustain an award of punitive damages against the corporation. In Vendelin v. Costco Wholesale Corp., 140 Idaho 416, 95 P.3d 34 (2004), this Court upheld an award of punitive damages in an action to recover damages for personal injuries caused when a store display of garden stepping stones partially collapsed and fell against the plaintiff. The defendant challenged the award of punitive damages on the ground that there was no evidence showing that an officer or director had participated in, or ratified, the conduct upon which the award was based. In affirming the award, we did not require direct evidence that an officer or director had participated in, or ratified, the improper manner of stacking the stepping stones. Rather, we stated:

There is substantial evidence that Costco personnel are improperly trained, or not trained at all, in proper stocking techniques or in recognizing and correcting the hazards of falling merchandise. There is also substantial evidence from which to infer that this deviation was the cause of numerous accidents involving falling merchandise. The establishment of adequate employee training procedures is ultimately the responsibility of Costco's corporate management. Under the circumstances, Costco, as a corporation, was either aware or should have been aware that it lacked adequate training procedures and that this deficiency increased the likelihood that Costco customers would be injured by falling merchandise.

In this case, there was undisputed testimony from the two UM adjusters and their supervisor that it was company policy not to pay any medical expenses out of UM coverage until the entire UM claim was settled. That was sufficient to establish corporate liability for punitive damages regarding the handling of the UM coverage. Because that evidence was undisputed, it was harmless error for the district court to fail to instruct the jury regarding the requirements for holding a corporation liable for punitive damages.

D. Did the District Court Err in Failing to Grant Liberty Mutual's Motions for a Directed Verdict, Judgment Notwithstanding the Verdict, or New Trial Because the Weinsteins Failed to Prove a Claim of Bad Faith?

At the end of the Weinsteins' case, Liberty Mutual moved for a directed verdict on the issue of bad faith. After the trial, it moved for a judgment notwithstanding the verdict and a new trial on the issue of bad faith. The motion for a new trial on that issue was based upon the alleged insufficiency of the evidence to justify the verdict.

―In reviewing a decision to grant or deny a motion for directed verdict or a judgment notwithstanding the verdict, this Court applies the same standard as that applied by the trial court when originally ruling on the motion.‖ Waterman v. Nationwide Mut. Ins. Co., 146 Idaho 667, 672, 201 P.3d 640, 645 (2009). ―[W]e determine whether there was sufficient evidence to justify submitting the claim to the jury, viewing as true all adverse evidence and drawing every legitimate inference in favor of the party opposing the motion for a directed verdict.‖ Todd v. Sullivan Constr. LLC, 146 Idaho 118, 124, 191 P.3d 196, 202 (2008). This Court ―must simply determine whether there is substantial evidence to support the jury's verdict. Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.‖ Howell v. Eastern Idaho R.R., Inc., 135 Idaho 733, 737, 24 P.3d 50, 54 (2001) (citation omitted).

A trial judge may grant a new trial on the ground that the evidence was insufficient to justify the verdict if: (a) ―after making his or her own assessment of the credibility of the witnesses and weighing the evidence, the judge determines that the verdict is not in accord with the clear weight of the evidence‖ and (b) the judge ―conclude[s] that a different result would follow a retrial.‖ Hudelson v. Delta Intl. Mach. Corp., 142 Idaho 244, 248, 127 P.3d 147, 151 (2005) (citation omitted). We review a trial court's decision under an abuse-of-discretion standard. Id.

In order for a first-party insured to recover on a bad faith claim, the insured must show: ―1) the insurer intentionally and unreasonably denied or withheld payment; 2) the claim was not fairly debatable; 3) the denial or failure to pay was not the result of a good faith mistake; and 4) the resulting harm is not fully compensable by contract damages.‖ Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 176, 45 P.3d 829, 832 (2002). Liberty Mutual contends that the Weinsteins did not prove any of these elements.

Breach of contract. The jury found that Liberty Mutual had breached both the MedPay and UM provisions of the insurance policy and that it had committed bad faith in its handling of the UM provision of the insurance contract. Although the tort of bad faith is not a breach of contract claim, to find that Liberty Mutual committed bad faith in handling the UM provision, there must also have been a duty under the contract that was breached. Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 179, 45 P.3d 829, 835 (2002). Thus, both the breach of contract claim and the bad faith claim depend upon the provisions of the insurance policy.

With respect to the breach of contract claim, Liberty Mutual states, ―Plaintiffs' breach of contract claim as to the UM coverage is based on an assertion that Idaho law requires a UM carrier to pay a UM claim on a piecemeal basis as bills trickle in from the claimant, and that Defendants failed to comply.‖ With respect to the bad faith claim, it states, ―it was and is debatable-i.e., a ‗legal question of first impression'-whether Defendants had an obligation to make multiple payments as bills were submitted rather than doing a single evaluation and payment.‖ Because both of these arguments involve the same provision of the insurance policy, we will discuss them together.

Part 4 of the policy describes UM coverage. The provision upon which Liberty Mutual relies is as follows:

A. OUR OBLIGATIONS TO YOU (PART 4)

Uninsured Motorists Bodily Injury Coverage

If you have these coverages (see your Declarations), we will pay up to our Limit Of Liability for bodily injury as described in How We Will Settle A Claim when an insured or an insured's car is struck by an uninsured motor vehicle or trailer. Our payment is based on the amount that an insured is legally entitled to recover for bodily injury but could not collect from the owner or operator of the uninsured motor vehicle because:

1. THE OWNER OR OPERATOR IS NOT INSURED

The owner or operator responsible for the accident has no liability insurance or liability bond or has coverage in an amount that is less than required by your state's financial responsibility law.

Liberty Mutual relies upon the policy language stating, ―Our payment is based on the amount that an insured is legally entitled to recover for bodily injury but could not collect from the owner or operator of the uninsured motor vehicle.‖ It argues, ―‗Payment' is singular. ‗Amount' is singular. Nothing in the Policy supports multiple payments; the Policy refers to one ‗payment' and one ‗amount.' Thus, there was no contractual duty to make multiple, piecemeal payments before the Company can evaluate the UM claim in its entirety.‖

―Whether an insurance policy is ambiguous is a question of law over which this Court exercises free review. . . . When deciding whether or not a particular provision is ambiguous, we must consider the provision within the context in which it occurs in the policy.‖ Purdy v. Farmers Ins. Co. of Idaho, 138 Idaho 443, 445-46, 65 P.3d 184, 186-87 (2003).

The word ―payment‖ can mean both ―the act of paying‖ and ―an amount paid.‖ Random House, Inc. Dictionary.com., http://dictionary.reference.com/browse/payment (accessed: February 8, 2010). It is clear from the context that it has the latter meaning.

The first sentence states, ―If you have [UM coverage], we will pay up to our Limit Of Liability for bodily injury.‖ (Emphasis added.) This sentence states the maximum amount Liberty Mutual will pay under UM coverage. It cannot exceed the limit of liability for bodily injury as set forth in the policy. The phrase ―we will pay‖ cannot reasonably be construed as indicating it will make only one payment. For example, the policy provision covering MedPay states, ―We will pay . . . up to our limit of liability for medical payments coverage . . . .‖ (Emphasis added.) There is no contention that the phrase ―We will pay‖ there means it will only make one payment under MedPay coverage.

The second sentence begins, ―Our payment is based on the amount that an insured is legally entitled to recover for bodily injury . . . .‖ The word ―payment‖ clearly refers to the phrase ―we will pay‖ in the first sentence. Otherwise, there would be no maximum limit on the amount Liberty Mutual was obligated to pay. The second sentence provides that Liberty Mutual's ―payment is based on the amount that an insured is legally entitled to recover.‖ (Emphasis added.) In context, this portion of the sentence merely further defines the amount that Liberty Mutual is obligated to pay under UM coverage.

To make sense, the two sentences have to be read together. The first sets forth Liberty Mutual's maximum obligation under UM coverage, and the second sets forth how the amount of its actual obligation will be determined in particular instances. When read in context, the second sentence could not reasonably be construed as stating that there will be only one payment made under UM coverage.

There is a policy provision in the UM coverage section entitled ―How We Will Settle a Claim (Part 4).‖ It states that the UM limit of liability on the declarations ―is the maximum we will pay for all damages arising out of bodily injury to one person as a result of any one accident.‖ (Emphasis added.) It does not state that how Liberty Mutual will settle a claim under the UM coverage is by making only one payment. It uses the same language (―we will pay‖) as in the MedPay provisions. There is no basis for holding that the phrase ―we will pay‖ means one thing under the MedPay coverage and something else under the UM coverage.

Liberty Mutual also quotes from Ryals v. State Farm Mutual Automobile Insurance Co., 134 Idaho 302, 307, 1 P.3d 803, 808 (2000), wherein we stated, when addressing a different issue, ―[T]he purpose of Idaho's uninsured motorist statute which is to afford the same protection to a person injured by an uninsured motorist as would have been enjoyed had the tortfeasor carried liability insurance.‖ Based upon that quotation, it argues that because Sarah could have obtained only a single judgment or settlement from the tortfeasor and could not have brought a new lawsuit each time a medical expense was incurred, an insurance company's responsibility to pay under UM coverage should be held to be the same.

Ryals does not support Liberty Mutual's argument. Ryals did not hold that a motorist with UM coverage who is injured by an uninsured tortfeasor should in all respects recover just as if the motorist had sued and the tortfeasor carried liability insurance. In Ryals, the accident occurred in New York, and under that state's no-fault law Ryals would not have been able to recover against the tortfeasor had she sued him. We did not hold that Ryals's insurance company should be treated just as if it was the tortfeasor. Rather, we held that the torfeasor, who had liability insurance, was not rendered uninsured by New York's no-fault law. We have never held that the relationship between an insurance company providing UM coverage and its insured is the same as the relationship between its insured and the uninsured tortfeasor. The Weinsteins had not entered into a contract with, and were not making premium payments to, the tortfeasor. The relationship between the insurance company and its insured does not vary depending upon whether the insured is making a claim under UM coverage or another type of coverage. ―The tort of bad faith breach of insurance contract . is founded upon the unique relationship of the insurer and the insured, the adhesionary nature of the insurance contract including the potential for overreaching on the part of the insurer, and the unique, ‗non-commercial' aspect of the insurance contract.‖ White v. Unigard Mut. Ins. Co., 112 Idaho 94, 100, 730 P.2d 1014, 1020 (1986). Those factors apply to all types of coverage. When a claim is made under UM or underinsured motorist coverage, the insurance company can certainly raise any issues or defenses that the tortfeasor could have raised, but it cannot raise frivolous issues and defenses in bad faith even though the tortfeasor could get away with such conduct. As we stated in Sullivan v. Allstate Insurance Co., 111 Idaho 304, 306, 723 P.2d 848, 850 (1986) (emphasis in original), ―[W]e do not agree with those courts who hold that in all circumstances the relationship [between the insurance carrier and its insured making a claim under UM coverage] is adversarial in nature and no obligation or liability rests upon the insurance carrier until the ‗legal liability' of the uninsured motorist has been either admitted or adjudicated.‖ The insurance company has a duty to act in good faith even when its insured makes a claim under the UM coverage of the policy. Bantz v. Bongard, 124 Idaho 780, 785, 864 P.2d 618, 623 n.5 (1993).

―The covenant requires the parties to perform, in good faith, the obligations contained in their agreement,‖ Van v. Portneuf Med. Ctr., 147 Idaho 552, 562, 212 P.3d 982, 9092 (2009), but ―contract terms are not overridden by the implied covenant of good faith and fair dealing,‖ Bushi v. Sage Health Care, PLLC, 146 Idaho 764, 768, 203 P.3d 694, 698 (2009) (emphasis in original). Liberty Mutual was entitled to rely upon the terms of the insurance ...


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