Summary: Safeco had reviewed the facts, carefully evaluated the value of the Plaintiff’s uninsured motorist case, round tabled the case when challenged that its offers were too low, and documented well its offers and the reasons for those offers. Although the Court did not rule on the breach of contract claims filed against Safeco, the Court found both that Safeco’s conduct was not in bad faith and was not in violation of the New Mexico statutes. Accordingly, the bad faith and extra-contractual damage claims against the adjuster and Safeco were dismissed and summary judgment was entered against Plaintiff on those claims. The insured’s positions were not helped by his attorney’s failure to abide by the local court rules.
Hauff v. Petterson, F.Supp.2d, 2010 W.L. 2978060 (D.N.M. 2010)
David Hauff, a Safeco Insurance Company (Safeco) insured, was injured in June 2005 when hit by an uninsured driver. Thereafter he filed a claim for damages with his uninsured carrier, Safeco, and attempted to negotiate a settlement. Hauff apparently fully recovered in three months. Hauff’s attorney demanded settlement for the $75,000 policy limits to compensate Hauff for his medical bills, lost wages, and general damages. Less than 60 days after the initial demand, Safeco offered to settle for nearly $19,000 while indicating that the offer was “negotiable.” When deciding how much to offer, Safeco made a reduction for the medpay benefits paid. Over the next two and a half months, the parties made multiple offers and demands, but remained over $35,000 apart. During those negotiations the Safeco adjuster emphasized how quickly Mr. Hauff had recovered.
When the parties were unable to bridge the gap between their respective positions, Safeco’s adjuster suggested mediation. Although the parties agreed to mediate, Hauff and his attorney wanted Safeco to bear all of the charges of mediation, which it agreed to do, but only if the mediation was successful. Mr. Hauff’s attorney would not agree to that condition and also refused non-binding arbitration. Although Mr. Hauff’s attorney was willing to enter binding arbitration, Safeco was not. After it became apparent that the claim could not be resolved short of litigation, Mr. Hauff filed suit in September 2006. In addition to his claim for compensatory damages, he alleged that Safeco had acted in bad faith and violated its statutory duties by refusing to settle for the amount Plaintiff demanded. Two and a half years later, he also moved to certify a multi-state class of uninsured or underinsured motorists who had filed lost wage claims against Safeco. Thereafter, the case was removed to federal court, and the federal court denied the Motion to Remand. Nearly three years after having filed suit, Mr. Hauff moved for class certification, a motion denied three months later. At that point, the Defendants, Safeco and its adjuster, filed summary judgment motions on Mr. Hauff’s individual claim.
The summary judgment motions attacked Plaintiff’s common law bad faith claims and the claims brought under the New Mexico Insurance Code and the New Mexico Unfair Practices Act for the ways it had negotiated Hauff’s claim, including its offers to pay net lost wages and the way it had valued Hauff’s general damages. In addition, Safeco asked the Court to rule that it did not owe Mr. Hauff punitive damages. The adjuster’s summary judgment motion sought similar relief.
In New Mexico, both the insurer and insured are obligated “to deal fairly and honestly” with one another. For Mr. Hauff to survive summary judgment on his common law duty of good faith claim, he had to cite evidence in the record “tending to show that Safeco’s actions were based on a ‘dishonest judgment’ and that it ‘failed to honestly and fairly balance its own interests’ with Mr. Hauff’s.” The Supreme Court of New Mexico had ruled that an insurer acts in bad faith whenever “its reasons for denying or delaying payment of a claim are frivolous or unfounded. A frivolous or unfounded refusal to pay is “an arbitrary or baseless refusal, a refusal recklessly lacking any arguable support in the insurance policy or facts of the case.” An erroneous or incorrect refusal is insufficient. Furthermore, if the insurer has a “legitimate reason to question the amount of damages claimed by the insured, a finding of bad faith is improper.”
Turning first to the lost wage claim, the District Judge looked to the Internal Revenue Code and the United States Supreme Court in Comm’r v. Schleier, 515 U.S. 323, 329-30 to support the proposition that lost wages recovered as the result of physical injuries are not taxable. That includes settlement amounts where there is an allocation for lost wages. New Mexico state law was similar. Accordingly, any payment by Safeco to Mr. Hauff for lost wages would not be subject to income tax whether Safeco paid the net or gross amount. New Mexico did not require Safeco to pay pre-tax gross wages as opposed to wages calculated based upon the net wage loss. Safeco agreed that it needed to make Mr. Hauff whole, but it “need not provide him with a tax-free windfall.”
The Court stated that it did not have to resolve the question of unsettled New Mexico law. Instead, the District Judge noted that “Safeco’s legal arguments in favor of its position, combined with the lack of state authority on this situation, show that it was not arbitrary or baseless for Safeco to think that it had no duty to pay gross wages.” Since Safeco had a reasonable basis for declining to pay gross wages, offers which deducted for taxes on the income “were not made in bad faith.” Pointing to New Mexico state court cases, the District Judge noted that if an insurer’s position was reasonable, although wrong, its refusal to pay could not be “frivolous nor unfounded.” Because Safeco could reasonably conclude it was not legally obligated to pay gross wages, it had not acted in bad faith.
The Court then turned to Safeco’s valuation of Mr. Hauff’s general damages claim. Mr. Hauff contended that Safeco violated the “equal consideration doctrine” by the way it valued his general damages. According to Hauff, Safeco’s offers were “unreasonably low because Safeco’s adjuster ignored the nature and extent of Hauff’s injuries.” However, the adjuster had reviewed all medical records on more than one occasion and had “round tabled” the case with other adjusters regarding the value of Hauff’s claim. The adjuster considered Mr. Hauff’s injuries “to be moderate and she made her general damages estimates accordingly.” The fact that Hauff and his attorney thought her offers were too low did not make them “unreasonable or the product of bad faith.”
The Court also reviewed Mr. Hauff’s contention that Safeco violated its duty of good faith and the equal consideration doctrine by failing to make a timely settlement offer. In doing so the District Judge noted that the initial settlement offer was made within 15 days of determining the exact amount of Hauff’s medical bills. In addition, the longest period between offers was 18 days, a time during which the adjuster was reviewing the records once again and having a round table conference. The Court concluded that the adjuster’s offers “were reasonably timely.”
The District Judge also evaluated whether Safeco’s conduct violated the New Mexico Trade Practices and Fraud Act. That Act prohibited unfair or deceptive insurance acts. The New Mexico Act does not require insurance companies to settle cases they believe are over valued, but they are required to try in good faith to “effectuate prompt, fair, and equitable settlements of an insured’s claims in which liability has become reasonably clear.” The District Court Judge took up separately each of the five subsections allegedly violated by Safeco and concluded there had been no violations. In the process, the Judge rejected the Plaintiff’s expert witness’s testimony regarding insurance industry standards that Safeco allegedly failed to meet. The Court stated that an opinion which lacks factual support fails to raise a triable issue of fact. The Court’s description of the expert’s testimony citing no evidentiary support for his conclusions while admitting that he had not personally reviewed New Mexico’s insurance practices, caused the judge to “disregard [] his opinions as unsupported argument.” The Court further noted that it was Hauff and his attorney who broke off settlement negotiations and refused to agree to Safeco’s alternative dispute resolution proposals. Since Mr. Hauff’s complaints in those regards lacked evidentiary support, the judge rejected his positions, rejected the testimony of his expert witness, and found that Safeco was entitled to summary judgment regarding the Unfair Insurance Practices Act claim.
The Court also addressed the Unfair Practices Act claim. To prevail under that Act an insured has to prove that the insurance company “’knowingly’ made a false, misleading or deceptive representation ‘in connection with’ the sale of services subject to the Act.” Mr. Hauff took the position that Safeco’s negotiation policy of paying net wages “failed ‘to deliver the quality or quantity of services pursuant to the contract, since the insurance policy says it will pay what you are legally [entitled] to recover and their practices in adjusting the Plaintiff’s claim does not fulfill that promise.” The insured failed to cite any policy language or other evidence showing that the contract specified the payment of gross wages rather than net wages. Since Hauff had no “significantly probative summary judgment evidence” to demonstrate that Safeco’s offer to pay after tax net wages “was a false, misleading, or deceptive representation ‘knowingly made’ ‘in connection with’ the sale of services,” Safeco was entitled to summary judgment on that issue as well. Further, because Safeco was not liable for any of the other claims, it could not be liable for punitive damages.
The Court quickly dealt with the claims against the adjuster by pointing out that the summary judgment in favor of the adjuster’s principal, Safeco, meant that the adjuster, too, was entitled to summary judgment. In addition to the adjuster being relieved of liability for the various bad faith claims asserted against her, she was also entitled to summary judgment on the breach of contract issue, since she was an employee of Safeco acting in the course and scope of her employment when she was dealing with Mr. Hauff. Accordingly, she was entitled to summary judgment on the breach of contract claim, as well, and her dismissal was with prejudice.
In a final blow to Mr. Hauff and his attorney, the Court noted multiple failures on the part of Mr. Hauff’s attorney, including a failure to “apprise the Court of basic facts,” misconstruing facts, failing to follow the local rules, and also filing “his briefs late without seeking an extension or citing excusable neglect.” In addition, the Court noted that the attorney’s claim that the District Court’s “local rules do not govern his conduct.” Not surprisingly, the Court disagreed and pointed out that the local rules did govern his conduct and issued a warning regarding the future consequences for failing to abide by the local rules.
