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Lira v. Shelter Insurance Co.3/25/1996
EN BANC
We granted certiorari to review the decision of the court of appeals in Lira v. Shelter Insurance Co., No. 93CA0663 (Colo. App. Dec. 29, 1994), which held that when an insured's only claimed damages are the outstanding punitive damages awarded against him in the underlying suit, the insured may not recover against the insurer for acting in bad faith in failing to settle. We affirm the decision of the court of appeals.
I.
Early in the morning on January 3, 1988, Joel Lira (Lira) became involved in an altercation with another driver, Edgar Gunn (Gunn), while traveling northbound on Interstate 25. Lira had spent much of the prior evening consuming beer at various locations. According to Lira's testimony, Gunn pulled in front of him and stopped suddenly, causing Lira's vehicle to collide with Gunn's vehicle and lock bumpers with it. The two drivers then exited their vehicles, leaving the vehicles in a traffic lane on Interstate 25, and began fighting on the highway. After the two finished fighting, Gunn left the scene in his vehicle. Lira departed on foot, abandoning his vehicle in the traffic lane on Interstate 25. Lira neglected to report to any authorities that he had left his vehicle in the path of oncoming traffic.
Soon thereafter, Lira's vehicle was struck by Jeffrey Davis (Davis), who was traveling north in his vehicle on Interstate 25. Subsequently, Davis brought an action against Lira, seeking compensatory and punitive damages. Shelter Insurance Company ("Shelter"), as Lira's insurance company at the time of the accident, hired a law firm to defend Lira. Shelter also notified Lira by correspondence that the plaintiff is seeking punitive damages.
Exclusion 11 on Page 5 of your policy exclude (sic) punitive damages from coverage under your policy. Should there be a judgment rendered against you for punitive damages, you would be responsible for same. Again, you have a right to hire an attorney at your expense to defend you as to the punitive damages.
During the pretrial proceedings, Davis offered to settle his claims against Lira for the policy limit of $50,000. Shelter, on behalf of Lira, refused this offer, and made a counteroffer of $10,000. Shelter based this counteroffer on its assessment that Davis had incurred $30,000 in losses relating to the accident and that Lira should be liable for one-third of those losses. Davis refused Shelter's counteroffer, and the case proceeded to trial.
After trial, the jury returned a verdict against Lira in the amount of $87,300 in compensatory damages and $87,300 in punitive damages. The trial court reduced the compensatory damages award to $43,650, pursuant to the comparative negligence statute, section 13-21-111, 6A C.R.S. (1987), and the pro rata liability statute, section 13-21-111.5, 6A C.R.S. (1987). Additionally, the trial court reduced the punitive damages award to $43,650, pursuant to the punitive damages statute, section 13-21-102(1)(a), 6A C.R.S. (1987). The damages awards were upheld by this court. Lira v. Davis, 832 P.2d 240, 246 (Colo. 1992).
Shelter satisfied the compensatory damage award, plus interest and costs, the total of which was within the $50,000 limit of Lira's policy with Shelter. Shelter declined to pay the punitive damages awarded against Lira, as Lira's insurance policy exempted punitive damages from coverage.
Lira then brought the instant action against Shelter for bad faith breach of Lira's insurance policy, alleging that Shelter acted in bad faith by failing to settle Davis's action against Lira. The damages alleged by Lira were t
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