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Lira v. Shelter Insurance Co.3/25/1996
vely with insured in defending and attempting to settle the entire case, damages for breach of that duty do not extend to punitive damages sustained by insured as a result of the breach). The court in Soto held that "where an insurer has acted in bad faith in relation to an available pretrial settlement opportunity, it is guilty only of placing its insured at risk that a jury will deem him or her so morally culpable as to warrant the imposition of punitive damages." Soto, 635 N.E.2d at 1225. Essentially, Soto reflects a qualitative judicial judgment that the insurer's bad faith is less blameworthy than the actions of the insured upon which the punitive damages award is predicated and that the insured must always bear the burden of punitive damages notwithstanding any loss of opportunity to avoid them as a consequence of an insurer's bad faith. See maj. op. at 9-11 (quoting from Soto, 635 N.E.2d at 1225).
I would reach a contrary judgment in light of the absence of any public policy prohibiting settlement of punitive damages claims and the fact that the insurer has control of the litigation and settlement. The majority's reasoning in effect absolves the insurer, which controls the litigation, from any need to take into account the insured's interests in avoiding a judgment for punitive damages, a central concern of the insured. See maj. op. at 7-8. The better approach, in my opinion, would be to follow the reasoning of the Eighth Circuit Court of Appeals in Carpenter, 58 F.3d at 1302-03, and hold that in a tort action for bad faith breach of an insurance contract, as in any other tort action, the insured may recover all damages that result from the breach, including damages resulting from a lost opportunity to settle a claim for punitive damages.
Contrary to the majority's contention, maj. op. at 11, such a rule would not "force insurers to settle cases involving punitive damages in order to avoid liability for the same punitive damages in subsequent bad faith actions." Nor would it violate the principle, with which I agree, that insurers have no absolute duty to settle in order to protect their insureds from punitive judgments. Maj. op. at 11; see Zieman Mfg. Co. v. St. Paul Fire & Marine Ins. Co., 724 F.2d 1343, 1346 (9th Cir. 1993). Rather, such a rule would simply require an insurer to consider fairly the insured's interests and potential personal liability in addition to its own interests when negotiating settlements. No less should be required of the insurer, which has control of the litigation and the potential settlement of the case on behalf of the insured.
III.
The trial court in this case appropriately presented the insured's claims to the jury as tort claims, with damages measured as "actual damages . . . in an amount which will reasonably compensate the plaintiff for his damages and losses if any." See jury instructions twelve, thirteen, and eighteen. In doing so, the trial court properly qualified an insurer's good faith tort obligation by noting that "an insurer does not have an absolute duty to settle a claim, merely to avoid the risk of punitive damages." Jury instruction sixteen. Despite this qualification, the jury determined that Shelter acted in bad faith, and awarded Lira an amount sufficient to compensate him for the punitive damages assessed against him in the underlying action. For the reasons previously stated, I would reverse the judgment of the court of appeals overturning that award and would direct reinstatement of the judgment entered on the jury verdict. I therefore respectfully Dissent to the majority opinion.
JUSTICE KIRSHBAUM and JUSTICE MULLARKEY join in this Dissent.
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