REPUBLIC INSURANCE COMPANY, Appellant, v. JACK A. HIRES, Respondent
Republic Insurance v. Hires
Mowbray, C. J., and Steffen, J., concur.
REPUBLIC INSURANCE COMPANY, Appellant, v. JACK A. HIRES, Respondent.
REPUBLIC INSURANCE COMPANY, Appellant, v. JACK A. HIRES, Respondent.
No. 19426
May 2, 1991
810 P.2d 790
Beckley, Singleton, DeLanoy, Jemison & List, Las Vegas; LeBoeuf, Lamb, Leiby & MacRae and John Frye and R. Scott Puddy, San Francisco, California; Maurice Rosenberg, Professor of Law, Columbia University, New York, New York, for Appellant.
Victor G. Drakulich, Reno; Hibbs, Roberts, Lemons, Grundy & Eisenberg, Reno, for Respondent.
Lionel Sawyer & Collins and M. Kristina Pickering, Reno; Gibson, Dunn & Crutcher and Larry L. Simms, Washington, D.C., for Amicus Curiae American Insurance Association and Coalition for Available/Affordable Liability Insurance.
Hamilton & Lynch, Reno, for Amicus Curiae Nevada Trial Lawyers Association.
OPINION
By the Court,
Young, J.:
A jury awarded Jack A. Hires $22.5 million in punitive damages because of the manner in which Republic Insurance Company treated Hires in connection with payment of an insurance claim.
FACTS
Before leaving on a weekend trip to California, Hires secured his home in Sparks and asked his neighbor, Doug France, to maintain the swimming pool. Soon after reaching his destination, Hires received a telephone call from France who told him that his house had been "robbed." Hires immediately returned to Sparks. He found extensive damage to the residence and furniture; in addition, several items had been stolen.
Hires notified Republic Insurance Company of the loss. The homeowner's coverage with Republic was a basic homeowner's policy with a replacement cost endorsement for an additional cost.
On Monday, Terry Hunt, an independent insurance adjuster hired by Republic, went to the house to inspect damages. After reviewing the damage, Hunt told Hires that a contractor would take care of it. Hunt recommended that Hires contact UTE Construction Company regarding repairs.
The following night, Gary Schizler from UTE went to the Hires home and told Hires to replace the damaged furniture. Relying on the instructions of Hunt and Schizler, Hires threw away the damaged furniture and bought new replacement furniture, partially with cash and on credit. Hires gave the receipts to Hunt, who indicated that he would take care of it.
Two weeks later, Hunt informed Hires that Republic would not reimburse Hires the full $2,242.82 for the new furniture, but that Republic would pay only $400, which is what Republic estimated it would cost to reupholster the furniture. Republic finally paid Hires only sixty-five percent of the $400 because Republic claimed Hires lacked documentation, even though there had been no question raised as to Hires' ownership of the furniture.
The next problem Hires encountered was with regard to his bedroom furniture. Hires estimated that it would cost $580 to replace the furniture. Republic estimated a replacement cost of $300 and offered to pay only sixty-five percent of the $300. Republic's excuse for the across-the-board thirty-five percent reduction in payments to Hires was that Hires did not have sufficient documentation to establish price and ownership on some items. Even the items for which there was sufficient documentation were paid for by Republic at sixty-five percent of replacement value. According to Republic claims adjuster Trisha Funk, it was customary for Republic to begin negotiations at a reduced figure, leaving the policyholder with the obligation of arguing for a larger amount.
Moreover, Republic refused to pay any amount to Hires until four months after the burglary. Hires testified this created financial difficulties. Hires also testified that he experienced marital difficulties before the experience with Republic and that Republic's treatment of him and the ensuing financial difficulties finally resulted in his divorce.
In November 1986, four months after the burglary, Hires contacted legal counsel who sent a letter to Terry Hunt demanding payment of the claim. Republic continued its refusal to pay. By Christmas, Hires had experienced major financial difficulties because of the payments due on replacement furniture that he had purchased and the repairs which he had paid.
Finally, on December 30, 1986, Republic gave Hunt authority to settle a claim for damage for loss of contents in the amount of $7,238 which was $5,800 under the demand by Hires. Hires accepted payment while reserving his right to contest the amount paid.
Republic's conduct with regard to its investigation of the burglary was also an issue at trial. Officer Schmidt of the Sparks Police Department investigated the burglary and concluded that, because of the large amount of vandalism associated with the burglary, the perpetrator might have been a member of the Hires family or someone with a great dislike for the family. When Officer Schmidt's suspicions were satisfied, the police investigation was closed.
Republic apparently did not agree with Officer Schmidt's conclusion and conducted a full neighborhood investigation into Hires' possible involvement in the burglary. Part of the investiga tion concerned Mrs. Hires' alleged extramarital activities and possible involvement in the burglary. Hires testified that, prior to the investigation, he enjoyed a very close relationship with people in the neighborhood. After the investigation, he perceived a change in his neighbors' attitude toward him and his family.
Hires stated that his children mentioned remarks by their friends indicating that the Hires family had been involved in the burglary. Republic finally concluded that the family had no involvement in the burglary. Terry Hunt, who performed the investigation for Republic, testified that ordinarily he would not have conducted such a thorough investigation, but that Republic was usually more willing than other companies to investigate the background of its own insureds. The investigation apparently ended in November 1986.
About eighteen months after the burglary and after the lawsuit was filed, Republic again investigated the incident. An investigator employed by Republic's attorney contacted Doug France and asked if France had collaborated with the Hires family in committing the burglary. The investigator asked France if he had been involved in a relationship with Mrs. Hires. France interpreted this question as referring to a sexual relationship. This investigation was conducted throughout the neighborhood. In December 1987, pursuant to the investigator's request, the Sparks Police Department reopened the investigation, but closed it again upon verification of information previously received.
Hires brought suit against Republic based on breach of contract, misrepresentation, bad faith, negligence and invasion of privacy. The jury awarded Hires $410,000 in compensatory damages and $22.5 million in punitive damages.
On appeal, Republic raises a number of claims of procedural error. We conclude that these claims were either not properly preserved for review or that, if objection was properly made, there was no abuse of discretion by the trial judge. Moreover, we have reviewed the record and conclude that evidence supported the award of compensatory damages. We will now address the question of punitive damages.
Republic raises a constitutional argument regarding punitive damages, but we reject this argument because the availability of punitive damages is accepted as settled law by nearly all state and federal courts. Pacific Mutual Life Ins. Company v. Haslip,..... U.S. ., 59 U.S.L.W. 4157 (March 4, 1991). Our court has stated that punitive damages provide a benefit to society by punishing undesirable conduct not punishable by the criminal law. Ace Truck v. Kahn, 103 Nev. 503, 746 P.2d 132 (1987).
NRS 42.005 authorizes an award of punitive damages where the defendant has been guilty of oppression, fraud or malice. If we read the record in the light most favorable to Hires and least favorable to Republic, we conclude evidence indicates Republic was guilty of oppressive conduct. K Mart Corp. v. Ponsock, 103 Nev. 39, 732 P.2d 1364 (1987).
After hearing all the evidence in the case, the trial judge summarized the case as follows:
This claim was not one in the gray area, but rather was one that reasonable persons would agree should [emphasis in original] be paid . Republic insisted on an across the board reduction of the claim. Furthermore, the testimony of Terry Hunt, by way of his first deposition, established that this conduct was the unqualified policy of Republic, particularly with regard to lower and middle income policyholders, who are less likely to dispute Republic's position. This conscious wrongdoing on the part of Republic, along with the malicious intent, is what the jury sought to punish. And the jury knew that a substantial sum was necessary to deter further conduct by a wealthy, powerful and impersonal corporation.
(Our emphasis.)
From the above comments by the court and the record, it is clear that Republic was guilty of oppressive behavior. Evidence showed that the net worth of Republic was approximately $172 million. We conclude that $22.5 million is a larger sum than is necessary in this case to serve as a deterrent. Although we are reluctant to substitute our judgment for that of the trier of fact on punitive damages, we conclude that the amount awarded by the jury is clearly disproportionate to the blameworthiness and harmfulness in the conduct of Republic under the circumstances of this case. Ace Truck, 103 Nev. at 509, 746 P.2d at 136-37.
Based on the standards established in Ace Truck and after considering all of the factors enumerated therein, we conclude that in this case any punitive damage award in excess of $5 million would be unreasonable and disproportionate to the behavior of Republic. An award of more than $5 million would be more than is necessary to deter Republic and others from engaging in this kind of oppressive behavior.
We affirm the judgment of the trial court in all respects except for the award of punitive damages. The judgment for punitive damages is reduced from $22.5 million to $5 million.
Mowbray, C. J., and Steffen, J., concur.