Opinion
2:08-cv-1687-RCJ-PAL
03-03-2010
ERNEST HICKS and RONALD KLECKLEY, Plaintiffs, v. DAIRYLAND INSURANCE COMPANY, et al., Defendants.
ORDER
Currently before the Court is a Motion to Reconsider (#36) filed by Plaintiffs Ernest Hicks and Ronald Kleckley (collectively referred to herein as "Plaintiffs") on April 30, 2009. Defendant Dairyland Insurance Company ("Dairyland") filed an Opposition to Motion to Reconsider Order (#38) on May 7, 2009 and Plaintiffs filed a Reply (#41) on May 18, 2009.
Also before the Court is a Motion for Summary Judgment (#67) filed by Dairyland on September 23, 2009. Plaintiffs filed an Opposition to Motion for Summary Judgment (#68) on October 12, 2009, and Dairyland filed a Reply (#71) on October 26, 2009.
The Court heard oral argument on the motions on February 16, 2010.
BACKGROUND
On July 26, 2005, Ernest Hicks ("Hicks") was involved in an automobile accident with an individual named Ronald Kleckley ("Kleckley"). Hicks was at fault for the accident. At the time of the accident, Hicks had a policy of automobile insurance with Dairyland that provided $15,000 in liability coverage for injury or death to any one person arising out of an accident. (Motion for Summary Judgment (#67) at Ex. 4).
Kleckley retained attorney David Sampson ("Sampson") to represent him following the accident. On August 16, 2005, Kleckley, through his attorney, made a claim to Dairyland for damages under the terms of Hicks's policy. Upon receiving notice of Kleckley's claim, Dairyland opened a file and assigned it to adjuster Julie Glynn ("Glynn").
On August 17, 2005, Glynn attempted to contact both Sampson and Hicks. Id. at Ex. 10, ¶ 4. According to her affidavit, Glynn stated that she left a message for Sampson to call her regarding the claim, but that "Sampson did not return the call." Id. She also "attempted to reach" Hicks by telephone to discuss the accident, but no one answered the phone. Id. On August 22, 2005, Glynn ordered a copy of the police report from the accident and "sent a letter to Hicks asking that he contact her." Id. Glynn stated that "Hicks never responded to the letter." Id.
On August 25, 2005, Sampson sent a letter to Dairyland stating that his client had been treated by three medical providers: Precision Medical Group, Centennial Spine & Pain, and Insight Mountain Diagnostics. Id. at Ex. 12. Included in the letter was an authorization for use and disclosure of protected health information to Dairyland signed by Kleckley. The letter further provided that: "My client is willing to settle for the policy limits provided that you have the same in my office within two weeks together with proof that those limits are the only policy limits available to provide compensation to my client for this incident." Id. At the time Sampson sent the letter to Dairyland, he did not know what the policy limits were under Hicks's policy. Id. at Ex. 7, pp. 139-142. However, he knew that the policy provided for at least $15,000 based on the statutory minimum required under Nevada law. Id. In addition, on the date the letter was sent, Kleckley had only been diagnosed with a strain/sprain injury to his neck, back and right shoulder. Id. at Ex. 14. His total medical bills were $2,120.00. Id. at Ex. 15.
Dairyland notes that although Sampson's letter stated that Kleckley had treated with Centennial Spine & Pain at the time the letter was sent, Kleckley did not actually go to Centennial Spine & Pain until August 31, 2005 - nearly a week after the letter was sent. Id. at Ex. 7, p. 122. In his deposition, Sampson stated that he did not know why he would include a medical provider that Kleckley had not yet been treated by.
Dairyland received the letter via fax from Sampson the following day. According to Dairyland, after a fax is received, it takes between one to two business days for the fax to reach the correct file and adjuster. Id. at Ex. 16, p. 38. As such, Dairyland asserts that Glynn would not have received the fax until either August 29th or August 30th because of an intervening weekend. At her deposition, Glynn testified that she did not see the August 25, 2005 letter until September 14, 2005. Id. at Ex. 6, p. 49. According to Glynn, she did not see the letter earlier because the weekend after it was received was the Labor Day holiday and she had taken vacation days at that time. Id. Glynn further stated that after she returned to work, she would have tended to her files and work responsibilities in "due course." Id. at Ex. 6, p. 61. As such, although the letter was in the file, she probably did "not have a chance to review it" immediately, because she was working on things as they came in. Id.
After reviewing the letter on September 14, 2005, Glynn sent a letter to Sampson acknowledging her receipt of the letter. Id. at Ex. 17. In that letter, Glynn set forth Hicks's policy limits, and stated that she would "begin obtaining medical records." Id. The letter further stated that Glynn was "unable to extend an offer of policy limits as [she did] not have sufficient documentation to properly evaluate [Kleckley's] injury claim." Id. Glynn ended by requesting that Sampson forward all medical bills of Kleckley's treatment and to keep her advised of any medical expenses so that she could "properly reserve [the] file." Id. According to Hicks, he was never informed of the August 25, 2005 demand letter or Kleckley's willingness to settle the claim at that time for the policy limits. (Opposition to Motion for Summary Judgment (#68) at 2).
Dairyland acknowledges that Glynn's letter to Sampson was sent after the two-week demand for policy limits had expired. However, Glynn testified that she continued to work the file hoping that settlement was still possible. In addition, both Kleckley and Sampson testified that Kleckley was still willing to settle the case for policy limits after that two week period. See Motion for Summary Judgment (#67) at Ex. 5 and Ex. 10.
Although Kleckley had initially only been diagnosed with a soft tissue injury, he subsequently developed problems with his left shoulder. He did not realize he had a more serious injury until a September 13, 2005 MRI of his shoulder which showed the existence of a labral tear. Kleckley had surgery on that shoulder on September 29, 2005. (Motion for Summary Judgment (#67) at Ex. 5, pp. 158-160). According to Dairyland, neither Sampson nor his staff informed Dairyland of the September 13, 2005 MRI or Kleckley's shoulder injury. Id. at Ex. 7, pp. 182 and 215.
Following Glynn's September 14, 2005 letter, Plaintiffs state that nothing was done on the Kleckley claim until October 28, 2005. (Opposition to Motion for Summary Judgment (#68) at Ex. 3, pp. 75-81). On that date, the reserve amount on the file was changed. After that, nothing substantive was done on the file until November 6, 2005. Id.
According to Dairyland, during that time, Glynn was waiting for Kleckley's medical records to arrive. Glynn testified that medical providers can sometimes take weeks or even months to respond to an insurance carrier's request for records. (Motion for Summary Judgment (#67) at Ex. 6, p. 76). Based on a perforated date stamp, Dairyland states that it received the medical records from Precision Medical Group on September 26, 2005. These records show the soft tissue injury Kleckley had sustained. Dairyland also received medical records from Centennial Spine & Pain which showed Kleckley's left shoulder injury and subsequent surgery. However, there is no date stamp on these records so it is unclear when Dairyland received them. Id. at Ex. 16, p. 32-40. Plaintiffs argue that Dairyland received those records at the end of September.
Dairyland provided deposition testimony that the reason the records were not date stamped was likely due to human error. Id.
On November 7, 2005, Glynn testified that she reviewed all the medical records in her file. Based on the medical records showing the labral tear to Kleckley's shoulder, Glynn requested authority from her supervisor to settle the case for the full $15,000 policy limits. Glynn's supervisor agreed and the next morning Glynn mailed a letter to Sampson offering policy limits. In addition, Glynn telephone Sampson with the offer. Id. at Ex. 6, pp. 94-100, 121-122, 176-179.
On November 8, 2005, Dairyland sent Hicks a letter stating that they had been trying to get a hold of him regarding the accident. Id. at Ex. 4. In this letter, Dairyland stated that they would make every effort to settle the bodily injury claim by Kleckley within the policy limits. Dairyland did not state that they had made an offer for settlement on that same date to Kleckley.
Dairyland provided evidence that Hicks listed the home address and telephone number of his mother in North Las Vegas in his application for automobile insurance. (Motion for Summary Judgment (#67) at Ex. 9). In his deposition, Hicks stated that he was homeless at the time of the accident and had been homeless since 2004. He said that the only way anyone could attempt to reach him was through his mother at her address. However, he stated that he may or may not get telephone messages at his mother's house. In addition, he stated that he may or may not get mail sent to his mother's house. On top of that, Hicks testified that when he does get letters at his mother's house, he may or may not read them. Id.
Also on November 8, 2005, Sampson faxed a letter to Dairyland and enclosed a copy of the Complaint filed in the state court action. Id. at Ex. 20. The Complaint had been filed the month before. According to Sampson's deposition testimony, this was Sampson's way of telling Dairyland that they would no longer settle for the policy limits. Id. at Ex. 20, p. 242.
Hicks was served with the Complaint in December 2005. After Sampson effected service of the Complaint, Dairyland hired attorney Dave Thomas ("Thomas") to represent Hicks. During the early case conference in state court, Thomas told Sampson that Dairyland was willing to offer its policy limits. Sampson stated that his client was no longer willing to settle for that amount. Id. at Ex. 7, pp. 258-59.
Prior to the state court trial between Kleckley and Hicks, Sampson sought to execute a stipulated judgment and assignment from Hicks to Kleckley of any rights Hicks may have against Dairyland. At Thomas's request, Dairyland agreed to pay attorney Mitch Cobeaga ("Cobeaga") to meet with Hicks and advise him of his potential rights under such an agreement. Id. at Ex. 21, p. 40 and Ex. 22. Sampson sent Cobeaga a copy of the agreement, but Cobeaga advised Hicks against signing it. According to Cobeaga, it was too confusing and convoluted. Id. at Ex. 23, p. 94-95. The agreement was also forwarded to Dairyland for its review. Dairyland sent the agreement to its coverage counsel Jan Pocaterra ("Pocaterra"). Pocaterra reviewed the agreement and recommended against Dairyland entering into it. According to Pocaterra, Dairyland had no duty to enter into an agreement that called for a stipulated judgment in excess of policy limits. In addition, Thomas had advised Dairyland that Hicks was not willing to sign the agreement. As such, Dairyland declined to enter into the agreement.
On May 21, 2007, the underlying state case went to trial. The Judge in that case entered a Judgment in favor of Kleckley and against Hicks in the amount of $110,540.40. Id. at Exhibit 24. Dairyland paid its $15,000 policy limits.
On October 22, 2008, the present case was filed in state court against Dairyland by Plaintiffs. In the Complaint, Plaintiffs set forth five causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) bad faith; (4) violation of Nevada's Unfair Claims Practices Act; and (5) fraud justifying an award of punitive damages. Dairyland removed the case to federal court.
After the case was removed to federal court, Dairyland filed a Motion to Dismiss as to Plaintiff Ronald Kleckley (#13). The Court granted Dairyland's motion on April 27, 2009. (Order (#30)). In the Court's order granting the motion to dismiss Kleckley, the Court noted that Kleckley was a third-party tort claimant in the action. The Court stated that because Kleckley had not executed upon his judgment against Hicks or received an assignment from Hicks, he had no direct action for breach of contract, bad faith, breach of the covenant of good faith and fair dealing or violation of the Unfair Claims Act against Dairyland. As a result, Kleckley was dismissed from the case. However, the Court granted Kleckley 60 days to show that he received an assignment from Hicks or that he executed upon his judgment against Hicks.
Now before the Court is a Motion to Reconsider the Court's order dismissing Kleckley. In addition, Dairyland has filed a Motion for Summary Judgment on the claims asserted against it. /// /// /// ///
DISCUSSION
I. Motion to Reconsider
As noted in the foregoing, in the Court's Order (#30) dismissing Kleckley for lack of standing, the Court granted Kleckley 60 days to "to make a showing that he received an assignment from Hicks or that he executed upon his judgment against Hicks." (Order (#30) at 6). The next day, Kleckley filed a Supplement to Response to Motion to Dismiss (#35) with the Court and attached a copy of an assignment allegedly entered into between Kleckley and Hicks regarding any potential bad faith claims against Dairyland. In addition, Kleckley filed a Motion to Reconsider (#36), stating that based on the assignment provided, the Court should reconsider its order and permit Kleckley to continue in his action against Dairyland.
In response, Dairyland argues that the Court should not reconsider its order because the assignment provided by Kleckley was not a "valid assignment." (Opposition to Motion to Reconsider (#38) at 1). According to Dairyland, the purported assignment is invalid for five different reasons: (1) lack of consideration; (2) no "meeting of the minds" between Hicks and Kleckley sufficient to form a contract; (3) the assignment provided is not an absolute, unconditional and complete transfer of all present rights by Hicks in the property being assigned; (4) the assignment seeks to modify a previous agreement and must therefore be signed by each party but was only signed by Hicks; and (5) the assignment specifically states that it is "null and void from its inception" in the event Kleckley is dismissed from the case "at any point in time." Id.
The assignment provided by Kleckley is a one page document signed only by Ernest Hicks on March 19, 2009. The assignment states, in pertinent part, that "[f]or value received, Earnest Hicks, assigns to Ronald Kleckley a certain portion of a right or cause of action that I have for damages against Dairyland . . . based upon its failure to negotiate in good faith the claim brought against me by Ronald Kleckley." Id. at Ex. 1. The assignment further provides that Hicks retains "all rights, interests, and claims against Dairyland . . . that are not specifically assigned to Ronald Kleckley herein." Id. However, it continues that "[i]n the event that this assignment is an improper splitting of my causes of actions against Dairyland . . . then this assignment shall constitute a full assignment to Ronald Kleckley of all rights and interests and claims I have against Dairyland." Id. Finally, the assignment states that "[i]f at any point in time Ronald Kleckley is dismissed from the current pending action against Dairyland . . . then this assignment is rendered null and void from its inception." Id.
As noted by the Court in its prior order, without proper assignment of rights, Nevada does not recognize a right of action by a third-party claimant against an insurance company forbad faith. See Hall v. Enter. Leasing Co. W., 122 Nev. 685, 137 P.3d 1104 (Nev. 2006). Here, Kleckley argues that the assignment is "valid on its face," because it states that it was given in exchange "for value received." (Reply (#41) at 1). However, for the following reasons, the Court finds that the assignment is invalid and denies Kleckley's motion to reconsider.
First, as noted by Dairyland, the assignment, on its face, states that it is "null and void" if Kleckley is dismissed from the current pending action against Dairyland. The assignment was allegedly entered into over a month before the Court entered its order dismissing Kleckley. As such, by the assignment's own terms, it was rendered invalid by the Court's Order (#30). Because the assignment is "null and void," it cannot provide Kleckley with the standing necessary to maintain his own cause of action against Dairyland.
In addition, Dairyland has provided evidence that there was no bargained for consideration in the making of the assignment. Because an assignment is a contract, its construction and enforcement are governed by principles of contract law. See May v. Anderson, 121 Nev. 668, 672, 119 P.3d 1254 (Nev. 2005). "Basic contract principles require, for an enforceable contract, an offer and acceptance, meeting of the minds, and consideration." Id. "A valid contract cannot exist when material terms are lacking or are insufficiently certain and definite." Id.
In Nevada, in order to constitute consideration, "a performance or return promise must be bargained for. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise." In re Fullmer, 323 B.R. 287, 296 (Bkrcty. D. Nev. 2005)(quoting Pink v. Busch, 100 Nev. 684, 688, 691 P.2d 456 (Nev. 1984)).
The record in the present case reveals that no "bargained for exchange" occurred between Hicks and Kleckley. In this regard, although the document itself states that the assignment is for "value received," Hicks testified at his deposition that he did not receive anything for the assignment. (Opposition to Motion to Reconsider (#38) at Ex. 1, pp. 35-36). Specifically, Hicks stated that for signing the agreement: "I wasn't given nothing, anything. It was just something I just figured - - I knew he wanted to get a settlement." Id.
In response to Hicks's deposition testimony, Kleckley argues that Hicks was struggling during his deposition understanding the questions because he is a diabetic and is in prison. (Reply (#41) at 2). According to Kleckley, "[t]he deposition took place in the afternoon when Hicks was mentally drained as a result of his condition. Hicks's failure to recall and/or understand the consideration he received for the assignment does not change the fact that [Kleckley] has a judgment against Hicks in excess of $100,000.00 and has not executed on the same per the agreement between the parties." Id. at 2. Based on this, it appears that Kleckley is arguing that the consideration for the assignment was Kleckley's refusal to execute on the judgment. However, as noted by Kleckley's own statement, the non-execution was part of a previous agreement entered into between the parties. Under Nevada law, that is not sufficient, on its own, to create consideration for a new contract. See Clark County v. Bonanza No. 1, 96 Nev. 643, 650-51, 615 P.2d 939 (Nev. 1980)(holding that "consideration is not adequate when it is a mere promise to perform that which the promisor is already bound to do").
As a result, even if the dismissal of Kleckley did not render the assignment null and void, the assignment was invalid at the time it was entered into for lack of consideration. Thus, Kleckley's motion to reconsider is denied.
II. Motion for Summary Judgment
A. Legal Standard
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the differing versions of the truth. Lynn v. Sheet Metal Workers Int'l Ass'n, 804 F.2d 1472, 1483 (9th Cir. 1986). The burden of demonstrating the absence of a genuine issue of material fact lies with the moving party, and for this purpose, the material lodged by the moving party must be viewed in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Martinez v. City of Los Angeles, 141 F.3d 1373, 1378 (9th Cir. 1998).
Any dispute regarding a material issue of fact must be genuine—the evidence must be such that "a reasonable jury could return a verdict for the nonmoving party." Id. Thus, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial" and summary judgment is proper. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "A mere scintilla of evidence will not do, for a jury is permitted to draw only those inferences of which the evidence is reasonably susceptible; it may not resort to speculation." British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir. 1978). The evidence must be significantly probative, and cannot be merely colorable. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Conclusory allegations that are unsupported by factual data cannot defeat a motion for summary judgment. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989).
Finally, if the nonmoving party fails to present an adequate opposition to a summary judgment motion, the Court need not search the entire record for evidence that demonstrates the existence of a genuine issue of fact. See Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1029-31 (9th Cir. 2001)(holding that "the district court may determine whether there is a genuine issue of fact, on summary judgment, based on the papers submitted on the motion and such other papers as may be on file and specifically referred to and facts therein set forth in the motion papers"). The district court need not "scour the record in search of a genuine issue of triable fact," but rather may "rely on the nonmoving party to identify with reasonable particularity the evidence that precludes summary judgment." Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996)(quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir. 1995)). The nonmoving party's "burden to respond is really an opportunity to assist the court in understanding the facts. But if the nonmoving party fails to discharge that burden - for example by remaining silent - its opportunity is waived and its case wagered." Morin v. U.S., 534 F.Supp. 2d 1179, 1183 (D.Nev. 2005)(quoting Guarino v. Brookfield Township Trustees, 980 F.2d 399, 405 (6th Cir. 1992)).
B. Claims for Breach of the Covenant of Good Faith and Fair Dealing and Bad Faith
Hicks's second and third claims for relief are for breach of the covenant of good faith and fair dealing and bad faith. Dairyland has moved for summary judgment on the bad faith claims asserted against it. According to Dairyland, it cannot, as a matter of law, be held liable for bad faith because the elements necessary for such a claim do not exist in this case. (Motion for Summary Judgment (#67) at 10). In response, Hicks argues that Dairyland is liable for bad faith because Dairyland "took almost three weeks before it ever commenced work on the initial claim package Kleckley sent, because Dairyland failed to look at the medical records that came in on September 23, 2005 until, at the earliest, November 7, 2005, and because Dairyland failed and refused to so much as consider or even explore any options proposed by Kleckley or Hicks" to avoid the judgment entered against Hicks in the amount of $136,228.04. (Opposition to Motion for Summary Judgment (#68) at 10).
Insurance contracts contain an implied covenant of good faith and fair dealing. Allstate Ins. Co. v. Miller, 212 P.3d 318, 324 (Nev. 2009). "The law, not the insurance contract, imposes this covenant on insurers." Id. (citing United States Fid. & Guar. Co. v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (Nev. 1975)). A violation of the covenant gives rise to a bad-faith tort claim. Id. The Nevada Supreme Court has defined bad faith "as the actual or implied awareness of the absence of a reasonable basis for denying benefits of the [insurance] policy." Id. (quoting Am. Excess Ins. Co. v. MGM, 102 Nev. 601, 605, 729 P.2d 1352, 1354-55 (Nev. 1986)).
"To establish a prima facie case of bad-faith refusal to pay an insurance claim, the plaintiff must establish that the insurer had no reasonable basis for disputing coverage, and that the insurer knew or recklessly disregarded the fact that there was no reasonable basis for disputing coverage." Powers v. United Services Auto. Ass'n, 114 Nev. 690, 702-03, 962 P.2d 596 (Nev. 1998). Stated another way, an insurance company is not liable for bad faith if it had a reasonable basis for denying a claim. See Am. Excess Ins. Co., 102 Nev. at 605, 729 P.2d at 1354. The reasonableness of an insurer's claims-handling conduct is generally a question of fact. Amadeo v. Principal Mut. Life. Ins. Co., 290 F.3d 1152, 1161 (9th Cir. 2002). The Nevada Supreme Court has held that "a jury question on [an] insurer's bad faith arises when relevant facts are in dispute or when facts permit differing inferences as to the reasonableness of [an] insurer's conduct." United Fire Ins. Co. v. McClelland, 105 Nev. 504, 510-11, 780 P.2d 193, 197 (Nev. 1989).
Dairyland asserts that, as a matter of law, it behaved reasonably during its processing of Kleckley's claim for Hicks's policy limits. The Court agrees.
1. Two-Week Demand Letter
Dairyland argues that it did not engage in bad faith during the processing of Kleckley's claim during the period between August 25, 2005 and September 15, 2005. First, Dairyland states that it was not bad faith to refuse to accept the two-week demand limit set forth in Kleckley's August 25, 2005 letter. Dairyland states that it never explicitly rejected that demand, but just sought additional time to investigate the claim because the accident had occurred only the month before. Moreover, Dairyland argues that the two-week demand was unreasonable and nothing more than a "form" request. Finally, although Dairyland concedes that its claim adjuster, Glynn, did not see the demand letter until after the expiration of the time limit, Dairyland states that Glynn did not intentionally ignore the letter. Rather, because of a holiday weekend and vacation days, Glynn did not see the letter until September 14, 2005, at which time she immediately sent a response to Kleckley's counsel to begin her review of the claim.
Hicks argues that Dairyland's failure to review the two-week demand letter prior to the expiration of the time limit set forth in it constitutes bad faith. According to Hicks: "No one has ever testified why it took almost three weeks for anyone at Dairyland to see the claim package Dairyland received on August 26, 2005." (Opposition to Motion for Summary Judgment (#68) at 2). In addition, Hicks argues that even after Glynn reviewed the demand letter on September 14, 2005, she mailed letters to medical care providers, but did not make any effort to expedite the record collection process. According to Hicks: "Glynn made no apology for not acting sooner in requesting any records, and did not request additional time for Dairyland to resolve Kleckley's claim." Id. at 3.
In light of the facts presented on this claim, the Court finds that Dairyland did not act unreasonably in refusing to extend Hicks's policy limits to Kleckley following his August 25, 2005 demand letter, In this regard, the two-week demand letter was a form letter sent by Kleckley's counsel just one month after the accident. At the time the demand was sent, Kleckley's counsel did not know the policy limits available under the Dairyland policy. In addition, the full extent of Kleckley's injuries were not yet known. In fact, at the time the demand letter was sent, Kleckley had only been diagnosed with a soft tissue injury and his medical bills were only $2,120.00. It was not until after the expiration of the demand that Kleckley learned he had a labral tear and required surgery. Finally, the demand letter included the first medical authorizations needed by Dairyland to seek information from Kleckley's medical providers. As such, the demand only gave Dairyland two weeks to review the claim, seek the necessary medical records, and make a valuation determination of Kleckley's injuries. Because the demand letter was sent at the beginning of the claim review process, prior to the time when the full extent of Kleckley's injuries were known, Dairyland's refusal to extend the policy limits at that time does not constitute bad faith under Nevada law.
In addition, Glynn's failure to see the demand letter until after the expiration of the two-week period does not constitute bad faith. In this regard, Dairyland has provided evidence that the demand letter was sent to Dairyland on a Friday afternoon. Dairyland further provided deposition testimony that after a fax is received, it takes one to two business days for the fax to be sent to the proper claim file or adjuster. As such, the demand letter would not have made it to Glynn until the following Monday or Tuesday. In addition, Glynn testified that during the two-week demand time frame, there was a holiday weekend (Labor Day) during which time she took several days vacation. She testified that she did not intentionally ignore the letter or seek to unreasonably delay Kleckley's claim. Rather, when she returned to the office, she began to process the work she had and when she read the demand letter on September 14, 2005, sent an immediate response to Kleckley's counsel. Based on the foregoing evidence, Glynn's conduct does not constitute bad faith under Nevada law.
2. Claims Process from September 15, 2005 to November 8, 2005
Dairyland argues that it cannot be liable for bad faith, as a matter of law, for failing to offer its policy limits until November 8, 2005. (Motion for Summary Judgment (#67) at 19). According to Dairyland, Kleckley never made a new settlement demand for policy limits after the expiration of the two-week demand letter. As such, there was no deadline by which time Dairyland was required to determine the valuation of Kleckley's claim. Second, Kleckley testified that he would have accepted a policy limit settlement at the beginning of November, but provided no justification why such a settlement was no longer acceptable one week later. Finally, Dairyland states that Glynn's alleged delay in reviewing the medical records was not done in bad faith, but, was at the most, negligent. As such, Dairyland argues that it cannot be liable for bad faith for its claim process review during this period.
In response, Hicks states that "[n]othing at all was done on the Kleckley claim from September 16, 2005 until October 28, 2005." (Opposition to Motion for Summary Judgment (#68) at 3). In fact, Hicks argues that "[v]ery little, if anything at all was done on the Kleckley claim until November 7, 2005." Id. Rather, during that time period, Dairyland merely sent out a request for medical records. Id. According to Hicks, such a delay was "egregious" because "Dairyland received multiple medical records regarding Kleckley's injuries, and never bothered to review them during that 73 day period." Id. Finally, Hicks states that even though Kleckley would have accepted a policy limit settlement after the two-week demand, it was "only when Kleckley had heard nothing for over two months that he elected to pursue his claim against Hicks and was no longer willing to resolve the same for the policy limits." Id. at 21.
Hicks notes that according to a date stamp, Dairyland received Kleckley's medical records from Precision Medical Group on September 23, 2005. Hicks also notes that Dairyland received medical records from Centennial Spine & Pain Center, which indicated the labral tear and surgery, but that there is no date stamp indicating on them when they were received. As such, Hicks states there is no way of knowing how long Dairyland sat on those records.
Based on the factual record before the Court and the standard necessary to establish a bad faith claim, the Court finds that Dairyland's conduct was not bad faith during its claim review process from September 15, 2005 until November 8, 2005. In this regard, Hicks has provided no evidence that Dairyland's alleged delay in reviewing the medical records constituted bad faith. According to Glynn's deposition testimony, after a request is sent to medical providers, it could take up to months for the records to be provided to the insurance company. Glynn further testified that although she does not know when Dairyland received all of Kleckley's medical records, the first time she saw them was when she did her evaluation of the claim on November 7, 2005. At that time, Glynn noted that Kleckley had suffered a labrai tear and required surgery. As such, she requested authorization to offer the policy limits on the claim. Glynn testified that she sent a letter to Kleckley's counsel the next day with the policy limit offer. As such, based on the facts provided by Dairyland, the first time Glynn reviewed the full medical records for Kleckley's claim she requested authorization to settle the claim for the full policy limits. No evidence has been proffered that during that time, Glynn or Dairyland had an actual or implied awareness of the absence of a reasonable basis for denying the policy benefits. Although Glynn's alleged delay in reviewing the records may have been frustrating to Kleckley, or even negligent, such a standard is not sufficient to establish a bad faith claim.
3. Failure to Notify Hicks of the Settlement Demand
The Complaint alleges that Dairyland acted in bad faith by not advising Hicks of Kleckley's August 25, 2005 demand letter. In its motion for summary judgment, Dairyland concedes that it did not specifically inform Hicks of the demand before it expired. (Motion for Summary Judgment (#67) at 16). However, Dairyland argues that its failure to inform Hicks of the demand, does not, as a matter of law, support a claim for bad faith. In this regard, Dairyland argues that the demand was not reasonable, and so Dairyland had no duty to inform Hicks of it. Dairyland also argues that Hicks would not have made any contributions to a settlement within the time available because Hicks testified that he was unemployed and homeless when the accident occurred. Finally, Dairyland argues that because Kleckley was still willing to settle for the policy limits after the demand expired, Dairyland's failure to inform Hicks did not cause Hicks any damages.
According to Hicks, Dairyland's failure to inform him of the demand letter constitutes bad faith and "[n]o justification has been proffered as to why Hicks was kept in the dark about the settlement opportunity." (Opposition to Motion for Summary Judgment (#68) at 2). Hicks stated in his deposition, that he believed he could have paid the $15,000.00 settlement amount himself if Dairyland had informed him of the settlement offer in August 2005. Id. at Ex. 6, pp. 90-91. However, Hicks conceded that he was homeless at the time of the accident and that when he attempted to further explain how he could have paid that amount of money, his deposition was interrupted by the prison authorities and had to be continued. Id. Hicks never testified as to how he could have tendered $15,000.00 for the settlement amount.
The implied covenant of good faith and fair dealing in an insurance contract includes a duty to adequately inform. Allstate, 212 P.3d at 324. "Primary liability insurance policies create a cascading hierarchy of duties between the insurer and the insured." Id. At the top of the hierarchy are two general duties: the duty to defend and the duty to indemnify. Id. The duty to defend contains two potentially conflicting rights: the insurer's right to control settlement discussions and its right to control litigation against the insured. Id. (citing 14 Couch on Insurance 3d §§ 200:1; 203:1 (2005)). The right to control settlement discussions creates the duty of good faith and fair dealing during negotiations. Id.
"A primary insurer's right and duty to defend attaches when the insured tenders defense of the lawsuit to the insurer and carries with it the duty to communicate to the insured any reasonable settlement offer that could affect the insured's interest." Id. (citing Heredia v. Farmers Ins. Exch., 228 Cal.App.3d 1345, 279 Cal.Rptr. 511, 519-20 (Cal. 1991)). Thus, "an insurer's duty to adequately inform the insured begins upon receipt of a settlement demand and continues through litigation to final resolution of that claim." Id. at 325. As a result, "if an insurer fails to adequately inform an insured of a known reasonable settlement opportunity /// prior to the filing of a claimant's lawsuit, the insurer may breach its duty of good faith and fair dealing." Id.
According to the Nevada Supreme Court, the failure to adequately inform the insured about a reasonable settlement offer is a factor in a bad faith claim. Id. "This duty to adequately inform an insured arises from the special relationship between the insured and the insurer, which is similar to a fiduciary relationship." Id. (citing Ainsworth v. Combined Ins. Co., 104 Nev. 587, 592, 763 P.2d 673, 676 (Nev. 1988)). Although the Nevada Supreme Court "has refused to adopt a standard where an insurance company must place the insured's interests over the company's interests, the nature of the relationship requires that the insurer adequately protect the insured's interest." Id. Thus, at a minimum, "an insurer must equally consider the insured's interests and its own." Id.
In this case, Dairyland concedes that it did not inform Hicks of the settlement offer demanded in Kleckley's August 25, 2005 letter. However, as noted in the foregoing, Dairyland argues that such a failure to inform cannot constitute bad faith because the settlement demand was unreasonable and Hicks could not have paid the settlement amount. The Court agrees.
First, the two-week demand letter was unreasonable because it was a form letter sent by Kleckley's counsel at a time before the full extent of Kleckley's injuries were known. In fact, his medical bills only totaled $2120.00 when the demand was sent. In addition, Kleckley's attorney testified that he sent the letter before he even knew the amount of the policy limits he was requesting. As such, there was no reasonable basis for Dairyland to tender the full policy amount at that time.
Second, Hicks failed to provide any evidence that he could have paid the settlement amount if he had known about the offer. In this regard, although Hicks testified that he would have asked Dairyland to pay the policy limits and would have tried to contribute himself to the demand, his testimony on this issue is contradictory. (Opposition to Motion for Summary Judgment (#68) at Ex. 6, pp. 90-91). Specifically, Hicks stated that he would have tried to obtain the money from his "part-time jobs" and "stuff working construction." Id. However, Hicks conceded that at the time of the accident he "had nothing" and was "living day to day." Id. Hicks further testified that he was homeless on and off for his entire life including at the time of the accident. At a later deposition, Hicks stated that he didn't remember if he had access to $15,000 at the time of the settlement demand but that he didn't think he did at the time. (Motion for Summary Judgment (#67) at Ex. 9, p. 139).
4. Stipulated Judgment Agreement
Finally, Hicks alleges that Dairyland engaged in bad faith by failing to enter into a Stipulated Judgment Agreement that Kleckley's counsel proposed prior to the underlying bench trial. Dairyland argues that it cannot be liable for bad faith on this claim because the Nevada Supreme Court has recently determined that an insurer is under no duty, as a matter of law, to enter into such an agreement. Thus, Hicks's claim on this issue is without merit and must be dismissed.
In response, Hicks argues that the "offer by Kleckley to provide Hicks with a full covenant not to execute if Dairyland consented to the proposed agreement was an extremely reasonable, if not ridiculously generous, offer of settlement extended by Kleckley to protect Hicks financially from any judgment entered against him." (Opposition to Motion for Summary Judgment (#68) at 28). According to Hicks, "[t]here is absolutely no justification for Dairyland's refusal to enter into the agreement." Id.
The agreement provided, in pertinent part, that the parties "reach some kind of agreement whereby a fair and reasonable judgment can be entered against Mr. Hicks without the necessity and hassle of a trial." (Motion for Summary Judgment (#67) at Ex. 25). Dairyland would "agree that the number we come to on such a judgment is fair and reasonable." "Mr Hicks could then pursue a claim against" Dairyland and "Dairyland would not argue that the underlying judgment is unfair." "Dairyland would simply face the proverbial music and pay the underlying judgment if a jury were to find Dairyland should have resolved this matter for the policy limits when it had a fair opportunity." Id.
In Allstate v. Miller, the Nevada Supreme Court addressed an identical stipulated judgment agreement in the context of a bad faith case. In Allstate, the court stated that an insurer is under no duty to accept a stipulated excess judgment agreement. 212 P.3d at 330-31. According to the court, an insurer has a contractual right to have an underlying judgment determined by trial or settlement, "and it is not required under the implied covenant of good faith and fair dealing to accept an excessive stipulated settlement offer between the insured and the claimant. Id. (citing Crisci v. Sec. Ins. Co. of New Haven, Conn., 426 P.2d 173, 176-77 (Cal. 1967)(holding that the implied covenant of good faith and fair dealing only requires an insurer to accept a reasonable settlement)). In addition, the court held that an insurer "is not required to take on monetary obligations outside its insurance contract, which includes agreeing to an excessive settlement offer." Id. As such, the court found that an excessive-stipulated-judgment theory is not viable for a claim of bad faith.
The plaintiff in Allstate was represented by the same counsel representing Hicks in this matter David Sampson. As such, the stipulated judgment agreements are nearly identical.
Based on the Nevada Supreme Court's recent pronouncements in Allstate, Dairyland is entitled to summary judgment on Hicks's claim of bad faith for refusing to enter into a stipulated judgment agreement. Dairyland was under no duty to enter such an agreement, and its refusal to do so does not constitute bad faith under Nevada law.
C. Nevada's Unfair Claims Practices Act
In addition to asserting claims for breach of the implied covenant of good faith and fair dealing, Hicks's Complaint against Dairyland also includes allegations of violations of Nevada's Unfair Claims Practices Act, NRS 686A.310. In its motion for summary judgment, Dairyland argues that it is entitled to judgment as a matter of law on the claims that it violated the Nevada Unfair Claims Practices Act because the provisions listed by Hicks that Dairyland allegedly violated do not apply to the facts in this case. (Motion for Summary Judgment (#67) at 26). Rather, out of the list of alleged violations, Dairyland states that only one is applicable: NRS 686A.310(1)(e). That provision states that it is an unfair practice to fail "to effectuate prompt, fair and equitable settlements of claims in which liability of the insurer has become reasonably clear." Dairyland argues that there is no question of fact as to the claim that they violated NRS 686A.310(1)(e) because Dairyland "did effectuate a prompt settlement once it had sufficient medical documentation to warrant paying the policy limits." Id. at 27.
Hicks did not address this claim in his opposition to Dairyland's motion for summary judgment. As a result, Dairyland argues that Hicks concedes that this claim is not viable and should be dismissed.
As noted in the legal standard for granting a motion for summary judgment, "if the nonmoving party fails to present an adequate opposition to a summary judgment motion, the court need not search the entire record for evidence that demonstrates the existence of a genuine issue of fact." Morin v. U.S., 534 F.Supp.2d 1179, 1183 (D.Nev. 2005).
Here, Dairyland has provided evidentiary support for its claim that it did not violate the mandates of the Nevada Unfair Claims Act because it promptly settled the case after it determined that the liability of its insured was clear and Kleckley's injuries were sufficient to extend the policy limits. Hicks has not refuted this contention.
In addition, Hicks's opposition to the bad faith claims does not provide a question of fact as to Dairyland's violation of the Unfair Claims Act statute. "NRS 686A.310 and bad faith are not identical causes of action." Schumacher v. State Farm Fire & Casualty Co., 467 F.Supp.2d 1090, 1095 (D.Nev. 2006), Bad faith and NRS 686A.310 "involve different legal analyses," and the violation of one does not per se act as a violation of the other. Id.
Based on Hicks's failure to address this argument in his opposition, the Court grants summary judgment on the statutory violation claim.
D. Punitive Damages
Dairyland has also moved for summary judgment on Hicks's request for punitive damages. According to Dairyland, this claim must be dismissed because there are no facts to indicate that Dairyland acted in a fraudulent manner. (Motion for Summary Judgment (#67) at 28). Specifically, Dairyland states that there is no evidence that Dairyland or Glynn made any intentional misrepresentations, concealed a material fact, acted with the "intent" to deprive another of his rights, or acted with the "intent" to injure another person. Hicks did not oppose Dairyland's motion to dismiss the punitive damages claim.
Proof of an insurer's bad faith, by itself is insufficient to support a punitive damage award under Nevada law. United Fire Ins. Co. v. McClelland, 105 Nev. 504, 512, 780 P.2d 193 (Nev. 1989). Rather, punitive damages are awarded only when a plaintiff can prove "by clear and convincing evidence" that the defendant is guilty of malice, fraud or oppression. NRS 42.005. Clear and convincing evidence is defined as "evidence establishing every factual element to be highly probably." In re Discipline of Drakulich, 111 Nev. 1556, 908 P.2d 709 (Nev. 1995).
Because Hicks has failed to oppose this claim, summary judgment is granted. Hicks has provided no evidence that Dairyland acted with malice, fraud or oppression in this case. Without evidentiary support, there is no question of fact for a jury to determine and judgment as a matter of law is appropriate.
CONCLUSION
For the foregoing reasons, IT IS ORDERED that Plaintiffs' Motion to Reconsider Order (#36) is DENIED.
It is FURTHER ORDERED that Defendant's Motion for Summary Judgment (#67) is GRANTED. The clerk of the court shall enter judgment accordingly.
IT IS SO ORDERED.
DATED: This 3rd day of March, 2010.
/s/_________
United States District Judge