Bad Faith Denial Suit

Jury Instructions-IL > Insurance > Bad Faith Denial Suit

Justin Rudolph as assignee of James Aguinaga v. State Farm, 07 L 10724

The insured threw a bottle from his driveway (where children were present) at a car 40 feet away while the car was ravaging the neighborhood with stunt driving at high speeds. The bottle fractured the driver’s skull and caused brain damage which resulted in a verdict of $1.65 million in 2006, far exceeding the homeowner’s policy limit of $300,000. The insurer declined coverage.

After a declaratory judgment and appeal, the matter was remanded for a fact determination on the one remaining coverage issue: whether the homeowner acted maliciously under the “Willful and Malicious” exclusion of the policy. However, the insurer declined to go trial on the coverage issue and paid the policy of $300,000 without condition. Thereupon, the plaintiff brought suit in 2012 seeking compensatory ($1.65 millions) and punitive ($7.7 million) damages. The insurer asserted a “fairly debatable” defense, which essentially was defined in the instructions to mean that there was a reasonable basis to deny payment under the “Willful and Malicious” exclusion based upon information that the insured threw the bottle at the car with “malice” which was defined to the jury as a “wrong inflicted on another with evil intent”. The jury agreed and found for the Defendant.

IPI 1.01 – Modified by the court to be read at end of case, and updated by IPI Committee in 2009 to include old IPI 3.01 language)

Now that the evidence has concluded, I will further instruct you as to the law and your duties. The law regarding this case is contained in the instructions I will give to you. You must consider the Court’s instructions as a whole, not picking out some instructions and disregarding others.

It is your duty to resolve this case by determining the facts and following the law given in the instructions. Your verdict must not be based upon speculation, prejudice, or sympathy. Each party, whether a corporation, partnership, company or an individual, should receive your same fair consideration.

I have not meant to indicate any opinion as to the facts of this case by any of my rulings, remarks, or instructions.

You will decide what facts have been proven. Facts may be proven by evidence or reasonable inferences drawn from the evidence. Evidence consists of the testimony of witnesses and of exhibits admitted by the court. You should consider all the evidence without regard to which party produced it. You may use common sense gained from your experiences in life in evaluating what you see and hear during trial.

You are the only judges of the credibility of the witnesses. You will decide the weight to be given to the testimony of each of them. In evaluating the credibility of a witness you may consider that witness’ ability and opportunity to observe, memory, manner, interest, bias, qualifications, experience, and any previous inconsistent statement or act by the witness concerning an issue important to the case.

The use of cell phones, text messaging, Internet postings and Internet access devices in connection with your deliberations violates the rules of evidence and you are prohibited from using them

You must make your decision based on what you recall of the evidence. You will not receive a written transcript of the testimony when you retire to the jury room.

An opening statement is what an attorney expects the evidence will be. A closing argument is given at the conclusion of the case and is a summary of what an attorney contends the evidence has shown. If any statement or argument of an attorney is not supported by the law or the evidence you should disregard that statement.

IPI 2.02 Evidence Admitted for a Limited Purpose/Modified/Out of State conduct under

State Farm v. Campbell, 538 U.S. 408 (U.S. 2003)

The evidence may have been referred to in this matter concerning State Farm’s practices in other states in order to show a pattern of deliberate and culpable conduct in Illinois and in this case. This evidence may be considered by you for the limited purpose of deciding whether State Farm’s conduct and practices showed a pattern of deliberate conduct as to our Illinois case.

In some other states this conduct is lawful. Therefore, you may not use such out-of-state evidence to punish State Farm for action that was lawful in another jurisdiction.

IPI 3.02 Witness Who Has Been Interviewed by Attorney

An attorney may, if a witness agrees, interview a witness to learn what testimony will be given. Such an interview, by itself, does not reflect adversely on the truth of the testimony of the witness.

IPI 3.04 Circumstantial Evidence

A fact or a group of facts, may, based on logic and common sense, lead you to a conclusion as to other facts. This is known as circumstantial evidence. A fact may be proved by circumstantial evidence. For example, if you are in a building and a person enters who is wet and is holding an umbrella, you might conclude that it was raining outside. Circumstantial evidence is entitled to the same consideration as any other type of evidence

IPI 3.08 – Opinion Testimony

You have heard a witness give opinions about matters requiring knowledge and skill. You should judge this testimony in the same way you judge the testimony from any other witness. The fact that such person has given an opinion does not mean that you are required to accept it. Give the testimony whatever weight you think it deserves, considering the reasons given for the opinion, the witness’ qualifications, and all of the other evidence in the case

IPI 10.01 Negligence—Adult—Definition

When I use the word “negligence” in these instructions as to COUNT I, I mean the failure to do something which a reasonably careful person would do, or the doing of something which a reasonably careful person would not do, under circumstances similar to those shown by the evidence. The law does not say how a reasonably careful person would act under those circumstances. That is for you to decide.

IPI 21.01 – BURDEN OF PROOF

When I say that a party has the burden of proof on any proposition, or use the expression “if you find,” or “if you decide,” I mean you must be persuaded, considering all the evidence in the case, that the proposition on which a party has the burden of proof is more probably true than not true.

I.P.I. 35.01 Punitive Damages – Willful and Wanton Conduct

As to Count II, in addition to compensatory damages, the law permits you under certain circumstances to award punitive damages. If you find that State Farm’s conduct was intentional and proximately caused damage to the plaintiff, and if you believe that justice and the public good require it, you may award an amount of money which will punish State Farm and discourage it and others from similar conduct.

In arriving at your decision as to the amount of punitive damages, you should consider the following three questions. The first question is the most important to determine the amount of punitive damages:

How reprehensible was State Farm’s conduct?

On this subject, you should consider the following:

a) The facts and circumstances of defendant’s conduct;

b) The financial vulnerability of the plaintiff;

c) The duration of the misconduct;

d) The frequency of defendant’s misconduct;

e) Whether defendant tried to conceal the misconduct.

What actual and potential harm did defendant’s conduct cause to the plaintiff in this case?
What amount of money is necessary to punish defendant and discourage defendant and

others from future wrongful conduct in light of defendant’s financial condition?

In assessing the amount of punitive damages, you may not consider defendant’s similar conduct in jurisdictions where such conduct was lawful when it was committed.

The amount of punitive damages must be reasonable and in proportion to the actual and potential harm suffered by the plaintiff.

IPI 35.02 Punitive/Exemplary Damages—Willful and Wanton Conduct—Corporate Defendant’s Liability Based on Tort of Employee

State Farm Fire and Casualty Company is a corporation and can act only through its officers and employees. As to plaintiff’s claim for compensatory damages against State Farm Fire and Casualty Company, any act or omission of an officer or employee within the scope of his employment is the act or omission of the defendant corporation.

As to plaintiff’s claim for punitive damages against State Farm Fire and Casualty Company, a different rule applies. Punitive damages may be awarded against State Farm Fire and Casualty Company only (1) if you find in favor of plaintiff and against State Farm Fire and Casualty Company under Count I of the complaint, and (2) if you find that, as to the acts or omissions giving rise to liability under Count II ,

(a) State Farm, through its management, authorized the doing and the manner of the act or omission; or

(b) The act or omission was that of managerial employees who were acting in the scope of their employment at State Farm; or

IPI.36.01 In Absence of Liability—No Occasion to Consider Damages

If you decide for the defendant on the question of liability, you will have no occasion to consider the question of damages.

IPI 60.01 Violation of Statute, Ordinance, or Administrative Regulation

There was in force in the State of Illinois at the time of the occurrence in question a certain statute which provided that:

Refusing to pay claims without conducting a reasonable investigation based on all available information constitutes an improper claims practice if committed without just cause.

If you decide that a party violated the statute on the occasion in question, then you may consider that fact together with all the other facts and circumstances in evidence in determining whether and to what extent, if any, a party was acting wrongfully before and at the time of the occurrence.

IPI 710.01 Insurance Bad Faith—Duty of Liability Insurer—Definition of Good Faith/Bad Faith—Definition of Ordinary Care submitted by Plaintiff

In handling the claim of Justin Rudolph against James Aguinaga under the insurance policy issued by State Farm, it was the duty of State Farm to exercise good faith and ordinary care toward the interests of James Aguinaga.

“Good faith” means that State Farm was required to give as much consideration to James Aguinaga’s interests as it gave to its own interests. A failure to exercise good faith is known as “bad faith.”

“Ordinary care” means that State Farm was required to exercise the care that a reasonably careful insurance company would use under circumstances similar to those shown by the evidence in giving as much consideration to James Aguinaga’s interests as to its own interests.

A failure to exercise ordinary care is also known as negligence.

IPI 710.02 Insurance Bad Faith—Issues Made by the Pleadings

The plaintiff claims that State Farm had a reasonable opportunity to settle Justin Rudolph’s claim against James Aguinaga within the policy limits.

The plaintiff further claims that in failing to settle Justin Rudolph’s claim against James Aguinaga within the policy limits, State Farm was negligent or acted in bad faith in one or more of the following respects:

Failed to conduct a reasonable investigation of the claim made against its policyholder;

Failed to settle the claim against its policyholder when it was reasonable and prudent to do so in order to protect the interests of its insured; or

Failed to give its policyholder at least equal consideration under the policy it issued.

The plaintiff further claims that one or more of the foregoing proximately caused the judgment in excess of the policy limits to be entered against James Aguinaga.

State Farm denies that it did any of the things claimed by the plaintiff, denies that it was negligent or acted in bad faith in doing any of the things claimed by the plaintiff, and denies that any claimed act or omission on the part of State Farm proximately caused the judgment in excess of the policy limits to be entered against James Aguinaga.

State Farm Fire & Casualty Company also asserts the following affirmative defense:

State Farm did not breach its duty of good faith to its insured, James Aguinaga, because it reasonably examined the facts and determined that Mr. Aguinaga’s conduct was not covered under the insurance policy, giving rise to a “fairly debatable” reason to dispute whether State Farm had a legal obligation to cover the claim made by Mr. Rudolph against Mr. Aguinaga.

The plaintiff denies the foregoing affirmative defense.

IPI 710.03 Insurance Bad Faith—Burden of Proof

As to Count I, the plaintiff has the burden of proving all of the following propositions:

First, that State Farm had a reasonable opportunity to settle Justin Rudolph’s claim

against James Aguinaga within the policy limits.

Second, that State Farm acted or failed to act in one of the ways claimed by the plaintiff as stated to you in these instructions and that in so acting, or failing to act, State Farm was negligent or acted in bad faith with respect to James Aguinaga’s interests;

Third, that State Farm’s negligence or bad faith proximately caused the judgment in excess of the policy limits to be entered against James Aguinaga

State Farm Fire & Casualty Company has asserted the affirmative defense that it had no duty to settle Justin Rudolph’s claim because a “fairly debatable” coverage dispute existed as to whether Mr. Aguinaga’s conduct was covered under the policy.

State Farm has the burden of proving this affirmative defense.

If you find from your consideration of all the evidence that all of the propositions required of the plaintiff have been proved and that the defendant’s affirmative defense has not been proved, then your verdict should be for the plaintiff.

On the other hand, if you find from your consideration of all the evidence that any of the propositions required of the plaintiff has not been proved or that State Farm’s affirmative defense has been proved, then your verdict should be for State Farm.

IPI 710.04 Insurance Bad Faith—Proximate Cause—Definition BY Plaintiff

When I use the expression “proximate cause” throughout these instructions I mean that cause which, in natural or probable sequence, resulted in the judgment against James Aguinaga in excess of the policy limits.

IPI 710.05 Insurance Bad Faith—Factors To Be Considered in Determining Breach of Duty

As to COUNT I, in determining whether State Farm acted in bad faith or was negligent in failing to settle Justin Rudolph’s claim against James Aguinaga within the policy limits, you may consider what the evidence shows concerning the following factors:

1. What State Farm and its agents knew or should have known concerning the probability of a verdict in favor of Justin Rudolph if Justin Rudolph’s claim against James Aguinaga was not settled, and what State Farm and its agents knew or should have known concerning the amount by which such a verdict might or might not exceed the policy limits;

2. The willingness of State Farm’s and its agents’ and Justin Rudolph to negotiate;

3. The reasonableness of the negotiating parties’ conduct during the negotiations;

4. The extent of State Farm’s and its agents’ investigation of James Rudolph’s claim;

5. State Farm’s proper consideration of, or its failure to properly consider, the advice of counsel;

6. The failure of State Farm to give its insured at least equal consideration improperly investigating the claim and in determining whether to settle the claim.

IPI 710.06 Insurance Bad Faith—Status of the Plaintiff/MODIFIE

The Plaintiff in this case is: Justine Rudolph.

The Defendant in this case is: State Farm Fire and Casualty Company (“State Farm”)

The plaintiff, Justin Rudolph, brings this action as the assignee of James Aguinaga, who was the person to whom State Farm issued the insurance policy in question.

Therefore, you should decide the issues in this case just as if James Aguinaga was the actual plaintiff.

The Plaintiff, Justine Rudolph, seeks to recover damages from the defendant, State Farm, based upon two counts in the complaint.

Count I relates to a claim of Insurance Bad Faith or Negligence

Count II relates to a claim for Punitive Damages

IPI 710.07/35.01 Insurance Bad Faith—Measure of Damages – Submitted by Plaintiff

As to Count I as to Compensatory Damages for Bad Faith of Negligence, if you decide for the plaintiff on the question of liability, you must then award the amount of money which will compensate the plaintiff for the damages proved by the evidence to have resulted from State Farm’s negligence or bad faith. The plaintiff’s damages are $1,629,653, which is the amount of the judgment entered in favor of the plaintiff and against James Aguinaga.

As to Count II as to Punitive Damages, if you decide for the plaintiff on the question of liability, you must then award the amount of money which is necessary to punish defendant and discourage defendant and others from future wrongful conduct in light of defendant’s financial condition.

NON – IPI: Definition of Malice – State Farm Fire & Cas. Co. v. Aguinaga, 2006 Ill. App. LEXIS 4556 (Ill. App. Ct. 2d Dist. Oct. 24, 2006)

Malice

There was an exclusion under the State Farm policy for “willful and malicious acts of an insured.” These terms have separate meanings.

Mr. Aguinaga’s acts may be deemed as willful. However, the State Farm policy exclusion also requires that Mr. Aguinaga’s acts were “malicious”.

“Malicious” in this case means a “wrong inflicted on another with an evil intent”.

NON-IPI Definition of Fairly Debatable – 43 Am Jur 2d Insurance § 1738

Fairly Debatable

Whether a claim is “fairly debatable” depends upon whether a reasonable insurer under the circumstances, similar to those shown by the evidence here, would have a reasonable basis to delay or deny payment based upon the information available to it at the time of the delay or denial.

IPI 710.08 Insurance Bad Faith—Instruction on Use of Verdict Forms

When you retire to the jury room you will first select a foreperson. He or she will preside during your deliberations.

Your verdict must be unanimous.

Forms of verdicts are supplied with these instructions. After you have reached your verdict, fill in and sign the appropriate form of verdict and return it into court. Your verdict must be signed by each of you. You should not write or mark upon this or any of the other instructions given to you by the court.

The Plaintiff in this case is: Justine Rudolph.

The Defendant in this case is: State Farm Fire and Casualty Company

If you find for the plaintiff Justin Rudolph and against the Defendant State Farm then you should use Verdict Form A.

If you find for the defendant State Farm and against the plaintiff Justin Rudolph then you should use Verdict Form B.

A Special Interrogatory is supplied with these instructions. After you have reached a verdict, fill in and sign the Special Interrogatory and return it to the court along with the forms of verdict. The Special Interrogatory must be signed by each of you.

I.P.I. 710.09 Verdict Form A

VERDICT FORM A

We, the jury, find for the plaintiff Justin Rudolph and against the defendant State Farm

Fire and Casualty Company. We assess plaintiff’s damages in the sum of money:

Count I – Compensatory Damages: $1,629,653

Count II – Punitive Damages: $________________________________

Total award: $________________________________

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VERDICT FORM B

We, the jury, find for the defendant State Farm and against the plaintiff Justin Rudolph.

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NON-IPI BY DEFENDANT – SPECIAL INTERROGATORY

Special Interrogatory

Considering definitions in these instructions of “fairly debatable” and “malice”, Was there a “fairly debatable” coverage question on whether James Aguinaga’s conduct was a malicious act at or before the time Rudolph v. Aguinaga case went to trial and verdict on January 26, 2006?

Yes _______ No_______

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