Kulak v. Nationwide Mutual Insurance

Cardamone, J.

As the result of an auto accident the plaintiff recovered a $60,000 judgment for personal injury damages against the insured, whose insurance coverage with defendant-appellant, Nationwide Mutual Insurance Company, was limited to $10,000. The insured thereafter assigned her rights under the insurance contract to the injured plaintiff who, as assignee, commenced this action against Nationwide for its failure to exercise good faith in handling the personal injury claim against its insured. Nationwide has appealed a jury verdict against it for $70,000 compensatory damages and $5,000 punitive damages awarded plaintiff in her bad faith action.

Because a liability insurer in New York has exclusive *420control in managing claims against its insured, it has an implied contractual obligation to consider settlement opportunities in good faith (Gordon v Nationwide Mut. Ins. Co., 30 NY2d 427, 437, 445, cert den 410 US 931). "Since the company, therefore, has power, through the control of settlement, to adversely affect the insured’s interests, it must necessarily bear a legal responsibility for the proper exercise of that power. Thus, the law imposes upon the insurer the obligation of good faith — basically the duty to consider, in good faith, the insured’s interests as well as its own when making decisions as to settlement. Bad faith — the failure to comply with this obligation — is generally proven by evidence largely circumstantial in nature.” (Cappano v Phoenix Assur. Co. of NY, 28 AD2d 639, 640; see, generally, Recent Developments, 58 Cornell L Rev 1255.) In the present case the evidence reveals that (1) plaintiff’s injuries were severe, (2) the assumption of risk defense was highly improbable, (3) the insurer failed to inform its insured or its trial counsel of the policy limits, (4) the insurer refused to follow the advice of its trial counsel in settlement negotiations and (5) it failed to settle within policy limits when the opportunity was presented. All of us are agreed that such is sufficient to support the jury’s determination that the insurer failed to act in good faith (Peterson v Allcity Ins. Co., 472 F2d 71; PJI 4:67 [1974 Supp]).

The insurer contends and the dissenters agree, however, that the Trial Judge erred in allowing independent attorneys to give their expert opinions on the probable outcome of the original personal injury trial over insurer’s specific objection. Although the courts of New York have not clearly resolved this issue to date, other jurisdictions have found such expert testimony admissible and helpful in similar cases (Worden v Tri-State Ins. Co., 347 F2d 336, 340-341; American Cas. Co. of Reading, Pa. v Howard, 187 F2d 322, 328). We believe that experienced trial attorneys possess a unique expertise in evaluating prior to trial the probable success of personal injury claims and defenses, the probable range of personal injury damage awards, trial strategy, settlement potential, evaluation based upon available admissible evidence, reasonableness of settlement negotiations and conduct in handling automobile accident injury claims. Such expertise is obviously outside the personal knowledge or "ken” of the average juror. Concededly, expert testimony is no substitute in a bad faith trial for direct evidence of what in fact occurred before and *421during the prior personal injury trial; such facts must be independently proven. The opinions of experienced attorneys, however, provide a helpful aid to the jury in understanding and drawing proper inferences from the technical factual background (Richardson, Evidence [10th ed], § 367). Therefore, we conclude that under appropriate supervision by the trial court opinion testimony by qualified experts on a bad faith claim is admissible. Here the trial court permitted qualified experts for both plaintiff and defendant to testify and properly instructed the jury that it need not accept such expert testimony, if it chose not to. The dissent would rigidly apply common-law evidentiary rules to this relatively novel situation, unknown and unforeseen in the precedents cited. Such an approach appears to us unduly limited in view of the apparent unquestioned acceptance of such expert testimony in bad faith actions (see Gordon v Nationwide Mut. Ins. Co., 30 NY2d 427, 444, supra ; Cornwell v Safeco Ins. Co., 42 AD2d 127, 137; Peterson v Allcity Ins. Co., 472 F2d 71, 78, supra; PJI 4:67 [1974 Supp]).

We agree with appellant’s contention that the trial court erred in permitting the jury to award punitive damages. The record is devoid of any evidence that the insurer acted with malice or intent to harm the insured. Without such an evidentiary foundation, an award of punitive damages is improper (2 NY PJI 60 [1974 Supp]; Recent Developments 58 Cornell L Rev 1255, 1268). The trial court also erred when it adopted the measure of damages applicable where the insured is insolvent. (Gordon v Nationwide Mut. Ins. Co., supra, pp 448-452.) Where the insured owns several parcels of realty, bank accounts, and other personalty, as in this case, the rule is that compensatory damages are measured by the amount of the excess judgment. (Peterson v Allcity Ins. Co., supra, pp 79-80; Young v American Cas. Co. of Reading, Pa., 416 F2d 906, 911-912; Gordon v Nationwide Mut. Ins. Co., supra, pp 448-449; 2 NY PJI 58-60 [1974 Supp].)

We conclude, therefore, that since the jury determined that the insurer failed to exercise good faith, the measure of compensatory damages to which plaintiff is entitled is the amount by which the prior tort judgment exceeded insured’s policy coverage (to wit $50,000) plus interest on this amount from the date of the tort judgment to the date of the verdict in the bad faith action (CPLR 5003). Plaintiff is also entitled to post-verdict interest on this total award (CPLR 5002).

*422The judgment should be modified accordingly.