Kentucky Farm Bureau Mutual Insurance Co. v. Troxell

GRAVES, Justice.

This is a review of a Court of Appeals decision which affirmed in part and reversed in part the judgment of the Wayne Circuit Court, awarding Appellee/Cross-Appellant, Raymond Troxell, $3,000 in lost wages and $775,000 in punitive damages for bad faith and unfair settlement practices against Appellant/Cross-Appellee, Kentucky Farm Bureau Mutual Insurance Company. The Court of Appeals set aside the award for lost wages on the grounds that Troxell did not present reliable proof of work loss. Further, while acknowledging that ordinarily a punitive damages award cannot stand absent an award of compensatory damages, a majority of the Court of Appeals ruled that Farm Bureau’s settlement of Troxell’s uninsured motorist (UM) claim satisfied the factual predicate for the punitive damages award. The Court of Appeals did, however, remand the punitive damage award for appropriate post trial review.

After hearing oral arguments and reviewing the record, we affirm the decision of the Court of Appeals as to lost wages. However, as we conclude that the award for lost wages was an integral component of the punitive damages award, we reverse and remand for a new trial.

FACTS

In February 1990, Troxell, a pedestrian, received.injuries when he was struck by an uninsured motor vehicle in a shopping center parking lot. Troxell did not inform his insurer, Farm Bureau, until May 1990, when he sought reimbursement for medical bills. Thereafter, Farm Bureau claims adjuster, Kenneth Conn, met with Troxell and obtained a signed release whereby Troxell agreed to settle his UM claim for $500. Troxell retained the right to seek personal injury protection (PIP) benefits under the policy.

Troxell subsequently made a claim for lost wages. Farm Bureau initially denied the claim stating that additional proof was needed to establish the amount of loss. In response, Troxell tendered several handwritten receipts reflecting auto repair work that he had allegedly done for several family members. The receipts were prepared by Trox-ell’s wife and signed by the relatives. After Farm Bureau continued to deny the claim, Troxell initiated this action seeking recovery of UM benefits and lost wages. Troxell’s complaint also demanded punitive damages for bad faith and unfair claims settlement practices, on the grounds that Farm Bureau had fraudulently obtained the release of his UM claim. Troxell eventually settled his UM claim against Farm Bureau for $10,000. The claims for bad faith and unfair settlement practices, as well as lost wages, were specifically preserved.

Prior to trial, Farm Bureau moved to exclude evidence of company manuals used to train Farm Bureau adjusters, as well as evidence concerning similar litigation against Farm Bureau, specifically involving adjuster Kenneth Conn. Both motions were denied. The jury returned a verdict in favor of Trox-ell, awarding him $3,000 for lost wages and $775,000 in punitive damages for bad faith and unfair claims settlement practices on the part of Farm Bureau.

Both parties appealed and the Court of Appeals, in an unpublished opinion, held that Farm Bureau was entitled to a directed ver-*84diet on Troxell’s claim for lost wages, inasmuch as the only evidence in support thereof was self-serving and wholly insufficient to support an instruction for lost wages. A majority of the court agreed that although punitive damages were appropriate, the trial court failed to conduct a proper post trial review, and thus remanded the case with instructions to do so in accordance with Hanson v. American National Bank & Trust Co., Ky., 865 S.W.2d 302 (1993). Both Troxell and Farm Bureau appealed and this Court accepted discretionary review. Additional facts will be set forth as necessary in the course of this opinion.

I. CLAIM FOB LOST WAGES

Troxell argues that the Court of Appeals erroneously substituted its judgment foriiiat of the trial court in holding that Farm. Bureau should have been entitled to a directed verdict as to his claim for lost wages. We disagree.

Pursuant to KRS 304.39-210(1), to recover benefits for work loss, Troxell was required to provide Farm Bureau with “reasonable proof of the fact and amount of loss realized.” “Work Loss” is defined as:

[L]oss of income from work the injured person would probably have performed if he had not been injured, and expenses reasonably incurred by him in obtaining services in lieu of those he would have performed for income, reduced by any income from substitute work actually performed by him.

KRS 304.39-020(5)(b). ’

In its opinion, the Court of Appeals acknowledged that the quantum of proof necessary to establish “reasonable proof of the fact and amount of loss realized” is a question of first impression in this jurisdiction. In recognizing that the proof necessary to establish a claim for lost wages is the same as that necessary to establish a claim for medical bills, KRS 304.39-210(1), the court cited State Automobile Mutual Insurance Co. v. Outlaw, Ky.App., 575 S.W.2d 489 (1978), which provides:

A proof of loss is intended to provide insurance companies with an opportunity to investigate the claim and to make an intelligent estimate of the company’s rights and liabilities before becoming obligated to pay the claim.... [T]he statement of the claimant alone would not, as a matter of law, satisfy the statutory requirement of “reasonable proof of the fact and amount of loss realized.” ... The statute placed the burden on the claimant to provide reasonable proof of the fact and amount of loss realized.

Id. at 493.

Turning now to the case before us, we agree with and adopt the language of the Court of Appeals opinion, which states:

Applying this reasoning to the facts presented in the instant case, it is clear that Troxell failed to present any reliable proof of his work loss. Generally, a person would produce copies of tax returns to show the amount of income earned during previous years. KFBM stresses Troxell’s lack of this type of evidence heavily. While income tax returns tend to present fairly reliable evidence in most instances, claimants are not required to prove lost wages in this manner. In some instances, such as here, a claimant may have so little income that he is not required to file a tax return.
At the same time, evidence such as Troxell proffered to prove his lost wages is wholly insufficient. The only evidence produced was self-serving. Receipts prepared by Troxell’s wife months after the fact and signed by relatives stating that Troxell had been paid for work performed on various automobiles is the only evidence Troxell offered, aside from his own testimony. KFBM had more than a reasonable basis in law and fact to deny the claim. Wittmer v. Jones, Ky., 864 S.W.2d 885, 890 (1993). While we are not prepared to say that handwritten receipts cannot constitute proof of wages earned, in this case, where the receipts were prepared only after KFBM requested some proof of lost wages and months after the work allegedly was done, as a matter of law, this was insufficient evidence to merit an instruction authorizing an award of lost wages.

*85Accordingly, we affirm the Court of Appeals decision that there was insufficient proof presented to support Troxell’s claim for lost wages.

II. PUNITIVE DAMAGES AWARD

Notwithstanding the decision to set aside the award for lost wages, the Court of Appeals held that because Troxell’s claims for bad faith and unfair claims settlement practices were premised on both UM and lost wage theories, his right to recover punitive damages was not extinguished simply because the claim for lost wages was legally insufficient for submission to the jury and therefore should have been dismissed by a directed verdict. The Court of Appeals stated:

In another case, a directed verdict on [the UM claim and lost wages claim] would entitle KFBM to a total reversal of the judgment entered by the trial court. This is because punitive damages cannot be supported absent an award of compensatory damages. The uniqueness of this case stems from the fact that the basis for compensatory damages was the subject of the settlement agreement entered into during the course of litigation.

We agree that Troxell asserted other theories which, if believed by the jury, would support an award for punitive damages. Wittmer, supra; see also Curry v. Fireman’s Fund Ins. Co., Ky., 784 S.W.2d 176 (1989) and Empire Fire & Marine v. Simpsonville Wrecker, Ky.App., 880 S.W.2d 886 (1994). However, in light of the decision that an instruction for lost wages was not supported by the evidence, the language of the punitive damages instruction necessarily merits reversal because it included the noncompensa-ble element of lost wages.

Instruction No. 7 provided:

That if you have found that Kentucky Farm Bureau Mutual Insurance Company acted in bad faith, or violated duties imposed under Instructions No. 2, 4, 5, and/or 6, and if you are further satisfied from the evidence that Kentucky Farm Bureau Mutual Insurance Company acted toward Raymond Troxell with malice, fraud and oppression, you may in your discretion award punitive damages against the defendant in addition to the damages awarded under Instructions No. 4 and/or 5.

Instruction No. 7 permitted the jury to award punitive damages if it found that Farm Bureau acted in bad faith in refusing to pay Troxell’s claim for lost wages (Instruction No. 4), in failing to pay medical bills within 30 days (Instruction No. 5), or in failing to effectuate a prompt, fair, and equitable settlement (Instruction No. 6).

The error arises from the fact that the jury’s justification for awarding punitive damages cannot be ascertained and thus, may have been based, in part, on the non-compensable and unproven element of lost wages. A review of the jury instructions and interrogatories reveals that the jury determined Farm Bureau did, in fact, have a reasonable basis for failing to pay Troxell’s medical bills within 30 days. However, the jury also affirmatively found that Troxell had presented reasonable proof of lost wages, as well as that Farm Bureau breached its duty to Troxell to effectuate a fair and prompt settlement. Therefore, the award of punitive damages could have reasonably been based in whole, or in part, on the jury finding which was subsequently set aside by the Court of Appeals.

Once the Court of Appeals determined that the evidence was insufficient to support an instruction for lost wages, the language of the punitive damages instruction was incorrect, in that it specifically allowed an award of punitive damages based upon the failure to pay lost wages. As such, the factual basis of the jury’s decision becomes insufficient or erroneous, and the propriety of the award for punitive damages is called into question. Thus, we conclude the matter must be remanded to the circuit court for a new trial as to the claims of bad faith and unfair settlement practices.

We note that the Court of Appeals affirmed the admissibility of evidence pertaining to similar litigation involving Farm Bureau and adjuster Kenneth Conn. We agree that such evidence was relevant in the trial below to show that Farm Bureau was aware that this particular adjuster had previ*86ously used methods in handling claims that are unacceptable under Kentucky law and further, that Farm Bureau had knowledge of a pattern of conduct practiced by its agent. Said proof is central to satisfying the criteria contained in KRS 411.184(3) for obtaining a punitive damages instruction. However, we are of the opinion that any monetary amounts involved in the prior litigation are not relevant and should not be introduced upon retrial.

The decision of the Court of Appeals is reversed and this matter is remanded to the Wayne Circuit Court for a new trial in accordance with this opinion.

STEPHENS, C.J., and COOPER, GRAVES and JOHNSTONE, JJ., concur. LAMBERT, J., dissents in a separate opinion in which STUMBO and WINTERSHEIMER, JJ., join.