SILAK, Justice
State Farm Insurance Co. appeals the district court's judgment entered upon a jury verdict of 9.6 million dollars arising from a bad faith insurance handling claim by its insured, Cindy Robinson.
I. FACTS AND PROCEDURAL BACKGROUND
A. Factual Background.
In 1991, Cindy Robinson (Robinson) purchased a standard automobile insurance policy from State Farm Mutual Automobile Insurance Company (State Farm), which included a $25,000 limit on medical payment coverage (MPC).
In January 1992, the left rear wheel of Robinson's automobile fell off as she was driving on the interstate, resulting in a jolt as the automobile dropped several inches to the ground. Robinson maintained control of the vehicle and brought it to a stop. While she experienced no immediate symptoms, Robinson later began to notice pain in her back and within a few days sought medical attention. Robinson was treated conservatively in January and early February and was eventually diagnosed as having a herniated disc for which she underwent surgery in late February 1992.
Robinson reported the incident to State Farm in April 1992, and requested payment of the medical bills under the MPC provision of her policy. After an initial review, State Farm paid $1,662 of pre-surgery medical bills in July of 1992, but declined to pay any bills related to the surgery due to questions over causation.
State Farm sent Robinson's file to Medical Claims Review Service (MCRS), a medical records review company on State Farm's list of approved reviewers, asking for an opinion as to whether Robinson's herniated disc was causally related to the January 17 incident. State Farm routinely used the paper review services provided by MCRS in lieu of conducting more costly independent medical exams. MCRS issued a report to State Farm indicating that its review of the medical documentation did not support a causal relationship between the January 17 incident and the subsequent medical care for disc herniation.
Robinson was subsequently examined by a physician chosen by State Farm and a forensic chiropractor of her choosing. The results of both exams were sent to MCRS who again indicated a lack of causal relationship with the automobile incident. Based upon the review by MCRS, State Farm denied Robinson's claim for the surgery.
B. Procedural Background.
In August 1994, Robinson filed suit against State Farm alleging breach of insurance contract and bad faith handling of her claim. Robinson was later permitted to amend her complaint to include a claim for punitive damages.
In March 1995, Robinson's claim was reassigned to another claim representative. After review of her medical records by an orthopedic surgeon indicated a causal relationship between her injuries and the automobile incident, State Farm paid the remaining limits of Robinson's policy to her medical care providers.
At trial, Robinson introduced evidence that State Farm had engaged in a practice of referring claims to MCRS and other paper review companies, knowing that these companies would return a review favorable to State Farm. In addition, evidence was presented that State Farm failed to conduct a reasonable investigation of Robinson's claim prior to denying payment under the policy. State Farm introduced evidence attempting to rebut Robinson's assertion that it had acted in bad faith in addition to evidence of misrepresentation on the part of Robinson in filling out her application for insurance.
The jury returned a verdict in favor of Robinson, finding that State Farm had breached its insurance contract with Robinson, that it had acted in bad faith in delaying payment of Robinson's claim, and that its acts or omissions warranted the imposition of punitive damages. Damages were assessed at $102,250 compensatory and $9,500,000 punitive.
State Farm filed post-judgment motions for judgment notwithstanding the verdict, a new trial, and remittitur of the amount of punitive damages. The district court denied State Farm's post-judgment motions.
II. ISSUES ON APPEAL
The following issues are presented on appeal:
A. Whether the district court erroneously instructed the jury on the issue of bad faith.
B. Whether the district court erred by failing to require Robinson to establish that her claim was within coverage of the insurance policy.
C. Whether the district court erroneously excluded relevant and admissible evidence.
D. Whether the district court erred in denying State Farm's defense of misrepresentation.
E. Whether the district court erred in admitting hearsay evidence.
F. Whether the district court erred in denying a motion for new trial based on juror misconduct.
G. Whether the jury was properly instructed and its award of punitive damages was supported by substantial and competent evidence.
H. Whether the punitive damage award was grossly excessive and in violation of the Idaho and United States Constitutions.III. STANDARD OF REVIEW
This Court exercises free review over the district court's conclusions of law. As a result, this Court may substitute its view for that of the district court on a legal issue. See Peasley Transfer Storage Co. v. Smith, 132 Idaho 732, 737, 979 P.2d 605, 610 (1999); Marshall v. Blair, 130 Idaho 675, 679, 946 P.2d 975, 979 (1997). However, this Court's review of findings of fact is limited. Review of the evidence must be made in a light most favorable to the respondent and only when the jury's findings of fact are clearly erroneous will its verdict be set aside. See Spanbauer v. J.R. Simplot Co., 107 Idaho 42, 44, 685 P.2d 271, 273 (1984).
IV. ANALYSIS
A. The District Court Properly Placed The Burden On State Farm To Prove That Robinson's Claim Was "Fairly Debatable."
State Farm asserts the district court erred by instructing the jury that whether Robinson's claim was fairly debatable was an affirmative defense upon which State Farm had the burden of proof. State Farm claims the insured has the burden of proving her claim was not fairly debatable, not the insurer.
At trial, the district court instructed the jury on the issue of bad faith as follows:
On plaintiff's claim that the defendant breached the implied duty of good faith and fair dealing, the plaintiff has the burden of proof on the following proposition:
1. That in failing to pay the benefits due under the policy in full and in a timely fashion, the defendant acted intentionally and unreasonably in first denying and then delaying the payment of benefits; and
2. That the plaintiff suffered damages which were not fully compensated by the payment of benefits under the policy.
If the plaintiff proves these propositions, and if the defendant does not prove its affirmative defense, your verdict should be for the plaintiff on the issue of liability on this claim. If the plaintiff fails to prove this proposition or if the defendant proves its affirmative defense, your verdict should be for the defendant on the issue.
The term "fairly debatable" means that at the time this claim was under consideration, there existed a legitimate question or difference of opinion over the eligibility, amount or value of the claim.
In this case, the defendant has asserted the affirmative defense that the circumstances of the claim presented issues, which were fairly debatable, or that it was acting under an honest mistake as to the true facts. On these defenses, the defendant has the burden of proof on the following propositions:
1. That the plaintiff's claims for medical expenses presented issues of causation which were fairly debatable, as that term is defined in these instructions, which resulted in the delays encountered in processing the claim for benefits. . . .
In its memorandum decision denying State Farm's post-judgment motions, the district court explained its allocation of the burden by stating:
The plaintiff's burden is to prove as a fundamental element of the case and in the first instance, that the delay in payment was unreasonable. . . . The defense of a fairly debatable issue only arises after the plaintiff has proved generally that the delay was unreasonable, under all circumstances. This specific defense entitles the defendant to explain that the unreasonable delay was excused by the presence of a fairly debatable problem. . . . To require the plaintiff to disprove the defense theory as part of its case-in-chief . . . would require the plaintiff to prove a specific negative proposition which is already generally embedded within the affirmative proposition of "unreasonable delay." . . .
The district court determined the Idaho cases relied upon by State Farm in asserting the burden of proof is on the plaintiff to prove the claim was not fairly debatable, were cases decided upon motions for summary judgment where the plaintiff must surmount any affirmative defenses the defendant may prove at trial in order to prevail on the motion. We agree.
This Court first acknowledged the existence of a claim for first-party insurer bad faith separate from the insured's contract claim in White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986). In White, this Court held where an insurer intentionally and unreasonably denies or delays payment on a claim, and in the process harms the claimant in a way not fully compensable in contract, the claimant could bring an action in tort to recover for the harm done. See id. at 98, 730 P.2d at 1018.
In White, this Court cited favorably to decisions from Arizona and Wisconsin, which held the relevant inquiry into whether an insurer has acted in bad faith towards its insured is a question of reasonableness under the circumstances of the case. See Anderson v. Continental Ins. Co., 271 N.W.2d 368, 377 (Wis. 1978). Implicit in the reasonableness requirement is the notion that an insurer's denial of a claim by its insured is not unreasonable under the circumstances if it is fairly debatable. See Sparks v. Republic Nat. Life Ins. Co., 647 P.2d 1127, 1136 (Ariz. 1982). As a result, this Court has joined in the view that an insurer does not act in bad faith when it challenges a "fairly debatable" claim. See Roper v. State Farm Mut. Auto Ins. Co., 131 Idaho 459, 461, 958 P.2d 1145, 1147 (1998); Anderson v. Farmers Ins. Co., 130 Idaho 755, 759, 947 P.2d 1003, 1007 (1997); White, 112 Idaho at 100, 730 P.2d at 1020. Accordingly, whether a claim is "fairly debatable" depends upon whether a reasonable insurer under the circumstances would have delayed or denied payment based upon the information available to it at the time of the delay or denial.
Following White, this Court addressed the issue of first-party bad faith insurance claims and stated the plaintiff must show: 1) the insurer intentionally and unreasonably denied or withheld payment; 2) the claim was not fairly debatable; 3) the denial or failure to pay was not the result of a good faith mistake; and 4) the resulting harm is not fully compensable by contract damages. See Simper v. Farm Bureau Mut. Ins. Co. of Idaho, 132 Idaho 471, 474, 974 P.2d 1100, 1103 (1999); Lucas v. State Farm Fire Cas. Co, 131 Idaho 674, 677, 963 P.2d 357, 360 (1998); Anderson, 130 Idaho at 759, 947 P.2d at 1007. State Farm argues these cases stand for the proposition that in a claim for bad faith, the plaintiff has the burden of proving each of these four elements, including that the insurance claim was not "fairly debatable." However, these cases involved review by this Court of summary judgment proceedings where in addition to establishing the elements of the underlying claim, the plaintiff bears the burden of disproving elements of any affirmative defense upon which the defendant bears the burden of proof at trial. See Hines v. Hines, 129 Idaho 847, 852, 934 P.2d 20, 25 (1997); Badell v. Beeks, 115 Idaho 101, 102, 765 P.2d 126, 127 (1988). Further, in those cases, this Court was not called upon, as we have been in this case, to decide whether the fairly debatable issue was an element of the insured's prima facie case or an affirmative defense in those cases. Therefore, we now take this opportunity to clarify the elements required for an insured's prima facie case in a first-party bad faith claim.
As was first espoused by this Court in White:
[W]here an insurer "intentionally and unreasonably denies or delays payment" on a claim, and in the process harms the claimant in such a way not fully compensable at contract, the claimant can bring an action in tort to recover the harm done.
White, 112 Idaho at 98, 730 P.2d at 1018 (footnote omitted).
[T]he insured must show the insurer "intentionally and unreasonably denies or delays payment." An insurer does not act in bad faith when it challenges the validity of a "fairly debatable" claim, or when its delay results from honest mistakes.
Id., at 100, 730 P.2d at 1020 (citations omitted).
It is clear from our initial holding in White, and subsequent cases, in order to make out a prima facie case for bad faith handling of a first-party insurance claim, the plaintiff must establish the insurer intentionally and unreasonably denied or delayed payment on a claim and as a result of the insurer's conduct, the plaintiff was harmed in a way not fully compensable in contract. See Smith v. USAA Property and Cas. Ins., 132 Idaho 466, 469, 974 P.2d 1095, 1098 (1999); Vaught v. Dairyland Ins. Co., 131 Idaho 357, 362, 956 P.2d 674, 679 (1998); Walston v. Monumental Life Ins. Co., 129 Idaho 211, 219, 923 P.2d 456, 464 (1996); Garnett v. Transamerica Ins. Services, 118 Idaho 769, 780, 800 P.2d 656, 667 (1990); Reynolds v. American Hardware Mut. Ins. Co., 115 Idaho 362, 365, 766 P.2d 1243, 1246 (1988); White, 112 Idaho at 100, 730 P.2d at 1020. Liability to a plaintiff who has made out a prima facie case for first-party bad faith may be avoided by an insurer who can demonstrate the validity of the insured's claim was reasonably in dispute and therefore fairly debatable, or the delay was the result of an honest mistake. Therefore, whether a first-party claim is fairly debatable is an affirmative defense available for an insurer to offer in first-party bad faith cases.
This allocation of the burden of proof is not a change in Idaho law but merely a clarification of the law, as it has existed. In a recent bad faith insurance case, this Court upheld a district court's jury instruction, which stated:
In order for the plaintiffs to recover for breach of the duty of good faith and fair dealing, they must prove each of the following propositions:
1. The defendant, [insurance company], was unreasonable in the handling of the plaintiff's insurance claim;
2. The defendant's conduct was either intentional; or as a result of negligence.
Inland Group of Companies, Inc. v. Providence Washington Ins. Co., 133 Idaho 249, 257, 985 P.2d 674, 682 (1999). Although in Inland this Court dealt with whether the district court erred in refusing to instruct the jury regarding comparative negligence, this case makes clear that in insurance bad faith cases the law does not place the burden of proving the claim was not fairly debatable on the insured. In a recently decided case, the Arizona Supreme Court addressed a bad faith claim in relation to the insurer's fairly debatable defense and determined the fairly debatable question is one for the jury and, implicitly, that it is the insurer who must raise the question of fair debatability. See Zilisch v. State Farm Mutual Auto. Ins., 995 P.2d 276 (Ariz. 2000) ("While an insurer may challenge claims which are fairly debatable, its belief in fair debatability `is a question of fact to be determined by the jury.'").
It would be unwise for the law to impose the burden of proving an insurer's intent on the insured as State Farm suggests. In cases of bad faith insurance claims, it would be difficult for the insured to prove the insurer's state of mind concerning claim denial or payment. Therefore, the fairly debatable assertion is more appropriately an affirmative defense of the insurance company, since it possesses the facts regarding its own claim-handling policies and practices.
The present case was not decided on a summary judgment motion, but was tried to a jury. The instructions given to the jury by the district court properly allocated to Robinson the burden of demonstrating State Farm intentionally and unreasonably denied or delayed payment and that as a result, Robinson was harmed in a way not fully compensable in contract. In the event the jury found the delay of Robinson's claim was intentional and unreasonable, the district court properly instructed the jury to consider whether State Farm had demonstrated that the delay was the result of an honest mistake or that a legitimate question or difference of opinion over the eligibility, amount or value of the claim existed, excusing the delay.
Accordingly, we hold that the district court did not err in allocating to State Farm the burden of demonstrating its delay in settling Robinson's claim was the result of an honest mistake or a legitimate question or difference of opinion over the eligibility, amount or value of the claim. We further hold the fairly debatable claim is an affirmative defense available for insurers to raise in first-party bad faith cases.
B. Robinson Was Not Required To Establish That Her Claim Was Within Coverage Of The Insurance Policy In Order To Pursue A Claim For Bad Faith.
State Farm asserts that the district court erred in failing to require Robinson to prove coverage under her MPC policy. Specifically, State Farm asserts that in order to recover on a claim for bad faith, the plaintiff must first prove coverage under the policy and that a claim for bad faith is only applicable to denial of valid claims.
In order to address State Farm's assignment of error, it is necessary to re-visit the framework upon which this Court recognized the common law tort of bad faith handling of a first-party insurance claim. In White, this Court cited favorably to the Supreme Court of Wisconsin for the proposition that "the tort of bad faith is not a tortious breach of contract." White, 112 Idaho at 97, 730 P.2d at 1017 (citing Anderson v. Continental Ins. Co., 271 N.W.2d 368, 374 (Wis. 1978)). The Court went on to hold that "there exists a common law tort action, distinct from an action on the contract, for an insurer's bad faith in settling the first party claims of its insured." Id. at 100, 730 P.2d at 1020. Consistent with this holding, this Court has adhered to the notion that "[t]he bad faith conduct by one party to a contract toward another is a tort separate and apart from a breach of contract per se. . . . It is a separate intentional wrong, which results from a breach of the relationship established by contract." Inland Group, 133 Idaho at 255, 985 P.2d at 680 (quoting Anderson v. Continental Ins. Co., supra at 374). "Thus, the insurance contract and the relationship it creates contains more than the company's bare promise to pay certain claims when forced to do so; implicit in the contact and the relationship is the insurer's obligation to play fairly with its insured." White, 112 Idaho at 98, 730 P.2d at 1018 (quoting Rawlings v. Apodaca, 726 P.2d 565, 570-571 (Ariz. 1986)); accord, Reynolds, 115 Idaho at 365, 766 P.2d at 1246.
Robinson's claim for bad faith was an action in tort, separate and apart from the contract. Her claim for bad faith addressed a duty of care imposed upon State Farm by the special relationship created by the insurance contract. Robinson's claim for bad faith required her to prove that State Farm acted intentionally and unreasonably in denying or delaying her claim. While proof of coverage under the policy may have been essential in establishing that State Farm had acted unreasonably under the circumstances in denying or delaying her claim, proof of coverage was not an element of Robinson's case for bad faith.
Accordingly, we hold that in order to prevail on a claim for first-party bad faith, Robinson was not required to prove coverage under the insurance policy as an element of her case.
C. The District Court Properly Excluded Evidence Under I.R.E. 1006.
State Farm asserts that the district court erred in excluding evidence under Idaho Rule of Evidence 1006 for failure to provide Robinson with relevant information prior to trial. Specifically, State Farm argues that the district court's application of I.R.E. 1006, excluding evidence and testimony based on a statistical summary compiled from voluminous claim files, was in error since "Robinson was provided with every single document used by or in any manner examined by any witness in preparing [the exhibits]." State Farm further asserts that the district court's use of I.R.E. 1006 to exclude evidence was in effect, a discovery sanction.
The interpretation of a rule of evidence is a legal question subject to free review by this Court. See State v. Moore, 131 Idaho 814, 821, 965 P.2d 174, 181 (1998). The district court has broad discretion in the admission of evidence at trial, and its decision to admit such evidence will be reversed only when there has been a clear abuse of that discretion. See Hanks v. Sawtelle Rentals, Inc., 133 Idaho 199, 204, 984 P.2d 122, 127 (1999); Empire Lumber Co. v. Thermal- Dynamic Towers, Inc., 132 Idaho 295, 304, 971 P.2d 1119, 1128 (1998).
I.R.E. 1006 is identical to its federal counterpart and states:
The contents of voluminous writings, recordings, or photographs which cannot conveniently be examined in court may be presented in the form of a chart, summary, or calculation. The originals, or duplicates, shall be made available for examination or copying, or both, by other parties at a reasonable time and place. The court may order that they be produced in court.
I.R.E. 1006.
The purpose of the availability requirement of I.R.E. 1006 is to give the opposing party an opportunity to verify the reliability and accuracy of the summary and prepare for cross- examination of the material prior to trial. See Amarel v. Connell, 102 F.3d 1494, 1516 (9th Cir. 1996); 5 Jack B. Weinstein, WEINSTEINS'S EVIDENCE § 1006[01] at 1006-4 (1991). Where a party fails to make materials underlying a summary exhibit available, that exhibit is inadmissible. See Amarel, 102 F.3d at 1516. I.R.E. 1006 operates independently of the discovery rules, and the failure to request or obtain the documents during discovery does not negate a party's absolute right to subsequent production of material under Rule 1006, should that material become incorporated in a chart, summary, or calculation. See Air Safety v. Roman Catholic Archbishop of Boston, 94 F.3d 1, 8 (1st Cir. 1996).
During discovery, Robinson requested production of State Farm's claims files related to paper reviews by MCRS. The discovery request was refused by State Farm, and a motion to compel production was denied by the district court in the belief that State Farm did not intend to go through a file-by-file determination of what MCRS did or did not do. At trial, State Farm sought to rebut Robinson's assertion that State Farm had relied upon the paper reviews of MCRS in paying its claims. To do so, State Farm sought to introduce a statistical summary (exhibit 626), which indicated those claims State Farm submitted for paper review that were paid in excess of the amount recommended by MCRS. In addition, State Farm sought to have an expert witness, Dr. Juola, testify that based upon the statistical summary, it did not appear that State Farm had relied upon the information in the paper reviews in making payment to its claimants. As was described by State Farm at trial:
[T]his was work compiled at the direction of Mr. Tucker that involved a rather extensive process of examining the files, pulling from the files rather [than] the bills and the reports that were reviewed by MCRS and MEI, supplying the information that was pulled and relied upon to plaintiff's counsel. From that information, summary tables were made of each of the claims.
While State Farm asserts that all information used in creating the statistical summary was produced to Robinson pursuant to I.R.E. 1006, the district court ruled that State Farm was required to provide Robinson with "all the data necessary to understand the statistical summary." Specifically, with respect to the admission of State Farm's statistical summary, the court stated:
You fellows argued to me in the motion in limine two years ago . . . that you didn't want to get into revealing all these claims files because that inquiry was irrelevant. I said, ok, I agree. If you're not going into that, then you don't have to produce this stuff. Now, here you are saying we want to go into this claim by claim and have some expert on the stand say this proves that State Farm didn't rely on MCRS. How can you do that until you open up the claim file and see what else is in the claim file? More importantly, if they didn't rely on MCRS, then if you're going to get to the bottom of this, don't you have to reveal what they did rely upon? What factors in the claim file did they rely upon if it wasn't MCRS in order to balance this out? . . . But you can't substantiate the proposition that they didn't rely upon MCRS unless you can establish what they did rely on, or at least afford the opposition the opportunity to determine what they did rely on, can you?
While this Court has not previously addressed the extent to which information must be produced under I.R.E. 1006, based upon the purpose of the rule and the circumstances of this case, we agree that in order to afford Robinson the opportunity to verify the reliability and accuracy of the statistical summary in preparation for cross-examination prior to trial, it was necessary for State Farm to produce in their entirety, those claims files from which the statistical information was extracted.
Because the statistical information was offered to prove that State Farm did not rely upon the payment recommendations of MCRS, it was irrelevant in the absence of some indication of what State Farm did rely upon in making its final determination on payment of the selected claims. In order to substantiate the relevance and accuracy of the statistical information offered by State Farm, I.R.E. 1006 required production to Robinson of the entire claims file for each claim from which statistical information was extracted in order to determine if, in fact, State Farm relied upon something other than the reviews of MCRS in settling those claims.
Accordingly, we hold that State Farm was required to make the entire file of each claim relied upon in its statistical summary available to Robinson, and therefore, the district court did not abuse its discretion in excluding either exhibit 626 or Dr. Juola's testimony, which was based upon the information contained in exhibit 626.
D. The District Court Did Not Err In Denying State Farm's Defense Of Misrepresentation.
State Farm asserts that the district court erroneously interpreted section 41-1811 of the Idaho Code, depriving it of a misrepresentation defense. Specifically, State Farm asserts that I.C. § 41-1811 was intended as a bar to recovery for misrepresentations made in an application for insurance and not a rescission statute requiring tender of premiums as a prerequisite to avoidance.
At trial, the district court did not allow State Farm to pursue its defense of misrepresentation based upon I.C. § 41-1811. The court characterized the statute as a "rescission statute," requiring tender of premiums back to Robinson in order to avoid contractual obligations. Because State Farm had not tendered premiums to Robinson prior to trial, the district court denied State Farm's asserted defense.
In its memorandum decision, denying State Farm's post-judgment motions, the district court stated its reasoning for denying State Farm's misrepresentation defense.
I would observe first that Idaho Code § 41-1811 does not create a statutory defense to recovery under an insurance policy. Rather, the statute defines what is a "representation" (or misrepresentation) as opposed to a warranty, and places certain restrictions and conditions upon common law defenses pertaining to avoidance. The statute codifies the common law, with the statutory enhancements. If anything, the statute limits the right of an insurance company to avoid liability under a policy. Under the common law defense of misrepresentation, the contractual obligation might be voidable, but was not void, and if the party sought to avoid the contract on this ground, the party claiming the misrepresentation was obligated to tender back the consideration received.
This Court has not previously interpreted the meaning and effect of I.C. § 41-1811. This Court agrees with the district court that in order to assert a defense under I.C. § 41-1811, State Farm was required to tender premiums back to Robinson.
I.C. § 41-1811 provides:
§ 41-1811. Representations in applications. — All statements and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefore, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:
(a) Fraudulent; or
(b) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
(c) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.
I.C. § 41-1811.
I.C. § 41-1811 was adopted in 1961. Prior to that time, the common law controlled material misrepresentations in a contract for insurance. At common law, if a party's manifestation of assent to contract was induced by either a fraudulent or a material misrepresentation by the other party, upon which the recipient is justified in relying, the contract is voidable by the recipient. See RESTATEMENT (SECOND) OF CONTRACTS § 164(a) (1981). A voidable contact exists where one or more parties have the power to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance. See Id. at § 7. Material misrepresentations permit the defrauded party to elect from three possible remedies: damages, rescission, or enforcement of the bargain against the fraudulent party according to the fraudulent party's representation of the bargain. See 12 Samuel Williston, Contracts § 1523, at 606-07 (3rd ed. 1970); Queen City Farms v. Central Nat. Ins., 891 P.2d 718 (Wash. 1995).
Rescission of a contract is intended to place the parties in the positions they occupied prior to the contract and is available only when one of the parties has committed a material breach, which destroys the entire purpose for entering into the contract. See Crowley v. Lafayette Life Ins. Co., 106 Idaho 818, 821, 683 P.2d 854, 857 (1984). The party desiring to rescind a contract must, prior to rescinding, tender back to the other party any consideration or benefit received under the contract by the rescinding party. See id.; Gossett v. Farmers Ins. Co. of Washington, 948 P.2d 1264, 1274 (Wash. 1997); 17 Am. Jur.2d Contracts § 512 (1964); 17A C.J.S. Contracts § 439 (1963). These rules of the common law are in effect in Idaho unless modified by other legislative enactments. See I.C. § 73-116; Evans v. Twin Falls County, 118 Idaho 210, 215, 796 P.2d 87, 92 (1990).
I.C. § 41-1811 has codified the common law defense of fraud and misrepresentation in the insurance contract context and has limited its application. I.C. § 41-1811 describes the only circumstances in which a contract for insurance is voidable. However, nothing in I.C. § 41-1811 abrogates the common law requirement that the party seeking rescission must tender back any consideration or benefit received under the contract. The district court correctly construed the statute as one codifying common law rescission and therefore committed no error.
State Farm asserts that even if I.C. § 41-1811 is a rescission statute, Robinson received payments under the policy in excess of what she paid in premiums, making a tender of premiums back to her unnecessary. This argument is unpersuasive in light of the fact that State Farm's eventual payments on the policy occurred subsequent to conduct giving rise to a claim for bad faith. As previously noted, recovery on an underlying contract of insurance is not a prerequisite to a claim for first-party bad faith. Even if State Farm had tendered back an equivalent amount of premiums either directly or in the form of payment under the policy, its attempts to do so came subsequent to the rise of a separate action in tort for bad faith.
Therefore, we hold that State Farm's failure to make a timely tender of premiums back to Robinson foreclosed its ability to assert the defense of misrepresentation afforded by I.C. § 41-1811.
E. The District Court Did Not Err In Admitting Hearsay Evidence.
1. The admission of Exhibit 48 was not in error.
State Farm asserts that the district court erred in admitting plaintiff's Exhibit 48 into evidence. Specifically, State Farm argues that Exhibit 48 was used to prove a medical fact through a non-medical expert source and that its admission of Exhibit 48 was clear legal error, which affected the outcome of the trial.
This Court reviews the district court's admission of evidence at trial under an abuse of discretion standard, and its decision to admit such evidence will be reversed only when there has been a clear abuse of that discretion. See Empire Lumber Co., 132 Idaho at 304, 971 P.2d at 1128.
Exhibit 48, entitled "MediClaim," was the February 1992 edition of a publication prepared quarterly by State Farm and circulated nationally to its claim representatives. State Farm used MediClaim publications to disseminate information related to the handling of claims to its claim representatives. Recipients of MediClaim publications were expected to read and incorporate the information into their claim-handling practices. Exhibit 48 contained information related to the diagnosis and treatment of a herniated lumbar disc, stating that a herniated disk "may be sudden or may be insidious." At trial, the district court allowed Robinson to admit Exhibit 48 into evidence over State Farm's objection that it could not be used to prove a medical fact. The court admitted the exhibit, reasoning that it was admissible as a learned treatise under I.R.E. 803(18).
Idaho Rule of Evidence 803(18) provides a hearsay exception for learned treatises and states:
To the extent called to the attention of an expert witness upon cross-examination or relied upon by the expert witness in direct examination, statements contained in published treatises, periodicals, or pamphlets on a subject of history, medicine, or other science or arts, established as a reliable authority by testimony or admission of the witness or by other expert testimony or by judicial notice.
I.R.E. 803(18). In addition to its official adoption as a rule of evidence, I.R.E. 803(18) is also codified in section 9-402 of the Idaho Code, which states:
Historical works, books of science or art, and published maps or charts, when made by persons indifferent between the parties, are prima facie evidence of facts of general notoriety and interest.
I.C. § 9-402.
The district court acknowledged that exhibit 48 did not fit squarely within the exception for learned treatises. A plain reading of I.R.E. 803(18) and the purpose behind its exception to hearsay indicates that under the facts of this case, its application was stretched by the district court beyond what it was originally intended to achieve. This Court has previously addressed the purpose and use of the learned treatise exception to hearsay embodied in I.R.E. 803(18) and codified in I.C. § 9-402. In Tucker v. Union Oil of California, 100 Idaho 590, 603 P.2d 156 (1979), this Court discussed I.C. § 9-402 in holding that that historical works, books of science or art and published maps or charts, when made by persons indifferent between the parties, are prima facie evidence of facts of general notoriety and interest. See I.C. § 9-402; Tucker at 595, 603 P.2d at 161 (emphasis added); see also State v. Alger, 115 Idaho 42, 49, 764 P.2d 119, 126 (Ct.App. 1988).
Here, the MediClaim publication was not produced by persons indifferent between the parties, but by State Farm itself. While Exhibit 48 may have been relied upon by "expert claims representatives" throughout State Farm in handling insurance claims, it was not evidence of "general notoriety or interest" in the insurance industry as contemplated by the learned treatise exception. Therefore, we conclude that the district court's basis for admitting Exhibit 48 was in error.
However, we also conclude that the ultimate admission of Exhibit 48 into evidence was proper and affirm the district court's ruling based upon the correct theory. See Idaho Schools for Equal Educational Opportunity v. Evans, 123 Idaho 573, 820 P.2d 724 (1993); J.R. Simplot Co., Inc. v. Idaho State Tax Com'n, 120 Idaho 849, 820 P.2d 1206 (1991); State, Dept. of Health and Welfare ex rel. Gage v. Engelbert, 114 Idaho 89, 753 P.2d 825 (1988).
Hearsay is an out of court statement offered to prove the matter asserted. See I.R.E. 801(c). A statement is not hearsay if the purpose it is offered for is to prove something other than the truth of the matter asserted. At trial, Robinson sought to introduce Exhibit 48 to prove that State Farm had knowledge that a lumbar disc herniation may be subtle and may not appear immediately following an injurious incident. Knowledge of this fact was material to establishing that State Farm acted unreasonably in denying Robinson's claim because of insufficient evidence of disc herniation immediately following the automobile incident. When used for this purpose, Exhibit 48 is non-hearsay because it is not used to prove the truth of the matter asserted, but rather to prove knowledge of the underlying assertion, whether true or not. Material to this case is whether State Farm claim representatives reviewed and relied upon the MediClaim publications in making claim decisions. Whether or not the information contained in Exhibit 48 was accurate medical information was immaterial to Robinson's asserted use of the exhibit to demonstrate that based upon the information in its possession and relied upon, State Farm's denial of payment on her claim was unreasonable.
Therefore, we affirm the district court's admission of Exhibit 48 on the correct theory that Exhibit 48 was admissible as non-hearsay because it was not offered to prove the truth of the facts asserted within the document.
2. The district court properly allowed testimony by Mathis.
State Farm asserts that the district court erred in admitting hearsay testimony by James Mathis, a former State Farm employee. At trial, Mathis testified about conversations he had with Don Stacy, a State Farm executive, and about a telephone conversation Mathis had with Dr. Ronald Gots, former president of MCRS. In its memorandum opinion, denying State Farm's post-judgment motions, the district court ruled:
The witness Mathis' testimony concerning his conversations with Stacy (the State Farm executive) about what he learned from Gots (from the paper review organization) was not hearsay. It was admissible to prove that State Farm, through Stacy, was made aware of the deficiencies in the paper review process, and to prove State Farm's reaction to the information.
State Farm does not challenge the district court's perception of what the evidence was introduced to prove, but instead asserts, generally, that the statements are prejudicial hearsay, which do not come within a recognized exception.
Mathis testified to what he told Stacy about a conversation Mathis had with Dr. Gots. Those statements included: "Gots was not clear on whether a doctor was conducting the initial reviews;" "Gots did not see all the claims although his signature appeared on the reports;" "Gots would expect similar opinions for similar treatment." Mathis further testified to statements Stacy made to him concerning how Stacy reacted to the information. The district court admitted the testimony to show knowledge by State Farm of deficiencies in the paper review process and to indicate State Farm's state of mind regarding the paper review process.
Therefore, because the testimony by Mathis was offered to prove something other than the truth of the out of court statements, we hold that the district court did not abuse its discretion in allowing admission of the testimony, and there was no error in its ruling.
3. The district court did not err in admitting other documents without a limiting instruction.
State Farm asserts that the district court erred in admitting the entire claims file into evidence without a limiting instruction that the information contained in the file was to be used for the limited purpose of establishing what information State Farm had in its possession at the time Robinson's claim was considered. Specifically, State Farm asserts that the district court erred in allowing the jury to consider the content of hearsay documents within the claims file related to causation without a limiting instruction. State Farm asserts that the district court's refusal to give a limiting instruction is "in itself reversible error."
Reversible error only occurs when the jury instruction at issue misleads the jury or prejudices the party. See Empire Lumber Co., 132 Idaho at 302, 971 P.2d at 1126; Student Loan Fund of Idaho, Inc. v. Duerner, 131 Idaho 45, 54, 951 P.2d 1272, 1281 (1997). Error will not be presumed on appeal and must be clearly shown; the burden is upon appellant to show prejudicial error. See Burgess v. Salmon River Canal Co., Ltd., 119 Idaho 299, 306, 805 P.2d 1223, 1230 (1991).
At trial, the district court considered State Farm's request to give a limiting instruction to the jury. State Farm expressed concern that the medical documents contained in the claims file may be used by Robinson as hearsay evidence to establish causation without the benefit of live medical testimony. The court was informed that Robinson would not be using the information in the claims file to establish causation under the contract because it was not required to do so. Instead, Robinson intended to refer to the claims file to establish what information State Farm had in its possession when it considered her claim. Specifically, Robinson sought to use the information contained in the claims file to demonstrate that State Farm had knowledge of causation when it denied or delayed payment of her claim, but not to prove that the automobile incident in fact, caused her injuries. The district court postponed its determination on giving a limiting instruction to see how Robinson used the information in the claims file. The evidence was ultimately submitted to the jury without the requested limiting instruction.
While State Farm asserts that the refusal of the limiting instruction was reversible error, there has been no indication that the jury relied upon the claims file to establish causation. State Farm has failed its burden to establish that the jury was misled, or that it was prejudiced by the lack of a limiting instruction.
Therefore, we hold that the district court's refusal to give the jury a limiting instruction on the use of the claims file was not reversible error in the absence of evidence showing that the jury was misled, or that State Farm was prejudiced by the district court's refusal to give a limiting instruction.
F. The District Court Did Not Err In Denying State Farm's Motion For New Trial Based On Juror Misconduct.
State Farm asserts that the district court erred in denying its motion for a new trial based upon juror misconduct because after being instructed to consider punitive damages based on population, one of the jurors used an internet connection to access national population information not presented as evidence at trial.
Motions for a new trial are governed by I.R.C.P. 59(a), and this Court reviews a district court's decision to grant or deny a motion for new trial based upon an abuse of discretion standard. See I.R.C.P. 59(a); Highland Enters., Inc., v. Barker, 133 Idaho 330, 342, 986 P.2d 996, 1008 (1999). When reviewing the district court's decision, this Court will consider the grounds upon which the lower court based its decision to grant or deny the motion, as it is in a better position to weigh the credibility and testimony of the witnesses and the persuasiveness of all the evidence. See id. at 343, 986 P.2d at 1009.
A new trial may be granted for misconduct of the jury. See I.R.C.P. 59(a)(2). After the jury was instructed not to attempt to verify any information that had been presented to them, one of the jurors used the internet to determine the population of the United States and then shared the information with fellow jurors. The district court denied State Farm's motion for a new trial based upon juror misconduct, ruling that the juror was not attempting to verify or look up data on a disputed issue of fact, but instead sought an item of information, which could be expected to be within the general knowledge of the jury. We agree that a general statistic, such as the population of the country, can be expected to be within the general knowledge of the jury, and hold that any misconduct by the juror was harmless.
G. The Jury Was Properly Instructed And Its Award Of Punitive Damages Was Supported By Substantial And Competent Evidence.
State Farm does not assert that the district court erred in allowing the jury to consider the issue of punitive damages, but instead argues that the district court erroneously instructed the jury on the issue of punitive damages and that the jury's punitive damage award was not supported by substantial and competent evidence.
When determining whether the jury was properly and adequately instructed, on appeal this Court will review the instructions and ascertain whether the instructions, when considered as a whole, fairly and adequately present the issues and state the applicable law. See Richard J. and Esther E. Wooley Trust v. Debest Plumbing, Inc., 133 Idaho 180, 182, 983 P.2d 834, 836 (1999). The giving of an erroneous jury instruction does not justify granting of new trial unless the appellant can establish prejudice, and that the error affected the jury's conclusion. See Sherwood v. Carter, 119 Idaho 246, 260, 805 P.2d 452, 466, (1991); Luzar v. Western Sur. Co., 107 Idaho 693, 698, 692 P.2d 337, 342 (1984).
1. The district court properly instructed the jury on the issue of punitive damages.
State Farm asserts that the district court erred in instructing the jury on the issue of punitive damages because it refused to give State Farm's proposed instruction, which would have informed the jury that any award of punitive damages must bear a reasonable relationship to any compensatory damage awarded. Additionally, State Farm argues that the instruction failed to inform the jury not to impose punitive damages for conduct directed at persons other than Robinson, and that the jury could not base a punitive award on conduct occurring outside of the State of Idaho.
At trial, the district court gave the following instruction to the jury on the issue of punitive damages:
Punitive damages are not a matter of right, but may be awarded in the jury's sound discretion, which is to be exercised without passion or prejudice. The law provides no mathematical formula by which such damages are to be calculated, other than any award of punitive damages must bear some relation to the actual harm done, to the cause thereof, to the conduct of the defendant, and to the primary objective of deterrence.
In answering a question from the jury regarding this instruction, the district court stated:
By the second sentence of Instruction No. 23, you are directed that although there is no mathematical standard for calculation of punitive damages, your determination should not be a mere matter of whim. If you decide to award such damages, your decision as to the amount to award should be based upon a reasoned evaluation of the actual harm done, the causes thereof, the conduct of the defendant and to the primary objective of deterrence. How you should apply these factors is for you to determine.
State Farm first asserts that the instruction given was deficient because it did not state that the relationship between punitive damages and harm must be "reasonable," and that it did not limit the actual harm to that suffered by Robinson.
In Boise Dodge, Inc. v. Clark, 92 Idaho 902, 453 P.2d 551 (1969), this Court explained that while there is no fixed mathematical proportion, ratio or relation between the amount of actual damages and amount of exemplary or punitive damages which may be awarded, such an award must not be so disproportionate to actual damages as to be the result of passion or prejudice rather than reason, and such an award must bear some reasonable relation to the actual damages complained of and the cause thereof. See id. at 907, 453 P.2d at 556; see also Cheney v. Palos Verdes Inv. Corp., 104 Idaho 897, 665 P.2d 661 (1983). Insofar as determining whether sufficient instructions were given to a jury on the amount of punitive damages, a jury is properly instructed if informed that its discretion in awarding punitive damages is not unfettered, and must bear some relation to the facts of the case so that the appropriateness of the award may be measured. As the Court in Boise Dodge stated:
It is never made clear precisely upon what basis an amount of punitive damages will be declared "reasonable" or "unreasonable" in relation to the amount of actual damages, especially in view of the often-repeated statement that no strict mathematical ratio is to be applied. Of course, the ratios of punitive to actual damages which may be gleaned from the cases have little precedential value when excised from their respective factual settings. This is true because the culpability of a defendant's conduct and the sociological significance of damages as a deterrent vary from case to case. Thus, the true basis for an award of one amount of punitive damages as opposed to another amount lies in an overall appraisal of the circumstances of the case.
See id. at 908, 453 P.2d at 557.
While the district court's initial instruction did not include the phrase "reasonable relation," together with the court's answer to the jury's question, the instruction sufficiently informed the jury that in awarding punitive damages, its discretion was not unfettered and it must consider the facts of the overall case in making a reasoned decision.
Additionally, while State Farm has asserted error in the district court's refusal to instruct the jury not to consider conduct occurring outside of the state or against persons other than Robinson, State Farm has not met its burden of demonstrating that the jury's conclusion was affected by the refusal or that State Farm was prejudiced.
2. Substantial and competent evidence was presented to support the jury's award of punitive damages.
State Farm asserts that the jury's award of punitive damages was not supported by substantial and competent evidence because Robinson failed to present evidence of a bad state of mind as required under Idaho law.
Section 6-1604 of the Idaho Code permits an award of punitive damages and provides in relevant part:
(1) In any action seeking recovery of punitive damages, the claimant must prove, by a preponderance of the evidence, oppressive, fraudulent, wanton, malicious or outrageous conduct by the party against whom the claim for punitive damages is asserted.
I.C. § 6-1604(1).
This Court further determined:
An award of punitive damages will be sustained on appeal only when it is shown that the defendant acted in a manner that was "an extreme deviation from reasonable standards of conduct, and that the act was performed by the defendant with an understanding of or disregard for its likely consequences." The justification for punitive damages must be that the defendant acted with an extremely harmful state of mind, whether that be termed "malice, oppression, fraud or gross negligence;" "malice, oppression, wantonness;" or simply "deliberate and willful."
Walston v. Monumental Life Ins. Co., 129 Idaho 211, 220, 923 P.2d 456, 465 (1996) (quoting Cheney v. Palos Verdes Inv. Corp., 104 Idaho 897, 905, 665 P.2d 661, 669 (1983)); see also Taylor v. Browning, 129 Idaho 483, 494, 927 P.2d 873, 884 (1996). This Court will not set aside a jury verdict supported by substantial, competent though conflicting evidence. See Inland Group, 133 Idaho at 253, 985 P.2d at 678; Sherwood v. Carter, 119 Idaho 246, 261, 805 P.2d 452, 467 (1991).
Substantial and competent evidence existed to support the jury's award of punitive damages. The record indicates that State Farm utilized delay of payments and paper reviews to reduce costs and that these procedures were in accord with State Farm policies. Delays in payment were aimed at pressuring claimants to settle more readily by taking advantage of their physical and financial vulnerability. Paper reviews were utilized and solicited from physicians or companies that would return a recommendation favorable to State Farm's position on a claim. The reviews were often prepared by non-medically trained personnel, and signed by physicians without reviewing the underlying recommendation. These practices severely deviated from the reasonable standards of conduct of the insurance industry. State Farm, through various agents, was on notice of the unreliable review procedure utilized by the various paper review companies.
While State Farm proffered evidence to rebut Robinson's assertions of intentional and outrageous conduct, determination of the credibility of the witnesses and weight of the evidence was within the province of the jury and will not be disturbed by this Court on appeal. See Dinneen v. Finch, 100 Idaho 620, 626, 603 P.2d 575, 581 (1979); Harper v. Johannesen, 84 Idaho 278, 287, 371 P.2d 842, 847 (1962).
Based upon the record established at trial, we hold that the district court did not err in instructing the jury on the issue of punitive damages and that substantial and competent evidence existed from which the jury could find State Farm's actions were an extreme deviation from reasonable standards of conduct, and that the act was performed with an understanding of or disregard for its likely consequences.
H. The Punitive Damage Award Was Not Grossly Excessive Or In Violation Of Due Process.
State Farm asserts that the jury's award of punitive damages in this case violates due process because the conduct complained of was minimally reprehensible, the ratio of compensatory damages to punitive damages is excessively high, and that fines for comparable misconduct are grossly disproportionate. Additionally, State Farm argues that the jury's punitive damage award is grossly excessive under Idaho law since the ratio of punitive to compensatory damages exceeds any previously upheld by an Idaho court and because the jury was allowed to consider the wealth of State Farm in determining punitive damages.
While not favored by the law, punitive damages may be imposed to further a state's legitimate interests in punishing unlawful conduct and deterring its repetition. See BMW of North America, Inc. v. Gore, 517 U.S. 559, 568 (1996); Walston, 129 Idaho 211, 222, 923 P.2d 456, 467 (1996). Indeed, the primary purpose behind an award of punitive damages is to deter similar conduct from happening again in the future. See Walston, 129 Idaho at 221, 923 P.2d at 466. However, a state may not punish for conduct that did not affect its residents and may not impose sanctions to deter conduct that is lawful in other jurisdictions. See BMW, 517 U.S. at 571-573. Only when a punitive award can be categorized as grossly excessive in relation to those interests does it enter the zone of arbitrariness that violates due process. See id. at 568; Walston, 129 Idaho at 222, 923 P.2d at 47. In cases involving deceptive business schemes that operate for profit and victimize numerous members of public, an award of punitive damages should be tailored toward making the cost of such conduct uneconomical. See Cox v. Stolworthy, 94 Idaho 683, 691, 496 P.2d 682, 690 (1972).
In Walston, this Court addressed the constitutionality of a large punitive damage award. There, a jury awarded $10,000,000 in punitive damages, which was reduced to $3,200,000 by the trial court. On appeal, this Court discussed whether the punitive damage award was excessive and in violation of the Due Process Clause of the Fourteenth Amendment. The Court relied heavily on the recently decided United States Supreme Court decision in BMW. In its discussion, the Court concluded that while a state may not seek to deter or punish conduct that is lawful in other jurisdictions
it can safely be said that bad faith denials are reprehensible in any state, and an aggrieved litigant may find a remedy through contract or tort law. It is highly unlikely that the decision in this case infringes on the interest of other states, because it is highly unlikely that any state sanctions, approves, or trivializes fraud or bad faith settlement practices.
Walston, 129 Idaho at 222, 923 P.2d at 47.
The state of Idaho, no doubt, has a legitimate interest in protecting its citizens from unfair trade practices in the handling of insurance claims. See I.C. § 41-1302; 41-1329. In the case before us, the jury found State Farm to have engaged in bad faith settlement practices. As noted by the Court in Walston, because such conduct is reprehensible in any state, it is unlikely that this Court would infringe upon the interests of any other state in upholding the punitive award.
With respect to whether the amount of the award was grossly excessive, the Court in Walston discussed whether a punitive damage award was grossly excessive in relation to the interests to be protected. In doing so, the Court based its discussion on criteria set out in BMW. Noting that due process requires fair notice of proscribed conduct and the consequences thereof, in BMW, the United States Supreme Court indicated three factors by which to measure the constitutionality of a punitive damage award. First, the degree of reprehensibility of the conduct; second, the disparity between the punitive damage award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred; and third, a comparison of the punitive award to other civil penalties. See BMW, 517 U.S. at 575. The Supreme Court went on to note, however, that it was not prescribing a mathematical formula to be followed. See id. at 583; Walston, 129 Idaho at 223, 923 P.2d at 48.
At trial, evidence was presented indicating that State Farm's denial of Robinson's claim was unreasonable. Evidence was also presented indicating that State Farm's claims handling policies were designed to increase profits by reducing costs using biased paper reviews, and by inducing lower settlements through denial or delay of claims. Refusing to pay, or delaying payment on a claim that a reasonable person would say was due rises high on the scale of reprehensibility. Compare Walston at 222, 923 P.2d at 47. Such conduct is particularly egregious in a first-party insurance relationship, where the insured has purchased insurance for his or her own protection and peace of mind.
In addition to being highly reprehensible, State Farm's conduct of seeking increased profits at the expense of its own insured is certain to continue so long as doing so will remain profitable. The jury was presented with evidence of State Farm's financial information, indicating that it was a multi-billion dollar corporation with billions of dollars in profits. This Court has previously noted that evidence related to a defendant's wealth and financial status may be offered for the purpose of determining the efficacy of a money judgment in deterring future tortious conduct. See Cox, 94 Idaho at 690-91, 496 P.2d at 689-90. While the jury's award of punitive damages in this case may appear at first glance to be excessive in punishing State Farm for the harm done to Robinson on this given occasion, the award bears a much more reasonable relation when viewed as a deterrent to future conduct. Given the amount of State Farm's annual profits, which have no doubt increased as a result of its conduct, the 9.5 million dollar punitive award bears a reasonable relation to the amount required to remove State Farm's realization of profit from similar conduct in the future.
State Farm relies heavily on the ratio of punitive damages to compensatory damages in asserting that the award is grossly excessive. In this instance, the punitive award is roughly 95 times the compensatory award. The largest punitive ratio previously upheld in this state was 26 times the amount of compensatory damages. See generally, Walston, 129 Idaho at 223, 923 P.2d at 47. While the United States Supreme Court and this Court have discussed whether a ratio of punitive to compensatory damages is indicative of its excessiveness, neither have come to a concrete conclusion on what ratio is to be considered grossly excessive, and have consistently stated that there is no mathematical formula. See BMW, 517 U.S. at 575; Walston, 129 Idaho at 223, 923 P.2d at 48. As previously discussed, the primary goal of awarding punitive damages is to deter future conduct. In a scenario where bad conduct is being undertaken exclusively for pecuniary gain, a punitive award should be tailored toward making such future conduct unprofitable. See Cox, 94 Idaho at 691, 496 P.2d at 690. Upon this principle of awarding exemplary damages, it would seem the ultimate ratio of punitive damages to compensatory damages, while noteworthy, is of little consequence in the ultimate determination of whether the award is grossly excessive. Instead, such a determination should hinge upon the defendant's bad conduct, the motivation therefore, and the amount reasonably necessary to deter such conduct in the future. Based on the evidence presented at trial, the jury's punitive award does not appear to be grossly excessive.
Finally, although Idaho penalizes unfair trade practices by insurers, the legislature has only mandated a maximum $10,000 penalty for such conduct. See I.C. § 41-1329A. While this legislatively imposed penalty may be sufficient to punish an insurer for proscribed conduct, in the case of a large, national insurance company like State Farm, the deterrent effect of such penalty does not outweigh the profitability of continuing the bad conduct.
Accordingly, we hold that the jury's punitive damage award was not excessive under Idaho law and did not violate State Farm's right to due process.
V. CONCLUSION
Based on the foregoing, we hold that: 1) the district court properly instructed the jury that State Farm carried the burden of proving that Robinson's claim was fairly debatable; 2) Robinson was not required to prove coverage under the insurance policy as an element of her claim for bad faith; 3) the district court properly excluded evidence under I.R.E. 1006; 4) State Farm's failure to tender premiums prevented it from asserting misrepresentation as a defense; 5) the district court did not abuse its discretion in admitting hearsay evidence; 6) any incidence of juror misconduct was harmless; 7) the jury's award of punitive damages was supported by substantial and competent evidence; and 8) the amount of punitive damages awarded does not violate due process and is not grossly excessive under Idaho law. Costs to respondent. No attorney fees were requested.
Chief Justice TROUT and Justice WALTERS CONCUR.
Judge Roger Swanstrom, J. Pro Tem, DISSENTING WITHOUT OPINION.
Justice Schroeder, DISSENTING.
I respectfully dissent from several aspects of the Court's decision. Assuming that the tort of bad faith is permanent in our law, there are still issues in this case. See dissent, Lucas v. State Farm Fire Casualty Co., 131 Idaho 674, 678-680, 963 P.2d 357, 361-363 (1998).
A succession of cases have articulated the elements of proof that an insured must show to establish a bad faith claim. The Court has consistently said that the insured has the burden of showing that the claim was not fairly debatable. Simper v. Farm Bureau Mut. Ins. Co., 132 Idaho 471, 474, 974 P.2d 1100, 1103 (1999); Lucas, 131 Idaho at 677, 963 P.2d at 360; Anderson v. Farmers Ins. Co., 130 Idaho 755, 759, 947 P.2d 1003, 1007 (1997); White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986). Now the Court says that its prior articulations of the elements are not applicable in this case because they were made in the context of summary judgment proceedings when the Court was not called upon to determine if the fairly debatable element was part of the plaintiff's prima facie case or an affirmative defense.
This creates several problems. First, the Court's decision is a declaration that what the Court says in summary judgment proceedings does not have effect at trial, leaving the trial court in the difficult position of determining when the Court means something and when it does not. Trial courts routinely take the words of this Court to mean what they say, whether articulated in a summary judgment proceeding or otherwise. A typical function of summary judgment proceedings is to outline the elements that must be proved at trial. The approach adopted by this Court now leaves any body of law developed in summary judgment decisions in doubt. This is a dramatic change in the Court's jurisprudence.
The Court also appears to treat the pronouncement of its earlier cases as dicta. Another set of problems arise. The bad faith cause of action is a judicial creation. That happens in the development of the common law. But when the Court recognizes a new cause of action, the Court's outline of elements of the cause of action should be weighed heavily, not disregarded lightly. The Court in White recognized the bad faith cause of action and subsequent cases have outlined the elements of that cause. The decision in this case is not a clarification, as characterized by the Court. It is a change and should be called such.
The reliance of the Court on Inland Group of Companies, Inc. v. Providence Washington Insurance Company, 133 Idaho 249, 256, 985 P.2d 674, 682 (1999), is misplaced. The issue of the burden of proof concerning fairly debatable claims was not addressed. There is no basis to extrapolate any approval of shifting the burden to the insurance company to prove a claim was fairly debatable. Inland does not speak to the question either in the case before this Court or in the district court where it was tried. In the thirty-four jury instructions that were given, only one, instruction number 21, mentioned the concept of "fairly debatable," and that instruction did not address the burden of proof. For whatever reason, the issue of burden of proof was not argued in Inland. Bootstrapping a ruling when there was none is, again, a departure from our jurisprudence.
The Court can change the law and overrule precedent when it believes there is a good reason to do so. No such reason has been demonstrated in this case. The idea that there is a great hurdle in having to prove the negative in these actions is unrealistic. The plaintiff merely has to show the nature of the claim and that the claim is covered by the policy to make a prima facie case. There is nothing that indicates that the requirement has created burdens demanding change. Frankly, it is doubtful that placing the burden one place or another makes much difference in this or similar cases. What is important is that this Court not embark on an ad hoc analysis that leaves in doubt the state of the law developed in summary judgment proceedings.
In sum, the Court has changed the rules without a compelling basis to do so, and in doing so has cast a question on the interpretation of prior case authority articulated in summary judgment proceedings.
The Court has ruled that it is not necessary to prove coverage under the policy for an insured to recover on a bad faith claim. It should be taken as a matter of law that if there is no coverage the claim is fairly debatable. However, as formulated, the Court's decision can be read to allow recovery even if there is no coverage, despite the fact that lack of coverage should render the claim fairly debatable.
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