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Kightlinger & Gray, LLP Kelly Law Offices

Indianapolis, Indiana Crown Point, Indiana IN THE




) Appellant-Defendant, ) ) vs. ) No. 45A03-0509-CV-449 ) KATHIE NOBLE and DEAN NOBLE, ) ) Appellees-Plaintiffs. )


The Honorable Robert A. Pete, Judge Cause No. 45D05-9711-CT-2152 October 6, 2006


BAKER, Judge Appellant-defendant State Farm Mutual Automobile Insurance Company (State Farm) appeals from: (1) the trial court’s order granting judgment on the evidence in favor of appellees-plaintiffs Kathie and Dean Noble as to the existence of underinsured motorist (UIM) coverage; (2) the jury’s damages award to the Nobles on the UIM claim; and (3) the jury’s verdict on the Nobles’ bad faith claim together with the award of damages thereon.

We find that a question of fact remains on the UIM claim such that judgment on the evidence was improper. Consequently, we reverse the judgment of the trial court, vacate the jury verdicts and damages awards on the Nobles’ breach of contract and bad faith claims, and remand with instructions to hold a trifurcated trial as explained herein.

FACTS 1 The Nobles are a married couple, and for thirty years, they have obtained all of their insurance through State Farm. Kathie and Dean have historically operated as a “team” regarding insurance matters. Appellant’s App. p. 131. Their practice was to discuss insurance transactions together, and, following their discussion, Dean conducted the transaction by telephone or in person. Before May 3, 1996, the Nobles were insured under an automobile insurance policy issued by State Farm (the Underlying Policy). The Underlying Policy provided, among other things, liability coverage, medical payment coverage, and UIM coverage in the amount of $100,000 per person.

On May 3, 1996, Dean went to their State Farm agent’s office to procure a personal liability umbrella policy (Umbrella Policy). Kathie did not accompany Dean. At the time 1 We he

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policy. Kathie admitted that Dean was acting for her when he signed the Umbrella Policy application and that she expected that the coverage he had purchased would apply to her.

She also stated, however, that she had never authorized Dean to reject any coverage— including UIM coverage—on her behalf. After Dean procured the Umbrella Policy, State Farm mailed a bill to the Nobles with a declarations page outlining the coverage provided by the policy. The declarations page regarding the Umbrella Policy indicates that the only coverage provided under the policy was personal liability coverage, and Kathie admitted that the Nobles never paid for UIM coverage under the Umbrella Policy.

On July 12, 1997, Kathie was involved in an automobile accident in Crown Point.

The other driver who was involved in the crash admitted that he was 100% at fault. The other driver, however, was underinsured and ultimately settled with Kathie for $25,000, the full value of his insurance coverage.

At impact, Kathie was thrown forward and hit her knees under the dash of her vehicle.

She sustained seatbelt burns and bruises across her chest and hips. Kathie was taken from the scene of the accident to the emergency room, where the doctors determined that Kathie had no fractures and released her with instructions to follow up with her regular doctor.

Following the accident, Kathie, a hospital floor nurse, was unable to work for nearly two months. At that time, she earned $20.56 per hour.

Kathie’s knees were bruised and swollen, and in the days following the accident, she continued to suffer pain in her left knee and had numbness and tingling in her left leg. She

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pain persisted despite the physical therapy. One evening while Kathie was at work, her left leg completely gave out. An orthopedic surgeon ordered an MRI of her knee, which revealed a meniscus tear and cartilage damage in the left knee joint. The surgeon diagnosed Kathie with internal derangement of the left knee and recommended that she undergo arthroscopic surgery. On April 16, 1998, Kathie had the surgery, though she continued to suffer pain in her left knee thereafter. Ultimately, her doctor diagnosed her with a permanent injury, concluding that Kathie suffers a permanent partial impairment (PPI) of 8% of the whole person as a result of the collision. Kathie incurred $13,103.49 in medical bills.

Following the surgery, Kathie was on crutches for 24 hours and missed work for six weeks. Kathie has not been able to return to work full time because of continuing pain in her left knee. At the time of the surgery, Kathie earned $22.29 per hour. Kathie experienced a loss of wages through 1998 of $13,642.80, and she estimated future lost wages at approximately $10,000 per year and plans to work for fifteen more years. She continues to have difficulty performing household chores, especially those that involve bending, squatting, or going up and down stairs.

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representative assessed the coverage available to the Nobles, and in addition to noting the existence of various types of coverage under the Underlying Policy, the representative noted the existence—but not the applicability—of the Umbrella Policy. Because Dean had rejected UIM coverage when he applied for the Umbrella Policy, State Farm’s master records

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manager later reviewed the coverage available to the Nobles a second time, and, relying upon State Farm’s master records, noted in the file that the Umbrella Policy did not include UIM coverage. The State Farm employees who handled the Nobles’ claim after that relied upon the team manager’s notation that the Umbrella Policy did not provide UIM coverage.

State Farm began paying Kathie’s medical bills on July 23, 1997, and between that date and the completion of Kathie’s medical treatment, State Farm continued to pay medical bills as they were received. Kathie testified that State Farm “did a great job” of paying her medical bills and the jury was instructed to that effect. Appellant’s App. p. 32, 125; Tr. p.


In November 1997, the Nobles filed a lawsuit against the driver of the other vehicle involved in Kathie’s accident. In April 1998, the Nobles notified State Farm that they might have a UIM claim. In March 1999, the Nobles amended their complaint to include State Farm as a defendant, seeking recovery pursuant to the Underlying Policy’s UIM coverage.

They received $25,000—the liability limit of the other driver’s insurance policy—from the driver’s insurer in May 1999.

In June 1999, State Farm offered the Nobles $40,000 to settle their claim. In July 1999, a new State Farm claim representative was assigned to the Nobles’ claim. She reviewed Kathie’s medical bills to verify that the bills related to the accident. She and her supervisor also determined that State Farm’s offer of $40,000 was appropriate, based on the

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assigned an 8% PPI rating.

Based on the PPI rating, State Farm decided in July 1999 to send Kathie for an Independent Medical Examination (IME), and refused to pay any proceeds from Kathie’s policy until the IME took place. The IME was not performed until July 2001, and by State Farm’s own admission, that delay was too long. Tr. p. 151. State Farm’s claim representative did not receive a report regarding the IME until October 31, 2001. The report noted the connection between Kathie’s injuries and the accident, her diagnosis, the fact that her prognosis was “fair” in that she was expected to have continuing activity restrictions and weather-related symptoms, and the fact that she had a PPI rating of 8%. Appellant’s App. p.

221. During the two-year period between Kathie’s PPI rating and the IME, Kathie received no compensation while State Farm retained the money in an interest-bearing reserve account.

State Farm admitted that this was an undue delay in the handling of Kathie’s claim. Tr. p.


State Farm’s practice was to create a document for every claim filed called an evaluation worksheet. The company used the worksheet to aid in its determination of the value of the claim. An evaluation worksheet has never been created for the Nobles’ claim, though State Farm emphasizes that the various claim representatives discussed the Nobles’ claim and evaluated whether the $40,000 offer was appropriate. Thus, although the document was not in the Nobles’ file, the evaluation still took place.

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their lawsuit for $60,000. State Farm responded by requesting a deposition of Kathie and an IME. The parties decided to submit the case to mediation.

On January 12, 2000, the Nobles informed State Farm that they were willing to settle their claim for $75,000. Subsequently, State Farm reevaluated the Nobles’ claim, taking into consideration Kathie’s PPI rating, her surgery, her continuing pain, her approximate total lost wages of $13,642.80, and her total medical bills of $12,978.49. State Farm then again made an offer of $40,000 to the Nobles to settle their claim, determining internally that if the Nobles refused the offer then the case would go to trial. On August 3, 2000, the Nobles rejected State Farm’s offer and indicated that they would accept $62,643.48 to settle their claim. The claim representative undertook another reevaluation of the Nobles’ claim to decide whether State Farm should increase its settlement offer.

On August 8, 2000, the claim representative noticed that she did not have an up-todate total for Kathie’s lost wages and asked State Farm’s attorney to review his records for that information. She also asked the attorney to determine whether Kathie had received disability payments from her employer to determine whether those payments would offset her lost wages. On August 10, 2000, the claim representative learned that Kathie had received disability benefits from her employer but that her attorney would neither release the information nor authorize State Farm’s attorney to request that information from her employer. 2 Because of the inability to get exact figures, the claim representative was forced

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roughly $84,000. Noting the extent of Kathie’s injuries, the surgery she received, and her PPI, the claim representative concluded that the offer of $40,000 was fair.

At some point in August 2000, the parties decided to arbitrate the Nobles’ claim.3 On September 7, 2000, the claim representative inquired of the State Farm attorney whether the case was still scheduled for mediation on September 21, 2000. She also noted that she was still waiting for Kathie’s lost wage information. On September 19, 2000, the attorney told her that he would cancel the mediation. She again stated that she needed more information about Kathie’s lost wages. Apparently, State Farm’s attorney repeatedly failed to request Kathie’s lost wage information from the Nobles.

State Farm selected John Hughes to serve on the three-member arbitration panel.

Hughes is a partner in a law firm that performs defense work for State Farm. In January 2001, the Nobles objected to the selection of Hughes because of his firm’s relationship to State Farm. At some point after the Nobles’ objection, State Farm presented them with a choice of four attorneys in addition to Hughes—William Satterlee, who worked with Hughes, and three attorneys who had no relationship to State Farm. The Nobles continued to object to Hughes but never responded to the other arbitrators suggested by State Farm.

In October 2001, the Nobles suggested that the trial court select the panel of three arbitrators, a suggestion with which State Farm agreed. Before the trial court was able to 3 State Farm states that it asked the Nobles whether they were willing to arbitrate, appellant’s br. p. 10, while the Nobles contend that they requested that State Farm arbitrate their claim, appellees’ br. p. 4.

8 select the arbitrators, the Nobles amended their complaint in November 2001 to include a bad faith claim against State Farm. At that time, State Farm’s settlement offer remained $40,000 and the Nobles’ settlement demand was $60,000.

The jury trial on the Nobles’ complaint—then including claims for breach of contract, breach of the duty of good faith and fair dealing, and punitive damages—was set to proceed on May 23, 2005. On April 7, 2005, State Farm filed a motion for separate trials, proposing that the existence of UIM coverage under the Umbrella Policy, the claim for UIM benefits under the Underlying Policy, and the bad faith claim be tried separately. On May 13, 2005, the trial court denied State Farm’s motion.

The trial took place from May 23-25, 2005. One of the issues presented at trial was whether the Umbrella Policy provided UIM coverage for Kathie’s injuries. Following presentation of the evidence, the trial court withdrew the issue from the jury and entered judgment on the evidence in favor of the Nobles, finding that the Umbrella Policy included UIM coverage. The court instructed the jury to that effect.

During closing argument, the Nobles’ counsel estimated Kathie’s claimed lost wages—past and future—to be $175,769.20. The attorney also asked for $600,000 for pain and suffering, for a total of $775,769.20 in UIM benefits. The jury returned a verdict of $1,061,896.51 on the Nobles’ claim for UIM benefits. Additionally, the jury awarded the Nobles $500,000 on their claim for breach of the duty of good faith and fair dealing. The jury found in favor of State Farm on the Nobles’ claim for punitive damages. The trial court entered judgment on the jury’s verdict on May 27, 2005. State Farm now appeals.

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