Robert L. Kimble v. Land Concepts, Inc.

Citations: 353 Wis. 2d 377; 2014 WI 21; 845 N.W.2d 395; 2014 WL 1584454; 2014 Wisc. LEXIS 166Docket: 2011AP001514

Court: Wisconsin Supreme Court; April 22, 2014; Wisconsin; State Supreme Court

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In the case of Robert L. Kimble and Judith W. Kimble v. Land Concepts, Inc., the Supreme Court of Wisconsin reviewed an unpublished Court of Appeals decision affirming a jury's punitive damages award against First American Title Insurance Company. The court found that First American's appeal of the punitive damages was valid despite the Stevensons' claims of a late post-verdict motion. The Stevensons argued that the punitive damages were justified due to First American's bad faith conduct and the potential harm they suffered, asserting that such conduct warranted deterrence. Ultimately, the Supreme Court concluded that the punitive damages award was excessive and infringed upon First American's due process rights. The court reversed the Court of Appeals' decision and remanded the case to the circuit court, directing entry of judgment against First American in the amount of $239,738.49. The case arose after the Kimbles purchased a lakefront lot, with issues related to easements affecting the property.

An easement intended to grant the Kimble Lot access to a private driveway leading to County Highway M (North Easement) had not been utilized for many years. Another easement (West Easement) aimed to provide access to the highway across Land Concepts' property, but the cut-off road was not included in either easement. On October 27, 2004, First American issued a title insurance policy to the Kimbles, covering losses related to title unmarketability and lack of access rights, but not specifying any particular access route.

In early 2008, when the Kimbles attempted to sell their property, they received a letter from Land Concepts asserting that the Kimbles had no access rights to County Highway M. Following this, the Kimbles' attorney consulted First American regarding the dispute. DeNamur, the Kimbles' insurance agent, communicated with Schenker at First American, providing relevant documents and noting potential issues with the North Easement. However, Schenker did not request further investigation and maintained that the North Easement provided access, despite acknowledging defects in the West Easement.

On May 27, 2008, the Kimbles planned to assert their access rights and sought assurance from Schenker regarding their title insurance. Schenker assured them that their actions would not jeopardize the policy, implicitly suggesting another access route existed. After receiving threats from Land Concepts to close access, the Kimbles sought clarification from Schenker about constructing a new driveway. Schenker reiterated that the policy did not insure a specific access route and recommended a survey of the North Easement. Throughout 2008, the Kimbles marketed their property, relying on Schenker's assurances despite ongoing disputes with Land Concepts, which did not act on its threat to close the cut-off road.

On January 12, 2009, the Kimbles received a cash offer for their property, contingent on resolving an access issue, but failed to negotiate a solution with Land Concepts, resulting in the loss of the sale. The Kimbles filed suit against Land Concepts and the Stevensons on June 3, 2009, seeking a declaration of the North Easement's validity and a prescriptive easement for the cut-off road. They also claimed slandered title due to Land Concepts recording the West Easement. On October 23, 2009, the Kimbles amended their complaint to include breach of warranty claims against Dempster, Herrell, and the Stevensons, and a breach of contract claim against First American for failing to defend their title.

On July 21, 2010, the Kimbles settled with all defendants except First American, paying Land Concepts $40,000 for an easement and receiving $10,000 from the Stevensons for an assignment of their rights under the title insurance policy. The Stevensons subsequently filed a cross-claim against First American for breach of contract and bad faith. On December 1, 2010, First American moved for declaratory and summary judgment, arguing that the Stevensons were not insured and that the Kimbles could not settle without its consent, rendering the title policy void. The Stevensons contended the assignment was valid and sought summary judgment against First American.

On January 18, 2011, the circuit court denied First American's motion, affirming the validity of the assignment and recognizing factual issues regarding the Stevensons' claims. The Stevensons later filed a motion to exclude evidence of the settlement terms, which the court granted, while denying First American's motion to exclude evidence of unmarketability due to access issues. The court ruled that the access dispute rendered the title unmarketable, triggering coverage under the title insurance, and determined that it was for the jury to decide on First American's alleged breach of contract and fiduciary duty.

On March 2, 2011, jury trial proceedings commenced, where the Stevensons presented evidence indicating that First American had a contractual obligation to defend the Kimbles' title but failed to do so. They also demonstrated that First American was aware of defects in the North Easement and concealed this information from the Kimbles. In contrast, First American claimed it acted in good faith, believing the North Easement allowed access, and characterized its failure to disclose the defect as a mistake. On March 3, 2011, the jury ruled in favor of the Stevensons, finding First American had breached its contract and acted in bad faith, awarding $50,000 in compensatory damages and $1,000,000 in punitive damages.

Subsequently, on March 24, 2011, First American filed three post-verdict motions. It sought to reduce the compensatory damages, alter the jury's bad faith finding to 'no,' and to set aside the punitive damages award as excessive. The Stevensons opposed these motions, asserting the jury's findings and awards were justified. On June 14, 2011, the circuit court reduced the compensatory damages to $29,738.49 but upheld the findings of bad faith and punitive damages, resulting in a total judgment of $1,029,738.49 against First American. 

First American filed a notice of appeal on June 29, 2011, followed by a motion to stay the judgment, which was granted on August 3, 2011. On appeal, First American raised four arguments: the Kimbles' assignment of rights under the title insurance policy to the Stevensons was improper, the circuit court incorrectly determined that policy coverage was invoked before trial, there was insufficient evidence for the bad faith finding, and the punitive damages were excessive. The Stevensons countered that the assignment was valid, the circuit court's coverage determination was correct, the evidence supported the bad faith finding, and the punitive damages were appropriate. On October 11, 2012, the court of appeals affirmed the circuit court's rulings, concluding the Kimbles could assign their rights, coverage was established, sufficient evidence supported the bad faith finding, and the punitive damages were not excessively argued.

The necessity of meaningful review by trial and appellate courts for punitive damages awards is emphasized to prevent arbitrary imposition. The court of appeals is criticized for its lack of analysis regarding this issue. First American sought review on December 28, 2012, which was granted on July 18, 2013. The Stevensons subsequently filed a motion for summary disposition, claiming First American waived its right to appeal by filing a late post-verdict motion, per Wis. Stat. 805.14(5) and 805.15(1). The court held this motion in abeyance.

The constitutional question surrounding punitive damages requires de novo review. The reviewing court assesses the jury's award as excessive based on the entire record. The court assumes, for the purposes of this opinion, the validity of the assignment, insurance coverage, and evidence supporting the jury's bad faith finding without making a definitive ruling on these points.

In response to the Stevensons' motion, First American attempted to supplement the record to show its post-verdict motion was timely and sought to strike the Stevensons' reply brief, but these motions became moot due to the court's decision. 

The Stevensons argued that First American lost its right to appeal due to non-compliance with Wis. Stat. 805.16 regarding post-verdict motions. This statute mandates that such motions be filed within 20 days of the verdict unless extended by the court. Non-compliance limits the appellate issues but does not strip the court of jurisdiction. Despite First American’s procedural failings, the court chose to exercise its discretionary review power, addressing the constitutionality of the punitive damages award.

Punitive damages serve to punish and deter wrongful conduct, rather than to compensate the plaintiff, aligning with the state's interests in addressing unlawful actions.

In Wisconsin, punitive damages can be awarded under Wis. Stat. 895.043 if a defendant demonstrates malicious intent or a willful disregard for the plaintiff's rights. The judge acts as a gatekeeper to determine if the punitive damages issue is appropriate for jury consideration, with the jury holding discretion over the actual award. Both the judge's decision and the jury's award can be reviewed. The Due Process Clause limits punitive damages, deeming awards excessive if they are disproportionate to the wrongdoing. The United States Supreme Court employs a three-part test for evaluating excessiveness, considering the conduct's egregiousness, the disparity between harm and the award, and comparisons to potential civil or criminal penalties. Wisconsin law also utilizes a six-factor test to analyze punitive damages which includes the severity of the acts, malicious intent, the relationship to compensatory damages, potential harm, penalties for similar conduct, and the wrongdoer's wealth. Courts must apply these factors flexibly, with a focus on relevancy, while adhering to the Supreme Court's constitutional guideposts. The degree of reprehensibility of the defendant’s conduct is central to assessing the reasonableness of the punitive damages award. Factors influencing this assessment include the nature of harm (physical vs. economic), disregard for safety, vulnerability of the victim, frequency of the conduct, and whether the harm resulted from intentional wrongdoing or mere accident. No single factor alone guarantees an award, and the absence of all factors raises doubts about its validity.

First American's conduct in the case is deemed reprehensible; it knowingly failed to provide access to the Kimble Lot and did not assist the Kimbles in defending their title, while withholding crucial information, leading to wasted time and resources for the Kimbles. This context supports the consideration of punitive damages. However, the degree of reprehensibility does not meet the criteria for substantial punitive damages as outlined by the Supreme Court in Campbell. Key factors include that the Kimbles suffered economic, not physical, damages; First American's actions did not threaten health or safety; there is no evidence of financial vulnerability on the Kimbles' part; the misconduct was an isolated incident; and there is no proof of intentional malice or repeated wrongdoing by First American. Comparatively, prior Wisconsin cases involving more egregious conduct justify higher punitive damages.

Regarding the ratio of punitive to compensatory damages, the awarded compensatory damages were $29,738.49, leading to a punitive damages ratio of approximately 33:1, which is problematic under U.S. constitutional standards. While the Supreme Court allows for consideration of the harm likely to result from the defendant's actions, the Stevensons' argument for evaluating damages based on the Kimbles' lost $1,300,000 sale price lacks support in the record. Case law does not endorse speculative potential damages without evidence.

The potential harm referenced in the cases of Trinity and TXO was based on factual records, with specific monetary amounts identified: $490,000 for the plaintiff in Trinity and millions in royalties for the respondent in TXO. In contrast, the Stevensons' claim that the Kimbles would have faced total property devaluation due to First American's bad faith is speculative and lacks factual support. The record does not clearly indicate how the access dispute affected the Kimbles' property value. The court expresses concern about relying on subjective judgments for punitive damages, noting that the Kimbles incurred $40,000 for access, which should be combined with compensatory damages for evaluating punitive damages disparity. This leads to a punitive-to-compensatory damages ratio of approximately 14:1, which raises due process concerns, as awards with high ratios typically require special circumstances. No such circumstances exist in this case, which does not involve particularly egregious conduct, and thus the punitive damages do not reasonably relate to compensatory damages or the potential harm faced by the Kimbles. Additionally, a recent Wisconsin law limits punitive damages to a 2:1 ratio or $200,000, reflecting legislative judgment on reasonable disparity, although it does not apply here. Prior cases with upheld high ratios involved severe conduct, unlike the current case. Overall, the punitive award lacks a reasonable relationship to the compensatory damages or potential harm.

The punitive damages award against First American is determined to be excessive and not in line with due process standards. A comparison with potential civil or criminal penalties for similar misconduct suggests that the punitive damages do not reflect the seriousness of the misconduct, particularly as First American could face fines up to $10,000 for violations of insurance statutes. The court notes that while First American's conduct warrants tort liability, it does not rise to an egregious level that would justify a substantial punitive damages award. The proposed punitive damages amount is set at $210,000, which results in a 3:1 ratio compared to the compensatory damages of approximately $69,738.49. This ratio is below the thresholds upheld in previous cases, indicating a more reasonable application of punitive damages. While the defendant's wealth is typically a relevant factor, it is deemed not significant in this case, as it cannot justify an unconstitutional punitive damages award. The conclusion emphasizes that the punitive damages must reflect the specific facts and circumstances of the case, ensuring that First American's misconduct is punished appropriately without exceeding constitutional limits.

The court reversed the court of appeals' decision and remanded the case to the circuit court, ordering a judgment against First American for $239,738.49. Justice Prosser did not participate, while Chief Justice Abrahamson dissented, arguing that the majority's ruling allows First American's wrongful actions to be seen as a cost-effective business strategy. She contended that the punitive and compensatory damages awarded are insufficient, being less than the insurance policy limit of $370,000, thus undermining the purpose of punitive damages to deter wrongful conduct.

Abrahamson criticized the majority for misapplying the Trinity Evangelical Lutheran Church case, which provides a framework for assessing punitive damages in relation to due process. The Trinity test includes six factors to determine the justification of punitive damages, such as the severity of wrongdoing and the wealth of the wrongdoer. She emphasized that the misconduct in this case closely parallels that in Trinity, where an insurance company similarly breached its contract and acted in bad faith. The Trinity case upheld a $3.5 million punitive damages award based on potential harm of $490,000, demonstrating a clear application of the test that the majority opinion failed to replicate. Abrahamson asserted that the majority's failure to properly apply the Trinity test leads to an outcome where the wrongdoer benefits from its misconduct, which she believes is unacceptable.

Insurance companies in both cases failed to pay valid claims from their insured parties, despite multiple opportunities to do so. The Trinity court assessed punitive damages based on a $490,000 loss to Trinity Church, which would have incurred this cost had Tower Insurance's misconduct remained undiscovered, resulting in a net gain for the insurer. The court did not consider the possibility that Tower Insurance's agent might ultimately be liable for the payment. 

In the current case, First American did not provide the Kimbles with their policy limits of $370,000 after recognizing their title was unmarketable. Had this misconduct not been uncovered, the Kimbles would have suffered a loss of $1.3 million from a failed property sale, in addition to the policy limits, resulting in a net gain for First American. Both cases involved findings of bad faith, with juries awarding over $1 million in punitive damages.

The Trinity court characterized the insurance company's behavior as a "continuing, egregious, and flagrant pattern" of neglecting its duty to the insured, justifying punitive damages. The majority opinion in the current case understates First American's misconduct, suggesting it is less egregious than that of the Trinity insurance company. However, the legal framework indicates that such misconduct is indeed a crime, aligning with public policy on its severity. 

First American's actions were not isolated but part of a pattern of repeated misconduct. After realizing its error, it failed to correct its actions, misleading the Kimbles about their access rights and neglecting to inform them of the invalid easement. This pattern of behavior highlights a consistent disregard for its obligations, contradicting the majority opinion that labels it as an isolated incident.

At trial, First American's agent admitted to intentionally not investigating an alleged title defect and misled the Kimbles regarding their access rights to a road, asserting they could access a 25-foot strip over which they had no actual access. The agent acknowledged that they never informed the Kimbles' representative about the Cofrin deed, which invalidated the easement. An investigator for First American raised concerns about the deed's validity but did not receive any direction to investigate further. Access to the Kimbles' property to the south required crossing wetlands, which were protected from development by government regulations. Despite this, First American's agent maintained that the Kimbles had a right of access through these lands. The majority opinion compared this case to a prior case, Trinity, emphasizing that the ongoing misconduct exhibited by the insurance company should be viewed as a continuous and egregious pattern of neglecting their responsibilities to insured parties, rather than focusing solely on past misconduct.

First American's conduct displayed a continuing and egregious pattern of misconduct. The majority opinion noted a lack of intentional malice from First American and its employees, aligning with a previous case (Trinity) that also found no intentional malice necessary for punitive damages. Instead, Trinity justified punitive damages based on an insurance company's failure to diligently investigate. The jury in the current case found sufficient grounds for punitive damages, guided by instructions that required proof of either malicious intent or intentional disregard for the plaintiff's rights. The jury awarded $1 million in punitive damages, indicating a "high degree of culpability." There was credible evidence supporting the jury's findings, and the majority opinion did not claim insufficient evidence for this determination. The Trinity test's factors, including the ratio of compensatory to punitive damages and the potential damage to the plaintiff, are interrelated. Trinity emphasized that Wisconsin law does not endorse a fixed multiplier for punitive damages, instead requiring consideration of factors such as the defendant’s actions' severity, degree of malice, potential and actual damage, and the defendant's financial capacity to pay punitive damages, in accordance with Wis. Stat. 895.043(3).

Trinity establishes guidelines for determining punitive damages, suggesting that a 7:1 ratio of punitive damages to potential harm and a 200:1 ratio to actual damages are permissible. In the current case involving the Kimbles, they suffered harm due to the inability to sell their property for $1.3 million, which was influenced by a defect in marketable title insured by First American. The Kimbles had purchased title insurance with a policy limit of $370,000, while the property's value with a marketable title was significantly higher. The majority opinion claims that considering the loss of value would require speculation and diverge from the record, asserting that the Kimbles could not demonstrate that First American's bad faith would render their property valueless. However, it is argued that the evidence clearly shows the lack of road access constituted unmarketability of title, which is a recognized risk for title insurers. The Kimbles could have faced a potential loss of up to $1.3 million had they been unable to sell the property due to the unmarketable title. The majority opinion's refusal to consider these figures for calculating punitive damages contrasts with the precedent set in Trinity, where similar potential losses were factored into the punitive damages assessment.

Justice Sykes' dissent in Trinity asserts that the insured was not liable for auto accident damages due to errors made by the insurance agent and company regarding the application. The dissent emphasizes that the actual compensatory damages in the bad faith claim were the attorneys' fees incurred in the coverage dispute, rather than personal injury damages, which were not owed by Trinity Church. The current majority opinion adopts Sykes' restrictive view of actual and potential harm, diverging from Trinity's standard of assessing "the harm that is likely to result." It argues that when title is unmarketable, the potential harm—considering the property’s reduced value and the inability to collect from the title insurance—should reflect at least the policy limits of $370,000 or the lost sale value of $1.3 million, rather than the $40,000 suggested by the majority.

Additionally, the dissent criticizes the majority for using a flawed "reprehensibility of conduct" analysis to justify a lower punitive damages ratio than established by Trinity (7:1) and other precedents (200:1 and 4:1). It points out that First American's misconduct is comparable or more severe than in Trinity, yet the majority arbitrarily settles on a 3:1 ratio. The dissent further critiques the majority for referencing a new state statute that caps punitive damages, arguing that it is inapplicable to this case and contradicts the constitutional due process principles that reject fixed punitive damage amounts or ratios. Finally, it highlights that the fifth factor from Trinity—comparing punitive damages to potential civil or criminal penalties—should not significantly influence the punitive damages amount, aligning with the majority's agreement on this point.

Criminal sanctions under Wis. Stat. 601.64(4) indicate the legislature's view on the severity of First American's misconduct. The sixth Trinity factor considers the wealth of the wrongdoer, recognized by the U.S. Supreme Court as significant in evaluating punitive damage awards' constitutionality. The wealth factor serves to ensure that penalties for wrongdoing are substantial enough to deter wealthy wrongdoers from future misconduct.

In assessing punitive damages, the financial position of the defendant is crucial to determine if the award is excessive. The purpose of punitive damages is to punish and deter both the wrongdoer and others from similar conduct. Justice Steinmetz, in dissent, emphasized that punitive damages should affect wrongdoers equally, regardless of their wealth.

In this case, First American had revenues exceeding $2 billion and net profits of $65 million in 2010, indicating it could afford the $1 million punitive damages awarded. However, the majority opinion resulted in a total damages amount of $239,738.49, which is less than the title insurance policy limit of $370,000. This outcome makes First American's wrongful actions financially beneficial, contradicting the intent of punitive damages to deter such behavior.

The majority opinion diverges from Trinity, which stated that evidence of an insurance company’s wealth justified the punitive damages awarded. The ruling in Jacque v. Steenberg Homes further supports the need for punitive damages to exceed the profits gained from wrongful conduct to effectively deter such actions.

The majority opinion dismisses the wealth factor of First American in the case, claiming it is insignificant without providing a clear rationale. The implication arises that First American's financial capacity suggests punitive damages may be inadequate or that high punitive damages are unwarranted due to the company's wealth. This interpretation is perceived as a misapplication of the Trinity test, leading to a conclusion that allows First American to benefit from its wrongdoing by paying less in damages than it would have if it had acted properly. The dissent argues that this outcome is unacceptable. Justice Ann Walsh Bradley supports this dissent.