COMPENSATORY DAMAGES FOR EMOTIONAL DISTRESS: INSURER ATTEMPTS TO EXCLUDE EVIDENCE OF DAMAGES FOR EMOTIONAL DISTRESS
By Mike Abourezk and Marialee Neighbours
Insurance companies often request that any evidence of damages for emotional distress be excluded at trial in a bad faith case. They argue that under South Dakota law no damages for emotional distress may be recovered unless a plaintiff establishes the requirements of either intentional or negligent infliction of emotional distress. This argument confuses the standard for recovery of emotional distress damages, as an element of damages, with the entirely separate torts of negligent or intentional infliction of emotional distress.
As the cases outlined in the following discussion illustrate, the basic rules governing recovery of emotional distress damages fall into three categories:
Damages for emotional distress may be recovered in a negligence action only where there are physical injuries;
Damages for emotional distress may be recovered in a case of intentional tort without proof of physical injuries;
Where no independent tort is alleged aside from infliction of emotional damages, damages for emotional distress can be recovered only where the defendant's conduct was "outrageous," and the emotional distress is "severe."
The third category is the separate tort of intentional infliction of emotional distress. This tort developed from cases where the defendant had not committed any of the recognized intentional or negligent torts, but still had caused damages by intentionally inflicting emotional distress. Courts began to recognize this tort as a separate cause of action, but only where the conduct was "outrageous," and the results were "severe".
However, these requirements do not apply where the defendant has committed another independent tort such as bad faith. In these situations, the emotional distress claim is only an element of the damages attendant to the tort and not the basis for the entire cause of action. In a bad faith case, a claim for compensatory damages for emotional distress arises out of the intentional tort of bad faith and not the separate torts of either negligent or intentional infliction of emotional distress.
South Dakota Cases
Courts hearing South Dakota bad faith cases have not required plaintiffs to prove negligent or intentional infliction of emotional distress in order to recover for emotional distress. For instance, in Athey v. Farmers Insurance Exchange, the plaintiff brought a breach of contract and bad faith action against Farmers. 234 F.3d 357, 55 Fed. R. Evid. Serv. 1463 (8th Cir. 2000). The plaintiff did not claim negligent or intentional infliction of emotional distress. In that case, the Eighth Circuit Court of Appeals upheld a compensatory damages award for emotional distress. The court did not require proof of "outrageousness," "severe emotional distress" or "physical injury."
In Athey, the Eighth Circuit noted that "[t]o recover damages for emotional distress in South Dakota a plaintiff must establish that he sustained a pecuniary loss because of the bad faith of an insurer." Id. at 363, citing Kunkel v. United Sec. Ins. Co. of N.J., 84 S.D. 116, 168 N.W.2d 723, 734 (S.D.1969). In that case, the plaintiff was forced to pay for his own medical treatment after termination of his no- fault benefits. The Eighth Circuit concluded that "[t]he jury could reasonably find that the pecuniary loss that Athey endured caused him mental anguish." Id. Like Athey, most plaintiffs in bad faith actions endure a pecuniary loss when insurers wrongfully deny or minimize benefits. This pecuniary loss often causes mental anguish.
In another bad faith case, Torres v. Travelers Ins. Co., the district court rejected Travelers' argument that damages for emotional distress could not be recovered unless the plaintiff proved negligent or intentional infliction of emotional distress. See Torres v. Travelers Ins. Co., Civ. 01-5056, Order, pp. 16-19 (D. S.D. September 30, 2004). In that case, Judge Schreier concluded: "Thus, the South Dakota Supreme Court has continued to recognize that damages for emotional distress are properly included as a component of damages to be awarded for intentional torts without requiring proof of the elements of either intentional or negligent infliction of emotional distress." Id. at 18.
Historically, the South Dakota Supreme Court has allowed recovery of emotional distress as a component of compensatory damages. In Roth v. Farner-Bocken Co., 667 N.W.2d. 651, 20 IER Cases 279, 2003 SD 80 (S.D.2003), the South Dakota Supreme Court reviewed a compensatory damages award that included emotional distress. Roth involved the intentional torts of age discrimination and invasion of privacy. In that case, the court noted that "there was a substantial compensatory damage award of $25,000. The evidence indicated that Roth suffered only minor economic injuries. Furthermore, Roth's damages, as supported by the evidence, consisted of emotional distress, including feelings of anger, betrayal and devastation." Id. at 669-70. After reviewing defendant's conduct, the Court upheld the compensatory award, which it noted was supported by evidence of emotional distress.
The South Dakota Supreme Court has recognized that recovery can be made for mental pain or mental distress when the tortfeasor's acts are intentional, willful, wanton or malicious. In Chisum v.Behrens, 283 N.W.2d 235 (S.D. 1979), the Court said:
"It is well established that damages for mental anguish or suffering cannot be sustained where there is no physical injury, ...unless there has been some conduct on the part of defendant constituting a direct invasion of the plaintiff's rights...or other like willful, wanton, or malicious conduct."
283 N.W.2d 235, 240 (S.D. 1979), quoting State Farm Mut. Auto. Ins. Co. v. Village of Isle, 265 Minn. 360, 122 N.W.2d 36, 41 (Minn. 1963).
In Wright v. Coca Cola Bottling Co. of Central South Dakota, Inc., the South Dakota Supreme Court explained:
As to intentional torts, this court has held:
[T]hat recovery can be had for mental pain, though no physical injury results, when the following elements are present: the act causing anguish was done intentionally, the act was unreasonable, and the actor should have recognized it as likely to result in emotional distress.
414 N.W.2d 608, 609 (S.D.1987), citing Chisum v. Bethrens, 283 N.W.2d 235 (S.D. 1979); First National Bank of Jacksonville v. Bragdon, 167 N.W.2d 381 (S.D.1969).
Other jurisdictions have allowed compensatory damages for emotional distress in bad faith cases without claims of negligent or intentional infliction of emotional distress. For instance, in an Iowa case, the Eighth Circuit Court of Appeals, held that damages for emotional distress were available to an insured in a bad faith case. See Berglund v. State Farm Mut. Ins. Co., 121 F.3d 1225 (8th Cir. 1997).
In Berglund, State Farm argued on appeal that the trial court improperly admitted evidence of the insured's emotional distress as an element of bad faith. However, the Eighth Circuit noted that Iowa already allowed damages for emotional distress as consequential damages against an insurer in first party bad faith cases. Id. at 1229, citing Nassen v. National States Ins. Co., 494 N.W.2d 231, 237-38 (Iowa 1002). The Court extended this same remedy to third party insureds saying: "[W]e believe the Iowa Supreme Court would permit Sally Bergelund to recoup emotional distress damages for State Farm's bad faith. Otherwise, the Bergelunds would not get a full recovery." Id.
In Nassen v. National States Ins. Co., the Iowa Supreme Court affirmed a judgment for damages for emotional distress. In that case, the court said:
It is, of course, difficult to arrive at a sum of money that fairly compensates for the trauma visited upon elderly persons by having their worldly possessions dissipated by extended care costs that they believe should be covered by insurance. We are convinced, however, that this is a situation capable of producing severe mental suffering. We conclude that the evidence was sufficient to support the damages awarded.
494 N.W.2d at 238.
In Patel v. United Fire & Cas, Co., 80 F.Supp.2d 948 (N.D. Ind. 2000), a district court held that bad faith was an intentional tort under Indiana law. Id. at 958. It also held that an insured may recover emotional damages where the insured has proved bad faith conduct by the insurer. Id. Analyzing an earlier decision by the Indiana Supreme Court, the Court said:
Thus, the Erie court expressly stated that in tort, "all damages directly traceable to the wrong and arising without an intervening agency are recoverable." The wholesale inability of a plaintiff to collect compensatory damages such as emotional damages in a bad faith tort action, as the defendant urges, thwarts Erie's purpose as well as the public policy behind the Indiana Supreme Court's recognition of the tort
Id. at 959, citing Erie Ins. Co. v. Hickman, 622 N.E.2d. 515, 519 (Ind.1993)(internal citation omitted).
Continuing, the Court said:
This court is not alone in either its conclusion that the bad faith cause of action is an intentional tort or its conclusion that a finding of bad faith permits an insured to recover all damages, including emotional damages, proximately caused by the insurer's conduct. This has long been the law in numerous jurisdictions that have adopted bad faith causes of action.
Id., citing generally Shernoff, Gage & Levine, Insurance Bad Faith Litigation, § 7.04, (Matthew Bender 1999); Ashley, Bad Faith Actions, Liability And Damages, § 8.04 (West, 2d.Ed., 1997).
In Patel, the court noted decisions in other jurisdictions permitting damages for emotional distress in bad faith cases: "Gruenberg v. Aetna Insurance Co., 9 Cal.3d. 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973) (permitting emotional distress damages in insurance bad faith case); Clausen v. National Grange Mut. Ins. Co., 730 A.2d 133, 140 (Del. Sup. 1997) ('An insurer who acts in bad faith in dealing with a claim may incur liability not only for damages under the policy but for uncovered economic losses of the insured, the insured's emotional distress damages, attorney's fees, and punitive damages.'); Ingalls v. Paul Revere Life Insurance Group, 561 N.W.2d 273, 283(N.D. 1997) ('Because a primary consideration in purchasing insurance is the peace of mind and security it will provide, an insured may recover for any emotional distress resulting from an insurer's bad faith.'); Ballow v. PHICO Ins. Co., 878 P.2d 672 (Colo. 1994) (permitting recovery in bad faith claim based upon traditional tort principles of compensation for injuries actually suffered, including emotional distress); Universal Life Ins. Co. v. Veasley, 610 So.2d 290 (Miss. 1992) ('We have traditionally held that damages for mental anguish and emotional distress cannot be considered in the absence of a finding of an independent intentional tort separate from the breach of contract.')" Id. at 959-60.
In Ingalls v. Paul Revere Life Insurance Group, the North Dakota Supreme Court said:
An insurer's breach of its duties to an insured is likely to cause mental anguish:
It is inconceivable that a layman, unaccustomed to the courtroom and fearful of the entire judicial process, who is also subjected to financial pressures from a refusal of the insurer to discharge its commitments, will not be subjected to stress the precise effects of which are difficult to measure in exact terms but which, nevertheless, are present.
561 N.W.2d at 283, citing 16A John Alan Appleman and Jean Appleman, Insurance Law and Practice § 8878.55, p. 442 (Rev.Vol.1981).
Continuing, the Court said:
Thus, in a case of this kind, damages for mental anguish may be "'general' damages-'damages for a harm so frequently resulting from the tort that is the basis of the action that the existence of the damages is normally to be anticipated and hence need not be alleged in order to be proved.'"
Id., citing Marilyn Minzer et. al., Damages in Tort Actions § 1.01(1996), quoting Restatement (Second) of Torts § 904.
S.D.C.L. § 21-3-1 And Measure of Compensatory Damages
The case law permitting an insured to recover compensatory damages for emotional distress in bad faith cases is consistent with South Dakota statutory law. South Dakota Codified Law § 21-3-1 specifies the measure of compensatory damages that may be awarded in tort actions. The statute provides:
For the breach of an obligation not arising from contract, the measure of damages except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.
The right to damages in tort actions is based on a theory of full compensation for the injury sustained. Hoff v. Bower, 492 N.W.2d 912, 914 (S.D. 1992), citing Trautman v. Coffman, 166 N.W. 150,151 (S.D. 1918). Recoverable damages flow from the changed condition of the parties induced or brought about by the tort. Id. Under S.D.C.L. § 21-3-1, a plaintiff is entitled to compensation for all the detriment proximately caused by the an insurer's wrongful denial of benefits, including compensatory damages for emotional distress.
Courts Do Not Agree That Damages For Emotional Distress May Only Be Awarded If Negligent or Intentional Infliction Of Emotional Distress Proved
Courts do not agree that damages for emotional distress may be recovered in bad faith actions only if torts of negligent or intentional infliction of emotional distress are proved. In Farr v. Transamerica Occidental Life Ins. Co. of Ca., an Arizona appellate court addressed this issue. 699 P.2d 376 (Ariz. App. 1984). The court, said: "By referring to the separate tort of intentional infliction of emotional distress, where outrageous conduct is required, the appellants have confused the standard for damages recoverable in a claim for bad faith." Id. at 382. Then the court explained:
In Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973), the California Supreme Court held that once a plaintiff has proven a loss of property he can also recover damages for emotional distress. The court carefully delineated intentional infliction from emotional distress caused by an insurer's bad faith. The court rejected the suggestion that "[t] he conduct of the insured must be 'outrageous' or that the mental distress must be 'severe'."
Id. (citation omitted).
Continuing, the court said:
This was more recently explained in Richardson v. Allstate Insurance Co.,117 Cal. App.3d 8,13, 172 Cal. Rptr. 423, 426 (1981) where the court noted:
Breach of the implied covenant of good faith is actionable because such conduct causes financial loss to the insured, and it is the financial loss or risk of financial loss which defines the cause of action. Mental distress is compensable as an aggravation of the financial damages, not as a separate cause of action.
Thus, the argument that damages for emotional distress may only be awarded if the separate tort of either negligent or intentional infliction of emotional distress is proved does not accord with generally accepted legal principles. In an effort to prevail with this argument, insurers blur the fine line between emotional distress as a component of damages attendant to an intentional tort (such as bad faith) and recovery for the independent tort of intentional infliction of emotional distress where no intentional tort is alleged.