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Teague-Strebeck Motors Inc. v. Chrysler Insurance Co.3/8/1999
ive damages. The jury was adequately instructed on the issue of punitive damages." Id. (emphasis added).
{85} This Discussion clearly indicates there is a real distinction between "bad faith" sufficient to support an award of compensatory damages and "bad faith" meriting exemplary damages. In appropriate circumstances "bad faith" may include a culpable mental state, but it is not necessarily so.
{86} We recognize the potential for confusion arising from nomenclature. The causes of action we are discussing are commonly called "insurance bad faith cases." In ordinary parlance and meaning bad faith connotes highly improper, probably evil, intent and purpose. Given that meaning, a person acting in bad faith would be deserving of some sort of punishment. However, the New Mexico cause of action for insurance bad faith does not require proof of aggravated misconduct or a culpable mental element to stand.
{87} As noted in the Committee Comment to UJI 13-1701 NMRA 1999, in New Mexico " he cause of action for bad faith arises from a breach of the obligation of good faith." The covenant of good faith and fair dealing is imposed by law in every contractual insurance relationship requiring the parties to deal fairly and honestly with each other. See id; see also UJI 13-1710 NMRA 1999. The covenant of good faith and fair dealing in a first-party claim situation can be breached in a number of ways, though the most common are failures to act reasonably in timely and fairly investigating and evaluating claims and unreasonable delays in responding to claims. See UJI 13-1702 NMRA 1999; see also UJI 13-1705. Thus, an insurer can breach the covenant of good faith and be liable under our uniform jury instructions by actions that do not evince evil motive or other culpable mental state.
{88} The culpability of the insurer is measured on a continuum of reasonableness imposed in light of the insurer's fiduciary obligation to its insured. At one end, the insurer acts reasonably in all respects and is not liable except under its contract. Further along, the insurer's acts are unreasonable enough to allow damages against it in tort. At some point, the insurer's acts and motives become qualitatively different and are reprehensible enough to merit punishment. This is the message of the following language in Allsup's:
"We think the jury was more likely to comprehend the instruction as meaning that the good faith of the insurance company is determined by how reasonable the conduct of the insurance company is. In turn, the bad faith of the insurance company may be measured by how unreasonable its conduct is. While bad faith and unreasonableness are not always the same thing, there is a certain point, determined by the jury, where unreasonableness becomes bad faith and punitive damages may be awarded." 1999-NMSC-006, 45.
{89} Given the Supreme Court's efforts to re-focus the role and purpose of punitive damages in Paiz and other cases, acceptance of Plaintiffs' position carries another consequence, probably undesired by most plaintiffs. If punitive damages could be awarded for every breach of the covenant of good faith and fair dealing, the standard for all bad- faith cases would have to be raised accordingly. That is, a possible effect would be to make it more difficult to obtain compensatory damages in the less aggravated, more "run-of-the-mill" cases.
{90} Turning our attention to this case, the district court entered lengthy findings of fact detailing the events, acts, and failures to act supporting a determination of bad faith. Despite these findings, the district court concluded: "The evidence does not support a Conclusion that in adjusting this cla
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