ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEE:
LINDA Y. HAMMEL ELIZABETH A. JUSTICE
Yarling, Robinson, Hammel & Lamb Wernle, Ristine & Ayers
Indianapolis, Indiana Crawfordsville, Indiana
ALLSTATE INSURANCE COMPANY, ) ) Appellant-Defendant, ) ) vs. ) No. 54A05-9704-CV-124 ) JASON AXSOM, As Assignee of Larry Link, ) ) Appellee-Plaintiff. )
APPEAL FROM THE MONTGOMERY CIRCUIT COURT
respect to punitive damages. Allstate perfected this interlocutory appeal contending the trial
court erred in denying the motion with respect to punitive damages. Axsom cross-appeals
alleging the trial court erred in granting the motion with respect to attorney's fees.
When reviewing a 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, this court accepts as true the facts alleged in the complaint. Hudgins v. McAtee, 596 N.E.2d 286, 288 (Ind. Ct. App. 1992). All reasonable inferences from the alleged facts must also be drawn in the complainant's favor. Myers v. Moyars, 667 N.E.2d 1120 (Ind. Ct. App. 1996), trans. denied. Dismissal of a complaint is proper only when it appears that the claimant would not be entitled to recover under any set of facts represented by the pleadings. Union Fed. Sav. Bank v. Chantilly Farms, Inc., 556 N.E.2d 9, 11 (Ind. Ct. App. 1990).
Allstate contends the trial court erred in denying its motion to dismiss with respect to Axsom's claim for punitive damages. According to Allstate the right to collect punitive damages is personal in nature and therefore not assignable.
In addition to any excess judgment, an insurer who fails to settle a claim in good faith may be liable also for punitive damages. Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 520 (Ind. 1993) ("the recognition of an independent tort for the breach of the insurer's obligation to exercise good faith provides the tort upon which punitive damages may be based."). Such conduct must rise to the level of an independent tort ant not merely be of a "tort-like" nature. Miller Brewing v. Best Beers, 608 N.E.2d 975, 984 (Ind. 1993). In some circumstances a claim for an insurer's bad faith failure to settle also may be assigned. See
Economy Fire & Cas. Co. v. Collins, 643 N.E.2d 382, 386 (Ind. Ct. App. 1994), trans.
Whether one may assign to a third party the punitive damages portion of a claim
for failure to settle in good faith is an issue of first impression in this state and an issue that
few states have examined.See footnote
In Indiana a prerequisite to an award of punitive damages is an award of actual damages. Bright v. Kuehl, 650 N.E.2d 311, 317 (Ind. Ct. App. 1995), trans. denied. Punitive damages are therefore not freestanding. Rather they are merely a remedy, not a separate chose in action. Here, the award by the jury of $30,500 in excess of Link's $50,000 policy limit are the actual damages upon which an award of punitive damages may be based. Any punitive damages which may be awarded would be in addition to actual damages and could not be awarded exclusively. Punitive damages are an additional remedy whose "award is a matter of discretion with the fact finder." Continental Cas. Co. v. Novy, 437 N.E.2d 1338, 1357 (Ind. Ct. App. 1982).
Allstate relies on authority from this and other jurisdictions standing for the general
proposition that torts for personal injuries and for wrongs done to the person, reputation, or
feelings of the injured party remain unassignable. See, e.g., Picadilly, Inc. v. Raikos, 582
N.E.2d 338, 340 (Ind. 1991). "'[F]ew legal principles are as well settled . . . as the rule that
the common law does not permit assignment of causes of action to recover for personal
injuries.'" Id. (quoting Assignability of Claim for Personal Injury or Death, 40 A.L.R.2d
500, 502 (1955)). While nonassignability of personal tort claims is the law in Indiana, the
judgment against Link represents injury to Link's property, not his person. That is, the entry
of judgment against an insured constitutes actual damage to the insured because it impairs
his credit, places a cloud on the title of his estate, and impairs his ability to apply for loans.
Economy Fire & Cas. Co., 643 N.E.2d at 385. We agree with the reasoning of the Court of
Appeals of Arizona which stated that the:
third party's claim is in reality the insured's claim, but the third party cannot recover damages personally suffered by the insured such as pain and suffering, embarrassment, mental anguish and humiliation. The assignee can only recover the insured's pecuniary losses. If the pecuniary damages (the excess judgment) are the result of conduct entitling a party to punitive damages, we find nothing in the law or public policy prohibiting a third party from asserting that claim. Oppel v. Empire Mutual Insurance Co., 517 F. Supp. 1305, 1307 (S.D.N.Y. 1981).
Clearwater v. State Farm Mut. Auto Ins., 780 P.2d 423, 427 (Ariz. Ct. App. 1989), vacated in part, 792 P.2d 719 (Ariz. 1990). Since September 28, 1994 when the judgment against Link was rendered, Link has been a judgment debtor and his property subject to execution. If the excess judgment and resulting injury to Link's property is the consequence of
oppressive, i.e. tortious, conduct by Allstate, then punitive damages, the remedy for such
conduct, should also be assignable. This is consistent with the Indiana view that the types
of torts which may not be assigned have become so narrow that nonassignability of tort
actions is now the exception while assignability is the general rule. Picadilly, Inc., 582
N.E.2d at 340.
Punitive damages and actual damages also serve two distinctive purposes. Actual damages are meant to compensate a victim for harm suffered by him. Decatur County AG- Services, Inc. v. Young, 426 N.E.2d 644, 646 (Ind. 1981). On the other hand punitive damages serve a more universal purpose than actual damages by punishing the wrong doer and deterring others from engaging in like conduct. Bright , 650 N.E.2d at 316. We also find the logic of the Court of Appeals of Arizona persuasive with respect to the deterrent effect punitive damages have when insurance companies fail to settle in good faith:
In contractual relationships in which one party primarily has sought protection or security rather than profit or advantage, contract damages not only fail to provide adequate compensation but also fail to provide a substantial deterrence against breach by the party who derives a commercial benefit from the relationship.
it responsible for the pecuniary and punitive damages caused by its wrongful
Clearwater, 780 P.2d at 426-27. Thus, allowing an assignment of punitive damages would
force insurance companies to deal in good faith with their insureds as opposed to
unreasonably exposing them to personal liability if a jury were to return a verdict in excess
of policy limits. For the foregoing reasons we find that the trial court properly allowed the
assignment of punitive damages from Link to Axsom.
On cross appeal Axsom contends that the trial court erred in dismissing his claim for attorney's fees. Specifically, Axsom argues that Allstate's refusal to settle constitutes bad faith behavior and that Axsom, as Link's assignee, should be allowed to recover. We disagree. In Indiana the general rule is that each party to litigation pays his own attorney's fees. Kikkert v. Krumm, 474 N.E.2d 503, 504-05 (Ind. 1985). Furthermore, attorney's fees are not allowable in the absence of statute or agreement of the parties. Id. at 505. Indiana Code § 34-1-32-1(b) provides:
In any civil action, the Court may award attorney's fees as part of the costs to the prevailing party, if it finds that either party:
(1) Brought the action or defense on a claim or defense that is frivolous,
unreasonable or groundless
(2) Continued to litigate the action or defense after the party's claim or defense
clearly became frivolous, unreasonable, or groundless, or
(3) Litigated the action in bad faith.
Because there was no agreement between the parties, Link had to be a prevailing party in the previous litigation in order to recover attorney's fees. A "prevailing party" is defined
as a party who successfully prosecutes his claim or asserts his defense. Strutz v. McNagny,
558 N.E.2d 1103, 1110 (Ind. Ct. App. 1990), trans. denied. At the end of the underlying
litigation, the jury returned a verdict in favor of Axsom, not Link. Link assigned any rights
he had against Allstate to Axsom, and Axsom stands in Link's shoes with respect to Allstate.
Because Link did not successfully defend his claim against Axsom, Axsom cannot as Link's
assignee assert a claim for attorney's fees with respect to the underlying litigation. However
this does not preclude an award of attorney's fees in the present litigation if the requirements
of Ind. Code § 34-1-32-1(b) are met. Thus, we find no error.
DARDEN, J., and SULLIVAN, J., concur.
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