Wardrip v. Hart ( 1999 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
OCT 14 1999
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
BARBARA WARDRIP,
Plaintiff-Appellant,
v. No. 98-3333
(D.C. No. 94-CV-1058-JTM)
DILLIS L. HART, M.D., (D. Kan.)
Defendant.
CONTINENTAL INSURANCE
COMPANY,
Garnishee-Appellee.
ORDER AND JUDGMENT *
Before BRORBY , EBEL , and HENRY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Barbara Wardrip appeals from the district court’s dismissal under
Fed. R. Civ. P. 12(b)(6) of her garnishment action against Continental Insurance
Company. See Wardrip v. Hart , 28 F. Supp. 2d 1213 (D. Kan. 1998). Wardrip
contends that the district court erred in allowing Continental to file a late answer,
and correspondingly, not granting her a default judgment, and by holding that
Continental was not liable to her for punitive damages awarded in her underlying
action against Continental’s insured, Dr. Dillis Hart. Finding no error in the
district court’s decisions, we affirm.
Wardrip’s garnishment action arose from her medical malpractice lawsuit
filed in the district court against Hart. In that case, a jury awarded her $900,000
in compensatory damages, reduced by the district court to $850,000, and $200,000
in punitive damages. The court also awarded her $2,000 as a sanction against
Hart for failure to comply with a discovery order. As Hart’s insurer, Continental
paid the $850,000 in compensatory damages. Wardrip then filed this garnishment
action against Continental by serving an order of garnishment on the Kansas
Commissioner of Insurance, as provided by Kan. Stat. Ann. § 40-218. As allowed
by the statute, Continental was ordered to file an answer within forty days. After
the forty days had passed without an answer, Wardrip moved for a default
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judgment. The district court denied Wardrip’s motion and granted Continental’s
motion to file an answer out-of-time. Following Wardrip’s reply and traverse to
its answer, Continental moved to dismiss the garnishment action under Rule
12(b)(6) on the basis that Kansas law prohibited insurance coverage for both the
punitive damages and the discovery sanction. The district court agreed and
granted Continental’s motion.
On appeal, Wardrip first argues that the district court should have granted
her motion for default judgment. The district court found that Continental’s
failure to timely answer was due to excusable neglect, see Fed. R. Civ. P. 6(b),
because the responsible official at Continental did not have actual notice of the
order of garnishment until after Wardrip filed her default motion (apparently due
to Continental’s moving its offices and merging with another insurer), it timely
thereafter moved to file an answer out-of-time, there was no evidence of bad faith
by Continental, and Wardrip had not shown she was prejudiced by Continental’s
delayed answer. We review the district court’s decision granting Continental’s
motion to file its answer out-of-time because of excusable neglect for an abuse
of discretion. See Panis v. Mission Hills Bank, N.A. , 60 F.3d 1486, 1494
(10th Cir. 1995); City of Chanute v. Williams Natural Gas Co., 31 F.3d 1041,
1045 (10th Cir. 1994).
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In determining whether neglect was excusable, courts consider four factors:
“‘the danger of prejudice to [the nonmoving party], the length of the delay and its
potential impact on judicial proceedings, the reason for the delay, including
whether it was within the reasonable control of the movant, and whether the
movant acted in good faith.’” Id. at 1046 (quoting Pioneer Inv. Servs. Co. v.
Brunswick Assocs. Ltd. Partnership , 507 U.S. 380, 395 (1993)). Wardrip argues
only that the reason for the delay--Continental’s negligence--should not be
excused. She does not demonstrate that she was prejudiced by the delay, that the
delay caused any negative impact on the case, or that Continental acted in bad
faith. We see no abuse of discretion in the court’s allowing Continental to file
its answer out-of-time and denying her motion for default judgment.
Wardrip’s other argument on appeal is that the district court erred in
concluding that Kansas law prohibited her from recovering punitive damages
from Continental. Hart assigned his rights against Continental to Wardrip.
Although Wardrip asserted her claim against Continental in a garnishment action,
she does not contend that the policy it issued to Hart directly covered the punitive
damages she seeks to recover, nor does she challenge the district court’s
conclusion that Kansas law generally prohibits insurance coverage for punitive
damages, see Hartford Accident & Indem. Co. v. American Red Ball Transit Co. ,
938 P.2d 1281, 1292-93 (Kan. 1997). Instead, she contends that Continental
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acted negligently and in bad faith in defending Hart, and that as a result, it can be
liable for the punitive damages assessed against Hart. 1
Wardrip bases her
argument on Magnum Foods, Inc. v. Continental Casualty Co. , 36 F.3d 1491,
1504-06 (10th Cir. 1994).
In Magnum , where we interpreted Oklahoma law, we held that “where both
compensatory and uninsurable punitive damages are sought, and [the insurer has]
assumed the defense of the entire suit under the obligations of the policies, the
presence of the punitive claim did not absolve [the insurer] from its obligation of
good faith in handling the entire case.” Id. at 1506 (footnote omitted). Magnum
thus recognizes that an insurer’s duty of good faith covers situations in which
punitive damages are sought from the insured. However, it further holds that
recoverable damages cannot include the punitive damages awarded against the
insured:
[I]n our view there was error in the compensatory damages award
($750,000) on the bad faith claim because it was based, inter alia , on
consideration of the $600,000 amount that Magnum [the insured]
paid to settle the punitive damage award entered against it in the
state court suit. This in effect shifted Magnum’s punitive liability to
the insurer which, in the circumstances of this case, violated
Oklahoma public policy. Accordingly, we reverse and remand for
a new trial on the bad faith claim at which Magnum may seek
compensatory damages based on injury other than the $600,000
1
Assertion of bad faith claims in garnishment actions is apparently
permissible under Kansas procedure. See Gilley v. Farmer , 485 P.2d 1284, 1290
(Kan. 1971); Bergeson v. Dilworth , 749 F. Supp. 1555, 1558 (D. Kan. 1990).
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payment. This may compensate for alleged harm to Magnum’s
business and reputation proximately caused by [the insurer’s] alleged
breach of its duty of good faith in its handling of the defense of the
entire case and in its conduct in the settlement negotiations.
36 F.3d at 1507 (citations omitted); see also id. at 1506 (“[T]he jury should be
instructed at the new trial . . . that the jury should not consider Magnum’s
payment of $600,000 to settle the state punitive damage judgment in determining
any compensatory award on the bad faith claim, and the jury should be told that
Oklahoma law prohibits shifting such a punitive liability to an insurance
company.”). In this case, the only damages Wardrip is claiming is the amount of
punitive damages assessed against Hart, plus some related items. 2
See Wardrip’s
Reply and Traverse to Continental’s Answer, Appellant’s App. at 134 (requesting
“remaining amount owed to the plaintiff”); Response to Continental’s Motion To
Dismiss, Appellant’s App. at 18 (“This is a garnishment action against an
insurance company to collect the remaining unpaid judgment due the plaintiff.”)
(emphasis added). Wardrip is not claiming that any bad faith on Continental’s
part caused injury other than Hart’s incurrence of punitive damages. Thus, even
if we concluded that Kansas law were similar to the Oklahoma law interpreted in
2
In her complaint, Wardrip also requested interest on the punitive damages
and costs and attorney fees related to the garnishment action. Although the
district court addressed the $2,000 in sanctions awarded against Hart, Wardrip did
not mention them in her request for damages.
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Magnum , because the only damages Wardrip seeks are unrecoverable, she has not
stated a valid bad faith claim, and the district court correctly dismissed it.
The judgment of the district court is AFFIRMED.
Entered for the Court
Robert H. Henry
Circuit Judge
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