San Jose Production Credit Association v. Old Republic Life Insurance Company, an Illinois Corporation

In this diversity action, for breach of a “hold harmless agreement”, Old Republic appeals a judgment holding it liable for breach of the indemnity agreement, compensatory and punitive damages in tort for breach of the implied covenant of good faith and fair dealing, and for attorneys’ fees. The district court awarded San Jose Production Credit Association (PCA) compensatory damages of $172,548.65 on its contract claim, $110,683 on its tort claim (the amount of attorneys’ fees incurred by PCA in the prosecution of this suit) and $500,000 in punitive damages. We affirm the finding of liability and the award of compensatory damages on the contract claim. We reverse the finding of liability and the award of attorneys’ fees and punitive damages on the tort claim.

FACTS

PCA is a farmer-owned cooperative which provides loans to farmers and fishermen. In 1975, PCA agreed to sell Old Republic’s credit disability insurance to PCA borrowers. Credit disability insurance obligates Old Republic to pay claims of disabled borrowers directly to PCA, thereby preventing borrowers from defaulting on their loans.

PCA received a commission for selling the policies of insurance. Also, Old Republic…