577 P.2d 899 (Okla. 1977), 48735, Christian v. American Home Assur. Co.

Docket Nº:48735.
Citation:577 P.2d 899
Party Name:Bobby D. CHRISTIAN, Appellant, v. AMERICAN HOME ASSURANCE COMPANY, an Insurance Corporation, Appellee.
Case Date:July 12, 1977
Court:Supreme Court of Oklahoma

Page 899

577 P.2d 899 (Okla. 1977)

Bobby D. CHRISTIAN, Appellant,


AMERICAN HOME ASSURANCE COMPANY, an Insurance Corporation, Appellee.

No. 48735.

Supreme Court of Oklahoma.

July 12, 1977.

As Amended on Denial of Rehearing March 10, 1978.

Rehearing Denied April 26, 1978.

Page 900

Appeal from the District Court of Oklahoma County; Jack R. Parr, District Judge.

Appellant, Bobby D. Christian, sought to impose tort liability against Appellee, American Home Assurance Company, for the alleged willful, malicious and bad faith refusal to pay a valid insurance claim. The trial court sustained appellee's motion for summary judgment and appellant appeals.


Bill Pipkin, William C. Leach, Moore, for appellant.

Arlen E. Fielden, Brooke S. Murphy, Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, for appellee.

SIMMS, Justice:

The primary question presented by this appeal is whether under Oklahoma law an insurance company may be subjected to liability in tort for a willful, malicious and bad faith refusal to pay a valid insurance claim.

The trial court held that an insurer could not be subjected to such liability and sustained American Home Assurance Company (Appellee's) motion for summary judgment, dismissing Bobby Christian's (Appellant's) action. From that ruling, Bobby Christian brings this appeal.

The following facts gave rise to this action and, for the purposes of this opinion, they will be accepted as undisputed. While appellant was employed by the Dowell Division of the Dow Chemical Company, he participated in a group disability insurance program offered through Dowell to its employees by appellee. Appellant's premiums were all paid in timely fashion. Under circumstances which were covered by the policy, appellant sustained an accidental injury which left him permanently and totally disabled. Appellant presented proof of his disability to appellee as required by the policy and made demand for maximum benefits. Appellee refused payment on the claim for reasons which were unknown to appellant. Appellant brought action against appellee in the District Court of Garvin County alleging appellee's breach of the insurance contract and seeking to recover the maximum policy benefits plus interest. Although appellee had refused to pay the claim and fully litigated the action, it became apparent during the trial that appellee did not have, and had never had, a defense to appellant's claim. Judgment was rendered in favor of appellant for maximum benefits, plus interest. Appellee paid the judgment in full.

Thereafter, appellant filed this action in Oklahoma County seeking to impose liability in tort upon appellee for its bad faith refusal to pay his valid claim. Appellant alleged appellee's knowledge of the validity of the claim and the absence of any legitimate grounds for appellee's refusal to pay. Appellant alleged that he had believed appellee was acting fairly and in good faith in denying his claim and that it was not until after trial commenced in the Garvin County action, that he discovered appellee had refused payment of the claim in bad faith. Appellant alleged that appellee had a duty to treat him fairly and to act in good faith and that appellee breached this duty by its bad faith, willful and malicious refusal to pay his claim which it knew to be valid. For this tortious breach of appellee's duty, appellant sought to recover attorney's fees and litigation costs expended in the Garvin County action, compensatory damages,

Page 901

damages for mental suffering and distress and punitive damages.

Appellee entered a demurrer and a motion for summary judgment to which it attached certified copies of the petition, judgment and release and satisfaction of judgment in the Garvin County suit. The trial court did not specify the legal theory upon which it sustained appellee's motion for summary judgment.

On appeal, appellant urges us to join with the growing number of jurisdictions which now recognize a cause of action in tort against an insurer for a bad faith refusal to compensate its insured for a loss covered by the policy. 1 This is a distinct tort based upon an implied duty of the insurer to act in good faith and deal fairly with its insured. This duty is not consensual, it is imposed by law. Breach of the duty sounds in tort, notwithstanding that it also constitutes a breach of contract, and plaintiff insured may recover consequential and, in a proper case, punitive, damages. The essence of the cause of action is bad faith.

In Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 89 Cal.Rptr. 78, 47 A.L.R.3d 286 (1970), the insurer refused to pay the insured plaintiff under the disability policy's injury provision, which had a maximum liability period of 30 years. Instead, insurer insisted upon paying under the sickness provision, which had a maximum liability period of 2 years, even though insurer's own investigation showed insured's disability resulted from injury, not sickness. The insurer attempted to avoid liability on the policy by falsely claiming insured had made a material misrepresentation and then tried to force insured into a disadvantageous settlement.

Insured suffered financial disaster and emotional distress and brought action under the theory of intentional infliction of emotional distress. The court held that the insurer violated its implied-in-law duty of good faith and fair dealing, and the court discussed this duty as follows:

"An insurer owes to its insured an implied-in-law duty of good faith and fair dealing that it will do nothing to deprive the insured of the benefits of the policy. * * * Included within this duty in the case of a liability insurance policy is the duty to act reasonably and in good faith to settle claims against the insured by a third person. * * * The violation of that duty sounds in tort notwithstanding that it may also constitute a breach of contract. * * * We think that, similarly, the implied-in-law duty of good faith and fair dealing imposes upon a disability insurer a duty not to threaten to withhold or actually withhold payments, maliciously and without probable cause, for the purpose of injuring its insured by depriving him of the benefits of the policy. We think that, * * * the violation of that duty sounds in tort notwithstanding that it also constitutes a breach of contract."

While plaintiff's action was brought under the theory of intentional infliction of mental distress, the court held that the insurer's violation of its implied duty of good faith and fair dealing constituted an additional tort for which damages were recoverable. The court stated that:

Page 902

"We hold, therefore, that defendants' threatened and actual bad faith refusals to make payments under the policy, maliciously employed by defendants in concert with false and threatening communications directed to plaintiff for the purpose of causing him to surrender his policy or disadvantageously settle a nonexistent dispute is essentially tortious in nature and is conduct that may legally be the basis for an action for damages for intentional infliction of emotional distress. We further hold that, independent of the tort of intentional infliction of emotional distress, such conduct on the part of a disability insurer constitutes a tortious interference with a protected property interest of its insured for which damages may be recovered to compensate for all detriment proximately resulting therefrom, including economic loss as well as emotional distress resulting from the conduct or from the economic losses caused by the conduct, and, in a proper case, punitive damages."

In Fletcher, supra, the court discussed the special relationship between an insurer and its insured which gives rise to the duty of good faith and fair dealing. The court observed that the industry has a quasi-public nature, that it involves the public interest and for that reason it is largely governmentally regulated. The consumer has no bargaining power and no means of protecting himself from the kinds of abuses set forth in appellant's petition. The following discussion of this special relationship between an insurance company and its insured, is relevant here:

" * * * To some extent this special relationship and these special duties take cognizance of the great disparity in the economic situations and bargaining abilities of the insurer and the insured. * * * To some extent the special relationship and duties of the insurer exist in recognition of the fact that the insured does not contract '. . . to obtain a commercial advantage but to protect (himself) against the risks of accidental losses, including the mental distress which might follow from the losses. Among the considerations in purchasing . . . insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss . . .' These considerations are particularly cogent in disability insurance. The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, particularly vulnerable to oppressive tactics on the part of an economically powerful entity." (emphasis added)

We have recognized the quasi-public nature of insurance companies and the need to subject the companies to state control for the protection and benefit of the public. Oklahoma Benefit Life Ass'n v. Bird, 192 Okl. 288, 135 P.2d 994 (1943). Perusal of our Insurance Code, Title 36, Oklahoma Statutes, reveals the extensive government regulation of the industry in this state.

We have previously held that insurance companies have a...

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