Roach v. Atlas Life Ins. Co.

• Decision Date: 21 February 1989
• Docket Number: No. 67874,67874
• Citation: 1989 OK 27,769 P.2d 158
• Parties: Robert ROACH, Appellant and Counter-Appellee, v. ATLAS LIFE INSURANCE COMPANY, Appellee and Counter-Appellant.
• Court: Oklahoma Supreme Court

Page 158

769 P.2d 158

1989 OK 27

Robert ROACH, Appellant and Counter-Appellee, v. ATLAS LIFE INSURANCE COMPANY, Appellee and Counter-Appellant.

No. 67874.

Supreme Court of Oklahoma.

Feb. 21, 1989.

Certiorari to the Court of Appeals, Oklahoma City Division; Raymond Naifeh and Bryan Dixon, Trial Judges.

The trial court entered summary judgment in favor of the appellee/counter-appellant, Atlas Life Insurance Company, finding that the previous dismissal of Atlas in interpleader barred a subsequent action for bad faith breach of an insurance contract. The Court of Appeals reversed the trial court's entry of summary judgment. We find that discharge in interpleader does not protect the interpleading party from further litigation on issues not determined in the interpleader action; and that entry of summary judgment on the issue of bad faith breach of a life insurance contract does not constitute error where reasonable persons would not reach different conclusions from the facts.

CERTIORARI PREVIOUSLY GRANTED; OPINION OF THE COURT OF APPEALS VACATED; JUDGMENT OF THE TRIAL COURT AFFIRMED.

Linda G. Alexander, Oklahoma City, for appellant and counter-appellee.

G. Michael Lewis, Lewis N. Carter, Jon E. Brightmire, Tulsa, for appellee and counter-appellant.

KAUGER, Justice.

The question of first impression presented is whether interpleading proceeds from a life insurance policy protects an insurance company from a subsequent bad faith action by a third party named beneficiary. We find that it depends on the facts in each case. However, we must determine: 1) whether a life insurance company which has been discharged in an interpleader action is relieved of all liability to its policy beneficiary; and 2) whether the entry of summary judgment in favor of the insurer constituted error by the trial court in the face of a court order prohibiting payment of the policy proceeds to the named insured. Because life insurers are held to the same standard as other insurers, we find that discharge in interpleader does not automatically protect the interpleading party from further litigation on issues not determined in the interpleader action; and that the trial court properly entered summary judgment because reasonable persons would not reach different conclusions from the facts.

FACTS

In 1970, the appellee/counter-appellant, Atlas Life Insurance Company (Atlas) issued a group health insurance policy to the University of Oklahoma which insured the life of Nadine J. Roach (insured) for $35,000.00. When the policy was issued, the insured was married to Robert Henry Roach (Roach), appellant/counter appellee, the named beneficiary under the policy. Although the insured and Roach were divorced, Roach remained the policy beneficiary.

The insured died on December 3, 1980. The terms of the policy dictated that Atlas receive a notice of the death of the insured from the University and a death certificate before disbursement of policy proceeds. Before Atlas received either, it was served with an order from the Oklahoma County District Court dated December 30, 1980, precluding payment of the policy. On March 10, 1981, Atlas received the death certificate and the notice of death which contained a comment that the status of Roach as beneficiary had been questioned.

On February 8, 1982, the administratrix of the insured's estate filed an action in district court seeking payment of the policy proceeds to the estate, alleging that Roach was not the intended beneficiary of the life insurance policy. Atlas answered, acknowledging the existence of the policy, its willingness to pay the appropriate beneficiary, and noting that it was under an outstanding court order not to disburse the funds. Roach appeared pro se.

On April 15, 1982, thirteen months after receiving the notification of death, Atlas interplead the policy proceeds and filed a motion to dismiss. The motion was granted on June 25, 1982. In the same order, the trial court granted the administratix's motion for summary judgment, and it awarded the policy proceeds to the estate finding that Roach was not the beneficiary of the policy. Roach appealed the entry of summary judgment in favor of the administratrix, but he did not appeal the dismissal of Atlas as a party to the suit. While the appeal was pending, the trial court ordered a final accounting and payment of the interplead fund to the estate. Roach filed a motion to stay the payment of insurance proceeds until final adjudication of the controversy in the probate court which was overruled.

On February 21, 1984, the Court of Appeals reversed, finding that a material issue of fact existed concerning the insured's intended beneficiary. On September 5, 1984, Roach filed a motion in district court requesting that the administratrix deposit the proceeds with the Court Clerk until a determination of the case was made on remand. On September 12, 1984, the administratrix dismissed the cause of action filed February 8, 1982. The trial court dismissed Roach's motion for lack of jurisdiction, and no action was taken on remand.

On July 17, 1986, Roach brought this action alleging that Atlas had breached its duty to defend in good faith and to deal fairly with its insured. On October 2, 1986, Atlas moved for summary judgment which was granted on November 15, 1986. The Court of Appeals reversed, finding that material facts were in dispute concerning the intended policy beneficiary. The Court of Appeals also indicated that it found no reason why Roach should not be paid pursuant to the contract. ¹ We granted certiorari on December 1, 1988, to treat the question of first impression.

I

A FINAL ORDER IN AN INTERPLEADER ACTION DISMISSING THE

INTERPLEADER DISCHARGES THAT PARTY FROM ALL

LIABILITY ON THE DISPUTED FUND.

DISCHARGE IN INTERPLEADER DOES NOT AUTOMATICALLY PROTECT THE

INTERPLEADING PARTY FROM FURTHER LITIGATION ON

ISSUES NOT DETERMINED IN THE INTERPLEADER ACTION.

A

An insurer's implied-in-law duty of good faith and fair dealing extends to all types of insurance companies and insurance policies. ² However, the insurer's duty to deal fairly and act in good faith is limited. It does not extend to every party entitled to payment from insurance proceeds. There must be either a contractual or statutory relationship between the insurer and the party asserting the bad faith claim before the duty arises. ³ The beneficiary of a life insurance contract meets both criteria for assertion of the right. A third-party beneficiary contract exists if the proceeds of an insurance policy are payable to third persons. ⁴ Title 15 O.S. 1981 § 29 provides that a contract, made expressly for the benefit of a third person, may be enforced at any time before the parties thereto rescind it. Before recession, third party beneficiaries are entitled to enforce any contract made for their benefit. ⁵

In Timmons v. Royal Globe Ins. Co., 653 P.2d 907, 912 (Okla.1982), the Court recognized the long-standing duty of fair dealing with both the insured and third parties. The Court said:

"Our determination that the duty of fair dealing extends to both the insured and third parties, and that the duty has been recognized for an extended period in the jurisdiction is fatal to the appellants' contention that Christian v. American Home Assur. Co., 577 P.2d 899 (Okla.1977), should not be applied retroactively to this action. The duty was acknowledged prior to Christian in the jurisdiction and had simply not appeared in the published appellate decisions asserted by an insured."

The failure to afford a cause of action for bad faith to the beneficiary of a life insurance policy would negate a substantial reason for the insured's purchase of the policy--the peace of mind and security which it provides in the event of loss. ⁶ An action for breach of the duty of good faith and fair dealing lies in favor of a policy beneficiary against a life insurance company.

B

Roach admits that the dismissal under interpleader is final, and that he is barred from bringing an action on the contract. However, he alleges that the finality of the interpleader action does not bar recovery for a bad faith breach of the insurance contract under Christian v. American Home Assurance Co., 577 P.2d 899 (Okla.1977). Atlas argues that once its dismissal in interpleader became final, it was discharged from all liability to either of the parties on any theory of recovery.

The effect and validity of a judgment are governed by the law in force when the judgment is rendered. ⁷ Therefore, 12 O.S. 1981 § 238 ⁸ controls the effect of Atlas's discharge in interpleader. Section 238 provided an avenue by which an insurer facing multiple claims in a contract action, but claiming no interest in the subject of the action, could avoid multiple litigation as a result of conflicting claims. ⁹ The regulating statute provided that once the interpleading party complied with the court order for the payment of the questioned funds, the party "shall be discharged from all liability to either of the other parties in respect to the subject of the action."

The language of § 238 stated that the interpleading party was discharged from all liability on the subject of the action. Because the administratrix's action was premised on contractual liability, the order dismissing Atlas from the original action constituted a finding that Atlas was no longer contractually liable to either party for payment of the insurance proceeds. Section 238 does not say that the interpleading party is to be discharged from all liability, but only that it is to be discharged from liability regarding the subject of the action. Just as the Legislative mandate is clear that the discharge in interpleader protects the interpleading party from further litigation on the contractual issue, it is also apparent that § 238 was intended to protect the interpleader from liability only on the issue actually litigated in the interpleader action. Originally, the only...