Morrell Const., Inc. v. Home Ins. Co.

• Decision Date: 03 April 1990
• Docket Number: No. 88-4446,88-4446
• Citation: 899 F.2d 875
• Parties: MORRELL CONSTRUCTION, INC., an Idaho corporation, Plaintiff-Appellant, v. HOME INSURANCE COMPANY, a foreign corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 875

899 F.2d 875

MORRELL CONSTRUCTION, INC., an Idaho corporation, Plaintiff-Appellant, v. HOME INSURANCE COMPANY, a foreign corporation, Defendant-Appellee.

No. 88-4446.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 8, 1990.

Decided April 3, 1990.

Darrel W. Aherin, Aherin, Aherin & Rice, Lewiston, Idaho, for plaintiff-appellant.

Scott D. Hess, Eberle, Berlin, Kading, Turnbow & Gillespie, Boise, Idaho, for defendant-appellee.

Appeal from the United States District Court for the District of Idaho.

Before KOELSCH, BROWNING and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

Morrell Construction, Inc. appeals the district court's decision granting summary judgment in favor of Home Insurance Co. on Morrell's claim that Home Insurance Co. exercised bad faith by refusing to investigate and pursue settlement negotiations before suit was filed against Morrell by a third party. Because this case involves issues of first impression under Idaho tort law, we certify two questions to the Idaho Supreme Court.

I

On August 21, 1981 a grain storage tank, owned by Pomeroy Grain Growers and built by Morrell, collapsed, killing one individual and causing extensive property damage. Morrell alleges that its potential exposure for the property damage exceeded $500,000. Morrell immediately notified its insurer, Home Insurance Co., of the collapse. It then hired an engineer as well as an attorney to investigate and provide representation. Home Insurance did not investigate the claim, nor did it initiate settlement negotiations with Pomeroy Grain Growers. On March 3, 1982, Home Insurance informed Morrell that property damage liability was excluded under Morrell's policy.

Pomeroy Grain Growers brought suit against Morrell in August of 1983, and Home Insurance retained an attorney to defend Morrell. Pomeroy Grain Growers eventually settled for $125,000 in October of 1985. Morrell's policy limit was only $100,000, and Morrell and Pomeroy agreed that Morrell's liability for the remaining $25,000 would be contingent upon recovery in this action.

Morrell's primary argument in this diversity case is that Home Insurance acted in bad faith by failing to investigate and settle Pomeroy Grain Growers' claim against Morrell before Pomeroy Grain Growers filed suit. The district judge granted Home Insurance's motion for summary judgment in September of 1986. Morrell appealed. We affirmed in part, and reversed and remanded in part in an unpublished memorandum disposition for reconsideration in light of White v. Unigard Mutual Insurance Co., 112 Idaho 94, 730 P.2d 1014 (1986), decided by the Idaho Supreme Court while Morrell's appeal was pending. Morrell Construction, Inc. v. Home Insurance Co., 823 F.2d 1553 (9th Cir.1987). On remand, the district judge granted summary judgment in favor of Home Insurance. Morrell appeals. We review decisions granting summary judgment de novo. Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 59, 107 L.Ed.2d 26 (1989).

II

Morrell maintains that Home Insurance had a duty to investigate and engage in settlement negotiations before Pomeroy filed suit. Idaho courts have not yet addressed what duty, if any, insurers owe insureds before a third party files a complaint.

In response to certified questions from a federal district court, the Supreme Court of Idaho first imposed tort liability on insurers who settle claims in bad faith in White v. Unigard Mutual Insurance Co., 112 Idaho 94, 730 P.2d 1014 (1986). It explained that "insurance companies have a duty to act in good faith with their insureds, and that this duty exists independent of the insurance contract and independent of statute." Id. at 1016. "Such a duty is beyond that which the policy imposes by itself--the duty to defend, settle, and pay--but is a duty imposed by law on an insurer to act fairly and in good faith in discharging its contractual responsibilities." Id. In White, the Idaho Supreme Court held that there exists a common law tort action "for an insurer's bad faith in settling the first party claims of its insured." Id. at 1020. Idaho's nascent bad faith tort was recently extended to include negligent as well as intentional denials or delays in the payment of claims. Reynolds v. American Hardware Mutual Insurance Co., 115 Idaho 362, 766 P.2d 1243, 1246 (1988).

Neither White nor Reynolds addressed whether a common law tort action for bad faith exists for an insurer's failure to investigate claims of third parties against insureds before suit is filed. Some jurisdictions impose a duty on insurers to investigate a third party's claim before a complaint is filed, see, e.g., Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163, 170 (1982), while others do not, see, e.g., Ramsey v. Interstate Insurors, Inc., 89 N.C.App. 98, 365 S.E.2d 172, review denied, 322 N.C. 607, 370 S.E.2d 248 (1988). See generally, 7C J. Appleman, Insurance Law and Practice Sec. 4712 at 480 (1979).

Similarly, Idaho courts have not decided whether insurers have a duty to initiate settlement negotiations before suit is filed. In Openshaw v. Allstate Insurance Co., 94 Idaho 192, 484 P.2d 1032 (1971), the Idaho Supreme Court suggested without deciding that insurers have a duty to settle a claim before suit is filed when an injured third party initiates settlement negotiations. In this case, however, Pomeroy Grain Growers did not make a settlement offer prior to filing suit. Home Insurance can only be liable for bad faith, then, if Idaho tort law imposes a duty on insurers to initiate settlement negotiations before suit is filed. We are not aware of any controlling Idaho precedents, and our research indicates that commentators and other state courts have come to differing...