Baxter v. Royal Indem. Co.

Decision Date06 November 1973
Docket NumberNo. S--327,S--327
Citation285 So.2d 652
PartiesFoy BAXTER and Annie Smith Baxter, Appellants, v. ROYAL INDEMNITY COMPANY, Appellee.
CourtFlorida District Court of Appeals

J. Ben Watkins of Watkins & Hill Tallahassee, for appellants.

J. Lewis Hall, Tallahassee, for appellee.

WIGGINTON, Acting Chief Judge.

Plaintiffs have appealed a final judgment which dismissed with prejudice their second amended complaint for failure to state a cause of action or to allege facts entitling them to the relief prayed for. Our burden is to determine whether the complaint filed by appellants alleges sufficient ultimate facts which under any theory of the law would entitled them to the money judgment they seek.

Appellee issued and delivered to appellants an automobile liability insurance policy covering a motor vehicle owned by them and containing the standard uninsured motorist provision, which is conched in the following terms, to wit:

'. . . (F)or the purposes of this coverage, determination as to whether the insured or such representative is legally entitled to recover such damages, and if so, the amount thereof, shall be made by agreement between the insured or such representative and the company or, if they fail to agree, by arbitration.'

The vehicle owned by appellants was struck by another vehicle negligently operated by an uninsured motorist, as a result of which appellants' minor son was killed and their minor daughter seriously and permanently injured. Appellants made demand on appellee for payment to them of the full amount of insurance coverage provided by the policy which they held, which demand was refused by appellee until the existence and amount of liability imposed upon it was fixed by arbitration as provided by the policy. Arbitration proceedings were conducted which resulted in an order finding in favor of appellants and awarding to them the full amount of coverage provided by the policy for the death and injuries sustained by their children.

The amount awarded appellants by the arbitrators was thereupon paid by appellee, following which the action sub judice was instituted. By their complaint framed in two counts appellants allege that appellee was guilty of bad faith in negotiating, evaluating, and paying the benefits which were due appellants under circumstances where appellee owed a legal duty to act in good faith. Because of such bad faith, appellants seek judgment for the full amount of damages suffered by them as a result of the death and injuries sustained by their children in excess of the policy limits. Secondarily, appellants allege that as a result of the bad faith negotiations of appellee, they were caused to incur additional expenses in and about the collection of the benefits due them under the policy and, in addition, suffered great mental stress and physical pain as a result of such conduct. The complaint alleges appellee's bad faith and wanton handling of appellants' claim were motivated by malice and were sufficient to warrant the imposition of punitive damages, for which judgment was prayed.

The basic issue of law presented by the complaint may be summarized as follows: When an automobile insurance policy contains an 'uninsured motorist' clause and the insured is involved in an accident with an uninsured motorist; reasonable investigation reveals that the uninsured motorist was solely at fault, and the damages clearly exceed the policy limits; the insured offers to settle with his insurer within the policy limits but the latter willfully, maliciously, and for its own selfish interest and gain, refuses to settle until the existence and amount of liability is fixed by arbitration; is the insurer liable for punitive damages or for actual damages in excess of the policy limits plus legal interest?

The trial court held in the negative and, based upon such holding, entered the judgment of dismissal for which review is hereby sought.

It is a fundamental principle fo our jurisprudence that parties sui juris may make any contract they desire so long as it does not violate any law or public policy of the state. The insurance contract entered into between the parties to this cause provides that determination as to whether the insured is legally entitled to recover damages under the uninsured motorist provision thereof, and, if so, the amount to which he is entitled, shall be made by agreement between the insured and the company or, if they fail to agree, by arbitration. This is a valid provision which protects each of the parties and provides a convenient forum in which any disagreement between them may be promptly and efficiently settled. It would therefore appear that since the parties herein were unable to agree on the amount of damages, if any, to which appellants were entitled, the obligation of appellee to pay any specific amount did not arise until determined by arbitration.

The primary thrust of appellants' position appears to be that the insurance contract issued by appellee created a fiduciary relationship between the parties, imposing upon appellee the duty of exercising utmost good faith in its dealings with appellants as its insured; that when appellee failed to evaluate, negotiate, and settle appellants' claim in good faith, it breached the fiduciary duty owed appellants, thereby entitling them to both compensatory damages in excess of the policy limits as well as punitive damages for its tortious conduct. The theory on which appellants rely to support their right of recovery is an acceptable theory when applied to the bodily injury and property damage liability provisions of an automobile insurance policy, but it has no application to a claim arising under the uninsured motorist provision of the policy.

The bodily injury liability coverage of an automobile insurance contract normally provides that the insurer will pay on behalf of its insured within specified limits any sums which the insured may become legally obligated to pay as damages arising out of the use of the covered vehicle. The contract further provides that the insurer will defend the insured in any action brought against him, and complete control of the litigation is vested in the insurer. The insured binds himself to cooperate fully with the insurer and to neither negotiate for nor settle the claim against him without the insurer's knowledge and consent. A violation of this condition will cause a forfeiture of the insurance coverage. The relationship between the parties arising from the bodily injury liability provisions of the policy is fiduciary in nature, much akin to that of attorney and client. Because of such relationship, the insurer owes a duty to the insured to exercise the utmost good faith and a reasonable discretion in evaluating the claim made against him and in negotiating for a settlement of that claim within the policy limits if such is possible. If the circumstances are such that a reasonable and prudent man with the obligation to pay all the recoverable damages would settle for an amount within the policy limits, it is the legal duty of the insurer to do so. Failure to effect such a settlement would unreasonably risk the danger of a judgment in excess of the policy limits for which the insured would be liable but for which the insurer would not. By taking such an unreasonable risk, the insurer would be gambling with the insured's money to the latter's prejudice. Because of the fiduciary relationship arising under the bodily injury liability provisions of an automobile policy, insurers have been held liable for any judgment rendered against their insured in excess of the policy limits if the insurer had the opportunity to but refused in good faith to negotiate for or to settle the plaintiff's claim within the policy limits. 1 Under the doctrine of Shingleton v. Bussey 2 the right of the insured to recover against his insurer because of the latter's bad faith in failing to settle a claim against its insured within policy limits has now been extended to the successful plaintiff-judgment creditor on the third-party-beneficiary theory. 3

The relationship of the parties under the uninsured motorist provision of an automobile liability policy is the very antithesis of that established by the bodily injury liability provisions of the same policy. By virtue of the uninsured motorist provision the insurer in effect becomes the insurer of the uninsured motorist to the extent of the policy limits. It is singularly important to also not that regardless of the bad faith of the insurer in refusing to settle a claim against it by its insured under this provision of the policy, such action of the insurer can never result in a judgment against the uninsured motorist for any excess liability. The exact contrary is true regarding claims against the insured under the bodily injury liability provision of the policy. Under the uninsured motorist provision the parties occupy a contractually adversary position toward each other. The insurer may lawfully avoid liability to its insured by proving in the arbitration proceedings that the offending negligent motorist was not in fact uninsured but, on the contrary, maintained the amount of insurance required by law; or, the uninsured motorist was not guilty of negligence which proximately caused the insured's damages; or, the insured did not suffer the damages he claimed. Because the interests of the insurer are wholly adverse to those of its insured as to every facet of a claim under the uninsured motorist provision of the policy, no basis for a fiduciary relationship betwen the parties exists.

It is the existence of the fiduciary relationship between the parties under the bodily injury liability provisions of the policy which imposes upon the insurer the obligation of exercising good faith in negotiating for and effecting a settlement of the claim against its insured and which subjects it to excess liability if it...

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