Brown-Marx Associates, Ltd. v. Emigrant Sav. Bank

• Decision Date: 07 December 1981
• Docket Number: Civ. A. No. CV79-PT-1423-S.
• Citation: 527 F. Supp. 277
• Parties: BROWN-MARX ASSOCIATES, LTD., et al., Plaintiffs, v. EMIGRANT SAVINGS BANK, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

527 F. Supp. 277

BROWN-MARX ASSOCIATES, LTD., et al., Plaintiffs, v. EMIGRANT SAVINGS BANK, et al., Defendants.

Civ. A. No. CV79-PT-1423-S.

United States District Court, N. D. Alabama, S. D.

December 4, 1981.

As Amended December 7, 1981.

Ollie L. Blan, Jr. and John P. McKleroy, Jr., Spain, Gillon, Riley, Tate & Etheredge, Birmingham, Ala., for plaintiffs.

James L. North and Guy V. Martin, Jr., North, Haskell, Slaughter, Young & Lewis, Birmingham, Ala., for defendants.

MEMORANDUM OPINION

PROPST, District Judge.

This cause comes on to be heard on defendant's Motion for Partial Summary Judgment filed on November 5, 1981. Defendant's November 5 motion seeks dismissal of plaintiffs' "Fourth Claim" in which plaintiffs seek recovery under a theory of the "tort of bad faith" as espoused in Chavers v. National Security Fire & Casualty Co., 405 So.2d 1 (Ala.1981).

Plaintiffs have sued as the result of an alleged breach of a loan commitment executed by defendant. Plaintiffs have joined by amendment a "Fourth Claim" which states: "20. Plaintiffs aver that the defendant had an implied covenant at law to deal in good faith, fairly, honestly, and to make a good faith effort to prepare for the closing and to close the loan made the subject of the agreement between plaintiffs and defendant; 22. Plaintiffs aver that defendant, by its conduct as stated in the paragraph immediately preceding and by failing to close the loan on November 1, 1979, has breached its duty at law and has dishonored its covenant to deal in good faith, to deal fairly, to deal honestly, and to make honest disclosures to the plaintiffs; 23. Plaintiffs aver that the conduct set out in paragraph 22 above was intentional, wrongful, malicious, and constituted a failure on the part of the defendant to ascertain whether or not there existed any lawful basis for a refusal to make the loan which was the subject of the loan commitment agreement between plaintiffs and defendant; 24. Plaintiffs aver that they have been injured, damaged, and harmed as described herein because of the bad faith failure of the defendant to deal with the plaintiffs, and plaintiffs demand of the defendant compensatory damages as set forth in the First Claim herein and punitive damages in the amount of Five Million Dollars ($5,000,000.00)." (Emphasis added.)

Defendant argues that the Alabama "tort of bad faith" is applicable only to insurance contracts.

Apparently, the first reference to the budding tort of bad faith in an Alabama case was in Old Southern Life Insurance Co. v. Woodall, 295 Ala. 235, 326 So.2d 726 (1976), when the court said: "There might be circumstances under which the failure to pay a claim under a policy of insurance would create a claim upon which relief may be granted sounding in tort, but such circumstances are not presented in this case." (Emphasis added.) 295 Ala. at 243, 326 So.2d 726.

In Childs v. Mississippi Valley Title Ins. Co., 359 So.2d 1146 (Ala.1978), the issue was stated to be: "whether Alabama should allow recovery of punitive and consequential damages and damages for mental pain and anguish, in an insured's suit against his insurer predicated upon the insurer's bad faith misconduct." (Emphasis added.) 359 So.2d at 1147. Referring to cases wherein Alabama had held insurers liable for either negligent or bad faith failure to settle third party claims, the court in Childs, supra, stated: "Concluding, this court, in the proper case, has not rejected first party bad faith tort actions against an insurer." (Emphasis added.) 359 So.2d at 1152.

In Vincent v. Blue Cross-Blue Shield, Inc., 373 So.2d 1054 (Ala.1979), the court reiterated its statement in Childs, supra, and stated: "While this court might under appropriate circumstances, recognize a tort action for the wrongful refusal to pay a valid claim, facts supporting such circumstances have not been developed here." (Emphasis added.) 373 So.2d at 1056.

In an incisive concurring opinion in Vincent, supra, Justice Jones undertook to discuss the elements of this nascent cause of action. Justice Jones premised his discussion of the subject on the "issue whether the law of Alabama should recognize a cause of action in tort for the breach by an insurer of a duty implied by law to deal fairly and in good faith with its insured so as not to wrongfully deny benefits due under a policy of insurance.

Essential to the determination of this issue is the question whether the law imposes a duty of good faith and fair dealing in the performance of an insurance contract...." (Emphasis added.) 373 So.2d at 1057.

Justice Jones recognized that "it has long been the law of this state that every contract implies good faith and fair dealing between the parties .... That this duty may be imposed by the law is evidenced by a line of cases in this state allowing an action in tort when an insurer refuses, either in bad faith or negligently, to settle a third party claim within policy limits, and such refusal results in a judgment against the insured in excess of policy limits.... I would hold, then, under the proper circumstances, an insured may have a tort action against his insurer for the insurer's intentional breach of the duty imposed by law to deal in good faith in the evaluation and paying of claims under a policy of insurance." (Emphasis added.) 373 So.2d at 1058.

In Vincent, supra, Justice Embry also speculated that a proper set of facts could bring about recognition of the tort of bad faith. He stated that, "the tort of bad faith has neither been accepted nor rejected in first-party actions in Alabama." 373 So.2d at 1066. Justice Embry discusses this new tort solely in the context of insurance contracts.

Using the opinions of Justice Jones and Justice Embry in Vincent, supra, as a foundation, the court in Chavers, supra, said, "we recognize the intentional tort of bad faith in first party insurance actions." (Emphasis added). 405 So.2d at 6. This holding came after a statement that, "First, we must determine whether this jurisdiction recognizes a cause of action in tort for bad faith refusal of an insurer to pay its insured when a loss occurs within policy coverage." (Emphasis added.) 405 So.2d at 4.

In Gulf Atlantic Insurance Company v. Barnes, 405 So.2d 916 (Ala.1981), the Supreme Court of Alabama continued to emphasize the relationship between insurer and insured in discussing this new tort. "The question presented by this appeal is whether these facts presented a jury question on the tort of bad faith refusal of the insurance company to pay the proceeds of the first policy." (Emphasis added.) 405 So.2d at 923. "It is desirable to restate once again the requirements, under Alabama law for establishment of the tort of bad faith refusal to pay a valid claim." 405 So.2d at 923. "Bad faith is the intentional failure by an insurer to perform the duty implied by law of good faith in fair dealing." 405 So.2d at 924.

In Cambron v. Association Life Insurance Co., Inc., 405 So.2d 17 (Ala.1981), the court refers to Chavers, supra, "in which we recognized the tort of bad faith refusal to pay an insurance claim." (Emphasis added.) 405 So.2d at 17.

Under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), this court must follow state law in a diversity case. For the reasons discussed herein, the court concludes that no Alabama appellate court has decided the issue of whether the duty contemplated by the tort of bad faith applies to parties other than insureds and insurers whose relationship grows out of contract. This conclusion is supported by Justice Almon's statement in Chavers, supra, that "the language of the opinion, as well as the authority relied upon to justify the recognition of the tort, is arguably broad enough to imply this duty in every contractual relationship." (Emphasis added.) 405 So.2d at 15.

Thus, the court must make an "educated guess" as to how the State's Supreme Court would rule. Benante v. Allstate Ins. Co., 477 F.2d 553 (5th Cir. 1973); Nobs Chemical, U.S.A., Inc. v. Koppers Co., Inc., 616 F.2d 212 (5th Cir. 1980).

The repeated emphasis in Vincent, Chavers, Gulf Atlantic and Cambron on the insurance relationship would appear to indicate that the new tort is limited to insurance cases.¹ The only basis for a contrary argument arises from statements in the various cases similar to the following in Chavers: "the long standing legal principle in this state which holds that every contract carries with it an implied in law duty of good faith and fair dealing. See World's Exposition Shows, Inc. v. B. P. O. Elks, No. 148, 237 Ala. 329, 186 So. 721 (1939)." A reading of World's Exposition, supra, reflects that it does not refer to a duty implied in law. World's Exposition, supra, states that, "Every contract, as has often been stated, implies good faith and fair dealing between the parties." (Emphasis added.) 237 Ala. at 331, 186 So. 721.

Interestingly, in referring to World's Exposition, Justice Jones in Vincent did not refer to an "implied in law duty." He merely said that every contract implies good faith and dealing. He proceeds to say, "That this duty may be imposed by law is evidenced by a line of cases in this State allowing an action in tort when an insurer refuses, either in bad faith or negligently, to settle a third-party claim within policy limits, and such refusal results in a judgment against the insured in excess of policy limits." (Emphasis added.) 373 So.2d at 1058.

It is not disputed that every contract carries with it an implication that the parties will act in good faith. Adopting the common law rule the Uniform Commercial Code provides that, "Every contract or duty within this title imposes an obligation of good faith in its performance or enforcement." Ala.Code § 7-1-203 (1975). That which is implied in the language of a contract is as much a part of the contract as that which is expressed. Broyles v. Brown Engineering Co., 275 Ala....