Caruso v. Republic Ins. Co., Civ. A. No. M-81-2307.

• Decision Date: 16 February 1983
• Docket Number: Civ. A. No. M-81-2307.
• Citation: Caruso v. Republic Ins. Co., 558 F.Supp. 430 (D. Md. 1983)
• Parties: Donna Sue CARUSO v. REPUBLIC INSURANCE COMPANY and Republic Financial Services, Inc. v. John Anthony CARUSO.
• Court: U.S. District Court — District of Maryland

558 F. Supp. 430

Donna Sue CARUSO v.REPUBLIC INSURANCE COMPANY and Republic Financial Services, Inc. v.John Anthony CARUSO.

Civ. A. No. M-81-2307.

United States District Court, D. Maryland.

February 16, 1983.

Steven D. Campen and Joseph W. Powers, Jr., Rockville, Md., for plaintiffsDonna Sue and John Anthony Caruso.

Leon Shampain and Vaughan & Shampain, Riverdale, Md., for defendants.

MEMORANDUM AND ORDER

JAMES R. MILLER, Jr., District Judge.

This diversity action was brought by Donna Sue and John Anthony Caruso to recover under a homeowner's insurance contract issued by Republic Insurance Company, a wholly owned subsidiary of Republic Financial Services, Inc.The plaintiffs' home, which was owned by them as tenants by the entireties, was damaged by fire on January 14, 1980.The plaintiffs filed a claim with the defendants, but were denied recovery on the insurance policy.They then filed this action on September 11, 1981.

The present action was originally brought against Republic Financial Services, Inc. only.Subsequently, Republic Insurance Company was named as the sole defendant on June 7, 1982¹ and the complaint was again amended² on July 16, 1982 to include both defendants.³Finally, the court ordered the plaintiffs to file a third amended complaint to correct jurisdictional deficiencies.⁴The defendants answered⁵ the second amended complaint on August 13, 1982 but have not filed an answer to the third amended complaint.On August 20, 1982, while the plaintiffs' motion for summary judgment⁶ was pending, the defendants moved for leave to file a counterclaim.⁷The court heard oral argument on the motions for summary judgment and for leave to file a counterclaim on September 13, 1982.⁸The court granted the motion for summary judgment of the plaintiffDonna Sue Caruso on the issue of liability only⁹ and granted defendants' motion for leave to file a counterclaim¹⁰ against the plaintiffJohn Caruso.Subsequent to the plaintiffJohn Caruso's voluntary dismissal of his claim, plaintiffDonna Sue Caruso(hereinafter the plaintiff) moved for reconsideration of the court's grant of leave to file a counterclaim.¹¹This motion is currently pending and has been opposed.¹²It requires no hearing.LocalRule 6(E).Also pending is the defendants' motion for summary judgment on Count II¹³ which is also opposed,¹⁴ but requires no additional oral hearing beyond that afforded previously.¹⁵The plaintiff has moved to strike this motion as untimely¹⁶ which motion has been opposed¹⁷ and requires no hearing.

The plaintiff filed motions to compel¹⁸ which were granted in part and held sub curia in part awaiting further briefing by the plaintiff.¹⁹These motions, too, are ready for decision without further hearing.Finally, on January 17, 1983the plaintiff filed a "Motion to Bifurcate Trials on Plaintiff's Claim and Defendants' Counterclaim"²⁰ and "Motion in Limine and To Protect".²¹

Motion of Defendants for Summary Judgment on Count II and Plaintiff's Motion to Strike

The defendants moved orally to dismiss Count II during the hearing on September 22, 1982.The court granted the defendants additional time to file a memorandum supporting their proposition that no cause of action on Count II exists under Maryland law.In lieu of filing the memorandum, the defendants filed a motion for summary judgment as to Count II with supporting affidavits.The plaintiff moved to strike the motion for summary judgment on the ground that it was filed outside the time limit set by this court in its Order dated June 11, 1982.

The court entertained the oral motion of the defendants to dismiss Count II at the September 22, 1982 hearing.The plaintiff raised no objection at that time.Although the motion for summary judgment filed subsequently is not strictly in conformity with the court's order,²² it nevertheless addresses an important element in this action presenting a novel issue under Maryland law.The court believes it appropriate to permit the defendants to raise whatever defenses they may have.This is particularly true since the court invited the defendants to supply a supporting memorandum of law.That the defendants chose to file a motion for summary judgment in lieu of the legal memorandum does not preclude consideration of the basic issue.The plaintiff's motion to strike will be denied.

Count II alleges that the defendants"willfully, wantonly and maliciously" breached their covenant of good faith to the plaintiff, Donna Sue Caruso, "by entering on a course of conduct designed to discourage plaintiff's lawful claim to compensation under the policy and by ultimately refusing to make payment in accordance with the terms of the policy."²³The plaintiff argues that these allegations constitute a tort separate from the contract action alleged in Count I.

The Court of Appeals of Maryland has not expressly recognized a tort cause of action for the breach of duty of good faith and fair dealing in first party insurance claims.In Maryland a cause of action for breach of fair dealing and good faith has been limited to claims by the insured against its insurer for failure to settle third-party liability claims for amounts within the policy limits, Travelers Indemnity Co. v. Rosedale Passenger Lines, Inc.,450 F.2d 975, 978(4th Cir.1971);Hartford Casualty Ins. Co. v. Dodd,416 F.Supp. 1216(D.Md.1976);Sobus v. Lumbermens Mutual Casualty Co.,393 F.Supp. 661, 671(D.Md.1975);American Mutual Ins. Co. v. Bittle,26 Md.App. 434, 338 A.2d 306(1975);State Farm Mutual Automobile Ins. Co. v. White,248 Md. 324, 328-33, 236 A.2d 269(1967);Sweeten v. National Mutual Ins. Co.,233 Md. 52, 194 A.2d 817(1963).

Numerous other states, however, have adopted a cause of action for an insurer's bad faith delay in making payment on a claim.SeeEscambia Treating Co. v. Aetna Casualty & Surety Co.,421 F.Supp. 1367(N.D.Fla.1976);Carter v. Hartford Accident & Indemnity Co.,423 F.Supp. 827(E.D.Va.1976);John Hancock Life Ins. Co. v. McNeill,27 Ariz.App. 502, 556 P.2d 803(Ariz.App.1976);Silberg v. California Life Ins. Co.,11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103(Cal.1974);Gruenberg v. Aetna Ins. Co.,9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032(Cal.1973);Grand Sheet Metal Prod. Co. v. Protection Mutual Ins. Co.,34 Conn.Sup. 46, 375 A.2d 428(Conn.1977);Amsden v. Grinnell Mutual Reinsurance Co.,203 N.W.2d 252(Iowa1972);United States Fidelity & Guaranty Co. v. Peterson,91 Nev. 617, 540 P.2d 1070(Nev.1975);State Farm Gen. Ins. Co. v. Clifton,86 N.M. 757, 527 P.2d 798(N.M.1974);Chavez v. Chenoweth,89 N.M. 423, 553 P.2d 703(N.M. App.1976);Anderson v. Continental Ins. Co.,85 Wis.2d 675, 271 N.W.2d 368(Wis.1978).AccordUnited Services Automobile Ass'n v. Werley,526 P.2d 28(Alaska1974).The duty breached in these cases is described as the breach of a duty of fair dealing implied by law.

Other courts have adopted a cause of action for the insurer's breach of a duty imposed by statute to pay insurance claims promptly.Key Life Ins. Co. v. Mitchell,129 Ga.App. 192, 198 S.E.2d 919(Ga.App.1973);Eckenrode v. Life of America Ins. Co.,470 F.2d 1(7th Cir.1972)(anticipating decision of Illinois Supreme Court in Ledingham v. Blue Cross Plan,29 Ill.App.3d 339, 330 N.E.2d 540(Ill.App.1975), rev'd on other grounds,64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75(1976));Matthews v. Travelers Ins. Co.,212 Kan. 292, 510 P.2d 1315(Kan.1973);Citizens Discount and Investment Corp. v. Dixon,499 S.W.2d 231(Mo.App.1973);Frizzy Hairstylists, Inc. v. Eagle Star Ins. Co.,89 Misc.2d 822, 392 N.Y.S.2d 554(Civ.Ct.N.Y.1977);Christian v. American Home Assurance Co.,577 P.2d 899(Okl.1977);Gulley v. National Life Ins. Co.,73 So.2d 341(La.App.1954).See also3 J. Appleman, Insurance Law & Practice, ¶ 16.01 et seq.(1967);Gilardy, Good Faith and Fair Dealing in Insurance Contracts: Gruenberg v. AetnaIns. Co., 25HastingsL.J. 699(1974);Keeton, Ancillary Rights of the Insured Against His Liability Insurer, 13 VanderbiltL.Rev. 837(1960).

The reasoning of the courts adopting the cause of action is typified by the decision of the California court in Gruenberg, supra.In Gruenberg, the California Supreme Court upheld the insured's right to proceed in tort against his insurers for their willful and bad faith refusal to compensate for losses covered by fire policies.The court set forth the following analysis of the insurer's implied duty of good faith and fair dealing, and rejected the contention asserted by the defendant here, that the duty of good faith applies only in handling claims of third persons against insureds.The court stated

"the duty of an insurer to deal fairly and in good faith with its insured is governed by our decisions in Crisci v. Security Ins. Co.66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173(Cal.1967)andComunale v. Traders & General Ins. Co.,50 Cal.2d 654328 P.2d 198(1958).We explained that this duty, the breach of which sounds in both contract and tort, is imposed because there is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.See Restatement, Law of Contracts,¶ 231, infra.

"Thus, ... we made it clear that liability is imposed on the insurer not for a bad faith breach of contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing ....In those two cases, we consider the duty of the insurer to act in good faith and fairly in handling the claims of third persons against the insured, described as a `duty to accept reasonable settlements.'In the case before uswe consider the duty of an insurer to act in good faith and fairly in handling the claim of an insured, namely a duty not to withhold unreasonably payments due under a policy.These are merely two

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