Dunn v. National Sec. Fire and Cas. Co.

• Decision Date: 23 December 1993
• Docket Number: No. 93-241,93-241
• Parties: 19 Fla. L. Weekly D24 Jeffrey DUNN, Appellant, v. NATIONAL SECURITY FIRE AND CASUALTY COMPANY, an Alabama Corporation, Appellee.
• Court: Florida District Court of Appeals

Page 1103

631 So.2d 1103

19 Fla. L. Weekly D24

Jeffrey DUNN, Appellant, v. NATIONAL SECURITY FIRE AND CASUALTY COMPANY, an Alabama

Corporation, Appellee.

No. 93-241.

District Court of Appeal of Florida,

Fifth District.

Dec. 23, 1993.

Rehearing Denied Feb. 17, 1994.

Joseph R. Flood, Jr., of Dean, Ringers, Morgan & Lawton, Orlando, for appellant.

Janice A. Kelly of Boehm, Brown, Rigdon, Seacrest & Fischer, P.A., Orlando, for appellee.

W. SHARP, Judge.

Dunn (the injured party) appeals from a final summary judgment which denied him any recovery for punitive damages, reimbursement for attorney's fees he incurred in bringing the preceding tort suit (which is the basis for this third party suit), and recovery for mental or emotional suffering in his third-party bad faith suit against National Security Fire and Casualty Company, the tortfeasor's liability carrier. The court did award Dunn attorney's fees for bringing the bad faith lawsuit, pursuant to section 624.155(3). This case is complicated by its unique factual circumstances, and it involves questions of first impression arising under the statutory remedy provided by section 624.155, Florida Statutes (1991). ¹ We affirm the trial judge's rulings concerning attorney's fees and mental pain and suffering under the present status of the pleadings filed in this case, but we remand to allow Dunn to pursue discovery sought as to punitive damages, and to be afforded an opportunity to amend his complaint.

This proceeding had as its source, an automobile accident between Dunn and White (National's insured), in 1981. Dunn sued White and National in 1985 to recover for damages he suffered in the accident. He alleged in this suit that National had an opportunity to settle the lawsuit for White's $10,000 policy limits.

The case resulted in a hung jury. When it was tried a second time in 1991, the jury rendered an "excess" verdict of $17,476.73. National then filed a motion to limit its liability to the $10,000 policy limits.

After giving the required statutory notice, ² on February 28, 1992, Dunn filed this bad faith suit against National. But on June 16, 1992, National paid Dunn the full amount of the excess judgment, plus interest. It also acknowledged liability for attorney's fees and costs for filing the bad faith suit. They also have been currently satisfied.

In his complaint against National, Dunn alleged that National owed him a duty to act in good faith with regard to settlement negotiations, including a duty to investigate the case, give fair consideration to a settlement offer, and to settle where a "reasonably prudent person faced with the prospect of paying the total recovery would do so." He also alleged National breached its duty by not settling for the policy limits, by pursuing a "spurious appeal", by failing to keep its insured informed about the case and the possibility of having an excess judgment, and by not taking steps to protect its insured from exposure to liability in excess of the $10,000 policy.

As a result of this breach of duty, Dunn alleged he suffered damages including but not limited to the excess verdict. He was deprived of receiving the settlement benefits "in a timely manner" (during the pendency of the tort suit), he incurred emotional pain and suffering, and he incurred attorney's fees and costs for the underlying tort suit, as well as this bad faith suit.

In addition, Dunn alleged that National's bad faith actions were committed with such frequency as to constitute "a business practice or policy and were committed willfully and wantonly or in reckless disregard of its insured." Section 624.155(4) provides for punitive damages in these general circumstances. An additional problem in this case is that Dunn was never able to flesh out his punitive damage claim with facts and particulars, partly because the trial court denied his attorney's discovery efforts to obtain access to National's claim file. The trial court denied production of the claim file involving White's underlying tort suit, because it could violate National's work-product and attorney-client privilege, and because it could be "very costly" to National.

Section 624.155 expressly provides that it does not preempt any existing common law cause of action developed pursuant to Florida's case law for bad faith insurance suits nor is it intended to create a new one under common law. ³ Prior to judgment, a party must elect whether a common law remedy or a statutory remedy pursuant to section 624.155 is being obtained. In this case, Dunn's complaint was sufficiently general to have allowed him to proceed on either ground, and this case was terminated before he had to make that election.

Thus, we must consider whether summary judgment for National denying Dunn recovery for mental pain and suffering, attorney's fees for the underlying tort suit, and punitive damages was proper under both section 624.155 and the common law of Florida. In addition, we must initially consider whether National's payment of the excess judgment plus interest to the injured party judgment holder (Dunn) during the pendency of the bad faith suit, extinguished the bad faith cause of action.

This case is distinguishable from Fidelity and Casualty Co. of New York v. Cope, 462 So.2d 459 (Fla.1985) and Kelly v. Williams, 411 So.2d 902 (Fla. 5th DCA), rev. denied, 419 So.2d 1198 (Fla.1982). In Fidelity, the injured party released the tortfeasor from liability and executed a satisfaction of the tort judgment before bringing the bad faith suit against the insurance company. And in Kelly, the parties stipulated that the tortfeasor-insured's liability was limited to the insurance policy limits, prior to bringing the bad faith suit. In this case the bad faith suit was filed before the excess judgment was paid, and no release or satisfaction was obtained. See Higgs v. Industrial Fire & Casualty Insurance Co., 501 So.2d 644 (Fla. 3d DCA 1986), rev. denied, 511 So.2d 298 (Fla.1987); Clement v. Prudential Property & Casualty Insurance Co., 790 F.2d 1545 (11th Cir.1986).

Further, although payment of the excess judgment obtained against an insured may satisfy the provable damages in most cases, ⁴ it is not the sole measure of damages in bad faith cases. McLeod v. Continental Insurance Co., 591 So.2d 621 (Fla.1992); Adams v. Fidelity & Casualty Co. of New York, 591 So.2d 929 (Fla.1992). Punitive damages, attorney's fees, and other direct consequential damages may be recoverable in appropriate cases. If the rule were otherwise, it would permit an insurance company to flagrantly disregard its insured's interests, and when a bad faith suit is brought, to destroy the cause of action by paying the judgment, despite other resulting damages. ⁵

Consequential Damages:

Mental Pain and Suffering; Attorney's Fees

At common law in Florida, the essence of a bad faith cause of action against an insurance company (whether brought by the insured or the injured party), ⁶ is that the insurer breached its fiduciary duty owed to its insured by wrongfully refusing to defend its insured in a liability context, or by wrongfully refusing to settle the case within the policy limits, and exposing its insured to a judgment which exceeds the coverage provided by the policy. Fidelity and Casualty Co. of New York v. Cope, 462 So.2d 459 (Fla.1985); Robinson v. State Farm & Casualty Co., 583 So.2d 1063 (Fla. 5th DCA 1991); Kelly v. Williams, 411 So.2d 902 (Fla. 5th DCA), rev. denied, 419 So.2d 1198 (Fla.1982). Such suits have long been recognized at common law in this state. ⁷ However, first party bad faith suits (where the insured is the injured party and claimant, and no injured third party is involved) are not allowed at common law. ⁸

In common law third party suits, our supreme court has limited recovery of damages for mental pain and suffering to situations where the insurer's conduct is so gross and extreme as to amount to an independent tort, and to merit the award of punitive damages. Butchikas v. Travelers Indemnity Co., 343 So.2d 816 (Fla.1976); Saltmarsh v. Detroit Auto Inter-Insurance Exchange, 344 So.2d 862 (Fla. 3d DCA 1977). The allegations in Dunn's complaint in this case do not rise to this level of malfeasance on the part of National. However, if discovery had been permitted below, appropriate amendments might have been possible.

The statutory cause of action provided in section 624.155 does not expand recovery for mental pain and suffering beyond the rule enunciated for common law bad faith cases. McLeod v. Continental Insurance Co.; Hollar v. International Bankers Insurance Co., 572 So.2d 937 (Fla. 3d DCA 1990), rev. denied, 582 So.2d 624 (Fla.1991). The statute allows first party bad faith suits by insureds against their insurers on the same footing as third party suits, but the Butchikas rule governs both kinds of suits. McLeod.

Further, even if the Butchikas court's limitation on recovery of damages for pain and suffering were not applicable to third party bad faith suits brought pursuant to section 624.155, the allegations in Dunn's complaint that he is entitled to recover for his own emotional pain and suffering, as opposed to White's (the insured), does not fit into the scheme of third party bad faith suits. The insurer has no insurance contract with the injured third party, and thus breaches no fiduciary duty with regard to that person, when it wrongfully refuses to settle a suit for its insured. The injured third party only has a derivative claim as the insured's stand-in. ⁹ Most courts in other jurisdictions have refused to recognize a separate independent fiduciary cause of action for an injured party against a tortfeasor's liability carrier. ¹⁰

Section 624.155 does not appear to change this concept for third party suits. ¹¹ The gravamen for the statutory cause of action is similar to the common law cause of action: "An insurer's not attempting in good faith to settle claims when, under the...