Escambia Treating Co. v. Aetna Cas. & Sur. Co.

• Decision Date: 05 November 1976
• Docket Number: No. PCA 75-148.,PCA 75-148.
• Parties: ESCAMBIA TREATING COMPANY, a Florida Corporation, Plaintiff, v. AETNA CASUALTY & SURETY COMPANY, a Connecticut Corporation, Defendant.
• Court: U.S. District Court — Northern District of Florida

421 F. Supp. 1367

ESCAMBIA TREATING COMPANY, a Florida Corporation, Plaintiff, v. AETNA CASUALTY & SURETY COMPANY, a Connecticut Corporation, Defendant.

No. PCA 75-148.

United States District Court, N. D. Florida, Pensacola Division.

November 5, 1976.

H. Edward Moore, Jr., Sherrill & Moore, Pensacola, Fla., George D. Gabel, Jr., Wahl & Gabel, Jacksonville, Fla., for plaintiff.

Fletcher Fleming, Shell, Fleming, Davis & Menge, Pensacola, Fla., Ralph E. Smith, Deutsch, Kerrigan & Stiles, New Orleans, La., for defendant.

MEMORANDUM DECISION

ARNOW, Chief Judge.

This case is brought under the diversity jurisdiction of the federal courts, 28 U.S.C. § 1332, and presents an unresolved question of Florida law. Substantive state law, of course, controls.

Presented here is an issue pertaining to Florida law on which its courts have not ruled. Thus, this court must try to determine what the Florida courts would hold, were the issue before them.

If Florida had, as Alabama has, a provision permitting a federal district judge to certify such questions to its court, this question would be certified to it by this court.

As it stands, this court concludes that under Florida law defendant has the implied duty under its contract of insurance to proceed in good faith and deal fairly with its insured. The insurer has liability, sounding in tort, with right of recovery of damages when, in violation of that duty, it unreasonably and in bad faith withholds payment to its insured.

If this court could certify the question to the Florida Court, and is wrong in so concluding, the matter would stop here. Since it cannot so certify, the parties are now faced with the time and expense of trial. If plaintiff prevails, then there probably will be appeal to Fifth Circuit Court of Appeals, with probable certification there to Florida's court. So, if this court is wrong in its conclusion, its inability to certify to the Florida court means time lost and expense incurred by the parties, and judicial time, both in this court and by the court of appeals, which must consider and determine the point on appeal.

If this court is right in its conclusion, and plaintiff prevails, the probability of appeal by defendant on the point, with the consequent time and expense for the parties and resulting expenditure of judicial time in the court of appeals, is high.

If plaintiff does not prevail, then there will be nothing to present to the Florida court. But, if the question could be now certified by this court to it, it would not only facilitate resolution of this litigation, but would establish binding precedent for all other cases of this type arising in Florida. The certification procedure of Florida now existing recognizes that the principle of certification to it is sound.

The precise question facing the court is whether Florida would recognize a cause of action based on breach of a duty, arising out of an insurance contract, to deal fairly and in good faith with an insured in the processing and payment of the insured's claims. Plaintiff alleges that certain "intentional, malicious and fraudulent acts of the defendant were for the purpose of depriving the plaintiff of benefits obviously due under its policy," and that there has been a complete lack of good faith dealing on the part of the defendant with its insured, such as to constitute tortious interference with a protected property interest.

The court concludes that Florida law imposes an implied duty on the defendant insurance company to deal fairly and in good faith with its insured. That duty arises out of the insurance contract, and a bad faith and unreasonable refusal to pay the valid claims of the insured is a breach of that duty imposing liability in tort upon the insurance company.

California is the leading jurisdiction allowing tort recovery for such breach of implied duty to deal fairly and in good faith. Fletcher v. Western National Life Ins., 10 Cal.App.3d 376, 89 Cal.Rptr. 78, 47 A.L.R.3d 286 (1970); Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973); Silbert v. California Life Ins. Co., 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103 (1974). These cases are characterized by rather extreme facts; they reflect the policy or concept that an insured purchases insurance and not an unjustified court battle when he enters into the insurance contract.

In Fletcher, supra, the California Supreme Court first recognized an independent tort in this case and labeled the action "a tortious interference with a protected property interest of its insured." The court stated:

An insurer owes to its insured an implied-in-law duty of good faith and fair dealing that it will do nothing to deprive the insured of the benefits of the policy. . . .

. . . The implied-in-law duty of good faith and fair dealing imposes upon a disability insurer a duty not to threaten to withhold or actually withhold payments, maliciously and without probable cause, for the purpose of injuring its insured by depriving him of the benefits of the policy . . . the violation of that duty sounds in tort notwithstanding that it also constitutes a breach of contract.

10 Cal.App.3d at 401, 89 Cal.Rptr. at 93, 47 A.L.R.3d at 305.

Gruenberg v. Aetna Ins. Co., supra, provided clear analysis of the emerging cause of action:

It is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing. It is manifest . . . that in every insurance contract there is an implied covenant of good faith and fair dealing.

The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured . . .. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.

The Gruenberg court reasoned that the "duty of the 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" was an extension of the existing duty imposed on the insured to "act in good faith and accept reasonable settlements" when suit is brought by a third person against the insured. Courts in this latter situation have often held insurance companies liable for judgments in excess of the policy limits if the company refused a reasonable settlement offer. The court concluded that "these are merely two different aspects of the same duty."

Florida courts have clearly recognized the insurer's duty to act in good faith and accept reasonable settlements. Thompson v. Commercial Union Ins. Co., 237 So.2d 247 (Fla.App.1970); Campbell v. Government Employees Ins. Co., 306 So.2d 525 (Fla. 1975); See also Liberty Mutual Ins. Co. v. Davis, 412 F.2d 475 (5th Cir. 1969); Self v. Allstate Ins. Co., 345 F.Supp. 191 (M.D.Fla. 1972). Logically, the Florida courts would also accept the "aspect of the same duty" requiring the insurer to act fairly and in good faith in handling the claims of its own insured.

Several other cases from various jurisdictions have accepted the theory of recovery. Eckenrode v. Life of America Ins. Co., 470 F.2d 1 (7th Cir. 1972); Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corporation, 29 Ill.App.3d 339, 330 N.E.2d 540 (1975); United Services Auto Assoc. v. Wesley, 526 P.2d 28 (Alaska 1974); Citizens Discount and Investment Corp. v. Dixon, 499 S.W.2d 231 (Mo.App.1973).

Florida has no cases directly on point. MacDonald v. Penn. Mut. Life Ins. Co., 276 So.2d 232 (Fla.App.1973), neither accepted nor rejected the cause of action. The court stated that "even if the Florida courts recognized such a cause of action, the case sub judice cannot be viewed as controlled by the principles in Fletcher. In that case, the conduct of the insurer was of such a heinous character that it met the requirements of the independent tort of intentional infliction of emotional distress."

While this may have been a fair reading of Fletcher, the later cases discussed, supra, indicate that the court misconceived the nature of the tort.

In Campbell v. Government Employees Ins. Co., supra, the Florida Supreme Court dealt with a case involving the first aspect of the insurer's duty to deal fairly and in good faith with...