Guarantee Abstract & Title Co., Inc. v. Interstate Fire and Cas. Co., Inc.
| Decision Date | 22 October 1982 |
| Docket Number | No. 53573,53573 |
| Citation | 232 Kan. 76,652 P.2d 665 |
| Parties | GUARANTEE ABSTRACT & TITLE CO., INC., Appellee, v. INTERSTATE FIRE AND CASUALTY COMPANY, INC., Appellant. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. In a third party action, any duty of an insurer to settle or appeal on behalf of its insured arises from the insurer's contractual obligation to defend. Such actions are, accordingly, based upon breach of contract.
2. Damages for breach of an insurance contract are limited to pecuniary losses sustained and punitive damages are not recoverable in the absence of an independent tort causing additional injury.
3. The tort of bad faith is not recognized in Kansas and cannot be utilized as the independent tort referred to in the preceding syllabus.
4. In an action by an insured against the insurer for damages arising from the defense of a third party action, the record is examined and it is held: (1) the trial court erred in submitting any issue of punitive damages to the jury; (2) no error or abuse of discretion is shown relative to the admission of expert testimony or to the instructions relative to late notification to the insurer of the claim.
George Maier, Jr., of Weeks, Thomas, Lysaught, Chartered, Kansas City, argued the cause, and Edward H. Powers, Sr., Kansas City, was with him on the brief for appellee.
Robert L. Kennedy, of Fallon, Holbrook & Ellis, Kansas City, argued the cause and was on the brief for appellant.
This is an action by Guarantee Abstract and Title Company against its insurer, Interstate Fire and Casualty Company, Inc., seeking damages for the insurer's alleged mishandling of the defense of a third party action. The specific areas of claimed deficiency are failure to settle and failure to appeal.
The controversy herein is no stranger to our court. The original third party action which spawned the subsequent intramural litigation is Ford v. Guarantee Abstract & Title Co., 220 Kan. 244, 553 P.2d 254 (1976). The dispute over the defense of the Ford case has, itself, previously been before us and appears as Guarantee Abstract & Title Co. v. Interstate Fire & Cas. Co., 228 Kan. 532, 618 P.2d 1195 (1980). The complex factual situation involved herein has given rise to ten years of litigation. Rather than burden this opinion with a full history of this controversy, we will streamline the facts as much as possible. If additional information relative to the background of the case is desired, reference may be made to the two earlier opinions.
In 1972 Guarantee was an agency in the business of serving as a broker for Chicago Title Insurance Company in the sale of title insurance. The Fords were purchasing a home and title insurance was to be issued through Guarantee. A check in the amount of $25,746.13 was delivered to Guarantee by the realtor. Guarantee was instructed to deliver the check to the company holding the mortgage on the property in exchange for a mortgage release and a warranty deed. Guarantee delivered the check but received nothing in exchange. The release was subsequently forthcoming, but not the deed. Guarantee refused to insure the title or return the money.
The Fords sued everyone connected with the transaction including Guarantee and its principal Chicago Title. The verdicts in Ford were $8,687.65 compensatory damages against both Guarantee and Chicago Title. In addition, punitive damages of $35,000 were awarded against Guarantee and $70,000 against Chicago Title. On appeal these punitive damage awards were halved.
Guarantee brought this action against Interstate contending the insurance policy provided coverage for the Ford punitive damage award and also sought damages for the handling of the defense of the Ford case, specifically, failure to settle and appeal. Both parties appealed from the trial court's judgment and that judgment, along with our opinion relative thereto, is summarized in Syl. p 4 of the opinion (hereinafter referred to as Guarantee I) as follows:
"The record is examined and it is held the trial court erred in: 1) allowing coverage for punitive damages; 2) awarding attorney fees to Guarantee; 3) directing a verdict in favor of Interstate on the question of Interstate's duty to settle the case. The trial court did not err in: 1) finding Guarantee's promissory note to Chicago Title to be enforceable; and 2) finding Interstate had a duty to appeal on behalf of Guarantee in Ford and awarding costs of the appeal." 228 Kan. at 532, 618 P.2d 1195.
On remand, trial to a jury was had with the following verdicts being awarded against Interstate:
Compensatory Punitive
Count I: Failure to Settle $ 76,500.00 $100,000.00
Count II: Refusal to Appeal $ 50,000.00 $150,000.00
The trial court modified the compensatory damage awards to conform to the evidence which resulted in the $76,500 judgment being reduced to $69,422.55 and the $50,000 judgment being reduced to $7,077.45. Interstate appeals from the judgments as modified.
The paramount issue in this appeal is whether the trial court erred in permitting the jury to consider the imposition of punitive damages.
In order to properly determine this issue, we must carefully examine the relationship of the parties and the nature of the claims being presented. Interstate is the insurer of Guarantee under a liability policy. Under the policy Interstate had a duty to defend when its insured was sued by third parties, the Fords. The policy contained the standard "duty to defend" clause:
"[A]nd the Company shall have the right and duty to defend in his name and behalf any suit against the Insured alleging damages, even if such suit is groundless, false or fraudulent ...."
Interstate did assume the defense of the Ford action on behalf of its insured. After the verdicts had been reached, Guarantee requested that an appeal be taken. Interstate declined to do so. Guarantee then perfected its own appeal. Subsequently, Guarantee brought this action seeking damages for what it believed was Interstate's wrongful failure to settle and failure to appeal. In a third party action any duty of an insurer to settle or appeal on behalf of its insured arises from the insurer's contractual obligation to defend. Such actions are, accordingly, based upon breach of contract.
Damages for breach of contract are limited to pecuniary losses sustained and exemplary or punitive damages are not recoverable in the absence of an independent tort. Temmen v. Kent-Brown Chev. Co., 227 Kan. 45, 605 P.2d 95 (1980). This exception to the rule of unavailability of punitive damages in breach of contract actions is recognized when some independent tort or wrong results in additional injury which justifies the assessment of punitive damages by way of punishment of the wrongdoer. In such a case the proof of the independent tort must indicate the presence of malice, fraud or wanton disregard for the rights of others. The difference between a tort and contract action is that a breach of contract is a failure of performance of a duty arising under or imposed by agreement; whereas, a tort is a violation of a duty imposed by law. Atkinson v. Orkin Exterminating Co., 230 Kan. 277, 634 P.2d 1071, adopting 5 Kan.App.2d 739, 625 P.2d 505 (1981).
These general rules relative to breach of contract cases are also applicable to actions for breach of an insurance contract and, in the absence of an independent tort, punitive damages may not be allowed. Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan 914, 611 P.2d 149 (1980); Moffet v. Kansas City Fire & Marine Ins. Co., 173 Kan. 52, 244 P.2d 228 (1952).
Was there an independent tort in this case? We think not. Guarantee contends that Interstate committed the tort of bad faith in failing to settle. In Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan. 914, 611 P.2d 149, we held that the tort of bad faith is not recognized in Kansas. Spencer involved a certified question as to whether Kansas recognized the tort of bad faith and arose in the context of a first person action between an insurer and insured wherein the insured was seeking to utilize "bad faith" as the independent tort. The following language is particularly pertinent to the matter before us:
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