Hart v. Prudential Property and Cas. Ins. Co.
| Decision Date | 12 April 1994 |
| Docket Number | No. CV-S-93-307-PMP (RJJ).,CV-S-93-307-PMP (RJJ). |
| Citation | 848 F. Supp. 900 |
| Parties | Mary S. HART, individually and as Guardian Ad Litem for Stephen G. Hart, a minor, Plaintiff, v. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY and Does 1 through 10, inclusive, Defendants. |
| Court | U.S. District Court — District of Nevada |
Ian Christopherson, Christopherson Law Offices, Las Vegas, NV, for plaintiff.
Robert D. Vannah, Vannah & Costello, Las Vegas, NV, for defendant.
Before the Court are cross-Motions for Summary Judgment on Plaintiff's cause of action for bad faith. Plaintiff Mary S. Hart filed her Motion for Summary Judgment (# 33) on January 14, 1994. Defendant Prudential Property and Casualty Insurance Company ("Prudential") filed its Motion for Summary Judgment (# 34) on January 18, 1994. Prudential filed an Opposition (# 35) to Plaintiff's Motion for Summary Judgment on January 24, 1994, and Plaintiff filed a Reply (# 36) on February 3, 1994. Also on February 3, 1994, Plaintiff filed an Opposition (# 37) to Prudential's Motion for Summary Judgment. Prudential did not file a Reply.
This case arises from an automobile accident involving Stephen Hart, the minor son of Plaintiff Mary Hart. On March 26, 1992, Stephen was a passenger on a school bus when the bus was hit by another vehicle. On the day of the accident, Stephen was seen at the University Medical Center Quick Care Facility where he complained of pain in his right side abdomen and ribs and pain in his upper back and neck. He also vomited three or four times after the accident.
At the time of the accident, Stephen's mother, Plaintiff Mary Hart, carried a policy of insurance through Defendant Prudential which provides for up to $50,000 in coverage for medical payments. Pursuant to this policy, Plaintiff filed a claim with Prudential for the injuries allegedly suffered by her son as a result of the March 26, 1992 accident. Prudential has apparently refused to pay a number of the submitted medical bills on the grounds that not all of Stephen's injuries resulted from the automobile accident.
Plaintiff's Complaint was removed to this Court from the Eighth Judicial District Court of the State of Nevada on the basis of diversity. Plaintiff seeks monetary damages on various theories of recovery. Plaintiff's Second Cause of Action, the subject of the present series of motions, seeks damages for Prudential's breach of the implied covenant of good faith and fair dealing, i.e., common law bad faith.
While arguing for summary judgment in her favor, Plaintiff has raised an interesting question regarding the interrelationship between the common law tort of bad faith as it has been recognized in Nevada and the Nevada Unfair Insurance Practices Act (N.R.S. 686A.010 et seq.). This question must be resolved before turning to the issue of whether summary judgement on Plaintiff's bad faith claim is appropriate.
As an initial matter, since this Court's jurisdiction is invoked upon diversity of citizenship, a federal court is bound to apply the substantive law of the state in which it sits. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Strassberg v. New England Mutual Life Ins. Co., 575 F.2d 1262 (9th Cir.1978). Thus, Nevada law controls. However, in the absence of controlling Nevada law, this Court must use its own best judgment in predicting how the Nevada Supreme Court would decide the substantive issue. See Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482 (1986), modified, 810 F.2d 1517 (9th Cir.1987); Takahashi v. Loomis Armored Car Service, 625 F.2d 314, 316 (9th Cir.1980). In performing that function, the Court may be aided by reviewing well-reasoned decisions from other jurisdictions. Takahashi, 625 F.2d at 316.
Plaintiff's argument, apparently taken from a local treatise,1 contends that the status of Nevada law in the area of insurance bad faith has evolved such that a single violation of the Nevada Unfair Insurance Practices Act ("the Act") will constitute per se bad faith. If Plaintiff's contention is correct, a single violation of the act will constitute bad faith, thus obviating the need to prove bad faith in the traditional manner by submitting the question of reasonableness to the trier of fact. An evaluation of Plaintiff's argument must begin by tracing the history of the tort of bad faith in Nevada.
The seminal case in Nevada in the area of insurance bad faith is United States Fidelity & Guaranty Co. v. Peterson, 91 Nev. 617, 540 P.2d 1070 (1975). In that case the Nevada Supreme Court first recognized the existence of a cause of action for an insurer's tortious breach of the implied covenant of good faith and fair dealing. Peterson involved a claim made by the insurer's own insured, i.e., a "first party" claim.2 In recognizing the new tort, the Nevada Supreme Court stated:
We approve and adopt the rule that allows recovery of consequential damages where there has been a showing of bad faith by the insurer. Where an insurer 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. The duty violated arises not from the terms of the insurance contract but is a duty imposed by law, the violation of which is a tort.
540 P.2d at 1071 (citing Silberg v. California Insurance Co., 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103 (1974); Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973)). The court thus found that the record supported a finding of bad faith where the insurer acted unreasonably by refusing to negotiate or pay monies validly due under the insurance contract, where the insurer was aware of the precarious financial condition of its insured. Id.
In American Excess Insurance Co. v. MGM Grand Hotels, Inc., 102 Nev. 601, 729 P.2d 1352 (1986), the Nevada Supreme Court cited its holding in Peterson with approval when it noted that "bad faith involves an actual or implied awareness of the absence of a reasonable basis for denying the benefits of the policy." Id. at 1354. The court went on to hold that where the insurance company's interpretation of the contract was reasonable, there can be no basis for concluding that the insurance company acted in bad faith. Id.
More recently, in Pemberton v. Farmers Insurance Exchange, 109 Nev. 789, 858 P.2d 380 (1993), the Nevada Supreme Court, again relying on Peterson, stated that "an insurer fails to act in good faith when it refuses `without proper cause' to compensate the insured for a loss covered by the policy." 858 P.2d at 381 (citing Peterson, 540 P.2d 1070; accord Noble v. National American Life Ins. Co., 128 Ariz. 188, 624 P.2d 866, 868 (1981); Davy v. Public National Ins. Co., 181 Cal. App.2d 387, 5 Cal.Rptr. 488 (4th Dist.1960)).
Moreover, the court has clarified that "a jury question on an insurer's bad faith arises when relevant facts are in dispute or when facts permit differing inferences as to the reasonableness of an insurer's conduct." United Fire Insurance Co. v. McClelland, 105 Nev. 504, 780 P.2d 193, 197 (1989) (citation omitted). Thus, in Nevada, summary judgment is appropriate in insurance bad faith cases only when there is no material question of fact as to the reasonableness of the insurer's conduct.
While the common law tort of bad faith denial of an insurance claim was developing in Nevada, the Nevada legislature was embarking on an effort to establish a comprehensive plan to regulate the activities of the insurance industry within the state. The result of this effort was Title 57, the Nevada Insurance Code, which, among other things, sets forth the duties and powers of the insurance commissioner, establishes an administrative hearing procedure in the event there are violations of the Code, and provides a mechanism for appealing to the state courts. See N.R.S. § 679B et seq.
In 1975, N.R.S. § 686A.310 was added to the Nevada Insurance Code. As originally enacted, this section, patterned after the National Association of Insurance Commissioner's model legislation, designated certain activities which were considered to be unfair practices in settling insurance claims when they were engaged in "with such frequency as to indicate a general business practice." See NAIC Model Unfair Trade Practices Act § 4(9)(f). This new provision, however, did not expressly create a private cause of action for an individual injured as a result of an insurer engaging in any of the proscribed activities.
The federal district court, in Tweet v. Webster, 614 F.Supp. 1190 (D.Nev.1985), had occasion to determine whether § 686A.310 granted a third-party claimant a direct cause of action against a tort-feasor's insurer for a bad faith refusal to settle a reasonably clear claim.3 The court found that under Nevada law, no such cause of action against existed on behalf of a third-party claimant that could be "based on statute, implied contract, or common law tort." Id. at 1195.
After the decision in Tweet, in 1987, the Nevada legislature amended § 686A.310. The legislature considered and passed A.B. 811 which, among other things, added subsection 2 to § 686A.310 and provided:
2. In addition to any rights or remedies available to the commissioner, an insurer is liable to its insured for any damages sustained by the insured as a result of the commission of any act set forth in subsection 1 as an unfair practice.
A.B. 811 also eliminated the language which required that violations of § 686A.310 required a showing of a "general business practice." Thus, an insurer would be in violation of the statute for engaging in a single enumerated unfair act.
The newly-enacted subsection 2 formed the basis, in part, of the federal court's...
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