Hatch v. State Farm Fire and Cas. Co., 92-22

• Decision Date: 10 December 1992
• Docket Number: No. 92-22,92-22
• Citation: 842 P.2d 1089
• Parties: Frank J. HATCH, III; Wendy Hatch; Frank J. Hatch, IV; and Frank J. Hatch, III and Wendy Hatch as next friends for their minor children, Anna Corinna Hatch; Robert Matthew Hatch; and Michael Logan Hatch, Appellants (Plaintiffs), v. STATE FARM FIRE AND CASUALTY COMPANY, a corporation; and Garry Kitchens, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 1089

842 P.2d 1089

Frank J. HATCH, III; Wendy Hatch; Frank J. Hatch, IV; and Frank J. Hatch, III and Wendy Hatch as next friends for their minor children, Anna Corinna Hatch; Robert Matthew Hatch; and Michael Logan Hatch, Appellants (Plaintiffs), v. STATE FARM FIRE AND CASUALTY COMPANY, a corporation; and Garry Kitchens, Appellees (Defendants).

No. 92-22.

Supreme Court of Wyoming.

Dec. 10, 1992.

John E. Stanfield of Smith, Stanfield & Scott, Michael Schilling, and Thomas J. Rardin, Laramie, for appellants.

Weston W. Reeves, Casper, for appellees.

Before URBIGKIT, C.J., and THOMAS, CARDINE, JJ., ROONEY and BROWN, Ret. JJ.

BROWN, Justice (Retired).

This case involves a suit by a State Farm Fire and Casualty Company policy holder against the insurer for policy benefits. The suit also alleges that numerous torts occurred in connection with the insurer's investigation and handling of a claim for loss sustained following a fire in the insured's home. The trial court granted summary judgment to the insurance company and individual defendants on all claims except the claim for policy benefits.

Appellants state that the issues are:

1. What are the requirements for the "fairly debatable" defense and what are the parameters of the defense?

2. When the evidence is properly construed on the basis of the summary judgment rules, could reasonable minds have reached different conclusions and inferences from the facts as to whether State Farm should be insulated from liability for all its actions and omissions on the basis of the "fairly debatable" defense?

3. If an insurance company is able to produce some factual support for its refusal to pay benefits, does that automatically foreclose any jury inquiry into: (1) the validity of that factual support; and (2) an evaluation of that support as compared with those facts favorable to the insured's position?

4. Is the issue of whether an insurance company should be insulated from liability under the "fairly debatable" defense an issue of fact which is to be determined by the jury on the basis of appropriate instructions from the trial court--or is it purely a question of law for the trial court to decide?

5. Even if its refusal to pay the claim can be justified under the "fairly debatable" defense, does that also mean that the insurance carrier is also insulated from any liability whatsoever for the breach of its good faith/fair dealing duties regarding the manner in which it investigated and handled the claim and treated and dealt with its insured?

6. Were there disputed issues of material fact as to: (1) whether State Farm had civil liability for its actions and involvement in the criminal prosecution of Mr. Hatch; and/or (2) the manner in which State Farm employed its "cooperation clause" in order to search for and obtain evidence; and/or (3) the manner in which State Farm obtained statements and evidence to help the prosecutor; and/or (4) the manner in which State Farm turned over some of its evidence to the prosecutor and concealed other evidence?

7. Were there disputed issues of material fact as to whether State Farm was guilty of "willful misstatement, attempted duress or malice"--thus erasing any immunity State Farm might have from liability to the Hatches under the Wyoming Arson Reporting Immunity Act ( §§ 6-3-108 to 6-3-109, WSA, 1977)?

8. When experts for the opposing sides disagree as to the facts or the conclusions to be drawn from the facts, does this present a disputed issue of fact which prevents disposition of the case by summary judgment?[ ¹]

We affirm in part and reverse in part.

A fire was discovered in the basement of appellants' house about 2:00 a.m. on August 4, 1987. The fire started in the southwest corner of the house. Gasoline was found in carpet samples after the fire. The nearest source of ignition was a wood-burning stove fifteen feet away which had a hot fire box twelve inches off the floor. Firemen found a gasoline container in the garage, lying on its edge under a chair, with the broad side against the garage wall. An explanation for how gasoline was detected in the basement was that the family dog knocked the gas can over and the contents ran through a crack in the garage floor, down the outside of the basement wall, then under the wall and into the basement.

Appellees' [State Farm's] claims specialist, appellee Garry Kitchens responded to notice of the fire; he was replaced five days later. He made no estimates, and did not review any work produced by State Farm's investigation nor participate in any decisions. Kitchen's replacement, appellee Dennis Murphy, continued the investigation of appellants' claim. He stated that his work represented his "best and most conscientious effort" and that his recommendations represented his "honest belief that Mr. Hatch started the fire in his house." Appellant Frank J. Hatch, III was charged with arson. An Albany County jury returned a not guilty verdict.

Appellants filed a lengthy civil complaint setting out eight causes of action. Later, a ninth cause of action was added by amendment. Aside from the first cause of action, "claim for policy benefits under the State Farm policy," the other eight listed causes of action essentially complain about bad faith. These separately listed causes of action complain of bad faith in various ways:

Vicarious liability against all State Farm agents, adjusters, attorneys, employees and independent contractors for their actions and omissions under the doctrine of "Respondent Superior."

Recovery of damages based upon the Plaintiffs' reasonable expectations of coverage under the State Farm policy.

General breach of duty of good faith and fair dealing in investigating the Plaintiffs' claim and in denying the Plaintiffs' claim.

Willful, wanton, intentional and malicious conduct in the investigation and ultimate denial of Plaintiffs claim and malicious defense.

Liability under the Wyoming Insurance Code.

Breach of express and implied warranties of merchantability associated with the Defendants' insurance product and breach of fiduciary duties.

Deceptive and fraudulent inducement to its customers, the Hatches, in the advertising, marketing and sale by the Defendants of their insurance product.

Violation and deprivation of the Plaintiffs' constitutional and civil rights as guaranteed by the United States and Wyoming Constitutions and under Federal Civil Rights legislation.

The issues specified by appellants in their appeal do not track the eight causes of action decided adversely to them on summary judgment. In the appellate brief, they do not address the issues they listed separately, but rather lump issues and causes of action together without logical, sequential argument. However, almost all the matters discussed, in simple terms, complain of bad faith. We will not try to address all the issues listed by appellants separately.

We have articulated the standard of review for a summary judgment many times. See Hozian v. Weathermon, 821 P.2d 1297 (Wyo.1991); Wagner v. First Wyoming Bank, N.A. Laramie, 784 P.2d 224 (Wyo.1989); Davenport v. Epperly, 744 P.2d 1110 (Wyo.1987); Boehm v. Cody Country Chamber of Commerce, 748 P.2d 704 (Wyo.1987); England v. Simmons, 728 P.2d 1137 (Wyo.1986); Cordova v. Gosar, 719 P.2d 625 (Wyo.1986).

Most of the tortious acts complained of were alleged to have been committed by the individual appellees Kitchens and Murphy, employees of State Farm. Appellee State Farm is responsible for this conduct under the doctrine of respondeat superior. State Farm does not seriously argue otherwise.

I.

McCullough v. Golden Rule Insurance Co., 789 P.2d 855, 860 (Wyo.1990) sets forth the standard by which appellants' bad faith claim is to be addressed. In that case, we adopted the test from Anderson v. Continental Insurance Company, 85 Wis.2d 675, 271 N.W.2d 368 (1978).

Whether a claim is "fairly debatable" also implicates the question whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded.

To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. "Bad faith" by definition cannot be unintentional. "Bad faith" is defined as "Deceit; duplicity; insincerity." American Heritage Dictionary of the English Language (1969), p. 471. The same dictionary defines "deceit" as a "strategem; trick; wile" (p. 342), and duplicity as "Deliberate deceptiveness in behavior or speech." (P. 405)

Hilker, [v. Western Automobile Ins. Co.] supra, 204 Wis. at 15, 231 N.W 257, 235 N.W. 413 [ (1930, 1931) ], emphasizes that bad faith is the absence of honest, intelligent action or consideration based upon a knowledge of the facts and circumstances upon which a decision in respect to liability is predicated. While Hilker emphasizes the duty of ordinary care and reasonable diligence on the part of an insurer in handling claims, it is apparent from Hilker that the knowing failure to exercise an honest and informed judgment constitutes the tort of bad faith.

The tort of bad faith can be alleged only if the facts pleaded would, on the basis of an objective standard, show the absence of a reasonable basis for denying the claim, i.e., would a reasonable insurer under the circumstances have denied or delayed payment of the claim under the facts and circumstances.

It is appropriate, in applying the test, to determine whether a claim was properly investigated and whether the results of the investigation were subjected to a reasonable evaluation and review. * * *

While we have stated above that, for proof of bad faith, there must be an absence of a reasonable basis for denial of policy benefits and the knowledge or reckless disregard of a reasonable...