Herrig v. Herrig

• Decision Date: 28 December 1992
• Docket Number: No. 92-116,92-116
• Parties: Rodney R. HERRIG and Larry G. Bean, as next friend and guardian of Kelsey Lynn Herrig and Natalie Sue Herrig, minors, Appellants (Plaintiffs), v. Angela HERRIG and Farmers Insurance Exchange, a/k/a Farmers Insurance Group, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 487

844 P.2d 487

Rodney R. HERRIG and Larry G. Bean, as next friend and guardian of Kelsey Lynn Herrig and Natalie Sue Herrig, minors, Appellants (Plaintiffs), v. Angela HERRIG and Farmers Insurance Exchange, a/k/a Farmers Insurance Group, Appellees (Defendants).

No. 92-116.

Supreme Court of Wyoming.

Dec. 28, 1992.

Stephen R. Winship of Donald R. Winship & Associates, P.C., Casper, for appellants.

George E. Powers, Jr. of Godfrey & Sundahl, Cheyenne, for appellees.

Before MACY, C.J., and THOMAS, CARDINE, URBIGKIT and GOLDEN, JJ.

MACY, Chief Justice.

Appellants Rodney R. Herrig and Larry G. Bean, as the next friend and guardian of Kelsey Lynn Herrig and Natalie Sue Herrig, filed a multiple-count complaint against Appellee Farmers Insurance Exchange to recover compensatory and punitive damages, as well as attorney's fees and interest, for alleged bad faith settlement practices. The district court dismissed the complaint for failure to state a claim upon which relief could be granted and denied Appellants' motion to amend the complaint.

We affirm.

The issues we must address are:

1. Whether Appellants may assert a bad faith action against Farmers Insurance for an alleged breach of the duty of good faith and fair dealing;

2. Whether Appellants may assert a private cause of action against Farmers Insurance for an alleged violation of Wyo.Stat. § 26-13-124 (1991), the unfair-claims-settlement-practices provision of the Wyoming Insurance Code;

3. Whether Appellants may assert a private cause of action against Farmers Insurance for an alleged violation of Wyo.Stat. § 26-15-124 (1991), the unreasonable-claim-denial provision of the Wyoming Insurance Code; and

4. Whether Appellants may assert a private cause of action against Farmers Insurance for an alleged violation of the Wyoming Consumer Protection Act, Wyo.Stat. §§ 40-12-101 to -112 (1977 & Supp.1992).

Rodney Herrig, his wife, Angela, and their two daughters, Kelsey and Natalie, enjoyed a picnic in the mountains west of Buffalo, Wyoming, on July 15, 1990. As the Herrigs were returning from the picnic, Angela was driving the family's van when she lost control of the vehicle and rolled it. Rodney, Angela, and Natalie escaped serious physical injury. Kelsey, however, was pinned under the van and suffered a brain injury diagnosed as "sixth nerve palsy." As a result of this injury, Kelsey received physical therapy to improve her left-body motor control. She also underwent several surgeries to restore her left-side vision and hearing.

At the time of the accident, Rodney and Angela were named insureds under an E-Z Reader Car Policy issued by Farmers Insurance. The liability provision of the policy provided:

We will pay damages for which any insured person is legally liable because of bodily injury to any person ... arising out of the ownership, maintenance or use of a private passenger car, a utility car, or a utility trailer.

Rodney and his daughters submitted a policy limits settlement demand on August 6, 1991, to Farmers Insurance for their injuries. In essence, this demand asserted that Angela was liable for their injuries and that their injuries exceeded the policy limits. Farmers Insurance apparently failed to respond. Consequently, Rodney and his daughters filed a four-count complaint on October 11, 1991, against Angela and Farmers Insurance. Count I alleged that their injuries were the proximate result of Angela's negligent operation of the van. Count II alleged that Farmers Insurance engaged in unfair claims settlement practices in violation of § 26-13-124. Count III alleged that Farmers Insurance violated § 26-15-124 by failing to respond to their settlement offer within forty-five days. Count IV alleged that their injuries were aggravated by Farmers Insurance's dilatory settlement practices.

Farmers Insurance filed a W.R.C.P. 12(b)(6) motion to dismiss in lieu of an answer. Rodney and his daughters filed a traverse to the dismissal motion and a W.R.C.P. 15 ¹ motion to amend their complaint. The amended complaint asserted three additional counts against Farmers Insurance. Count IV alleged that Farmers Insurance breached its insurance contract with Rodney. Count V alleged that Farmers Insurance violated the Wyoming Consumer Protection Act. Count VI alleged that Farmers Insurance tortiously breached the duty of good faith and fair dealing. Count VII was a reiteration of the original complaint's Count IV.

Following a December 6, 1991, motion hearing, the district court entered an order which (1) dismissed Count I of the complaint to the extent that it sought recovery from Farmers Insurance, (2) dismissed Counts II through IV of the complaint, and (3) denied the motion to amend the complaint. Subsequent to this order, Rodney and his daughters settled their liability claims against Angela, preserving for appeal only the district court's rulings on those counts relative to Farmers Insurance's settlement practices.

When reviewing a W.R.C.P. 12(b)(6) dismissal, this Court accepts all facts stated in the complaint as being true and views them in the light most favorable to the plaintiff. Nulle v. Gillette-Campbell County Joint Powers Fire Board, 797 P.2d 1171 (Wyo.1990). We will sustain a W.R.C.P. 12(b)(6) dismissal only when it is certain from the face of the complaint that the plaintiff cannot assert any facts which would entitle him to relief. Mostert v. CBL & Associates, 741 P.2d 1090 (Wyo.1987). Consonant with these rules is our position that leave to amend a complaint under W.R.C.P. 15 should be freely granted when the amendment will serve a good purpose and when it will not unduly prejudice the defendant. Blanton v. Federal Deposit Insurance Corporation, 706 P.2d 1111 (Wyo.1985). A district court's denial of a motion to amend will be reversed, however, only when it constitutes an abuse of discretion. Johnson v. Aetna Casualty & Surety Co. of Hartford, Conn., 608 P.2d 1299 (Wyo.1980), after remand, 630 P.2d 514, appeal dismissed and cert. denied, 454 U.S. 1118, 102 S.Ct. 961, 71 L.Ed.2d 105 (1981).

For the purpose of analysis, we address the issues in the order presented above rather than in the order they would arise if we were to review the district court's rulings count by count. Thus, the first issue for our consideration is whether Appellants may assert a bad faith action against Farmers Insurance for its failure to settle their liability claims against Angela as expeditiously as desired. In Counts IV and VI of their amended complaint, Appellants asserted bad faith actions against Farmers Insurance in contract and tort for breach of the duty of good faith and fair dealing. The district court denied Appellants' motion to amend their complaint to add Counts IV and VI on the ground that Appellants were third-party claimants to whom Farmers Insurance owed no duty of good faith and fair dealing.

The duty of good faith and fair dealing which is implied by law to inhere in every insurance policy runs from the insurer to the insured. 14 G. COUCH, COUCH ON INSURANCE § 51:136 (2d ed. 1982). Breach of this duty may give rise to a cause of action for "third party" bad faith or for "first party" bad faith. A cause of action for "third party" bad faith will lie when a liability insurer fails in bad faith to settle a third-party claim within policy limits against its insured. Western Casualty and Surety Company v. Fowler, 390 P.2d 602 (Wyo.1964). Bad faith in this context would occur if an excess judgment were obtained under circumstances when the insurer failed "to exercise intelligence, good faith, and honest and conscientious fidelity to the common interest of the [insured] as well as of the [insurer] and [to] give at least equal consideration to the interest of the insured." Id. at 606. A cause of action for "first party" bad faith will lie when an insurer in bad faith refuses to pay its insured's direct claim for policy benefits. McCullough v. Golden Rule Insurance Co., 789 P.2d 855 (Wyo.1990). Bad faith in this context would occur if an insurer knowingly or recklessly denied a first-party claim for insurance benefits without having a reasonable basis for doing so. Id. at 860. An action for "first party" bad faith will also lie when an insurer fails to inform its insured of first-party policy benefits where the insured brings a third-party liability claim against another of the insurer's insureds and "it is apparent to the insurer that (1) there is a strong likelihood that its insured only can be compensated fully under her own policy and (2) the insured has no basis to believe that [she] must rely upon [her] policy for coverage." Darlow v. Farmers Insurance Exchange, 822 P.2d 820, 828 (Wyo.1991).

As disclosed by the facts of this case, Appellants do not fit the mold necessary to bring an action against Farmers Insurance for either "third party" or "first party" bad faith. Appellants are third-party claimants against Farmers Insurance in its capacity as the liability insurer for Angela. They make no allegation that Farmers Insurance failed to inform them of first-party benefits under the Farmers Insurance policy. Rather, this portion of the case deals exclusively with whether this Court will extend the duty of good faith and fair dealing which runs from an insurer to its insured to also run to its insured's adversary--the third-party claimant.

Appellants advance two arguments as to why they should be able to maintain a bad faith action against Farmers Insurance. First, Appellants argue that Farmers Insurance owes a duty of good faith and fair dealing to them because Rodney has a contractual relationship with Farmers Insurance. Similar arguments have been advanced and rejected in the analogous double-insured context. Double-insured cases occur when both the tort-feasor and an injured party are insured by the same insurer, although usually under different policies. In these cases, the courts almost universally hold that the insurer does...