Hiatt v. Schreiber

• Decision Date: 14 November 1984
• Docket Number: Civ. A. No. 84-K-953.
• Citation: 599 F. Supp. 1142
• Parties: Jack HIATT and Belinda Hiatt, d/b/a Domino Hot Oil Service, Plaintiffs, v. F. Don SCHREIBER, Frank L. Schreiber, Schreiber Insurance Agency, Inc., a New Mexico corporation, Sovereign Marine & General Insurance Company Limited, a corporation of the United Kingdom, Leslie Walpol Proctor, as Designated Representative of Underwriters of Lloyds, London (incorrectly sued as Underwriters at Lloyds, London), and Home Insurance Company, a New Hampshire corporation, Defendants.
• Court: U.S. District Court — District of Colorado

599 F. Supp. 1142

Jack HIATT and Belinda Hiatt, d/b/a Domino Hot Oil Service, Plaintiffs, v. F. Don SCHREIBER, Frank L. Schreiber, Schreiber Insurance Agency, Inc., a New Mexico corporation, Sovereign Marine & General Insurance Company Limited, a corporation of the United Kingdom, Leslie Walpol Proctor, as Designated Representative of Underwriters of Lloyds, London (incorrectly sued as Underwriters at Lloyds, London), and Home Insurance Company, a New Hampshire corporation, Defendants.

Civ. A. No. 84-K-953.

United States District Court, D. Colorado.

November 14, 1984.

COPYRIGHT MATERIAL OMITTED

Charles F. Reams, Reams, Kaye & Alvillar, Grand Junction, Colo., for plaintiffs.

Kathleen A. Franco, Conklin & Adler, Ltd., Denver, Colo., for Sovereign Marine & General Ins. Co. Ltd., Leslie Walpol Proctor.

Jerry B. Tompkins, Traylor, Arnold, Tompkins & Black, Grand Junction, Colo., for F. Don Schreiber & Frank L. Schreiber & Schreiber Ins. Agency, Inc.

Terry D. Slater, Younge & Hockensmith, Grand Junction, Colo., for Home Ins. Co.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

Plaintiffs, Jack and Belinda Hiatt, seek recovery for breach of a property insurance policy from the agents and underwriters of that policy. The complaint alleges that in October, 1975 the Hiatts purchased insurance on their 1975 Mack Truck from defendants Sovereign Marine & General Insurance Company Ltd., underwriters at Lloyds, London and Home Insurance Company through their agents, the three defendants Schreiber. Subsequently the truck was damaged and the defendants have refused to settle the Hiatts' claim. The Hiatts' seek recovery in the form of actual and punitive damages and recovery for attorney fees on theories of breach of contract, negligence and breach of duty of good faith dealing.

Subject matter jurisdiction is based upon diversity of citizenship pursuant to 28 U.S.C. § 1332. The plaintiffs are citizens of Colorado. F. Don and Frank L. Schreiber are citizens of New Mexico. Schreiber Insurance Agency, Inc. is a New Mexico corporation with its principal place of business in New Mexico. Sovereign Marine and Lloyds are both corporations of the United Kingdom with their principal places of business in the United Kingdom. Home Insurance is a New Hampshire corporation with its principal place of business in that state.

The case is now before me on the motion of Sovereign Marine and Lloyds to dismiss for failure to state a claim pursuant to Rule 12(b)(6), Fed.R.Civ.P., and the motion of the Schreibers to dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction. The insurance carriers raise four points in support of their motion: First, plaintiffs have not alleged facts sufficient to make out a cause of action against these insurance carriers; second, Colorado does not recognize a tortious claim for bad faith breach of an insurance contract; third, plaintiffs' allegations cannot support a claim for punitive damages; and finally, attorney fees and interest on the judgment are not recoverable in the absence of statutory or contractual provisions. The Schreibers' motion states simply that plaintiffs have failed to allege facts sufficient to support personal jurisdiction in this court.

A federal court must apply the Federal Rules of Civil Procedure and not state law in questions regarding pleadings. See Bank of St. Louis v. Morrissey, 597 F.2d 1131, 1134-35, (8th Cir.1979); Altoona Clay Products, Inc. v. Dun & Bradstreet, Inc., 367 F.2d 625, 629 (3d Cir.1966); Blazer v. Black, 196 F.2d 139, 144 (10th Cir. 1952). Rule 8(a) requires that claims for relief contain "... (2) a short and plain statement of the claim showing that the pleader is entitled to relief...." Rule 8(e)(1) requires pleadings to be "simple, concise, and direct. No technical forms of pleading or motions are required." The facts supporting the party's claim need not be set out in detail. All that is required is that the defendant is given fair "notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957).

For the defendant to prevail on a motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6), it must appear "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. at 45-46, 78 S.Ct. at 102; see also Mitchell v. King, 537 F.2d 385, 386 (10th Cir.1976). All facts must be construed in favor of the plaintiff. See Gardner v. Toilet Goods Ass'n, 387 U.S. 167, 172, 87 S.Ct. 1526, 1529, 18 L.Ed.2d 704 (1967). So long as the plaintiff may offer evidence to support a legally recognized claim for relief, the motion to dismiss should be denied. Conley v. Gibson, supra.

The complaint adequately informs the defendants of the events and legal claims underlying the plaintiffs' claims for relief. The pleadings are adequate to overcome the motion to dismiss based on insufficiency of facts.

The insurance companies other contentions are less easily resolved. Every contract contains an implied duty of good faith and fair dealing. When that duty is breached in most commercial contracts, the result is merely a breach of contract with standard remedies. However, an insurance policy between an insured and a vendor requires different remedies. Colorado courts have followed the trend established in California recognizing a separate cause of action sounding in tort for bad faith breach of insurance contracts.¹ See Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973); Savio v. Travelers Ins. Co., 678 P.2d 549 (Colo.App.1983), cert. granted (1984); Farmers Group, Inc. v. Trimble, 658 P.2d 1370 (Colo.App.1982). cert. granted (1983); Rederscheid v. Comprecare, Inc., 667 P.2d 766 (Colo.App.1983).

The initial cases which established the tort of bad faith breach of contract in insurance began with third party claims for mental anguish caused by an insurers unreasonable failure to accept a settlement offer which then exposed its insured to judgments exceeding policy limits. The courts imposed a duty, implied in law, on an insurer from the contractual relationship existing between the insured and the insurer. The cause of action evolved out of the insurers exclusive rights, pursuant to the specific language of the policy in third party cases, to control settlement, thereby potentially exposing the insured to judgments exceeding policy limits if the insurer rejected reasonable offers to settle. The courts accordingly recognized a duty independent of the insurance contract and imposed liability in tort. See Aetna Casualty & Surety Co. v. Kornbluth, 28 Colo.App. 194, 471 P.2d 609 (1970). Beyond this, courts have recognized that the adhesion aspects of an insurance policy and the resulting lack of bargaining power of the insured at the time of settlement justify recognizing an independent tort for bad faith breach. Accordingly, the tort of bad faith breach applies to first-party situations in which the insurer unreasonably, or in bad faith, fails to provide bargained for protection to the insured even though the insured faces no danger of an excess judgment arising out of the claims of a third party. See Gruenberg v. Aetna Ins. Co., supra, followed in Rederscheid v. Comprecare, supra.

Defendants rely greatly on Bloomfield Financial Corp. v. National Home Life Assur. Co., 734 F.2d 1408 (10th Cir.1984), in support of the proposition that Colorado will not impose tort liabilities for breach of insurance contracts. The Bloomfield case, however, dealt primarily with an insurance sales agent's suit against its principal for failure to honor their agreement concerning the payment of sales commissions and a claimed separate tort action for breach of the principal's duty of good faith and fair dealing. The Bloomfield court held that Colorado did not recognize an independent tort action for breach of implied contractual duties. Insurance contracts differ, however, creating the basis for claims sounding in tort. The holding in Bloomfield is inapplicable to the issues here.

Colorado law does not recognize one cause of action for negligent breach of insurance contracts and another separate cause of action for bad faith breach. These claims are both aspects of the single tort claim for breach discussed above.² The complaint is, therefore, not artfully drafted in that it asserts two distinct tort claims arising out of the same contract and breach. Accordingly, Sovereign Marine's and Lloyd's motions to dismiss are granted to the extent the complaint alleges two separate tort causes of action for breach of contract. The twelfth and sixteenth claims for relief are dismissed in that they allege tort liability independent of a claim of bad faith breach of contract. The motions to dismiss the other tort claims are denied. Also, Sovereign Marine and Lloyds provide no justification for their motion to dismiss the breach of contract claims raised against them. The pleadings adequately present colorable claims. The motion to dismiss is denied.

Defendants' motion to dismiss claims for punitive damages is also without merit. Plaintiffs have alleged that the negligence of Sovereign and Lloyds was willful, wanton and in reckless disregard of their obligations to the plaintiffs. Such allegations, if proved, will entitle plaintiffs to recover punitive damages on their tort claims.³See Frick v. Abell, 198 Colo. 508, 602 P.2d 852 (1979). The Colorado Court of Appeals has implicitly acknowledged that punitive damages are recoverable in suits for bad faith breach of insurance contracts. Savio, supra, at 554.

The insurers also claim that plaintiffs are not entitled to attorney fees or statutory interest. The pleadings adequately claim both and colorable legal theories underlay these claims. Plaintiffs allege that the insurance contracts may provide for fees. This alone is adequate....