Hoskins v. Aetna Life Ins. Co.

• Decision Date: 24 August 1983
• Docket Number: No. 82-483,82-483
• Citation: 6 OBR 337,452 N.E.2d 1315,6 Ohio St.3d 272
• Court: Ohio Supreme Court
• Parties: , 6 O.B.R. 337 HOSKINS et al., Appellees, v. AETNA LIFE INSURANCE COMPANY, Appellant.

Page 272

6 Ohio St.3d 272

452 N.E.2d 1315, 6 O.B.R. 337

HOSKINS et al., Appellees, v. AETNA LIFE INSURANCE COMPANY, Appellant.

No. 82-483.

Supreme Court of Ohio.

Decided Aug. 24, 1983.

Syllabus by the Court

1. Based upon the relationship between an insurer and its insured, an insurer has the duty to act in good faith in the handling and payment of the claims of its insured. A breach of this duty will give rise to a cause of action in tort against the insurer. (Hart v. Mutual Ins. Co., 152 Ohio St. 185, 87 N.E.2d 347 , followed and extended.)

2. Punitive damages may be recovered against an insurer who breaches his duty of good faith in refusing to pay a claim of its insured upon proof of actual malice, fraud or insult on the part of the insurer. (Columbus Finance v. Howard, 42 Ohio St.2d 178, 327 N.E.2d 654 , applied.)

Appellee Carl R. Hoskins retired from his employment with the state of Ohio on June 1, 1977. As part of his retirement benefits under the Public Employees Retirement System of Ohio, Mr. Hoskins received insurance coverage under a group hospitalization and medical policy issued by appellant, Aetna Life Insurance Company. Appellee's wife, Annalea Hoskins, also as appellee herein, was covered as a dependent under the policy.

In October 1977, Mrs. Hoskins was admitted to the medical-surgical unit of the Hocking Valley Community Hospital in Logan, Ohio, after suffering the third in a series of strokes. The physical therapy prescribed for her by her physician, Dr. Roy Bontrager, included the use of a large apparatus known as a tilt table. The tilt table was located at the other end of the hospital in the physical therapy department and was moved from this department to Mrs. Hoskins' room daily for treatment.

Pursuant to Dr. Bontrager's orders, Mrs. Hoskins was transferred from her room in the medical-surgical unit to a room in the skilled nursing unit on January 2, 1978. Dr. Bontrager testified during trial that he ordered the room change to facilitate use of the tilt table, stating that " * * * [i]t was quite an ordeal to move all this equipment from the [physical therapy] department to her room every day * * * [and] * * * it seemed a lot easier to move her back to where the equipment was [than] to keep from moving the equipment every day."

On March 2, 1979, Mr. Hoskins was notified by Hocking Hospital that appellant, who had been paying the hospital bills since Mrs. Hoskins' admittance had not paid the hospital bills for January and February 1979. Mr. Hoskins called appellant and was told for the first time that coverage, pursuant to the terms of the policy, had expired as of January 1, 1979.

Appellant's representative explained that while Mrs. Hoskins was in the medical-surgical unit, payments were made pursuant to the hospital expense clause which provided up to $250,000 comprehensive hospital benefits. ¹ It was further explained that appellant found that the transfer of Mrs. Hoskins to the skilled nursing unit on January 2, 1978, constituted a transfer to a "convalescent facility" as that term is used in the policy of insurance. Accordingly, upon Mrs. Hoskins' room change, appellant made payments pursuant to the convalescent facility expense clause of the policy, ² and payments had ceased as of January 1979, because, under this clause, payments expired after three hundred sixty-five days.

Thereafter, appellees' counsel, in person and by telephone, contacted appellant's representative, urging appellant to continue coverage under the hospital clause provision on the grounds that the skilled nursing unit does not meet appellant's own criteria for a "convalescent facility." In response, appellant phoned the hospital to verify that it had a skilled nursing facility and that Mrs. Hoskins was located in it. On April 2, 1979, appellant notified appellees' counsel by letter that its position with regard to coverage remained unchanged.

In addition, Dr. Bontrager, in a letter addressed to appellant and dated July 26, 1979, explained that Mrs. Hoskins' room change to the skilled nursing unit was merely to facilitate the use of the tilt table, that she was not convalescing, and that this unit was an integral part of the hospital therapeutic setting and was not a convalescent facility. Appellant's assistant claim manager, upon receiving this letter by referral from a claim supervisor who questioned appellant's current position, reviewed the information in the file, and responded to Dr. Bontrager in a letter dated August 3, 1979, that its position would not change.

Appellees, on November 15, 1979, instituted this action alleging that appellant, ³ pursuant to the terms of the insurance policy, was liable for hospital and medical expenses to a maximum of $250,000, that appellant has refused, in spite of demands, to pay, and that the " * * * refusal to pay is in violation and breach of the terms of said policy and is willful and wrongful, has had and continues to have a complete draining of * * * [appellees'] life savings and financial resources and will imminently force the sale of * * * [appellees'] home in order to meet the medical expenses * * *." (Sic.) An injunction, compensatory and punitive damages, and costs, including attorneys' fees, were sought. ⁴

Motions for summary judgment by both parties were denied.

Trial commenced on June 19, 1980. At the outset, the trial court ruled that the complaint did not properly plead a cause of action in tort justifying compensatory and punitive damages. All evidence pertaining to these issues was excluded. On June 23, 1980, counsel moved to amend the complaint pursuant to Civ.R. 15(B) to encompass such claims. The motion was denied and the trial court directed a verdict on the tort claim.

On June 23, 1980, the jury returned a verdict in favor of appellee for $184,000. On August 4, 1980, appellant's motion for judgment notwithstanding the verdict was granted and a judgment reducing the award to $20,792.91 was entered.

Appellees appealed, alleging ten assignments of error and appellant corss-appealed, assigning two errors. In relevant part, the court of appeals, reversing in part and remanding, held that the complaint set forth a punitive damages claim, that appellees' evidence, if believed by the jury, would support a claim for punitive damages, and, as such, the issue of punitive damages should have gone to the jury. The appellate court, affirming in part, also found that the trial court did not err in allowing expert testimony on whether the facility in question was a hospital or convalescent facility.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Condit & Dressing Co., L.P.A., and James J. Condit, Cincinnati, for appellees.

Wiles, Doucher, Tressler & Van Buren Co., L.P.A., and Thomas J. Keener, Columbus, for appellant.

WILLIAM B. BROWN, Justice.

I

A

The key issue presented is whether appellees have sufficiently pleaded a cause of action in tort, stemming from the refusal of their insurer to pay their claim, to allow them to proceed on a punitive damages claim against their insurer.

As a threshold consideration to the punitive damages claim, this court must decide whether a cause of action in tort arising out of an insurance contract lies against an insurer for its wrongful failure to pay a claim of its insured. While this court has not previously addressed this issue, it has, on numerous occasions, addressed the issue of whether tort liability should be imposed where the insurer fails to reasonably settle a third-party claim within the policy limits of the insured. The duty of an insurer to pay the claims of its insured is closely akin to its duty to settle third-party claims, and, as such, existing case law in refusal-to-settle type actions will be helpful in resolving the refusal-to-pay type action at issue herein.

It is well established in Ohio that an insurer has a duty to act in good faith in the settlement of a third-party claim. In the leading case of Hart v. Republic Mut. Ins. Co. (1949), 152 Ohio St. 185, 87 N.E.2d 347 , a case involving the refusal of the insurer to settle a claim within the limits of its liability leading to a judgment against the insured in excess of the insurer's coverage, this court stated in the syllabus as follows:

"1. A liability insurance company which reserves the right to settle, as it deems expedient, any claim against its insured is not liable to the insured for negligence in settling or refusing to settle such a claim.

"2. Such company is liable to respond in damages to its insured if it fails to act in good faith with respect to the settlement of such a claim."

Accord Slater v. Motorists Mut. Ins. Co. (1962), 174 Ohio St. 148, 187 N.E.2d 45 . See, also, Centennial Ins. Co. v. Liberty Mut. Ins. Co. (1980), 62 Ohio St.2d 221, 404 N.E.2d 759 ; Fletcher v. Western Natl. Life Ins. Co. (1970), 10 Cal.App.3d 376, 89 Cal.Rptr. 78; Crisci v. Security Ins. Co. (1967), 66 Cal.2d 425, 429, 58 Cal.Rptr. 13, 426 P.2d 173.

The imposition of the duty of good faith upon the insurer is justified "because of the relationship between the * * * [insurer and the insured] and the fact that in the insurance field the insured usually has no voice in the preparation of the insurance policy and because of the great disparity between the economic positions of the parties to a contract of insurance; and furthermore, at the time an insured party makes a claim he may be in dire financial straits and therefore may be especially vulnerable to oppressive tactics by an insurer seeking a settlement or a release. See also Motorist Mut. Ins. Co. v. Trainor, 33 Ohio St.2d 41 [294 N.E.2d 874, 62 O.O.2d 402] * * * (1973) * * *." Battista v. Lebanon Trotting Assn. (C.A.6, 1976), 538 F.2d 111, 118 (construing Ohio law).

The duty of an insurer to act in good faith and accept reasonable settlements and the duty of an insurer to act in good faith in handling the claims of its own...