Jones v. Continental Ins. Co.

• Decision Date: 22 September 1987
• Docket Number: No. 86-1922-Civ.,86-1922-Civ.
• Citation: 670 F. Supp. 937
• Parties: Thomas F. JONES, as Personal Representative of the Estate of Karen Sue Jones, Deceased, Thomas F. Jones, individually, and Mary Ann Jones, individually, Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, a foreign corporation, Defendant.
• Court: U.S. District Court — Southern District of Florida

670 F. Supp. 937

Thomas F. JONES, as Personal Representative of the Estate of Karen Sue Jones, Deceased, Thomas F. Jones, individually, and Mary Ann Jones, individually, Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, a foreign corporation, Defendant.

No. 86-1922-Civ.

United States District Court, S.D. Florida.

September 22, 1987.

Robert J. Dickman, Robert J. Dickman, P.A., Coral Gables, Fla., Sam Daniels, Elizabeth K. Clarke, Daniels & Hicks, P.A., Miami, Fla., for plaintiffs.

Scott R. McNary, Corlett, Killian, Hardeman, McIntosh & Levi, P.A., Miami, Fla., for defendant.

MEMORANDUM OPINION AND ORDER ON DEFENDANT'S MOTION TO DISMISS

ARONOVITZ, District Judge.

THIS CAUSE is presently before the Court upon Defendant's Motion to Dismiss Plaintiffs' Complaint. The Court has reviewed Defendant's Motion, responses thereto, entertained arguments of counsel, reviewed pertinent portions of the record and considered applicable law and makes the following rulings based thereon.

JURISDICTION

The Court's jurisdiction over the subject matter of this action is based upon diversity of citizenship between the parties pursuant to the provisions of 28 U.S.C. Section 1332.

STATEMENT OF THE CASE

Plaintiffs' Complaint is in four counts: Count I alleges breach of good faith duty to promptly settle Plaintiffs' claims, based on Florida Statutes Section 624.155; Count II alleges intentional infliction of emotional distress; Count III claims tortious breach of contract; and Count IV is entitled "punitive damages." Defendant has moved to dismiss all counts of the Complaint. Defendant's argument as to each count will be taken up in turn.

Initially, Plaintiffs' Complaint alleges the following set of facts. The individual Plaintiffs, Thomas F. Jones and Mary Ann Jones, are the parents of Karen Sue Jones, who was involved in a fatal car accident in January of 1984. Thomas F. Jones is also a named plaintiff on behalf of his daughter's estate. At the time of this unfortunate accident, Thomas F. Jones, Mary Ann Jones and Karen Sue Jones were covered persons under an automobile liability insurance policy which insured two vehicles owned by Thomas F. Jones. The subject accident involved two uninsured, or under-insured, motorists such that the uninsured motorist provisions of the Jones policy were triggered. When coverage for the two insured vehicles is "stacked," the subject policy provides coverage up to a maximum of $600,000.

Plaintiffs made demand upon Defendant for $600,000, which was rejected by the Defendant. Plaintiffs then proceeded to arbitrate the dispute in accordance with the terms of the policy. On the eve of the arbitration hearing, Defendant offered $500,000 to settle, which offer was rejected by the Plaintiffs. The arbitration panel ultimately awarded $500,000 to Plaintiff Thomas F. Jones and $500,000 to Plaintiff Mary Ann Jones. Thereafter, a state court entered judgment in Plaintiffs' favor in the amount of $600,000.

Plaintiffs allege in this suit that Continental's rejection of their offer to settle for the policy limits was done in bad faith with the intent to cause extreme emotional distress and they seek damages in the amount of the difference between the arbitration award and the state court judgment, together with punitive damages as to certain counts.¹

DISCUSSION

I. Count I — Florida Statutes Section 624.155

Plaintiffs' Complaint contains a veritable litany of alleged actions on Continental's part which they allege violate the terms of Florida Statutes Section 624.155.

Essentially, Plaintiffs claim that Continental knew the accident was in no way their daughter's fault; that it knew the damages were well in excess of the policy limits; that it knew the plaintiffs were peculiarly susceptible to emotional distress because of the death of their daughter; that it did not conduct a proper investigation of the claim before refusing Plaintiffs' offer and that these acts constituted a course of dealing on the part of Continental to hold on to their money for as long as possible, even though it knew Plaintiffs were entitled to payment of the policy limits.

Although, unfortunately, Plaintiffs' Complaint fails to state the specific subsections of Florida Statutes Section 624.155 upon which it is intending to rely, the allegations of the Complaint appear to attempt to state a claim under two subsections, namely: Section 624.155(1)(a)(1) (incorporating by reference Section 626.9541(1)(i) "Unfair Claim Settlement Practices"), which makes it illegal for an insurance company to fail to adopt and implement standards for the proper investigation of claims and denying claims without conducting reasonable investigations based upon available information; and Section 624.155(1)(b)(1), which provides:

Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for his interests.

Defendant has not challenged Count I of Plaintiffs' Complaint insofar as it may state a claim under Section 624.155(1)(a)(1); therefore, that issue is not before the Court. All of the Defendant's arguments have centered on Section 624.155(1)(b)(1).

In this regard, Defendant argues that Section 624.155(1)(b)(1) does not apply to first party causes of action, that it is unconstitutionally vague and overbroad or, in the alternative, that Plaintiffs have failed to state a claim for relief.

a. Whether Florida Statutes Section 624.155(1)(b)(1) Applies to First Party Actions

Although this statute was enacted in 1982, there are, surprisingly, no Florida cases directly interpreting Section 624.155(1)(b)(1). This Court, therefore, as one whose jurisdiction is based on diversity, is faced with the somewhat difficult task of predicting what a Florida court would do in like situation. Delduca v. United States Fidelity & Guaranty Co., 357 F.2d 204 (5th Cir.1966); Morton v. Abbott Laboratories, 538 F.Supp. 593 (M.D.Fla.1982).²

As one court has stated it:

Although some have characterized this assignment as speculative or crystal-ball gazing, nonetheless it is a task which we may not decline.

McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657 (3d Cir.1980). In attempting to predict Florida law, the Court may utilize all reliable resources, including decisions of intermediate state courts, policies underlying the applicable legal principles, doctrinal trends indicated by those policies, treatises, restatements, and law review articles. Weiss v. United States, 787 F.2d 518 (10th Cir.1986); Nicholson v. Life Ins. Co. of Southwest, 783 F.2d 1316 (5th Cir. 1986).³

By way of background, Florida has consistently recognized a common law cause of action for bad faith within the context of third party actions, i.e., liability insurance. Boston Old Colony Ins. v. Gutierrez, 386 So.2d 783, 785 (Fla.1980). The duty of good faith has been implied in law in the third party case because there is said to exist a fiduciary relationship between the insured and his insurance company — the insurance company is contractually obligated to place the insured's interests (which is to avoid an excess judgment) before its own (which is to pay as little as possible). The risk for abuse is apparent.

However, as is argued by Defendant here, no such fiduciary relationship exists between an insurance company and its insured in the first party context where the insured is seeking payment of his own claim from the insurance company. In this instance, Defendant argues, the relationship between the insurance company and its insured is adversarial. Each party's obligations to the other are defined and limited by the terms of the insurance contract itself.

Prior to this statute's enactment, it is clear that Florida expressly rejected a common law duty of good faith in the first party context. Baxter v. Royal Indemnity Company, 285 So.2d 652 (Fla. 1st DCA 1973), cert. dis. 317 So.2d 725 (Fla.1973) (discharging appeal, by an evenly-divided Court, as not involving a decision in direct conflict with other decisions).⁴ Like the present dispute, Baxter involved a dispute over coverage under the uninsured motorist provisions of a liability policy. Moreover, similar to the instant action, the insurance company in Baxter allegedly acted in bad faith in refusing to pay on demand the full policy limits under the contract and insisting instead to pursue its contractual right to arbitrate.⁵

The First District Court of Appeal, deferring to the parties' rights to freely contract, held that because there is no fiduciary relationship between insured and insurer outside of the third party context, an insurance company could not be held liable in an amount exceeding the policy limits for failure to pay under the terms of the policy, even though the failure or refusal to pay was motivated by spite, malice or bad faith. 285 So.2d at 656-57.⁶ In doing so, the court discussed the then-recent case of Richardson v. Employers Liab. Assur. Corp., 25 Cal.App.3d 232, 102 Cal.Rptr. 547 (1972) wherein a California appellate court held that the failure of an insurance company to deal fairly and in good faith with its insured breached a duty imposed by law, not one arising from the terms of the contract itself, which breach constitutes a tort.

Unlike Florida at the time Baxter was decided, however, California had in effect a statute which permitted the recovery under certain circumstances "in an action for the breach of an obligation not arising from contract...." 25 Cal.App.3d at 245, 102 Cal.Rptr. 547, quoted in Baxter, 285 So.2d at 657. After acknowledging Richardson, the Baxter court concluded: "Because of the existence of the above-quoted statute which has no counterpart in the law of Florida, the decision reached by California in Richardson is inapplicable here." 285 So.2d at 657.⁷ Baxter can be read, then, as expressly limited to the rejection of a common law duty of good faith and fair...