Lawton v. Great Southwest Fire Ins. Co.

Citation392 A.2d 576,118 N.H. 607
Decision Date27 September 1978
Docket NumberNo. 7876,7876
CourtNew Hampshire Supreme Court

Cullity & Kelley, Manchester (William H. Kelley and George W. Roussos, Manchester, orally), for plaintiff.

Sheehan, Phinney, Bass & Green P.A., Manchester (James Q. Shirley, Manchester, orally), for defendant.

BROCK, Justice.

In this action the plaintiff seeks damages against his insurance company for its alleged failure to make payment of a fire loss pursuant to a fire insurance policy between the plaintiff and the defendant. After hearing, the trial court granted the defendant's motion to dismiss counts 1 and 2 of the plaintiff's declaration, which alleged an intentional failure and a negligent failure to make payment pursuant to the policy, and portions of count 3, which sought consequential damages in excess of the policy limits. Plaintiff's exceptions to these rulings were reserved and transferred by Flynn, J.

The plaintiff is the owner of a commercial building, located in Manchester, that was substantially damaged by fire on July 31, 1975. At the time, a portion of the premises was insured against fire by the defendant. The policy provided coverage up to $250,000 and also contained a loss of rentals endorsement with a limit of $55,000. Over the course of three-and-a-half months following the fire, the plaintiff and the defendant engaged in various negotiations in an effort to determine and settle the loss, which need not be further detailed here other than to note that no agreement concerning the extent of loss was ever reached and that the plaintiff's claim was never settled.

On November 19, 1975, the plaintiff brought the current action against the insurance company. In count 1 of this declaration, plaintiff alleges that the defendant "willfully, intentionally or recklessly and wantonly" failed to make payment to him pursuant to the policy "in an effort to compel and coerce (him) to compromise a claim against the defendant for an amount far less than for value, and to accept far less than full performance of defendant's contractual obligations . . . ." Count 2 alleges negligent failure to make payment pursuant to the policy. Count 3 is a plea in assumpsit alleging that the defendant failed to perform its obligation under the policy "to make fair, prompt and equitable payment . . . ." In all three counts plaintiff seeks recovery for damages which he alleges resulted from the defendant's failure to effectuate a prompt and equitable settlement, "including but not limited to, irreparable damage to the plaintiff's business and credit reputation, pain, suffering and mental anguish, and severe emotional distress; loss of use of his property, loss of business opportunity, additional damage to the property occasioned by the defendant's delay, and other financial damages. . . ." all in the amount of $500,000. The trial court granted the defendant's motion to dismiss counts 1 and 2, on the ground that there is no recovery "Ex delicto for the wrongful or wilful or negligent refusal of an insurer to settle a first party insurance claim. . . .", and dismissed count 3 to the extent that it sought damages in excess of the insurance policy limits, on the ground that the damages available to the insured are limited to the contractual amount. For the reasons hereinafter stated, we affirm the court's ruling dismissing counts 1 and 2 of the plaintiff's declaration, and reverse its ruling relating to count 3.

In determining whether the defendant's motion to dismiss should be granted, all facts properly pleaded are assumed to be true and the reasonable inferences therefrom are construed most favorably to the plaintiff. Blake v. State, 115 N.H. 431, 433, 343 A.2d 223, 225 (1975); Green v. Shaw, 114 N.H. 289, 292, 319 A.2d 284, 285 (1974). If the plaintiff is entitled to recover upon any state of the facts findable under the pleadings, the motion to dismiss must be denied. Aldrich v. Beauregard & Sons, 105 N.H. 330, 331, 200 A.2d 14, 15 (1964); Nashua Iron and Steel Co. v. Worcester & N. R. Railroad Co., 62 N.H. 159, 161 (1882).

We first consider count 3 of the plaintiff's declaration, which alleges a breach of contract. The defendant advances three arguments in support of the court's ruling limiting the damages recoverable by the plaintiff to the policy limits: First, an insurance contract is merely an agreement to pay money, and that for breach of such an agreement the damages are limited to the money due, with interest; second, the contract itself restricts the insurer's liability to the policy limits; and third, the consequential damages plaintiff alleges to have suffered in his declaration could not have been foreseen at the time the parties executed the policy, and that therefore the defendant is not chargeable therewith.

It is true that generally the damages available for breach of a contractual obligation to pay money are the amount due, with interest. Smith v. Wetherell, 89 N.H. 106, 108, 193 A. 216, 218 (1937), Aff'd on rehearing 89 N.H. 106, 194 A. 129 (1937); Richards v. Whittle, 16 N.H. 259, 260 (1844). This rule has been applied to restrict damages for breach of an insurance contract to the contract amount, plus interest. 16 J. Appleman, Insurance Law and Practice § 8881 at 634 (1968) (and cases cited). The rule rests on the theory that money is always available in the market at the lawful rate of interest, and on the desirability of having a measure of damages of easy and certain application. 11 S. Williston, Contracts § 1410, at 606 (3d ed. 1968). We find these reasons unconvincing, however. First, money is not always available in the market at the lawful rate of interest. "Aside from the fact that the commercial rate of interest might be double the legal rate, it is highly unlikely that a claimant who has recently suffered economic disaster would be able to obtain a loan at all." Note, The Availability of Excess Damages for Wrongful Refusal to Honor First Party Insurance Claims An Emerging Trend, 45 Fordham L.Rev. 164, 169 (1976) (footnotes omitted). Second, the desirability of simplicity in determining the extent of damages is insufficient to justify the denial of damages that are capable of proof and otherwise compensable. See Note, Id.; Reichert v. Gen. Ins. Co. of America, Cal., 59 Cal.Rptr. 724, 730, 428 P.2d 860, 866 (1967), Vacated on other grounds, 68 Cal.2d 822, 69 Cal.Rptr. 321, 442 P.2d 377 (1968).

Defendant's argument that the insurance contract itself restricts the damages that are recoverable for breach of the contract to the policy limits is also unpersuasive. The policy limits restrict the amount the insurer may have to pay in the performance of the contract, not the damages that are recoverable for its breach. See, e. g., Home Indem. Co. v. Bush, 20 Ariz.App. 355, 513 P.2d 145 (1973); Asher v. Reliance Ins. Co., 308 F.Supp. 847, 851-52 (D.C.Cal.1970); Reichert v. Gen. Ins. Co. of America, supra 59 Cal.Rptr. at 729, 428 P.2d at 865. The subject insurance contract limits the insurer's liability to $250,000 for damages that result from the casualties insured against, not its liability for damages resulting from its own breach of contract.

Defendant's third argument correctly proceeds on the theory that the damages recoverable for breach of a contract are limited to the damages that "the defendant had reason to foresee as a probable result of its breach when the contract was made." Emery v. Caledonia Sand & Gravel Co., 117 N.H. ---, ---, 374 A.2d 929, 932 (1977). However, we do not think that the financial injuries that the plaintiff alleges he suffered as a result of the defendant's failure or delay in payment are never foreseeable as a matter of law. Insurance is often obtained because the insured is not in a position to personally bear the financial loss occasioned by a casualty, and serious financial injuries may often result from an insurer's refusal or delay in payment.

Where the owner of a heavily mortgaged motel or other business property suffers a substantial fire loss, the owner may be placed in financial distress, may be unable to meet his mortgage payments, and may be in jeopardy of losing his property and becoming bankrupt. A major, if not the main, reason why a businessman purchases fire insurance is to guard against such eventualities if his property is damaged by fire.

Reichert v. Gen. Ins. Co. of America, Cal., 59 Cal.Rptr. 724, 428 P.2d 860, 864 (1967), Vacated on other grounds, 68 Cal.2d 822, 69 Cal.Rptr. 321, 442 P.2d 377 (1968); See Eckenrode v. Life of America Ins. Co., 470 F.2d 1, 5 (7th Cir. 1972). To limit the insurer's liability to the policy limits plus interest as a matter of law would unnecessarily encourage insurers to delay settlement in an attempt to coerce a financially pressured claimant into accepting an unfair settlement, because its only liability would be to pay its original obligation and interest. See Note, The Availability of Excess Damages For Wrongful Refusal to Honor First Party Insurance Claims An Emerging Trend, 45 Fordham L.Rev. 164 (1976); 16 J. Appleman, Insurance Law and Practice § 8881 at 633 (1968); Lambert, Commercial Litigation, 35 Am.Trial Lawyers Ass'n L.J. 164, 225-26 (1974). In a given case the defendant may in fact have reason to know that its failure or delay in payment will cause the insured severe financial injuries. Whether the defendant had knowledge of the facts and reason to foresee the injury will normally be a question of fact for the jury. See Emery v. Caledonia Sand & Gravel, supra at ---, 374 A.2d at 932; Johnson v. Waisman Bros., 93 N.H. 133, 135, 36 A.2d 634, 636 (1944); 5 A. Corbin, Contracts § 1011 (1964).

The insured must, of course, prove that the insurer's failure or delay in payment was a breach of contract. Not every delay or refusal to settle or pay a claim under the policy will constitute a breach of the contract. Cf., e. g., Ledingham v....

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