Lewis v. Farmers Ins. Co., Inc.
| Decision Date | 25 October 1983 |
| Docket Number | No. 58862,58862 |
| Citation | 1983 OK 100,681 P.2d 67 |
| Parties | Floyd LEWIS, Jr., Appellant, v. FARMERS INSURANCE COMPANY, INC., Appellee. |
| Court | Oklahoma Supreme Court |
Appeal from the District Court of Oklahoma County; Jack R. Parr, judge.
Appellant appeals from the entry of summary judgment in favor of appellee. The trial court held that an action for bad faith refusal to pay a claim based on a fire insurance policy was governed by the statutory limitation period set forth in the contract rather than by the two-year period of limitation which governs actions which sound in tort.
REVERSED AND REMANDED.
Gary L. Brooks & Associates by Gary L. Brooks, Oklahoma City, for appellant.
Green, James, Williams & Elliott by Kenneth W. Elliott, Oklahoma City, for appellee.
The novel question presented is whether the twelve-month statute of limitations prescribed by 36 O.S. 1981 § 4803(G) and contained in the standard fire policy 1 controls the time to bring an action for alleged bad faith refusal to pay a valid insurance claim; or if, because the action sounds in tort, 12 O.S.1981 § 95(3), the two-year tort limitation period applies. 2
The (appellant-homeowner), Floyd Lewis, Jr., purchased a fire insurance policy from Farmers Insurance Company, Inc., (appellee-insurer). On January 15, 1981, while the policy was in full force and effect, the residence sustained substantial fire damage, and afterwards the home was vandalized. The homeowner demanded payment by the insurer under the terms of the policy: on January 16, 1981, he discussed his loss with insurer's independent adjuster; on March 8, 1981, the insured submitted an unnotarized proof of loss; and on May 19, 1981, the insurer's counsel conducted a sworn examination. Because the original proof of loss was incomplete, it was returned by the insurer's counsel to the insured May 28, 1981. Two blank proof of loss forms were enclosed and a sixty-day extension was granted. July 1, 1981, counsel noted that the sworn examination had been returned unclaimed; receipt of the insured's proof of loss and sworn examination was acknowledge July 24, 1981; and the claim was denied August 12, 1981. 3
An action was filed February 4, 1982, seeking recovery for the damage to the residence and its contents, and punitive damages based on the wrongful, refusal of the insurer to pay the claim. The insurer responded by filing a general and special demurrer and a motion for summary judgment based on the assertion that the claim was barred by the statute of limitations. The demurrers were overruled, and the motion for summary judgment was denied after the court determined that the cause of action sounded in tort. The insurer filed a motion to reconsider, and the trial court reversed its ruling upon the theory that the one-year contractual limitation was applicable to the homeowner's bad faith claim instead of the two-year tort statute of limitations.
I
The homeowner contends that the gravamen of his action is the tortious failure of the insurer to deal fairly in good faith, and that the two-year statute of limitations is controlling. Although this question has not been decided by this Court, in Tyson v. Casualty Corp. of America, Inc., 560 P.2d 238, 240 (Okl.App.1977), the Court of Appeals held that an action for bad faith refusal to settle a personal injury action was regulated by the two-year statute of limitations. The homeowner contends that Tyson is controlling. The insurer counters that: the limitation period set by the contract governs; Tyson is inapplicable because it did not involve a statutory fire insurance policy; that the crux of the suit is an action ex contractu; and that there is a conflict between 12 O.S.1981 § 95(3) and 36 O.S.1981 § 4803(G). We do not agree with the insurer's contentions.
A breach of contract is a material failure of performance of a duty arising under or imposed by agreement. Although torts may be committed by parties to a contract, a tort is a violation of a duty imposed by law independent of contract. If the contract is merely the inducement which creates the occasion for the tort, the tort, not the contract, is the basis of the action. 4 A common law duty to perform with care, skill, reasonable expediency, and faithfulness accompanies every contract. Negligent failure to observe any of these conditions will give rise to an action ex delicto as well as an action ex contractu. 5
In Christian v. American Home Assur. Co., 577 P.2d 899 (Okl.1978), this Court clearly recognized the two causes of action which may be asserted premised on the existence of an insurance contract: an action based on the contract; and an action for breach of the implied duty to deal fairly and in good faith. In this instance, the insured seeks damages for tortious failure of the insurer to deal fairly and in good faith, and for repairs to his home. The homeowner argues that the repair costs he seeks is one type of consequential damages recognized by Christian. Christian established that the insurer is responsible for all consequential damages and in a proper case, punitive damages, which result in failure to deal fairly and in good faith. The obligation of an insurer to its insured upon proper presentation of a valid claim is not limited to the payment of money. The statutory duty imposed upon the insurer to accept or reject the claim within ninety days of the receipt of the proof of loss recognizes that a substantial part of the right purchased by the insured is the right to receive benefits promptly. Unwarranted delay causes the sort of economic hardship which the insured sought to avoid by the purchase of the policy, and results in possible mental stress which may result from the loss. 6
Tort liability may be imposed only if there is a clear showing that the insurer, in bad faith unreasonably withholds payment of the claim. A cause of action in tort arose when the insurer breached the implied duty to deal fairly and in good faith with its insured. We find that the homeowner's alleged cause of action is founded in tort, and that the two-year statute of limitations is applicable. The appellee's argument that the statutes are in conflict is not persuasive because 36 O.S.1981 § 4803 is inapplicable. There can be no conflict in the absence of two controlling statutes.
REVERSED.
The first-impression question before the court is whether a claim for the insurer's bad faith refusal to pay a fire loss is governed by a one-year limitation prescribed in 36 O.S.1981 § 4803(G) for actions on a fire insurance policy or by a two-year limitation period in 12 O.S.1981 § 95(3) which governs actions "for injury to the rights of another, not arising on contract ..." The court holds that the claim is ex delicto and hence § 4803 is inapplicable. I cannot accede to this view.
The claim before us was first fashioned in Christian v. American Home Assur. Co., Okl., 577 P.2d 899 [1978]. There, at 904, we adopted the California view, expressed in Gruenberg v. Aetna Insurance Company, 9 Cal.3d 566, 108 Cal.Rptr. 480, 484, 510 P.2d 1032, 1036 [1973], and characterized the bad-faith breach of an insurer's duty to pay as sounding " 'in both contract and tort' ". [emphasis supplied]. The instant case clearly falls under the rubic of hybrid actions that lies somewhere in the gray area separating pure tort from classic contract cases. The class may be described as "torts arising out of contractual relationships". General Motors Corporation v. Piskor, 281 Md. 627, 639, 381 A.2d 16, 22-23 [1977]. Claims of this genre exhibit characteristics of both tort and contract actions. A tort will be deemed to arise out of a contractual relationship if the delictual duty breached and the contract are so intertwined that one cannot be viewed in isolation from the other because the detriment sought to be vindicated arose directly from performance or nonperformance of the contract. General...
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