Linscott v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 31 January 1977
• Parties: Mervin D. LINSCOTT v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.
• Court: Maine Supreme Court

Page 1161

368 A.2d 1161

Mervin D. LINSCOTT v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.

Supreme Judicial Court of Maine.

Jan. 31, 1977.

Connellan & Connellan, by James A. Connellan, Portland, for plaintiff.

Platz & Thompson by J. Peter Thompson, Lewiston, for defendant.

Before DUFRESNE, C. J., and WEATHERBEE ^*, POMEROY, WERNICK and ARCHIBALD, JJ.

WERNICK, Justice.

On April 15, 1975, plaintiff Mervin D. Linscott instituted in the Superior Court (Kennebec County) a civil action against defendant State Farm Mutual Automobile Insurance Company. The complaint charged defendant with deceit, misrepresentation and economic duress, as well as failure to negotiate in good faith with plaintiff's counsel a settlement of plaintiff's personal injury claim against a policyholder of defendant company. On August 8, 1975, the presiding Justice ordered the complaint dismissed for failure to state a claim upon which relief may be granted (Rule 12(b)(6) M.R.C.P.). Judgment for defendant was entered, and plaintiff appeals from the judgment.

We deny the appeal.

For present purposes, we take as true the facts alleged in the complaint.

On January 24, 1973 plaintiff, a resident of Maine, was operating a motor vehicle in Virginia which collided with a motor vehicle operated by a North Carolina resident, William Lewis. Lewis held a liability insurance policy with defendant insurance company pursuant to which the company undertook to afford Lewis legal representation. From February, 1973 to November, 1973, defendant company dealt with plaintiff's attorney in Maine who, believing that the only issue for negotiation was the amount of damages, had presented defendant company with a list of special damages, allegedly undisputed, amounting to much more than $10,000.00.

On August 17, 1973, plaintiff tendered a settlement offer of $18,000.00 (within the policy limits of $20,000.00). Defendant rejected it, making a counter-offer to settle for $2,500.00. Defendant's motivation in offering this 'less than nominal settlement' was to capitalize on the difficulties caused plaintiff by the facts that the place of the collision and the residence of the operator of the other vehicle (Lewis) were far from plaintiff's Maine residence. Despite plaintiff's written warning to defendant company that should it persist in this attitude, plaintiff would send the case to a Virginia attorney for further prosecution of the claim, defendant failed to make a reasonable offer of settlement to plaintiff's Maine attorney. The case was ultimately forwarded to a Virginia attorney and, within six weeks thereafter, defendant settled with the Virginia attorney for $17,000.00.

We discern in these facts three possible theories of legal liability: (1) violation of a 'duty' to negotiate; (2) economic or geographic duress; and (3) fraud or deceit.

As to the first rationale, plaintiff has explicitly disavowed reliance on the 'duty of good faith and fair dealing' owed by an insurer to its insured. Plaintiff contends, rather, that defendant's liability to plaintiff arises from an alleged 'duty' of a tortfeasor (and his liability insurance carrier) to make whole the person whom he has injured.

The pre-trial negotiations which may be conducted between a tort claimant and a defending insurance company are adversary in nature and, hence, will not give rise to a duty to bargain in good faith, as claimed by plaintiff. A 'duty of good faith and fair dealing' in the handling of claims runs only to an insurance company's insured, Bennet v. Slater, 124 Ind.App. 67, 289 N.E.2d 144 (1972); Sequros Tepeyac, S.A., Compania Mexicana v. Bostrom, 347 F.2d 168 (5th Cir. 1965); it derives from a covenant implicit in the provisions fo the insurance contract establishing the insurer as the authorized representative of the insured and is, therefore, without application for the benefit of the adversary third party tort claimant. Murray v. Mossman, 56 Wash.2d 909, 355 P.2d 985 (1960); Duncan v. Lumbermen's Mutual Casualty Company, 91 N.H. 349, 23 A.2d 325 (1941). Indeed, that the insurer is the representative of the insured logically imports that the third party tort claimant's status as the adversary of the insured renders him, ipso facto, the adversary of the insured's agent. Thus, prior to the establishment of legal liability, as the tort claimant has no legal right to require the tortfeasor to negotiate or settle, it likewise lacks right to require such action by his representative. Zahn v. Canadian Indemnity Company, 57 Cal.App.3d 509, 129 Cal.Rptr. 286 (1976). This is true even if it is the insurer which voluntarily initiates the pre-litigation negotiations with the injured tort claimant. Francis v. Newton, 75 Ga.App. 341, 43 S.E.2d 282 (1947).

Obad v. Allstate Insurance Company, 27 A.D.2d 795, 279 N.Y.S.2d 128 (1967), the sole authority relied upon by plaintiff, is inapposite. In that case, the pleadings (which alleged bad faith in negotiations) were held to state a cause of action because the insurer's...