Marquis v. Farm Family Mut. Ins. Co.

• Decision Date: 13 July 1993
• Citation: 628 A.2d 644
• Parties: Wayne and Alice MARQUIS v. FARM FAMILY MUTUAL INSURANCE COMPANY.
• Court: Maine Supreme Court

Page 644

628 A.2d 644

Wayne and Alice MARQUIS v. FARM FAMILY MUTUAL INSURANCE COMPANY.

Supreme Judicial Court of Maine.

Argued June 15, 1993.

Decided July 13, 1993.

Daniel G. Lilley (orally), John A. McArdle, III, Portland, for plaintiff.

Paul S. Douglass (orally), Platz & Thompson, P.A., Lewiston, for defendant.

Before ROBERTS, GLASSMAN, CLIFFORD, COLLINS, RUDMAN and DANA, JJ.

RUDMAN, Justice.

Wayne and Alice Marquis appeal from a judgment entered in the Superior Court (Aroostook County, Pierson, J.), on their action for the breach of two fire insurance contracts by Farm Family Mutual Insurance Company. The plaintiffs contend that the court erred: (1) in concluding the evidence of lost profits presented at trial was too speculative, leading it to reduce the jury award; (2) in denying its claims for interest and attorney fees under §§ 2436 and 2436-A of Title 24-A M.R.S.A.; and (3) in denying their claims based on bad faith on the part of Farm Family. Farm Family cross-appeals, contending that Wayne Marquis's refusal to submit to an examination under oath and submission of a fraudulent claim relieved it of any obligation under the policies. We reject the challenges by Farm Family and reinstate the jury verdict in its entirety.

Factual Background

The Marquis operated a potato farm in Van Buren. On April 15, 1987, a fire destroyed a potato house in which they had stored their potato crop, farm machinery, and farm supplies. ¹ Two separate policies issued by Farm Family insured the farming operation: (i) the potato crop was insured under one policy with a limit of $30,000; and (ii) the farm machinery and farm supplies were insured under a second policy with a limit of $45,000 for the machinery, and $2,000 for the supplies.

Wayne promptly notified Farm Family of his loss, and the insurer assigned Susan McBride to adjust the fire loss. McBride first arrived at the scene on the day after the fire, and obtained a recorded statement from Wayne. Her investigation led her to conclude that the fire was suspicious based in part on the following factors: Wayne's severe financial problems, and the Farmer's Home Administration's denial of his request for an operating loan; the poor condition of the potato crop prior to the fire; the discrepancy between her estimate of the quantity of potatoes lost in the fire (2,000 barrels) and Wayne's estimate (4,000-4,500 barrels); the findings of a retired state fire marshal that the cause of the fire was incendiary; and the findings of a federal potato inspector that 75% of the potatoes were rotten one week after the fire.

As a result of the McBride investigation, Farm Family, by letter dated July 8, 1987, requested that Wayne submit to an examination under oath on August 20, 1987, and produce documents relating to his farming business and his claimed losses. Two days later, on July 10, 1987, Wayne was indicted on two counts of arson by the Aroostook County Grand Jury. 17-A M.R.S.A. § 802 (1983 & Supp.1992). Thereafter, Wayne notified Farm Family that he would not submit to an examination under oath until the completion of the criminal proceedings. Farm Family then rejected Wayne's claim in its entirety due to Wayne's failure to submit to the examination under oath.

At the criminal trial, Wayne's motion for a judgment of acquittal, based on insufficient evidence, was granted at the close of the State's case.

Procedural History

The plaintiffs' amended complaint contained six counts: (I) breach of contract by Farm Family; (II) statutory interest and attorney fees, pursuant to the late payment of claims statute, 24-A M.R.S.A. § 2436, from Farm Family; (III) breach of fiduciary duty, and commission of the tort of bad-faith, by Farm Family and Susan McBride; (IV) Malicious Prosecution by Farm Family and Susan McBride; (V) malicious prosecution by the State Fire Marshal's Office and Robert McMahon, State Fire Investigator; and (VI) violation of 42 U.S.C. § 1983 by Robert McMahon.

Counts III, IV, V, and VI were dismissed prior to trial, thus leaving two counts, both against Farm Family alone: (I) breach of contract; and (II) statutory interest and attorney fees under the late payment of claims statute ² on which the jury returned a verdict by use of the following special verdict form:

1. Do you find that it is more likely than not that Wayne Marquis caused the fire at the potato house in question?

[Answer=No]

2. Did Farm Family investigate the fire claims in bad faith (breach its duty to act fairly and in good faith) prior to August 20, 1987, the date when the plaintiff did not submit to an examination under oath and to produce documents as requested?

[Answer=Yes]

3. Did the plaintiff Wayne Marquis present a fraudulent claim against the defendant Farm Family, as regard to the quantity or quality of the potatoes in question?

[Answer=No]

4. What amount of damages, if any, are Plaintiffs entitled to recover from the Defendant, Farm Family, for loss of personal property insured under the policy and for consequential damages as a result of the fire?

[Answer=$680,000].

Having moved for a directed verdict at the close of the evidence, after the jury's verdict, Farm Family moved for a judgment notwithstanding the verdict, or, in the alternative, a motion for a new trial or remittitur. The court (1) entered judgment for Farm Family on Count II, finding that neither Wayne nor Alice was entitled to recover interest and attorney fees under the late payment of claims statute, 24-A M.R.S.A. § 2436; (2) concluded that neither Wayne nor Alice was entitled to recover under the unlawful claims practices statute, 24-A M.R.S.A. § 2436-A, because plaintiffs did not allege a claim based on that statute; and (3) granted Farm Family's motion for a new trial on damages, unless the plaintiffs remitted $610,629, an amount representing the plaintiffs' claim for lost profits, on the ground that the evidence of lost profits offered by the plaintiffs at trial was too speculative.

The plaintiffs then filed a motion for reconsideration, requesting that the court reinstate the jury verdict of $680,000, or, in the alternative, amend its order from one of new trial/remittitur to one ordering a judgment notwithstanding the verdict in favor of Farm Family, to enable the plaintiffs to appeal without having to first retry the issue of damages. The court granted the plaintiffs' motion and converted its order to a judgment notwithstanding the verdict. This appeal and cross-appeal followed.

I. Breach of Contract

A. Farm Family's Cross-Appeal

The plaintiffs alleged in their complaint, and the jury found, that Farm Family breached the implied duty of good faith and fair dealing owed by an insurer to an insured. Farm Family first contends that since this case does not involve any third-party tort claimant, no implied duty of good faith and fair dealing exists in the present case. Specifically, Farm Family argues that the fear that an insurer will not diligently and honestly negotiate a settlement with a third-party tort claimant, deciding to take its chances at trial and possibly exposing the insured to liability in an amount above the policy limit, is nonexistent in a first-party insurance situation. See Linscott v. State Farm Mutual Auto. Ins. Co., 368 A.2d 1161, 1163-64 (Me.1977). We disagree and conclude that in every insurance contract an insurer owes a duty to act in good faith and deal fairly with its insured, even in the absence of a third-party tort claimant. See Chiapetta v. Lumbermens Mutual Ins. Co., 583 A.2d 198, 202 (Me.1990). "The rationale which recognizes an ancillary duty on an insurance company to exercise good faith in the settlement of third-party claims is equally applicable and of equal importance when the insured seeks payment of legitimate damages from his own insurance company." Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368, 375 (1978). The duty to act in good faith arises at the time the parties enter into the insurance contract, and does not depend on who might be involved in any subsequent litigation.

Farm Family next contends that, even if it owed a duty to act in good faith and deal fairly, nevertheless, there exists insufficient evidence to support the jury's finding that it breached the duty. We first note that this question was properly before the jury. See, e.g., deVries v. St. Paul Fire and Marine Ins. Co., 716 F.2d 939, 944 (1st Cir.1983) (whether insurer breached implied covenant of good faith and fair dealing in connection with fire policy was question for jury in insured's action seeking proceeds of policy and further damages resulting from breach of covenant). Furthermore, we must sustain the verdict "if any credible evidence, and all justifiable inferences drawn from such evidence, viewed in the light most favorable to the plaintiff, support the verdict." Redlon's Inc. v. Gilman, Inc., 485 A.2d 661, 662 (Me.1984).

The evidence, when viewed in the light most favorable to the plaintiffs, supports the jury's finding that Farm Family breached its duty to act in good faith and deal fairly by conducting its investigation of the cause and origin of the fire in bad-faith. Specifically, Susan McBride's failure to interview the couple with whom Wayne and Alice played cards on the night of the fire and her failure to inform Farm Family of a police officer's statements that controverted evidence that Wayne was at the potato house on the night in question, evidence Farm Family's bad faith investigation. Moreover, McBride failed to tell the fire investigator that just four months prior to this fire, Farm Family paid a fire claim caused by a faulty kerosene heater in the very same potato house. Marlin Cook, the claims supervisor, also failed to look into Farm Family's files to check Wayne's past fire claims history, which would have revealed the claim paid just four months earlier. McBride further failed to interview Arsene LaPlante, who stated that Wayne's potatoes...