MFA Mut. Ins. Co. v. Flint

• Decision Date: 11 December 1978
• Citation: 574 S.W.2d 718
• Parties: MFA MUTUAL INSURANCE COMPANY, Petitioner, v. Lyle M. FLINT and wife, Delma Flint and Perry Butler and wife, Sherry Butler, Respondents.
• Court: Tennessee Supreme Court

Page 718

574 S.W.2d 718

MFA MUTUAL INSURANCE COMPANY, Petitioner, v. Lyle M. FLINT and wife, Delma Flint and Perry Butler and wife, Sherry Butler, Respondents.

Supreme Court of Tennessee.

Dec. 11, 1978.

Jerry D. Kizer, Jr., Menzies, Rainey & Kizer, Jackson, for petitioner.

Max D. Lucas, Jr., Tenn. Defense Lawyer's Assoc., Memphis, amicus curiae.

Phillip G. Hollis, Peeler & Hollis, Camden, for respondents.

OPINION

COOPER, Justice.

Certiorari was granted in this case to clarify the duty owed by an insurance company to its insured in settling a claim of its insured under the uninsured motorist provision of an automobile liability insurance policy. There is also the question whether MFA Mutual Insurance Company breached its duty in settling the claims of respondents.

The respondent, Lyle Flint, was issued an automobile liability insurance policy by MFA, which also provided medical payment coverage of $2,000.00 for each person, and uninsured motorist coverage of $25,000.00 for each person and $50,000.00 for each accident.

On March 13, 1975, while driving the insured automobile and with her daughter, Sherry Butler, as a passenger, Mrs. Flint was involved in an automobile collision. Both Mrs. Flint and Mrs. Butler sustained disabling personal injuries.

The driver of the other automobile was an uninsured motorist within the meaning of the policy issued by MFA. Both Delma Flint and Sherry Butler were insureds within the policy definition and were within the uninsured motorist coverage.

On investigating the accident, MFA determined that Delma Flint was guilty of no negligence and that the collision was solely the fault of the driver of the other automobile. An adjuster for MFA then effected a settlement with respondents, paying the wages lost by Mrs. Flint and Mrs. Butler and that part of their medical expenses not paid under other insurance policies owned by respondents.

Thereafter, an action against the Flints was filed by parties in the other automobile. MFA notified the Flints that the exposure of the Flints was in excess of their policy limits. The Flints consulted an attorney, who, upon learning of the basis of settlement of the respondents' claims, filed actions in the chancery court for rescission or reformation of the releases claiming that the actions of MFA showed bad faith, breach of fiduciary duties, fraud and misrepresentation.

On trial, the chancellor found the MFA had dealt with respondents "in bad faith and in such a way that (its) conduct in the procuring of the releases shocked the conscience of the court." The chancellor then entered a decree setting the releases aside.

The Court of Appeals affirmed the chancellor's action, the majority holding that:

. . . (A)n insurer, when attempting to settle a claim of its insured under the uninsured motorist coverage, owes the insured a much higher duty than it would owe to a tort claimant when settling a claim against the insured under the liability coverage of the policy. Under the circumstances presented here, the duty owed by the insurer to its insured rises to that of fiduciary. The utmost good faith is required. The facts of coverage, the amount of coverage, the position of the parties and the effect of settlement must be fully revealed to the insured, and the insurer must see that the necessary steps are taken to reveal to the insured complete information as to the nature and extent of the injuries suffered." (emphasis supplied)

Petitioner insists there can be no fiduciary relationship between the insurer and its insured when the insurance company is settling a claim directly with its insured that the relationship is merely a contractual one measured by the terms of the insurance contract.

We agree generally that no fiduciary relationship exists between an insurer and its insured when the company is settling a claim directly with its insured, but it does not necessarily follow that the insurer owes no duty that is not specifically spelled out in the contract drawn by the insurer. As noted in Bowler v. Fidelity and Casualty Company of New York, 53 N.J. 313, 250 A.2d 580 (1969), which involved a limitation of time to sue on a policy of disability insurance:

Insurance policies are contracts of the utmost good faith and must be administered and performed as such by the insurer. Good faith "demands that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting." (Citations omitted). In all insurance contracts, particularly where the language expressing the extent of the coverage may be deceptive to the ordinary layman, there is an implied covenant of good faith and fair dealing that the insurer will not do anything to injure the right of its policyholder to receive the benefits of his contract. This covenant goes deeper than the mere surface of the writing. When a loss occurs which because of its expertise the insurer knows or should know is within the coverage, and the dealings between the parties reasonably put the company on notice that the insured relies upon its integrity, fairness and honesty of purpose, and expects his right of payment to be considered, the obligation to deal with him takes on the highest burden of good faith. 250 A.2d 580 at 587.

The duty to deal with its insured fairly and in good faith has been imposed upon an insurer settling a claim made by its insured under the uninsured motorist provision of an automobile liability insurance contract, though not universally so. See Craft v. Economy Fire and Casualty Co. (7th Cir., 572 F.2d 565 (1978)); Richardson v. Employer's Liability Assurance Corp., 25 Cal.App.3d 232, 102 Cal.Rptr. 547 (1972). But see Baxter v. Royal Indemnity Co., 285 So.2d 652 (Fla.App.1973). In opting for the...