Murphy v. Cincinnati Ins. Co., Civ. A. No. 83CV-6048-AA.

• Decision Date: 19 December 1983
• Docket Number: Civ. A. No. 83CV-6048-AA.
• Citation: 576 F. Supp. 542
• Parties: James D. MURPHY and Rosemary Murphy, Plaintiffs, v. CINCINNATI INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Michigan

576 F. Supp. 542

James D. MURPHY and Rosemary Murphy, Plaintiffs, v. CINCINNATI INSURANCE COMPANY, Defendant.

Civ. A. No. 83CV-6048-AA.

United States District Court, E.D. Michigan, S.D.

December 19, 1983.

Robert E. Toohey, Kiefer, Allen, Cavanagh & Toohey, Bloomfield Hills, Mich., for plaintiffs.

Phillip K. Yeager, Deneneber, Tuffley, Thorpe, Bocan & Patrick, Southfield, Mich., for defendant.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

This matter is before the Court on the plaintiffs' Motion for Attorney Fees. For the reasons given below, the motion is granted.

The action was brought by the plaintiffs seeking payment of the proceeds of a fire insurance policy covering their real and personal property. The case was tried to a jury which found in favor of the plaintiffs. The jury also found that the defendant "did not act fairly and reasonably in the investigation of the facts and circumstances surrounding the fire."

The plaintiffs claim that the jury found that the defendant breached its duty to deal in good faith and, therefore, should be liable for the attorney fees incurred by the plaintiffs in having to enforce the contract.

The defendant argues that the jury, in finding that it did not act "fairly and reasonably", merely determined that the defendant was negligent and under Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 295 N.W.2d 50 (1980), plaintiffs are limited to damages for breach of a commercial contract.

As a preliminary matter, the jury finding of failure to act "fairly and reasonably" is equivalent to a finding of bad faith. The instructions given in connection with this question specifically told the jury that it could not answer the question in the affirmative based upon negligence alone but must find that the "acts of the defendant reflected a callous disregard for the rights of the plaintiffs."

Furthermore, a failure to properly investigate an insurance claim can constitute bad faith. See Appleman, Insurance Law & Practice § 8878.25. The plaintiffs in this action claimed, among other things, that the defendant failed to properly investigate the claim.

The next issue is whether Michigan would recognize a bad faith claim in the insurance context for which attorney fees might be awarded. There are no Michigan cases directly on point. The defendant argues that Kewin, supra, precludes such a claim. Kewin held that mental distress damages were not available for breach of a commercial contract, absent an allegation and proof of tortious conduct existing independent of the breach. Kewin did not address the present problem and the opinion expressly reserves the question of whether attorney fees might be assessed for actions which constitute bad faith:

We do not address a question not raised:

Whether compensation for attorney's fees or other items of pecuniary loss caused by a breach of the insurer's contractual obligation to process claims in good faith might be recoverable if properly pleaded.

Kewin, 409 Mich. at 421 n. 1, 295 N.W.2d 50.

The footnote in Kewin indicates that Michigan does recognize a contractual obligation on the part of the insurer to act in good faith. Such a duty has been expressly recognized in cases involving the settlement of third party claims against the insured. See Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643 (1929); Citizens Mutual Ins. Co. v. Nationwide, 29 Mich.App. 91, 185 N.W.2d 99 (1970). Wakefield held that an insurer was liable to its insured for an excess of judgment over the face of the policy when the insurer, having exclusive control over the settlement, fraudulently or in bad faith refused to compromise a claim for an...