National Sec. Fire & Cas. Co. v. Bowen

• Decision Date: 11 May 1982
• Parties: NATIONAL SECURITY FIRE & CASUALTY COMPANY, a corporation, and National Security Insurance Company, a corporation, et al. v. Stanley R. BOWEN. 80-784.
• Court: Alabama Supreme Court

Page 179

417 So.2d 179

NATIONAL SECURITY FIRE & CASUALTY COMPANY, a corporation, and National Security Insurance Company, a corporation, et al. v. Stanley R. BOWEN.

80-784.

Supreme Court of Alabama.

May 11, 1982.

Rehearing Denied July 16, 1982.

John B. Givhan of Albrittons & Givhan, Andalusia, for appellants.

Griffin Sikes of Tipler, Fuller & Sikes and Earl V. Johnson, Andalusia, for appellee.

BEATTY, Justice.

Appeal by National Security Fire & Casualty Company and National Security Insurance Company (National) from an adverse judgment in an action brought by Stanley R. Bowen. We reverse and remand.

The cause grew out of Bowen's purchase of certain used logging equipment, consisting of a skidder and a loader, from Jeffcoat Equipment, Inc., in Dothan. He executed a security agreement which was subsequently assigned to Commercial Credit Equipment Corporation in Montgomery. The $26,572.50 purchase price included a one-time premium of $765.00 for property damage insurance in the amount of $25,000.00 for one year's coverage beginning September 13, 1976. The premium was paid to Lomax Johnson Insurance Agency in Dothan which placed the coverage with National. The policy contained a standard loss payable clause naming Commercial Credit as mortgagee.

In late November 1976, Bowen informed the agency that his skidder had been stolen and discovered under water in a creek. When notice of this claim was received by National, it was assigned by Rufus D. Johnson, National's assistant vice-president for claims (who had authority to approve or disapprove them) to Murray McCall, an independent adjustor in Geneva, for the purpose of appraisal of the damage and adjustment. In due course the skidder was repaired by Jeffcoat Equipment, Inc., and National paid Jeffcoat $5,389.64, the full amount of the claimed loss.

On or about April 12, 1977, Bowen informed the Lomax Johnson Agency of another loss, not only to the skidder but also to the loader. He stated that he had left the equipment in the woods overnight and it had burned. Bowen stated that he was not sure of the cause. This information was telephoned to Rufus D. Johnson who contacted Murray McCall, requesting him to investigate the loss. McCall was unable to do so; therefore, Johnson telephoned Gene Bosche, president of Beneficial Investigative Services, Snellville, Georgia. Johnson had received correspondence from Bosche describing the latter's adjusting and investigative organization, together with a description of the experience of his staff. Bosche was asked to determine whether the fire was arson and, if so, to determine the identity of the arsonist. Johnson followed up this conversation with a confirming letter which included copies of the policy and the loss notice. Neither Johnson nor anyone else in National's office participated in the investigation, Johnson's instructions being, as shown by his letter to Bosche:

"It is my understanding that your investigator will call me before he leaves the area or concludes his investigation so that we can have an opportunity to discuss his file material and determine if any further investigation is merited."

Bosche and his vice-president, Ed Pierson, went to Covington County and conducted an investigation. Their report was made in the latter part of May 1977 and included Bowen's statement of loss, in which he asserted that the actual cash value of the equipment was $60,000.00 and claimed $25,000.00 under the policy; a sketch map positioning the vehicles; photographs; and the investigator's statement describing his interviews with Bowen, with a representative of Commercial Credit Equipment Company in Montgomery, with a sheriff's department investigator, and with Ronnie Worrell and Louis "Frog" Williamson. The investigator's conclusion was that the case was one of arson committed by Bowen.

On July 26, 1977, National paid Commercial Credit $18,995.59, the amount of the unpaid balance due them under their security agreement, but did not pay Bowen the difference between the amount of their insurance policy, $25,000.00, and the $18,995.59 because, according to Rufus D. Johnson, on the basis of the investigative report, there was evidence, which he believed, that Bowen had burned the equipment.

Meanwhile, in June 1977, Bowen had been indicted by the grand jury of Covington This action was filed on June 16, 1978. Bowen's complaint contained counts for malicious prosecution; "intentional and malicious harassment" (outrageous conduct); willful failure to pay and fraud; and conspiracy. By amendment Bowen struck his original ad damnum demand and substituted a demand for "Two Million Five Hundred Thousand ($2,500,000.00) Dollars" in each of his Claims One, Two and Three. Claim Four was dismissed. Trial ensued against National as the only defendant on May 25, 1981. National moved for a directed verdict separately as to each claim. Ultimately a jury returned a verdict for $250,000.00 on which judgment was entered. National then moved for judgment NOV, or a new trial, both of which were denied. This appeal followed from the final judgment and the denial of the defendant's post-trial motions.

County for the offenses of arson in the third degree and false pretenses. His trial in December 1977 resulted in a mistrial, and the charges were nol-prossed in March 1978.

Issues I and III posed to us by the defendant, National, deal with Claim Three of the complaint. The pertinent portions of that claim follow:

"3. The substance of the agreement, to-wit, heretofore mentioned policy of insurance, is as follows: Defendants, National Security, agreed to pay the plaintiff and/or his mortgagee under loss payable clause as such mortgagees' interest appears, in exchange for payment of premiums for a loss incurred by fire to plaintiff's equipment and machinery.

"4. The plaintiff alleges that although he has complied with all the provisions of said agreement on his part, defendants, National Security, have willfully or wantonly failed to pay the plaintiff's loss incurred by reason of a fire which occurred on or about, to-wit, April 12, 1977, during the term of said policy and while the same was in full force and effect; notice of which was given to said defendant corporations on or about May 2, 1977. [Emphasis added.]

"5. Plaintiff further alleges that said defendants, National Security, fraudulently and falsely represented to plaintiff that valid claims under the above mentioned policy would be paid, knowing that such statements were false; that said defendants, National Security, issued said policy and accepted premiums therefor, with the present intent not to honor valid claims thereunder.

"6. Plaintiff adopts the allegations of Paragraphs 1, 2, 3, 4 and 5 and assigns the same to defendants 1, 2 and 3, being those persons, firms, partnerships, or other legal entities responsible for the fraudulent misrepresentations made to the plaintiff, whose true names are otherwise unknown to the plaintiff but whose true names will be substituted by amendment when ascertained by the plaintiff."

National contends that the trial court erroneously construed these allegations as stating a cause of action against it based upon its "bad faith refusal to pay a direct claim." National maintains that the allegations of Claim Three fall within and state a cause of action for "fraudulent inducement" under Old Southern Life Ins. Co. v. Woodall, 295 Ala. 235, 326 So.2d 726 (1976). See also Old Southern Life Ins. Co. v. Woodall, Ala., 348 So.2d 1377 (1977). The defendant objected to the plaintiff's reference in his opening statement to Claim Three as a "claim of tort of bad faith," and contended then and now that "bad faith" was not in issue. Thus, argues the defendant, it was reversible error for the trial court not to grant its motion for a directed verdict specifically directed to Claim Three and for the trial court's giving three jury charges pertaining to the tort of bad faith refusal.

We have carefully compared the allegation of Claim Three with those in each of the Woodall decisions, and we agree with the defendant that they are strikingly similar, extremely so. The question, however, is whether those allegations would give notice of a bad faith claim. While it would have been preferable for plaintiff to initially have stated a "bad faith" claim with at least the same particularity as his "fraudulent "[T]he complaint must contain either direct allegations on every material point necessary to sustain a recovery on any legal theory, even though it may not be the theory suggested or intended by the pleader, or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial...."

                misrepresentation" claim, nevertheless, because that issue has been tried, in the interest of liberality in pleading, his failure to do so was not fatal in this case.  Rule 8, Alabama Rules of Civil Procedure;  Rule 9(b), ibid.   The plaintiff's allegations of a willful or wanton failure to pay after he had fully complied with the contractual provisions, and of the false representations that valid claims would be paid knowing that such statements were false, were sufficient under notice pleading to apprise defendant that evidence of the bad faith theory might be introduced.  As stated in 5 Wright & Miller, Federal Practice and Procedure, § 1216 at 121-123
                

Indeed, an intentional failure to pay a valid claim might result from misrepresentations knowingly made that valid claims would be paid in the future. Certainly, therefore, such allegations as those we have referred to would be sufficient upon which to introduce proof of the elements of the tort of bad faith refusal.

The defendant's attack upon the merits of that claim, however, is well taken.

An insurer is liable for its refusal to pay a direct claim when there is no lawful basis for the refusal coupled with actual knowledge of that fact. Chavers v. National...