Natividad v. Alexsis, Inc.

Decision Date28 April 1994
Docket NumberNo. D-2786,D-2786
Citation875 S.W.2d 695
PartiesRosa NATIVIDAD, Petitioner, v. ALEXSIS, INC., and William Steen, Respondents.
CourtTexas Supreme Court

Karen A. Lerner, Houston, for petitioner.

Frederick B. Wulff, Sr., Kurt Schwarz, Elizabeth Hosch, Dallas, for respondents.

GONZALEZ, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and HECHT, CORNYN and ENOCH, Justices, join.

A workers' compensation claimant filed suit against an adjusting firm and a claims adjuster employed by the firm, alleging, among other things, breach of the duty of good faith and fair dealing. The trial court rendered a summary judgment in favor of the defendants. The court of appeals reversed and remanded, holding that an adjusting firm owes the same duty of good faith and fair dealing as an insurance carrier. 833 S.W.2d 545. We disagree. The non-delegable duty of good faith and fair dealing is owed by an insurance carrier to its insureds due to the nature of the contract between them giving rise to a "special relationship." An insurance carrier, not its agents and contractors providing claims handling services, is liable to the insured for actions by the agents or contractors that breach the duty of good faith and fair dealing owed by the carrier to the insured. For the following reasons, we reverse the judgment of the court of appeals.

FACTS

Rosa Natividad was injured twice within a year while in the course of her employment with Revco D.S., Inc. She filed a workers' compensation claim for each injury. Both claims were settled. On February 24, 1989, Natividad filed suit alleging various causes of action arising from the handling of her workers' compensation claims by Revco, National Union Fire Insurance Company of Pittsburgh, AIG Risk Management, Alexsis, Inc., and William Steen. National Union was Revco's workers' compensation carrier. National Union contracted to have AIG provide all the services under the policy. AIG contracted with Alexsis, Inc. for claims adjusting services under the policy. William Steen, a claims adjuster, was an employee of Alexsis, Inc. Natividad settled with National Union, AIG, and Revco, and dismissed them from the suit. 1 Natividad's Fifth Amended Petition asserted the following causes of action against Alexsis, Inc. and Steen: 1) breach of the duty of good faith and fair dealing; 2) fraud; 3) economic duress, oppression and outrage; 4) negligent infliction of emotional distress; and, 5) extreme and outrageous conduct which caused severe emotional distress as set forth in Section 46 of the Second Restatement of Torts. 2

Alexsis, Inc. and Steen moved for summary judgment on the grounds that they did not owe a duty of good faith and fair dealing to Natividad and that Natividad could not recover for her emotional distress. The trial court rendered a take-nothing summary judgment in favor of the defendants.

The court of appeals reversed the summary judgment in part. Although there were no pleadings and evidence to support the theory, the court of appeals held that Natividad was a third-party beneficiary of a contract between Alexsis, Inc. and National Union, and that Alexsis, Inc. owed Natividad a duty of good faith and fair dealing. 3 However, the court of appeals held that Steen did not owe a duty of good faith and fair dealing because "[h]e did not issue an insurance policy and did not contract with the carrier On appeal to this Court, Natividad argues that the court of appeals erred in holding that Steen did not owe Natividad a duty of good faith and fair dealing. By cross-application, Alexsis, Inc. and Steen argue that because the duty of good faith and fair dealing must be based on a contract between the parties, neither Alexsis, Inc. nor Steen owed Natividad this duty. Alexsis, Inc. and Steen also argue that the uncontroverted affidavit testimony of Steen was sufficient to support summary judgment on the claims for negligent and intentional infliction of emotional distress, and that summary judgment of Natividad's claim of intentional infliction of emotional distress was otherwise proper because they negated other elements of her claim.

                to provide any adjusting services." 4  The court of appeals upheld summary judgment favoring Alexsis, Inc. and Steen as to Natividad's allegations of fraud, and of economic duress, oppression and outrage, but remanded Natividad's causes of action for negligent and intentional infliction of emotional distress
                
DUTY OF GOOD FAITH AND FAIR DEALING

Rosa Natividad asks this Court to extend the common-law duty of good faith and fair dealing which we first recognized in Arnold v. National County Mutual Fire Insurance Company, 725 S.W.2d 165 (Tex.1987), to bind entities and individuals in the insurance industry that are not in contractual privity with the claimant. Because the existence of a contract, vesting the insurer with "exclusive control over the evaluation, processing, and denial of claims," Id. at 167, that gives rise to a "special relationship" is a necessary element of the duty of good faith and fair dealing, we decline to do so.

Since its inception, the duty of good faith and fair dealing has only been applied to protect parties who have a special relationship based on trust or unequal bargaining power. See Arnold, 725 S.W.2d at 167. In the insurance context, this special relationship arises out of "the parties' unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insureds...." Id.; see also, Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566 (Tex.1990); Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210 (Tex.1988); Chitsey v. National Lloyds Ins. Co., 738 S.W.2d 641 (Tex.1987). 5

When this Court applied the duty of good faith and fair dealing to the workers' compensation relationship in Aranda, 748 S.W.2d at 212, we continued to focus on the special relationship created by the contractual relationship of the parties: the employer, the employee, and the insurance carrier. We stated:

The Workers' Compensation Act sets forth a compensation scheme that is based on a three-party agreement entered into by the employer, the employee, and the compensation carrier.... As between the compensation carrier and the employee, there is a promise for a promise: the carrier agrees to compensate the employee for injuries sustained in the course of employment, and the employee agrees to relinquish his common law rights against his employer. The employee is thus a party to the contract and therefore entitled to recover in that capacity.

The contract between a compensation carrier and an employee creates the same type of special relationship that arises under other insurance contracts.

Id. (citations omitted).

The duty of good faith and fair dealing emanates from the special relationship between The court of appeals and the Dissent look to Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804 (Colo.1991), to support extending the duty of good faith and fair dealing to the agents of insurance carriers. Their reliance on this case is misplaced. In Wetzel, 821 P.2d at 812, the court imposed a duty of good faith based on policy goals contained in that state's compensation act. In contrast, as set out above, we have always recognized that in an insurance context, the duty of good faith and fair dealing arises only when there is a contract giving rise to a "special relationship."

                the parties and not from the terms of the contract, therefore its breach gives rise to tort damages and not simply to contractual liability. 6  However, the "special relationship" exists only because the insured and the insurer are parties to a contract that is the result of unequal bargaining power, and by its nature allows unscrupulous insurers to take advantage of their insureds.  Arnold, 725 S.W.2d at 167.   Without such a contract there would be no "special relationship" and hence, no duty of good faith and fair dealing
                

In the present case, there is no special relationship between Natividad and either Alexsis, Inc. or Steen. Natividad is not a party to a contract with Alexsis, Inc. or Steen. Natividad's contractual privity is only with her employer and National Union. Natividad is owed a duty of good faith and fair dealing from National Union. This duty is non-delegable. 7 When the insurance carrier has contracted with agents or contractors for the performance of claims handling services, the carrier remains liable for actions by those agents or contractors that breach the duty of good faith and fair dealing owed to the insured by the carrier. Natividad was entitled to and did recover from National Union for actions by its employees, agents or contractors that breached the duty of good faith and fair dealing owed to Natividad by National Union. Alexsis, Inc. and Steen, because they were not parties to a contract with Natividad giving rise to a "special relationship," owed Natividad no duty of good faith and fair dealing. Thus, the court of appeals was correct in affirming the trial court's summary judgment as to Natividad's claim for breach of the duty of good faith and fair dealing against Steen. The court of appeals erred, however, in reversing the trial court's summary judgment as to Natividad's claim for breach of the duty of good faith and fair dealing against Alexsis, Inc.

EMOTIONAL DISTRESS

The trial court granted a motion for summary judgment by Alexsis, Inc. and Steen on Natividad's claims for negligent and intentional infliction of emotional distress. The motion came after special exceptions filed by Alexsis, Inc. and Steen, alleging that Natividad's pleadings were factually and legally insufficient. The court of appeals reversed the judgment of the trial court as to the claims for emotional distress. Subsequent to the court of appeals decision, this court in Boyles v. Kerr, 855 S.W.2d 593, 594 (Tex.1993), held that in Texas,...

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