Overcast, v. Billings Mutual Insurance Company

• Decision Date: 08 February 2000
• Parties: (Mo.banc 2000) . Henry Dale Overcast, Respondent, v. Billings Mutual Insurance Company, Appellant Case Number: SC81741 Supreme Court of Missouri Handdown Date: 0
• Court: Missouri Supreme Court

11 S.W.3d 62 (Mo.banc 2000)

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.

Henry Dale Overcast, Respondent, v. Billings Mutual Insurance Company, Appellant

Case Number: SC81741

Supreme Court of Missouri

Handdown Date: 02/08/2000

Appeal From: Circuit Court of Christian County, Hon. James L. Eiffert, Judge

Counsel for Appellant: Robert D. Lewis and Dale L. Davis

Counsel for Respondent: Michael T. Pivac and Thomas H. Hearne

Opinion Summary:

Henry Dale Overcast's home insurer refused to pay a loss on the grounds that the fire resulted from an intentional act. After a jury verdict for Overcast for contract damages under the policy and for actual and punitive damages for defamation, the insurer appealed the defamation judgment.

AFFIRMED.

Court en banc holds:

(1) The vexatious refusal statute does not preempt the defamation claim. Section 375.420 does not purport to preempt the common law breach of contract remedy but adds to it. Nor is there any preemptive intent in the statute's context. Overcast's tort claim for defamation does not depend on the elements of the contract claim, including the refusal to pay.

(2) The defamation claim was valid and supported by the evidence.

(A) Although the insurer sent the claim denial letter only to Overcast, the insurer was aware that the allegation that Overcast was an arsonist would need to be published and would be published to others.

(B) There was evidence that Overcast was damaged by the defamation (such as depriving Overcast of future insurance contracts), not just the coverage denial.

(C) The communication was not privileged. While there is statutory immunity for an insurer's statements in canceling policies, there is no similar protection in denying claims. An insurance company will not be liable for defamation if it sends letters with reasons after a fair and thorough investigation that develops substantial evidence to support its decision.

(D) Overcast did not consent to the defamation by making a claim or wanting to know where he stood on the claim, without requesting the reasons.

(E) The jury instructions were proper. The determination of whether the defense of absolute or qualified privilege exists is a question for the court, so the court did not err in refusing to instruct the jury on it. Whether the speaker subjectively believed the statement is ordinarily not a factor in establishing defamation. Thus the insurer's proposed instructions did not properly state the law.

Opinion Author: Michael A. Wolff, Judge

Opinion Vote: AFFIRMED. All concur.

Opinion:

When Henry Dale Overcast's home was destroyed by fire in 1997, his insurance company, Billings Mutual Insurance, refused payment on the grounds that the "loss resulted from an intentional act" committed either by Overcast or at his direction. Overcast sued for insurance benefits under the policy and for defamation. The trial court entered judgment, after jury verdict, for contract damages for the insurance coverage and for actual and punitive damages on the tort claim for defamation. On appeal, the insurance company renewed its main contentions: (1) that Overcast's sole remedy against the company is for breach of contract because the statute, section 375.420,¹ which provides enhanced recovery for an insurance company's vexatious refusal to pay, preempts all other claims; and (2) that the insurance company is not liable for defamation because the statement that Overcast was an arsonist was not published to third parties, did not cause damage, was consented to by Overcast, and was a privileged communication. This Court granted transfer after opinion by the court of appeals. Mo. Const. art. V, section 10. We affirm the judgment of the trial court.

FACTS²

Overcast purchased a fire policy from the insurance company in August 1996, insuring his home up to $50,000 and its contents up to $15,000. On the morning of April 1, 1997, Overcast discovered smoke in his house. When he passed the bathroom door, he could feel heat. He opened the door and was momentarily overcome by heat and smoke. He ran from the house and shouted for his neighbor. Overcast and his neighbor tried to put out the fire by grabbing a garden hose and entering the house, while the neighbor's wife called the fire department. Overcast and his neighbor fought the fire for several minutes until the neighbor insisted they leave. Both the house and its contents were destroyed.

Gayle Cobb, the general manager of Billings Mutual Insurance Company and sole claims decision maker, conducted the company's investigation, in part by hiring Jim Kuticka of Wickizer-Clutter Insurance Claims Adjusters to investigate the cause of the fire. Cobb testified that he had previously hired Kuticka about 25 times to investigate fires and was familiar with the thoroughness and quality of his work. Cobb knew that Kuticka would only do a visual inspection of debris and carpet in Overcast's home, unless directed to do more. Kuticka raked away the debris, which had baked, and from a visual inspection of the burns on the carpet, Kuticka determined that "large amounts of flammable liquid had been poured throughout the house." Cobb did not direct Kuticka to test for the presence of flammable liquids. Cobb knew that Kuticka had neither reviewed the fire department's report nor spoken to any firefighter before concluding that the fire was intentionally set. Kuticka's report, as well, did not mention the involvement of a neighbor. Although Kuticka's investigation was not thorough, Cobb accepted the report and denied the claim. Before Cobb told Overcast he was denying the claim on account of arson, Cobb told Overcast that he could clear away the property. Cobb did not inform Overcast that he could have a separate and independent investigation on the property by the state fire marshal. Kuticka and Cobb agreed not to talk to any firefighters until after the debris had been cleared and after the decision was announced denying the claim.

Investigator Kuticka acknowledged that, when the presence of an ignitable liquid is suspected, the "better practice is to further test for the presence of accelerants by use of chromatograph or mass spectrometry." No such tests were conducted. Cobb in the past had instructed Kuticka to conduct these tests, but not for Overcast's fire. Kuticka did, however, tell Cobb that he did not smell any chemicals when he entered the house, nor did he find any chemicals on a terry cloth rag he removed from the scene. This was consistent with the neighbor's testimony at trial that the neighbor did not smell chemicals on Overcast or in the house. Moreover, the neighbor corroborated Overcast's testimony that the fire was coming from the bathroom and not from the carpeted living room floor.

Kuticka testified that different investigators looking at the same burn patterns can reach different conclusions as to the cause of the fire. Kuticka also acknowledged that, in at least four different investigations, he had concluded that the fire had been intentionally set while the state fire marshal's office had determined each of the same fires to be the result of an accidental electrical cause. Cobb did not seek a second opinion about the cause of the fire or the burn patterns. Since the debris and property had been cleared away, Overcast was not able to challenge the insurance investigation, after the claim was denied, because there was nothing left to inspect.

Except for Kuticka's testimony as to the burn patterns, there were no "red flags of fraud or red flags for arson." These "red flags," which indicate reason to suspect arson, include, for example: more than one mortgage, late payments, divorce, prior claims, multiple claims, problems affecting title to the property, over-insurance, an increase in insurance coverage right before the claim, recent cancellations of other companies, liens, threats of foreclosure on the property, lawsuits, and recent job transfers. After this investigation, Cobb sent Overcast a letter denying his claim for coverage, stating: "the loss resulted from an intentional act committed by you or at your direction." Cobb testified that the letter was addressed solely to Overcast and sent by registered mail, return receipt requested. He did so, Cobb said, to avoid "publishing" the arson charge to other persons.

Cobb testified that he knew the contents of the letter would affect Overcast's ability to obtain insurance policies from other companies. Overcast attempted to get an insurance policy for his farm buildings through All Risk Insurance Agency in Springfield, Missouri. The agent asked Overcast if he had a claim that had ever been denied. After Overcast showed the Cobb letter to the agent, the agent told Overcast that she would not be able to issue a policy. Overcast attempted to get insurance from other companies, but was asked the same question as to the reason for the denial of the claim. He was unable to get coverage.

THE TRIAL COURT'S JUDGMENT AND THIS APPEAL

Overcast pleaded three counts against Billings Mutual, seeking: (1) damages for breach of contract; (2) penalties and attorneys' fees under the vexatious refusal to pay statute; and (3) actual and punitive damages for defamation. The trial court granted summary judgment to Billings Mutual on Overcast's second count under the vexatious refusal to pay statute, section 375.420, because section 380.511 provides that mutual insurance companies are not covered by section 375.420. No appeal is taken as to that ruling.

On Overcast's claim for breach of contract, the trial court entered judgment for $26,990 damages plus $2,429 interest. Billings Mutual paid the judgment on that count, and there is no appeal on the contract claim.

On Overcast's claim for defamation, the jury returned a verdict of $500,000 actual damages and found Billings Mutual liable for punitive damages. In the trial's second phase, on the assessment of...