Reynolds v. American Hardware Mut. Ins. Co.

• Decision Date: 30 December 1988
• Docket Number: No. 16726,16726
• Parties: Weldon REYNOLDS, Plaintiff-Respondent, Cross-Appellant, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, a corporation, Defendant-Appellant, Cross-Respondent.
• Court: Idaho Supreme Court

Page 1243

766 P.2d 1243

115 Idaho 362

Weldon REYNOLDS, Plaintiff-Respondent, Cross-Appellant, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, a corporation, Defendant-Appellant, Cross-Respondent.

No. 16726.

Supreme Court of Idaho.

Dec. 30, 1988.

Brady, Saetrum, Tingey, Day & Joyce, Chartered, Boise, for defendant-appellant-cross-respondent.

Ringert, Clark, Harrington, Reid, Christensen & Kaufman, Boise, for plaintiff-respondent-cross-appellant. Andrew M. Harrington, argued.

SMITH, Judge Pro Tem. ¹

Today we are asked whether Idaho law will support a cause of action in tort against an insurer that negligently failed to make a timely settlement of an insurance claim. The question arises in the context of an appeal from a jury verdict for the plaintiff. The verdict granted the recovery to the plaintiff policy holder for damages suffered when a pending sale of items salvaged from his fire-damaged lease-hold property was lost. The jury agreed with Reynolds' contention that the defendant's unreasonable delay in settling his claim was the proximate cause of the loss of sale of certain salvageable items.

At trial, the jury rendered a special verdict for the plaintiff, finding that plaintiff had been damaged to the extent of $6,720. The trial court subsequently granted post-trial awards of prejudgment interest at a rate of twelve percent interest from April 26, 1983 (the date of claim settlement), and attorney fees of $5,460. Appellant, American Hardware Mutual Insurance Company, appeals the trial court's action, in part contending the trial court erred in failing to grant defendant's motion for directed verdict. We affirm in part and reverse in part.

Plaintiff's theory of the case, with which the jury agreed, was that defendant's unnecessary 43-day delay in settling his insurance claim prevented the closure of a negotiated sale of all personal property salvaged from his fire-damaged premises, and that defendant was aware of the pending sale in that the defendant had been instrumental in arranging the transaction through a salvage broker. In addition, the defendant had been informed that the claimant's lease was about to expire on said premises, and that access to the personal items located thereon would be lost after that date. Defendant did settle the claim, but only four days prior to lease expiration.

For a more thorough understanding of the claim, some background facts are necessary. The damaged premises was a resort area convenience store known as "Wagontown." The property was leased by Weldon Reynolds from Paradise Resorts, Inc. The Reynolds-Paradise lease, which was not introduced into evidence, apparently called for improvements to be done on the property at Reynolds' expense. It is uncontroverted that these improvements, among them the installation of gasoline pumping equipment and storage tanks, were completed, and that Reynolds had the contract right of removal upon expiration of the lease.

On the night of March 14, 1983, Wagontown was damaged by fire. Reynolds' probable losses were covered by an insurance contract with defendant, and it was informed of the loss immediately after the fire.

On March 17, 1983, defendant dispatched an adjuster to Wagontown to determine the extent of the loss. The following week, on March 22, 1983, a representative of a salvage broker that had been contracted by defendant, visited the site and did subsequently negotiate a sale of all salvaged personal property to a third party restaurateur. It is the loss of this sale that forms the basis for the plaintiff's complaint.

The complaint asserts that the defendant's unreasonable delay caused plaintiff to lose all rights in the Wagontown property, including the right to enter and remove any of the personal property purchased and installed by the lessee. The prayer, which does not elucidate whether plaintiff seeks recovery in contract or tort, was for consequential damages in the sum of $20,000, plus attorney fees.

We commence our analysis with a look at the sufficiency of the pleadings presented by the complainant. From there, we will discuss whether Idaho law supports the plaintiff's asserted cause of action. Finally, we will discuss the plaintiff's burden of proof and determine if the requisite burden was met sufficiently to allow the case to go to the jury.

The Reynolds' complaint provides enough information to the court to satisfy I.R.C.P. 8(e)(1), which merely requires that a "simple, concise, and direct statement" be plead. Although the pleading is not at the apex of clarity, the court is allowed to draw all plain inferences from the facts plead when determining the question of sufficiency. Nielson v. Bd. of Directors, 63 Idaho 108, 118, 117 P.2d 472 (1941). We find the Reynolds' pleading sufficient to state a claim and to notify the defendant of plaintiff's contentions.

In addressing the issue of whether Idaho law recognizes a tort cause of action against an insurer who negligently delays the settlement of an insurance claim, this Court held, citing McAlvain v. General Insurance Co. of America, 97 Idaho 777, 554 P.2d 955 (1976), that a tort cause of action in negligence did exist for an insurance agent's negligent failure to adequately insure the claimant's property. Keller Lorenz Co., Inc. v. Insurance Associates Corp., 98 Idaho 678, 570 P.2d 1366 (1977); MCALVAIN V. GENERAL INSURANCE CO. OF AMERICA, SUPRA. ²

That conclusion finds support in the rule in Taylor v. Herbold, 94 Idaho 133, 138, 483 P.2d 664, 669 (1971), where the Court held that the duty owed by one party to another in contract could give rise to a cause of action in tort if the duty to take due care arises independently of the contract, i.e., a mere breach of contract will not support a tort cause of action, but a breach of a separate duty to act reasonably will suffice. See also, Aranda v. Insurance Company of North America, 748 S.W.2d 210 (Tex.1988), where the Texas Supreme Court addresses the duty of good faith that impliedly exists in all insurance contracts, and holds that a tort cause of action for a negligent claim settlement can be sustained; Trus-Joist v. Safeco Insurance Co., 735 P.2d 125, 132 (Ariz.Ct.App.1986), wherein the Arizona Court of Appeals held that the question of an insurer's bad faith is based upon the reasonableness of the insurer's conduct under the circumstances, and is a question of fact for the jury; White v. Western Title Insurance Co., 40 Cal.3d 870, 221 Cal.Rptr. 509, 516, 710 P.2d 309, 316 (1985), where a covenant of good faith and fair dealing in every insurance contract was recognized; Farmer's Group, Inc. v. Trimble, 691 P.2d 1138, 1142 (Colo.1984), where the quasi-fiduciary nature of the relationship between the insurer and the insured was acknowledged.

Our recent holding in White v. Unigard, 112 Idaho 94, 730 P.2d 1014 (1986), was limited in scope to intentional and unreasonable denials or delays of payments of insurance claims. Today's holding is consistent with those sentiments expressed by this Court in White in that we continue to recognize the "special relationship which exists between insurer and insured ... which requires that the parties deal with each other fairly, honestly, and in good faith," 112 Idaho at 99, 730 P.2d at 1019, and we acknowledge the disparity in bargaining power between the insurer and insured, and the destructive effects that a negligent settlement practice can have upon ordinary citizens caught by the debilitating force of a sudden catastrophic loss. We extend the White v. Unigard holding, and distinguish it to the extent that it may be construed to be inconsistent with today's decision, to cover negligent, as well as intentional denials or delays of the payment of insurance claims. We hold that a properly pled cause of action can be sustained against an insurer which negligently fails to make a timely settlement of an insurance claim.

Finally, we must focus upon the trial record to determine whether American Hardware Mutual's motion for a directed verdict was properly denied. The Idaho Rules of Civil Procedure place the burden of proof upon the claimant to establish the prima facie case at trial. It is well settled law that the burden is upon the claimant to "offer ... facts which, when interpreted in the light most favorable to them, would support" their asserted cause of action against the defendant. Hall v. Bacon, 93 Idaho 1, 453 P.2d 816 (1969). Thus it is necessary for this Court to review the essential elements of a cause of action in contract and of a cause of action in tort to determine whether the plaintiff has satisfied this burden.

If a breach of contract is alleged, the burden is upon the claimant to show "the making of the contract, an obligation assumed by defendants, and their breach or failure to meet such obligation." Thomas v. Cate, 78 Idaho 29, 31, 296 P.2d 1033, 1035 (1956).

If a tort cause of action in negligence is asserted, the burden is upon the claimant to show, "(1) a duty, recognized by law requiring a defendant to conform to a certain standard of conduct; (2) a breach of that duty; (3) a causal connection between the defendant's conduct and the resulting injuries; and (4) actual loss or damage." Alegria v. Payonk, 101 Idaho 617, 619, 619 P.2d 135, 137 (1980).

On our reading of the record, we conclude that plaintiff failed to prove a contract claim upon which relief could be granted. Nothing more than a vague assertion was made that the defendant breached some duty owed to the plaintiff. It was shown that the defendant took 43 days to settle the damage claim, but this showing alone did not satisfy the plaintiff's threshold burden of proof. Plaintiff did not allege, nor did he establish a contractual obligation of the defendant to settle the claim in less than the actual time taken. This failure to meet the required burden of proof can be readily derived from the plaintiff's failure to introduce the insurance contract into evidence. A...