Rhead v. Hartford Ins. Co. of the Midwest

• Decision Date: 22 February 2001
• Docket Number: No. 24983.,24983.
• Citation: 19 P.3d 760,135 Idaho 446
• Parties: Douglas M. RHEAD and Raeola Rhead, husband and wife, Plaintiffs-Appellants, v. HARTFORD INSURANCE COMPANY OF THE MIDWEST, a foreign corporation, and Does I through V, inclusive, Defendants-Respondents.
• Court: Idaho Supreme Court

19 P.3d 760

135 Idaho 446

Douglas M. RHEAD and Raeola Rhead, husband and wife, Plaintiffs-Appellants, v. HARTFORD INSURANCE COMPANY OF THE MIDWEST, a foreign corporation, and Does I through V, inclusive, Defendants-Respondents.

No. 24983.

Supreme Court of Idaho, Rexburg, September 2000 Term.

February 22, 2001.

Steven W. Shaw, Hayward, CA, for appellant.

Moffatt, Thomas, Barrett, Rock & Fields, Chdt., Idaho Falls, for respondents. Bradley J. Williams argued. SCHROEDER, Justice.

Douglas and Raeola Rhead (Rheads) appeal the decision of the district court granting summary judgment in favor of Hartford Insurance Company. The district court determined that the Rheads did not have an insurable interest in property that was destroyed. The decision of the district court is vacated.

I.

BACKGROUND AND PRIOR PROCEEDINGS

Cathy and Fred Afraid of Bear (Afraid of Bears) purchased a house located on the Fort Hall Indian Reservation in 1969 where they resided until 1984 when they moved to South Dakota. The Rheads agreed to purchase the house from the Afraid of Bears who assigned to the Rheads their rights to a lease of the Reservation land where the house stood.

A dispute over the house arose in 1986. The Afraid of Bears wanted the Rheads to leave the land and agreed to allow the Rheads to remove the house upon immediate payment of the full purchase price. The Rheads were unable to pay the full amount, and meetings failed to resolve the dispute over the house.

Another dispute concerned the Rheads' occupancy of the land. The Bureau of Indian Affairs (BIA) notified the Afraid of Bears and the Rheads that the assignment of the lease to the Rheads was cancelled because it was entered into without BIA approval. The BIA told the Rheads to remove all personal property, including the house, from the land within 150 days.

The Afraid of Bears informed the BIA of their intent to return to the Fort Hall Reservation, their desire to cancel the agreement with the Rheads, and their refusal to accept further payments from the Rheads. The Rheads continued to make payments to the Afraid of Bears, but the Afraid of Bears refused to accept the December 1989 payment. This was the last payment offered by the Rheads.

In the midst of the disputes the Rheads obtained homeowners' insurance from Hartford Insurance Company of the Midwest (Hartford). The insurance coverage included $45,000 for the house and $22,500 for personal property.

The Rheads made attempts to negotiate the purchase of the land from the BIA, but the BIA informed them that it would not sell the land, and that all personal property had to be removed by August 21, 1990. According to the BIA, any property that remained on the land would become the property of the landowners. The Rheads appealed the BIA decision ordering them off the land to the Portland Area Director and subsequently to the Washington, D.C. BIA office. Both appeals resulted in affirmation of the Fort Hall BIA's decision. The Rheads sought an extension of time to remove their property, and the BIA granted an extension until October 21, 1990, requiring the Rheads to pay rent for their time on the property. The Rheads made rental payments in compliance with the demand.

The Afraid of Bears offered to accept $4,400 as payment in full for the house, but the Rheads were unable to pay this amount and no agreement was reached. The Rheads subsequently requested another extension from the BIA. The BIA extended the deadline to November 2, 1990, for property other than the house, and November 21, 1990, for removal of the house. The Rheads again paid a rental fee.

Around October 29, 1990, the Afraid of Bears erected a fence that prevented the Rheads from accessing the property, and on October 31, 1990, the Afraid of Bears filed a petition for wrongful detainer and for repossession of the house. The Afraid of Bears allegedly vandalized the house by removing siding, roofing, and several items of the Rheads' personal property. As a result of this conduct, the Rheads requested another extension from the BIA but did not receive a response. On February 9, 1991, Hartford renewed the insurance policy on the house.

The house was severely damaged by fire in June of 1991, allegedly started by the Afraid of Bears. The Rheads filed a claim with Hartford to recover the amount of damage from both the vandalism and the fire. Hartford denied the claim on the basis that the Rheads lacked an insurable interest in the house at the time of the fire.

The Rheads filed suit in district court against Hartford for breach of contract and breach of the implied covenant of good faith and fair dealing and insurance bad faith. Hartford moved for partial summary judgment regarding the breach of the implied covenant of good faith claim. The district court initially denied the motion. Subsequently, the district court reconsidered Hartford's motion for partial summary judgment and granted the motion. Hartford then filed a motion for summary judgment on the issue of whether the Rheads had an insurable interest in the house. The district court granted Hartford's motion for summary judgment, finding as a matter of law that the Rheads lacked an insurable interest in the house, and that Hartford was not estopped from raising the insurable interest defense. Subsequently, the district court dismissed the Rheads' complaint. The Rheads appealed.

II.

STANDARD OF REVIEW

In an appeal from an order granting summary judgment, this Court's standard of review is the same standard used by the district court in ruling on a motion for summary judgment. See, e.g., Goodson v. Nez Perce County Bd., 133 Idaho 851, 852, 993 P.2d 614, 615 (2000); First Sec. Bank of Idaho v. Murphy, 131 Idaho 787, 790, 964 P.2d 654, 657 (1998). Summary judgment is appropriate only when the pleadings, depositions, affidavits and admissions on file show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. I.R.C.P. 56(c); see also Goodson, 133 Idaho at 852, 993 P.2d at 615.

When this Court reviews a decision of the district court, it will not disturb the district court's findings of fact if they are supported by substantial and competent evidence. See The Highlands, Inc. v. Hosac, 130 Idaho 67, 69, 936 P.2d 1309, 1311 (1997) (quoting Kootenai Elec. Co-op. v. Washington Water Power Co., 127 Idaho 432, 434, 901 P.2d 1333, 1335 (1995)). However, this Court will review freely whether the district court's conclusions of law correctly stated the legal rules or principles and correctly applied those rules to the facts found. See, e.g., Basic American, Inc. v. Shatila, 133 Idaho 726, 727, 992 P.2d 175, 176 (1999); Riley v. Rowan, 131 Idaho 831, 833, 965 P.2d 191, 193 (1998). The credibility and weight given to evidence is in the province of the trial judge as the trier of fact, but this Court is not bound by legal conclusions of the trial court and is free to draw its own legal conclusions from the facts presented. See, e.g., Basic American, Inc., 133 Idaho at 727, 992 P.2d at 176; The Highlands, Inc., 130 Idaho at 69, 936 P.2d at 1311.

III.

THE RECORD DOES NOT ESTABLISH WHETHER THE RHEADS POSSESSED AN INSURABLE INTEREST IN THE PROPERTY AT THE TIME OF THE FIRE DAMAGE.

The district court considered various factors in reaching the conclusion that the Rheads had lost their insurable interest in the house at the time of the fire:

Based on the proclamation by the BIA that the house would become the property of the Afraid of Bears following inaction by the Rheads in removing it by November 21, 1990, the uncertainty of the legal ownership of the home and the failure of the Rheads to make any payments to the Afraid of Bears for a year and a half prior to the fire damage, in addition to the failure of the Rheads to possess the home at the time of the loss....

It is necessary to analyze the nature and need for an insurable interest, together with the factors considered by the district court.

A. The Necessity Of An Insurable Interest

An insurable interest must exist at the time of the loss in order for the insured party to enforce an insurance contract. Idaho Code § 41-1806(1). The doctrine of insurable interest is governed by I.C. § 41-1806, which states:

(1) No contract of insurance of property or of any interest in property or arising from property shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.

(2) "Insurable interest" as used in this section means any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.

(3) The measure of an insurable interest in property is the extent to which the insured might be directly damnified by loss, injury, or impairment thereof.

I.C. § 41-1806 (emphasis added). This Court has interpreted I.C. § 41-1806 to be a "less inclusive" definition of insurable interest than was found in the common law definition. See Keller Lorenz Co. v. Ins. Assoc. Corp., 98 Idaho 678, 685, 570 P.2d 1366, 1373 (1977); see also 3 Couch on Insurance 2d, § 41:1, p. 3. The Court has addressed the issue of insurable interest in Boston Ins. Co. v. Beckett, 91 Idaho 220, 222, 419 P.2d 475, 477 (1966) and Keller, 98 Idaho at 685, 570 P.2d at 1373.

In Boston the Court determined that the mere "right to use [the property] in question, which ... could have been terminated at any time by [the owner], does not constitute a `substantial economic interest' as is contemplated by the statute." Boston, 91 Idaho at 222, 419 P.2d at 477. In Boston, the owner of a cabin made a testamentary gift of the cabin to her daughter and son-in-law and gave them the present right to use the cabin but retained title until the testamentary gift became effective. The son-in-law paid for maintenance of the house, the lease rental for the property, and...