Santacruz v. United Pacific Ins. Co.
| Decision Date | 28 October 1986 |
| Docket Number | No. CV S-86-730 RDF.,CV S-86-730 RDF. |
| Citation | 650 F. Supp. 32 |
| Parties | Karen SANTACRUZ, Plaintiff, v. UNITED PACIFIC INSURANCE COMPANY, a Washington corporation, individually; Reliance Insurance Company, a Pennsylvania corporation, individually; and United Pacific Insurance Company and Reliance Insurance Company, dba United Pacific/Reliance Insurance Company, Defendants. |
| Court | U.S. District Court — District of Nevada |
Cochrane & Rose by Robert E. Rose, Las Vegas, Nev., for plaintiff.
Beckley, Singleton, DeLanoy, Jemison & List by C. Eric Funston, Las Vegas, Nev., for defendants.
ORDER OF DISMISSAL
The Complaint alleges that on May 15, 1981, plaintiff Karen Santacruz and another person were injured by an automobile owned by Whiting Brothers Construction, Inc., and driven by an employee. Defendants' insurance policy covered the injuries to the two parties to a $300,000 limit, but both injured parties had claims well in excess of that limit. United Pacific/Reliance Insurance Co. settled with the other injured party for $237,440.76 in May of 1983.
Plaintiff suffered injuries at least as extensive as the other claimant, yet she was forced by defendant's settlement with that claimant to accept the remainder of the coverage amount, just $62,559.24.
Plaintiff brought this suit in Nevada's Eighth Judicial District Court, subsequently removed here, claiming that defendants owed her a fiduciary duty of good faith and fair dealing since she was a third party beneficiary of the insurance contract between Union Pacific and Whiting Brothers. Defendants allegedly breached this duty by settling with the other claimant for a disproportionately large amount of the coverage limits, while knowing that their insureds would be unable to fully compensate this plaintiff for the loss over and above coverage limits.
Defendants bring this motion to dismiss under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. Defendants argue that Nevada law recognizes no such duty of good faith by the insurer to third party claimants. Plaintiffs argue in return that Nevada law recognizes third party claimants as third party beneficiaries, and as such they may enforce the contract of insurance and its implied covenant of good faith.
This case was brought as a diversity action, and as such, the trial judge is required to look to state law for the appropriate rule of decision. Erie v. Tomkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
When a decision turns upon applicable state law, and the state's highest court has not adjudicated that issue, the district court must make a reasonable determination, based upon such recognized sources as statutes, treatises, restatements and well reasoned opinions of other jurisdictions, as to the result that the highest state court would reach if it were deciding the case. Commercial Union Insurance Co. v. Ford Motor Co., 640 F.2d 210, 212 (9th Cir.), cert. denied, 454 U.S. 858, 102 S.Ct. 310, 70 L.Ed.2d 154 (1981); Molsbergen v. United States, 757 F.2d 1016, 1020 (9th Cir.1985); Fedrick, Inc. v. Borg-Warner Corp., 552 F.2d 852, 856 (9th Cir.1977).
This court holds Tweet v. Webster, 610 F.Supp. 104, petition for reconsideration denied, 614 F.Supp. 1190 (D.Nev.1985), to be a well-reasoned and still valid view of Nevada law. NRS 697A.180 does not create a private cause of action. Tweet, supra, at 1194, 1195. Nor does Nevada recognize an implied covenant of good faith and fair dealing which runs from the insurer to third party claimants. Id. at 1195.
Plaintiff essentially argues for an extension of an insurer's duty of good faith to third party claimants. Plaintiff cites many decisions from other states supporting this extension. However, the responsibility of the federal courts in matters of state law is not to formulate the legal mind of the state, but merely to ascertain and apply it. Fedrick, Inc. v. Borg-Warner Corp., 552 F.2d 852, 856 (9th Cir.1977).
The tort of bad faith arises not from the terms of the contract but is a duty imposed by common law, the violation of which is a tort. State ex rel. Allen v. Second Judicial District Court, 69 Nev. 196, 245 P.2d 999 (1952). This implied covenant runs from the insurer to an insured because of the special element of reliance by the insured on the insurer's credibility, such as that found in insurance or franchise agreements and partnerships. See Aluevich v. Harrah's, 99 Nev. 215, 218,...
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...or common law tort, under Nevada law as it stands today." (Id. at p. 1195.) Tweet has been approved in Santacruz v. United Pacific Ins. Co. (D.Nev.1986) 650 F.Supp. 32, 34 and Hunt v. State Farm Mut. Auto. Ins. Co. (D.Nev.1987) 655 F.Supp. 284, As demonstrated above, California permits appe......
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