Skaling v. Aetna Ins. Co.

• Citation: 799 A.2d 997
• Decision Date: 08 May 2002
• Docket Number: No. 2000-325-Appeal.,2000-325-Appeal.
• Parties: Robert SKALING et al. v. AETNA INSURANCE COMPANY and Travelers/Aetna Insurance Company as successor to Aetna Insurance Company.
• Court: United States State Supreme Court of Rhode Island

799 A.2d 997

Robert SKALING et al. v. AETNA INSURANCE COMPANY and Travelers/Aetna Insurance Company as successor to Aetna Insurance Company.

No. 2000-325-Appeal.

Supreme Court of Rhode Island.

May 8, 2002.

Present: LEDERBERG, BOURCIER, FLANDERS, and GOLDBERG, JJ.

Nicholas Gorham/Dianne L. Izzo, North Kingstown, for Plaintiff.

Thomas R. Bender, Providence, for Defendant.

Kelly M. Fracassa, Providence, amicus from the Rhode Island Trial Lawyers Assoc.

OPINION

GOLDBERG, Justice.

On August 26, 1996, the plaintiff, Robert Skaling (plaintiff or Skaling), filed a four-count complaint in Superior Court against the defendant, Aetna Insurance Company (defendant or Aetna), alleging a breach-of-contract by Aetna for its refusal to pay underinsured motorist insurance benefits and insurer bad faith in the investigation and handling of Skaling's claim.¹ The count alleging insurer bad faith was severed from the breach-of-contract claim. A jury found that Skaling's injuries were proximately caused by the negligence of the underinsured tortfeasor, awarded Skaling total damages of $1,305,000 and proceeded to reduce the award by 10 percent, to $1,174,500, based on its conclusion that Skaling's own negligence was a contributing cause of his injuries. Judgment was entered for Skaling for $300,000, the total amount of the policy limits. In Skaling v. Aetna Insurance Co., 742 A.2d 282, 292 (R.I. 1999) (Skaling I), this Court affirmed the decision of the trial court based upon our conclusion that Aetna had breached its contract with Skaling. However, we concluded that Aetna was responsible for prejudgment interest on the amount of the judgment, $300,000, notwithstanding that this award exceeded the limits of the policy. Id.

Following our decision in Skaling I, Aetna moved for summary judgment on the remaining count alleging insurer bad faith and Skaling moved to amend his complaint to add two additional claims. The Superior Court hearing justice denied Skaling's motion to amend the complaint and granted defendant's motion for summary judgment. The plaintiff has appealed. We vacate the summary judgment and remand this case to the Superior Court for proceedings in accordance with this opinion.

Facts and Travel

The facts leading up to this controversy are set forth in detail in Skaling I and we need not recount them in detail. On October 20, 1995, Skaling was severely and permanently injured when he fell from a railroad trestle outside his Coventry home while attempting to rescue Marty Webber (Webber), a passenger in a Jeep automobile operated by Shaun Menard (Menard), an underinsured tortfeasor. According to the trial testimony, Skaling fell from the trestle while he was attempting to pass the Jeep, as he was "edging along * * * with [his] belly up to the vehicle as close as you can possibly get to something." Skaling I, 742 A.2d at 286. As he reached the driver's door, he fell from the trestle, suffering severe and permanent injuries that required two months of hospitalization and medical expenses in excess of $50,000. Id. at 287. Menard's automobile liability insurer subsequently settled Skaling's claim and paid plaintiff $25,000, the limit of Menard's policy. The plaintiff's claim, seeking underinsured insurance benefits from Aetna, was denied based on Aetna's determination that Skaling's injuries did not arise from the ownership, maintenance or use of the Menard vehicle.

In its motion for summary judgment after this Court's decision in Skaling I, defendant argued that Skaling's claim against the underinsured tortfeasor was a fairly debatable claim, thereby relieving Aetna of any liability for insurer bad faith. Significantly, Aetna argued that the finding of 10 percent comparative negligence, as well as Skaling's failure to demonstrate that he was entitled to a directed verdict on the contract claim, conclusively established that Skaling's claim was fairly debatable and that therefore Aetna was entitled to summary judgment on the bad faith count. The plaintiff simultaneously moved to amend his complaint to add two additional counts against Aetna.

Skaling sought production of Aetna's claim file and sought to depose two claims adjusters who had been assigned to the case before the date Skaling filed suit. Aetna moved for a protective order and argued that Skaling's failure to obtain a directed verdict in the breach-of-contract action was fatal to his bad faith claim; thus, additional discovery would serve no further purpose. Aetna successfully persuaded the hearing justice that events occurring after Skaling filed suit against Aetna and any materials developed in defense of that action, were not relevant to Aetna's conduct at the time the claim was denied. The hearing justice limited Aetna's production of documents to the date of Skaling's suit. He further directed Aetna to prepare a privilege log and to produce post-suit materials for in-camera review. In a subsequent chambers conference, the hearing justice found, sua sponte, that the documents were within the attorney-client privilege, notwithstanding that Aetna had not asserted the privilege.² Ultimately, the hearing justice declined to order the production of any post-suit materials acquired by Aetna withthe exception of a statement by Menard taken by his own insurer. The record discloses, however, that Aetna presented evidence at the hearing on summary judgment that was ultimately relied upon by the hearing justice but was unknown to Aetna when it denied Skaling's claim and acquired after Skaling filed suit. As discussed infra, we deem this to be error.

The hearing justice also denied Skaling's motion to amend the complaint by adding two additional counts: count 5, seeking damages for Aetna's breach of the implied covenant of fair dealing and good faith, and count 6, asserting that Aetna's refusal to pay his claim was "willful, wanton and without reasonable justification." The trial justice refused to allow the amendment, and agreed with Aetna's argument that neither count stated a cause of action or theory of recovery that differed from the bad faith claim pending in count 4.

On appeal, Skaling urges this Court to reverse the grant of summary judgment and declare, pursuant to G.L.1956 § 9-1-33, the statutory codification of the tort of insurer bad faith, that the issue of bad faith is a question of fact to be determined by the fact-finder. Skaling argues that, with respect to certain claims of insurer bad faith, the standard of proof adopted by this Court in Bartlett v. John Hancock Mutual Life Insurance Co., 538 A.2d 997, 1001 (R.I.1988), is inappropriate and indeed, insurmountable. In Bartlett, we declared that an insured may not recover against an insurer for its bad faith refusal to pay or settle a claim unless the insured can establish that he or she was entitled to a directed verdict on the breach-of-contract claim. Also, we held in Bartlett, that the count alleging bad faith must be severed from the breach-of-contract claim. Further, plaintiff, in conjunction with the Rhode Island Trial Lawyers Association,³ as amicus curiae, urges this Court to declare that the tort of insurer bad faith, in the context of first-party claims, can be established by evidence that the insurer engaged in unfair, reckless, or oppressive tactics, or that it failed to engage in goodfaith settlement with its insured, notwithstanding that the claim may be fairly debatable. Thus, the parties suggest, an insurer may have a right to debate a fairly debatable claim; however, it must do so ethically and honestly, after a full and complete investigation conducted in accordance with the insurer's implied in law duties of good faith and fair dealing. In cases in which an insurer, confronted with a fairly debatable claim, has nonetheless undertaken the debate in a reckless and unfair manner, we are urged to hold that the insurer may be liable for bad faith. Finally, Skaling alleges the hearing justice erred in denying his motion to amend his complaint.

Summary Judgment

This Court reviews the grant of summary judgment on a de novo basis by applying the same criteria as the motion justice. Rhode Island Insurer's Insolvency Fund v. Leviton Manufacturing Co., 763 A.2d 590, 594 (R.I.2000). If, after a review of the admissible evidence, we conclude that no genuine issues of material fact are present and we are satisfied that the moving party is entitled to judgment as a matter of law, the summary judgment shall be affirmed. Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I.1996).

In the case at bar, the hearing justice appropriately recited the standard of proof required to withstand summary judgment for a claim of bad faith and concluded that plaintiff must establish the "absence of a reasonable basis" for the insurer's denial of benefits, and defendant's "knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Bibeault v. Hanover Insurance Co., 417 A.2d 313, 319 (R.I.1980) (quoting Anderson v. Continental Insurance Co., 271 N.W.2d 368, 376-77 (1978)). In Bartlett, 538 A.2d at 1001, we referred to the heavy burden placed upon a litigant attempting to establish insurer bad faithand held that plaintiff must demonstrate entitlement to a directed verdict on the contract claim, that is, a right to recover for breach-of-contract, as a matter of law.

We are now confronted with the question of whether, in the context of first-party claims, an insurer is insulated from a claim of bad faith simply because plaintiff was unable to obtain a judgment as a matter of law in the underlying breach-of-contract action. This issue is particularly compelling in cases in which the issue rests upon a disputed fact or the claim is denied based upon a disputed oral conversation between the insured and the claims examiner. These factual disputes cannot be determined as a matter of law. If the claims examiner's testimony is untruthful and rejected by...