Spencer v. Aetna Life & Cas. Ins. Co.

• Decision Date: 10 May 1980
• Docket Number: No. 51946,51946
• Citation: 611 P.2d 149,227 Kan. 914
• Parties: Rose SPENCER, Plaintiff, v. AETNA LIFE & CASUALTY INSURANCE COMPANY, Defendant.
• Court: Kansas Supreme Court

Page 149

611 P.2d 149

227 Kan. 914

Rose SPENCER, Plaintiff, v. AETNA LIFE & CASUALTY INSURANCE COMPANY, Defendant.

No. 51946.

Supreme Court of Kansas.

May 10, 1980.

Syllabus by the Court

1. Where there are questions of Kansas law which may be determinative of the proceeding before a certifying court and to which there appears to be no controlling precedent rendered by the Kansas appellate courts, K.S.A.1979 Supp. 60-3201 et seq. authorizes this court in its discretion, to answer such questions of law certified to it by the United States Supreme Court, a United States district court or the highest appellate court or the intermediate appellate court of any state.

2. In an action brought before this court as a certified question to determine whether Kansas law recognizes the tort of bad faith, it is held : legislative provisions authorizing certain penalties against an insurer for lack of good faith are sufficient remedies for an aggrieved insured. The tort of bad faith is not recognized in Kansas.

Steve Rupp of Fred W. Phelps, Jr., Chartered, Topeka, argued the cause and Fred W. Phelps, Jr., was on brief, for plaintiff.

Paul H. Hulsey of Fisher, Ochs & Heck, P. A., Topeka, argued the cause and was on brief, for defendant.

HERD, Justice:

This case is filed in the United States District Court for the District of Kansas and comes to this court by certification from the United States District Court under authority of the Uniform Certification of Questions of Law Act. K.S.A.1979 Supp. 60-3201 et seq. The certifying court shows by its order it has jurisdiction of the parties and the subject matter of this suit and that the law of Kansas controls the substantive legal issues of the case. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

Plaintiff insured's complaint alleges two causes of action: 1) breach of contract; and 2) the tort of "bad faith" against the defendant insurance company arising out of a fire loss to a house covered by an insurance policy issued by defendant. The case is before the trial court upon defendant's motion to dismiss or, in the alternative, for summary judgment. The motion does not go to the breach of contract issue but tests only the question of whether Kansas law recognizes the tort of "bad faith." The certifying court states it appears there is no controlling precedent in the decisions of the appellate courts of this state on this question of law.

We accepted certification pursuant to K.S.A.1979 Supp. 60-3201 et seq. Those statutes provide:

"60-3201. Power to answer. The Kansas supreme court may answer questions of law certified to it by the supreme court of the United States, a court of appeals of the United States, a United States district court or the highest appellate court or the intermediate appellate court of any other state, when requested by the certifying court if there are involved in any proceeding before it questions of law of this state which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the supreme court and the court of appeals of this state.

"60-3202. Method of invoking. This act may be invoked by an order of any of the courts referred to in K.S.A.1979 Supp. 60-3201 upon the court's own motion or upon the motion of any party to the cause.

"60-3203. Contents of certification order. A certification order shall set forth the questions of law to be answered and a statement of all facts relevant to the questions certified and showing fully the nature of the controversy in which the questions arose.

"60-3204. Preparation of certification order. The certification order shall be prepared by the certifying court, signed by the judge or justice presiding at the hearing, and forwarded to the Kansas supreme court by the clerk of the certifying court under its official seal. The Kansas supreme court may require the original or copies of all or of any portion of the record before the certifying court to be filed with the certification order, if, in the opinion of such court, the record or portion thereof may be necessary in answering the questions. The proceedings in the Kansas supreme court shall have precedence over all other hearings therein, except those of like character."

It is well established that appellate courts review only actual cases or controversies. To do otherwise would involve giving advisory opinions, which is constitutionally forbidden. NEA-Topeka, Inc. v. U.S.D. No. 501, 227 Kan. 529, 607 P.2d 40 (1980). The U. S. Supreme Court has recognized an exception to that rule "if the underlying dispute between the parties is one 'capable of repetition, yet evading review.' " Nebraska Press Assn. v. Stuart, 427 U.S. 539, 546, 96 S.Ct. 2791, 49 L.Ed.2d 683 (1976); Gannett Co. v. DePasquale, 443 U.S. 368, 99 S.Ct. 2898, 61 L.Ed.2d 608 (1979); Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911). This question arises from an actual case and controversy and although presented as a question of law, it neither violates the case or controversy requirement nor the separation of powers doctrine on advisory opinions.

Let us now turn to the question. Does Kansas recognize the tort of "bad faith"? The facts of the case are unnecessary for determination of this issue. The recognition of bad faith as an independent tort is a recent development in the law in response to the quest for "every wrong a remedy." See generally Note, Insurers' Bad Faith: A New Tort for Kansas ?, 19 Washburn L.J. 467 (1980). In jurisdictions where bad faith has been adopted, it applies only as a remedy for an insured who feels mistreated at the hands of his insurance carrier. It has been noted that:

"Traditionally insurance policies were regarded as contracts for the payment of money upon the occurrence of specific contemplated risks. In an action for breach of an insurance contract, the plaintiff's recovery was limited to the benefits due under the contract plus interest. He could not recover damages for economic loss, emotional distress, or punitive damages regardless of injury to his health, feelings, reputation, or property; such damages were considered too remote." Murphy, The Emerging Fiduciary Obligations and Strict Liability in Insurance Law, 14 Cal.W.L.Rev. 358 (1978).

The traditional rule limited an insured to contract remedies which are the face amount of the policy plus interest. The growing public awareness, however, of abusive delays by insurance companies in paying legitimate claims has given rise to the demand for a vehicle to recompense the injured for his damages. See Savage, The Availability of Excess Damages for Wrongful Refusal to Honor First Party Insurance Claims An Emerging Trend, 45 Fordham L.Rev. 164, 166 (1972).

California courts laid the foundation for the extension of the bad faith tort from third party to first party situations. See Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198 (1958); Crisci v. Security Ins. Co., 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (1967); Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 89 Cal.Rptr. 78 (1970); Richardson v. Employers Liab. Assur. Corp., 25 Cal.App.3d 232, 102 Cal.Rptr. 547 (1972).

This line of cases culminated in the decision in Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), which firmly established the concept of the bad faith tort in first party insurance situations. The court in Gruenberg at page 574, 108 Cal.Rptr. at page 485, 510 P.2d at page 1037 stated:

"It is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing."

The following decisions stand out among those which have either expressly adopted Gruenberg or have embraced similar positions: Craft v. Economy Fire & Cas. Co. 572 F.2d 565 (7th Cir. 1978) (Indiana law); Eckenrode v. Life of America Ins. Co., 470 F.2d 1 (7th Cir. 1972) (Illinois law); Phillips v. Aetna Life Ins. Co., 473 F.Supp. 984 (D.Vt.1979) (Vermont law); Robertsen v. State Farm Mut. Auto Ins. Co., 464 F.Supp. 876 (D.S.C.1979) (South Carolina law); Escambia Treating Co. v. Aetna Cas. & Sur. Co., 421 F.Supp. 1367 (N.D.Fla.1976) (Florida law); Corwin Chrysler-Plymouth v. Westchester Fire, 279 N.W.2d 638 (N.D.1979); Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978); Christian v. American Home Assur. Co., 577 P.2d 899 (Okl.1978); MFA Mut. Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn.1978); Grand Sheet Metal, etc. v. Protection Mut. Ins., 34 Conn.Sup. 46, 375 A.2d 428 (1977); Diamon v. Penn. Mut. Fire Ins. Co., 247 Pa.Super. 534, 372 A.2d 1218 (1977); Vernon Fire & Cas. Ins. Co. et al. v. Sharp, 264 Ind. 599, 349 N.E.2d 173 (1976); United States Fidelity v. Peterson, 91 Nev. 617, 540 P.2d 1070 (1975); Ledingham v. Blue Cross, 29 Ill.App.3d 339, 330 N.E.2d 540 (1975), rev'd on other grounds 64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976); United Services Automobile Assoc. v. Werley, 526 P.2d 28 (Alaska 1974); Amsden v. Grinnell Mutual Reinsurance Co., 203 N.W.2d 252 (Iowa 1972); Kirk v. Safeco Ins. Co., 28 Ohio Misc. 44, 273 N.E.2d 919 (1970); and see Gibson v. Nat. Ben Franklin Ins. Co., 387 A.2d 220 (Me.1978).

The cases adopting the bad faith tort generally cite the following reasons for its adoption: First, in the absence of such a tort an insurance company can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. Note, The Availability of Excess Damages for...