St. Paul Fire and Marine Ins. Co. v. Cumiskey, 82-279

• Decision Date: 07 July 1983
• Docket Number: No. 82-279,82-279
• Citation: 204 Mont. 350,665 P.2d 223,40 St.Rep. 891
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Plaintiff and Respondent, v. Kevin E. CUMISKEY, John E. Cumiskey, Stephanie S. Cumiskey, and K.S.J., Inc., a Montana corporation, Defendants and Appellants, and Elizabeth M. Bradley, Defendant and Cross Appellant.
• Court: Montana Supreme Court

Page 223

665 P.2d 223

204 Mont. 350

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation Plaintiff and Respondent, v. Kevin E. CUMISKEY, John E. Cumiskey, Stephanie S. Cumiskey and K.S.J., Inc., a Montana corporation Defendants and Appellants and Elizabeth M. Bradley, Defendant and Cross Appellant.

No. 82-279.

Supreme Court of Montana.

Submitted March 1, 1983.

Decided June 10, 1983.

Rehearing Denied July 7, 1983.

Larry W. Moran argued, Bozeman, for defendants and appellants.

Landoe, Brown, Planalp, Kommers & Lineberger, Randy K. Dix, argued, Bozeman, for defendant and cross-appellant.

Anderson, Brown, Gerbase, Cebull & Jones, James L. Jones argued, Billings, for plaintiff and respondent.

HASWELL, Chief Justice.

Cumiskeys and Bradley appeal a judgment upon a Gallatin County jury verdict which set the cost of repairs of fire damaged property, which determined the parties' liabilities to one another and which awarded and set attorney fees. We affirm in part and reverse in part.

In early 1978, Kevin Cumiskey contacted Elizabeth Bradley in order to lease West Yellowstone property owned by Bradley as the site of a Mexican restaurant. They entered into a lease agreement prepared by Cumiskey's attorney which required that Cumiskey insure the property to protect Bradley's interest and which specified that fixtures and alterations added by Cumiskey would remain his property. Kevin opened the restaurant, "Chiripa's," for a short 1978 tourist season, closed it for the winter, and then reopened it for summer 1979. From September 1978 to September 1979, the property was insured in the name of Kevin Cumiskey, d/b/a "Chiripa's." During that period, Kevin improved the premises with funds borrowed from his father, John Cumiskey. At no time was Bradley's interest insured. From September 1979 to June 1980, the property was not insured at all.

In 1979 the restaurant business was incorporated as K.S.J., Inc. (for Kevin, Stephanie, and John Cumiskey), and the lease was assigned to the corporation. Kevin and his mother, Stephanie, each owned 49 percent of the stock. John owned 2 percent. Kevin is president, John is vice president and Stephanie is secretary.

Kevin decided to stay in New York to work for the summer of 1980, so John and Stephanie Cumiskey agreed to spend the summer in West Yellowstone operating the restaurant. Upon their arrival, the Cumiskeys contacted a Bozeman insurance agency to arrange for reissuance of the prior insurance coverage. Again, the insured on the policy was listed as Kevin Cumiskey, d/b/a "Chiripa's." John and Stephanie ran the restaurant, which had consistently lost money since its opening, until, on August 10, 1980, a series of explosions accompanied by fire damaged the premises.

The fire investigation revealed that the blazes had been intentionally set. Extensive circumstantial evidence focused on John Cumiskey as the alleged arsonist. That evidence included serious burns sustained by Cumiskey, a series of inconsistent and uncorroborated stories told by Cumiskey to explain his burns and his actions after the fire, and the fact that his keys to the restaurant and other objects owned by Cumiskey were found in the street outside Chiripa's after the explosions.

Once the investigation established that the fire had been intentionally set, St. Paul requested that Cumiskeys produce the financial records of the business. John Cumiskey refused to do so for some sixteen months after the August 1980 fire. In October 1980, Kevin Cumiskey filed a claim with St. Paul seeking recovery under the policy. St. Paul was told both that the destroyed property belonged to Kevin Cumiskey and that it was the property of K.S.J., Inc. St. Paul also became aware of the Bradley lease, which required that Bradley's interest be insured.

John Cumiskey was charged with arson and criminal mischief in connection with the fire and was tried in November 1980. The business records were not a part of the criminal trial. Cumiskey's defense was that he was a wealthy man, that the business was profitable, and that he had no motives for arson. He was acquitted of both charges.

Two months after John Cumiskey's acquittal, St. Paul filed this action for declaratory judgment. In its complaint, St. Paul asked the court to declare Kevin Cumiskey the proper recipient of any policy proceeds, to determine the rights and other legal relationships of the parties, to determine the specific amount of recovery to which Kevin Cumiskey was entitled, and to require that John E. Cumiskey subrogate any claim paid by St. Paul. K.S.J., Inc., was later added to the action by stipulation of the parties.

Bradley cross-claimed against Kevin Cumiskey and K.S.J., Inc., for failure to insure her interest in the building. She also brought a tort claim against John Cumiskey for deliberate destruction of the property. Cumiskeys and K.S.J., Inc., brought counterclaims against St. Paul for the company's breach of both statutory and common-law duties to settle the insurance claims in good faith and for libel and slander.

A number of issues raised were disposed of before the case was given to the jury. Before trial, the District Court entered summary judgment in favor of Bradley on the issue of Kevin Cumiskey's failure to insure Bradley's interest in the premises. K.S.J., Inc., dropped its claim to the insurance proceeds on the day before trial. At the outset of trial, the District Court dismissed Cumiskeys' statutory counterclaim for failure to state a proper claim. It also dismissed Cumiskeys' claim of libel and slander, which was based upon St. Paul's filing of this action for declaratory judgment. At the close of evidence, the trial court entered a directed verdict in favor of St. Paul on Cumiskeys' common-law counterclaim for bad faith.

The jury returned a special verdict which determined: (1) St. Paul and Bradley had proved by a preponderance of the evidence that John E. Cumiskey caused the fire; (2) the cost to repair the main building of the restaurant was set at $12,300.00; (3) that Kevin Cumiskey was entitled to recover $19,910.00 under the policy; and, (4) that Bradley was entitled to recover $25,000.00 in punitive damages from John E. Cumiskey. The parties stipulated in the pretrial order that the fire had been set intentionally. The jury was so informed and was instructed that if it found that John E. Cumiskey set the fire, St. Paul was entitled to recover from him the amount it must pay to Kevin Cumiskey under the policy.

Cumiskeys and K.S.J., Inc., moved for a judgment notwithstanding the verdict or in the alternative for a new trial. The motions were denied. Cumiskeys now appeal and Bradley cross-appeals.

Appellants, in their shotgun approach, barrage this Court with issues. We will address only two of those issues. We will also address cross-appellant's claim. We have considered the other errors advanced by appellants and find them to be without merit. We will not concern ourselves with these arguments since they will not change the outcome of this appeal. We also note in passing that appellants' briefs, which contain more vitriol than substance, fail to substantiate their claims with references to the record pursuant to Rule 23(a) and (e), M.R.App.Civ.P.

The issues we address are:

1. Whether the District Court properly directed a verdict on Cumiskeys' counterclaims for bad faith;

2. Whether the District Court properly granted summary judgment in favor of Bradley; and,

3. Whether the District Court correctly calculated the attorney fees awarded to Bradley.

Kevin Cumiskey first challenges dismissal of his bad faith counterclaims against St. Paul. He contends that St. Paul violated both statutory and common-law duties to settle the insurance claims in good faith. The statutory claim is based upon section 33-18-201(6) and (13), MCA, of the Unfair Trade Practice Chapter of the Insurance Code. It provides:

"Unfair claim settlement practices prohibited. No person may, with such frequency as to indicate a general business practice, do any of the following:

"...

"(6) neglect to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear;

"...

"(13) fail to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;" (Emphasis added.)

The statutory claim was struck by the District Court prior to trial on the basis that Kevin Cumiskey had not pleaded and was not going to present evidence that St. Paul failed to settle claims "with such frequency to indicate a general business practice." Dismissal of the statutory claim on that basis was proper. Klaudt v. Flink (1983), Mont., 658 P.2d 1065, 40 St.Rep. 64; Harris v. American General Life Insurance Company of Delaware (1983), Mont., 658 P.2d 1089, 40 St.Rep. 164.

The common-law bad faith claim was disposed of with a directed verdict at the close of evidence. We first recognized that an insurance company has a duty independent of statute or of insurance contract to settle claims in good faith with its insureds in Lipinksi v. The Title Insurance Company (1982), Mont., 655 P.2d 970, 39 St.Rep. 2283. The District Court here properly allowed Kevin Cumiskey to present evidence in support of his claim that St. Paul acted in bad faith and breached that duty. Conflicting evidence was introduced on whether agents of St. Paul had represented that the insurer would settle the claim. Kevin primarily based his claim on the assertion that the filing of the declaratory judgment action was in bad faith since the claim should have been paid and since the action served to destroy the business relationship between Cumiskeys and Bradley. At the close of the evidence, however, the court dismissed that claim with the following statement:

"I'm going to reverse myself. I am going to...