Standard Plan, Inc. v. Tucker

• Citation: 582 So.2d 1024
• Parties: The STANDARD PLAN, INC. v. Lehman P. TUCKER, Jr., and Debra J. Tucker. 89-1397.
• Decision Date: 15 March 1991
• Court: Alabama Supreme Court

Page 1024

582 So.2d 1024

The STANDARD PLAN, INC. v. Lehman P. TUCKER, Jr., and Debra J. Tucker.

89-1397.

Supreme Court of Alabama.

March 15, 1991.

Rehearing Denied June 7, 1991.

W. Eugene Rutledge, Birmingham, for appellant.

Stanley K. Smith and Larry W. Harper of Porterfield, Harper & Mills, Birmingham, for appellees.

HORNSBY, Chief Justice.

On January 25, 1988, Lehman and Debra Tucker, husband and wife, sued Insurall Insurance Agency and The Standard Plan, Inc., alleging breach of contract, negligent failure to provide insurance coverage, and bad faith refusal to pay an insurance claim. ¹ On January 29, 1990, a jury returned a verdict in favor of the Tuckers. In a special verdict accompanied by answers to interrogatories, the jury found Insurall guilty of negligence and awarded the Tuckers $1,083.19 in damages; it also found against Standard Plan on the claim alleging breach of contract and bad faith failure to pay a claim and awarded the Tuckers $500,000 in punitive damages.

The trial court later reviewed the award of punitive damages against Standard Plan, as required by Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986); it upheld the award and entered a judgment consistent with the jury verdict against Insurall and Standard Plan. Insurall did not appeal. Standard Plan appealed the award of punitive damages against it for bad faith failure to pay. We affirm.

Insurall characterizes itself as an independent insurance agent. In addition to submitting insurance applications for its customers to various insurance companies, Insurall has the authority to issue temporary binders on behalf of several of the insurers. The Tuckers had been customers of Insurall continuously since 1984. ² During In May 1987 Debra Tucker delivered to Insurall's office the MVR that Coker had requested. It was dated April 30, 1987, and showed the following: December 17, 1982, failure to stop at a stop sign; April 22, 1983, running a red light; April 2, 1984, running a red light; November 18, 1985, accident; December 14, 1985, accident; May 31, 1986, accident; February 12, 1987, speeding. However, neither Insurall nor the Tuckers applied for a renewal of the then existing insurance before it lapsed on May 26, 1987.

that time Insurall had provided them with automobile insurance through several insurers. In April 1987, Randy Coker, the owner of Insurall, asked Debra Tucker to furnish him a Motor Vehicle Record Report (MVR) from the Alabama Department of Public Safety on her husband, because the insurance policy in effect for the Tuckers at that time would lapse on May 26, 1987, and he would need the MVR to apply for another policy. Among other things, an MVR lists all of a driver's accidents and traffic violations for the five years immediately prior to the date the MVR is issued.

On July 1, 1987, Lehman Tucker was involved in an accident while he was driving his employer's truck. The Tuckers did not report this accident to Insurall. Lehman Tucker testified that he did not think that accidents in company trucks should be reported to his private insurer because the company insurer was responsible for such accidents and had covered the July 1, 1987, accident.

On July 6, 1987, Debra Tucker contacted Insurall and informed Katherina Bryant, an employee of Insurall, that the Tuckers needed to purchase automobile insurance. Bryant was well acquainted with the Tuckers and had handled their insurance matters since 1984. She testified that between 1985 and 1987 she had assisted the Tuckers in obtaining insurance coverage from other insurers and had completed insurance applications for them in the past. Bryant said that the Tuckers knew that she had been completing applications on their behalf and was signing Lehman Tucker's name to the applications, but the Tuckers disputed this testimony. Bryant also testified than she knew it was against Standard Plan's guidelines for the agent to sign the application for the applicant, but that Lehman Tucker knew that she was signing applications for him. Bryant testified that Lehman had had difficulty in obtaining affordable automobile insurance because of his poor driving record.

Bryant testified that she was the person who had completed the Standard Plan application for the Tuckers and that she had also signed Lehman Tucker's name to the application. On that application Bryant listed the following traffic violations for Lehman Tucker: (1) a speeding ticket on February 12, 1987, (2) an accident on May 31, 1986, (3) a "not at fault" accident on December 14, 1985, and (4) an accident on November 18, 1985. The list was based on the April 30, 1987, MVR that Debra Tucker had given Insurall. The application, however, failed to list the accident that Lehman Tucker had on July 1, 1987. The record indicates that Lehman Tucker was probably at fault in that accident. ³

On July 8, 1987, Debra Tucker paid Bryant a premium of $434 and Bryant issued a binder on behalf of Standard Plan. Bryant testified that when Debra Tucker paid the premium she asked Debra if there were any other accidents that should be reported but that Debra answered "no." Debra, however, testified that she never discussed the Standard Plan application with Bryant. Both Lehman and Debra Tucker testified that they had never seen the application that Bryant completed and sent to Standard Plan.

Although Bryant completed the application and accepted the Tuckers' premium payment on July 8, 1987, she did not mail On July 29, 1987, Standard Plan sent a letter to Lehman Tucker rejecting his application and rescinding the binder that Bryant had issued. In that letter Standard Plan stated that its reason for rescinding the policy was that the Tuckers had attempted to obtain insurance "through a material misrepresentation" because they had not listed the July 1, 1987, accident on the application. As a result, Standard Plan refused to honor Lehman Tucker's claim based on the July 13, 1987, accident. The Tuckers then sued Standard Plan and Insurall.

the application to Standard Plan until July 15, 1987. On July 13, 1987, Lehman Tucker was involved in another accident which he reported to Bryant on July 16, 1987. Bryant telephoned the claim to Standard Plan the same day. Standard Plan actually received the Tuckers' application for insurance on July 20, 1987, and ordered another MVR, which was issued on July 23, 1987.

Standard Plan contends that the trial court erred in entering a judgment for the Tuckers on their bad faith claim. This Court first recognized an actionable tort for an insurer's bad faith refusal to pay a claim in Chavers v. National Security Fire & Cas. Co., 405 So.2d 1 (Ala.1981). The Chavers Court held that there was an implied-in-law duty of good faith and fair dealing in contractual relationships between insurers and their insureds. Bad faith was defined as "the intentional failure by the insurer to perform this duty implied in law." Id. at 5. The Court went on to hold:

"[A]n actionable tort arises for an insurer's intentional refusal to settle a direct claim where there is either (1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal."

Chavers, 405 So.2d at 7. In this case the Tuckers' bad faith claim rests on the second tier of the Chavers test, which was clarified in Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala.1981):

"The second tier of the test is an elaboration on the first. The trier of fact, by finding, on the part of the insurer, an intentional failure to determine whether or not there was any lawful basis for refusal, may use that fact as an element of proof that no lawful basis for refusal ever existed. The relevant question before the trier of fact would be whether a claim was properly investigated and whether the results of the investigation were subjected to a cognitive evaluation and review. Implicit in that test is the conclusion that the knowledge or reckless disregard of the lack of a legitimate or reasonable basis may be inferred and imputed to an insurance company when there is a reckless indifference to facts or to proof submitted by the insured."

The elements of a bad faith claim were summarized in National Security Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala.1982), as follows:

"An insurer is liable for its refusal to pay a direct claim when there is no lawful basis for the refusal coupled with actual knowledge of that fact. Chavers v. National Security Fire Ins. Co., 405 So.2d 1 (Ala.1981). No lawful basis 'means that the insurer lacks a legitimate or arguable reason for failing to pay the claim.' Gulf Atlantic Life Ins. Co. v. Barnes, Ala., 405 So.2d 916 (1981). When a claim is 'fairly debatable,' the insurer is entitled to debate it, whether the debate concerns a matter of fact or law. Ibid.

"Under those authorities the plaintiff in a 'bad faith refusal' case has the burden of proving:

"(a) an insurance contract between the parties and a breach thereof by the defendant;

"(b) an intentional refusal to pay the insured's claim;

"(c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason);

"(d) the insurer's actual knowledge of the absence of any legitimate or arguable reason;

"(e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the "In short, the plaintiff must go beyond the mere showing of nonpayment and prove a bad faith nonpayment, a nonpayment without any reasonable ground for dispute. Or, stated differently, the plaintiff must show that the insurance company had no legal or factual defense to the insurance claim."

insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.

(Emphasis in original.) See also Thomas v. Principal Financial Group, 566 So.2d 735 (Ala....