State Auto Property and Cas. Ins. Co. v. Swaim

• Decision Date: 10 June 1999
• Docket Number: No. 99-17,99-17
• Citation: 338 Ark. 49,991 S.W.2d 555
• Parties: STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Appellant, v. Larry and Drenda SWAIM, Appellees.
• Court: Arkansas Supreme Court

Page 555

991 S.W.2d 555

338 Ark. 49

STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Appellant, v. Larry and Drenda SWAIM, Appellees.

No. 99-17.

Supreme Court of Arkansas.

June 10, 1999.

Hardin, Jesson, & Terry, by: J. Rodney Mills, Fort Smith, for appellant.

Baker & Jenkins, PLLC, by: Rinda Baker, Alma, for appellee.

ROBERT L. BROWN, Justice.

This appeal involves a claim to pay insurance benefits under a homeowner's policy issued by appellant State Auto Property and Casualty Insurance Company (State Auto). The complaint was filed by the appellees Larry and Drenda Swaim, who are the insureds, and relief was sought for breach of contract and the tort of bad faith. The jury returned a verdict in favor of the Swaims on both counts. State Auto now raises several points for reversal. We affirm the judgment for damages relating to breach of contract but reverse the judgment for bad faith. We affirm the award of attorney's fees.

On April 21, 1996, the Swaims' home in Van Buren was damaged by a tornado. At the time, they had a homeowners insurance policy with State Auto which was sold to them by Bob Miller Insurance Agency. The policy covered damage and losses to the building and personal property and specifically provided for replacement costs. Three days after the tornado, State Auto sent adjusters to the Swaims' home and issued a $2,500 advance check to the couple. Adjuster Greg Miller then calculated the initial losses to be $34,230.89, and the Swaims agreed to this figure. On May 2, 1996, State Auto paid the Swaims $31,730.89 (the agreed losses to date less the $2,500 advance check and a $250 deductible) and issued a check for $1,500 for contents losses. On June 19, 1996, State Auto issued another check in the amount of $3,971.72 for contents losses. These payments total $39,702.61.

At the end of June 1996, the Swaims discovered further damage to their home and contents. They made additional claims to State Auto for $32,299.68, which included damage to the brick on the house, the overhead cabinets in the kitchen, the attic insulation, the cabinets surrounding the fireplace, the fireplace itself, the patio (which was cracked), appliances, countertops, and sheet rock in the kitchen, windows that needed repainting, and repairs approved by the insurance company and performed but not paid. State Auto sent another adjuster, Martin Brown, to handle these items. On October 9, 1996, Brown determined that $19,892.80 was an appropriate amount to pay the Swaims for these claims. The balance of the amount claimed was denied because in State Auto's judgment some of the items were not covered under the policy, some of the repairs were not necessary, and other damaged items were not available for inspection.

On October 31, 1996, the Swaims filed a lawsuit against State Auto and Bob Miller Insurance Agency, alleging breach of contract and bad faith. They prayed for $31,226.65 in compensatory damages, $50,000 in punitive damages, and their costs and attorney's fees. In 1998, the matter was tried to a jury, which awarded the Swaims by special verdict $28,500 for breach of contract and $4,000 for bad faith. The trial court then awarded the Swaims $10,000 for attorney's fees pursuant to Ark.Code Ann. § 16-22-308, following an oral motion for fees by the Swaims' attorney after the trial. There was no award for punitive damages, and no verdict or judgment was taken against Bob Miller Insurance Agency.

I. Breach of Contract

When the plaintiffs rested, State Auto moved for a directed verdict on the breach-of-contract claim and argued that the Swaims had failed to prove entitlement to additional contents losses and had failed to furnish written estimates as required by the policy. The trial court denied the motion and did so again when the motion was renewed at the close of all the proof. After the verdict, State Auto moved for a judgment notwithstanding the verdict, asserting that the plaintiffs failed to produce sufficient evidence of breach of contract. The trial court denied this motion also.

When reviewing a denial of a motion for a directed verdict, this court determines whether the jury's verdict is supported by substantial evidence. See Dodson v. Charter Behavioral Health Sys., Inc., 335 Ark. 96, 983 S.W.2d 98 (1998); Avery v. Ward, 326 Ark. 830, 934 S.W.2d 516 (1996). Substantial evidence is defined as evidence of sufficient force and character to compel a conclusion one way or the other with reasonable certainty; it must force the mind to pass beyond mere suspicion or conjecture. See City of Little Rock v. Cameron, 320 Ark. 444, 897 S.W.2d 562 (1995); St. Paul Fire & Marine Ins. Co. v. Brady, 319 Ark. 301, 891 S.W.2d 351 (1995). When determining the sufficiency of the evidence, we review the evidence and all reasonable inferences arising therefrom in the light most favorable to the party on whose behalf judgment was entered. See Arthur v. Zearley, 337 Ark. 125, 992 S.W.2d 67 (March 25, 1999); Union Pac. R.R. Co. v. Sharp, 330 Ark. 174, 952 S.W.2d 658 (1997).

Using this standard, we consider the evidence supporting the Swaims' claim in the light most favorable to the Swaims. The Swaims submitted claims for additional damages of $32,299.68 in June 1996, all of which directly related to damage caused by the tornado. Drenda Swaim testified that they did everything that was asked of them, that all of her claims were made in writing, and that only adjuster Martin Brown requested additional information from her, which she promptly provided. She also testified that adjuster Bob Miller told her to discard many items of personal property and purchase new ones. Bob Miller testified that his son told the Swaims to get their estimates together and hold them because State Auto only wanted to issue one more check. The jury was clearly free to believe Ms. Swaim and disbelieve Mr. Miller regarding compliance with the policy's documentation requirements.

The property that was disposed of, which State Auto claims it had a right to inspect, was personal property, which included a garbage disposal, a dining room light fixture, the contents in the refrigerator, a refrigerator, ladies clothing, electric cook top and range hood, surround sound speakers, oak medicine cabinet, and a JVC cassette tape deck. Ms. Swaim testified that "[w]e were told by Bob Miller that that [inspection] would not be necessary, under the circumstances, they would not have time to look at every item, and just go ahead and get rid of it." She also explained why she either discarded or replaced each item, and why some of her initial estimates were inaccurate. The jury was free to assess her credibility and believe her explanations. See Balentine v. Sparkman, 327 Ark. 180, 937 S.W.2d 647 (1997); Russell v. Colson, 326 Ark. 112, 928 S.W.2d 794 (1996).

State Auto conceded that all the repairs were valid except for the ones discussed above (fireplace cabinets, kitchen sheet rock, kitchen cabinet, window painting, and attic insulation). Ms. Swaim testified that water had poured through the roof onto the attic insulation. Curtis Henderson, the contractor, testified that the insulation was wet when he was working at the home. Ms. Swaim also testified, along with Charles Swaim, her father-in-law, that the bookshelves alongside the fireplace pulled away from the wall. The problem with the kitchen cabinet, according to the Swaims, was that there was a gap at the corner where the cabinets met. The adjuster, Martin Brown, testified that it was possible that this could have resulted from a tornado if there were some kind of movement of the framing structure or that it could have resulted from moisture. Again, the jury believed the Swaims and not State Auto's adjuster in concluding that these repairs were necessary.

The final repair issue regards the sheet rock in the kitchen, which was initially repaired and paid for by State Auto. After the first repairs, a water stain was still visible as well as the repair patch itself. Curtis Henderson testified that the adjuster first told him to use a stain block on it but that the Swaims were unhappy with the repair because it did not cover the stain. He testified that this was a legitimate reason to redo the work. We do not read State Auto's policy as foreclosing the correction of defective repairs.

In sum, the evidence supporting the Swaims' breach-of-contract claim was substantial. We affirm the judgment on this point.

II. Bad Faith

State Auto also moved for a directed verdict on the Swaims' bad faith claim. The carrier argued that the tort was not proved because it had merely failed to pay the claim when the Swaims wanted payment. ¹ The trial court denied this motion because, in the court's words, there was a "scintilla of evidence" of bad faith for the issue to be submitted to the jury.

Again, we review the denial of a directed-verdict motion using a substantial evidence standard. See Dodson v. Charter Behavioral Health Sys., Inc., supra. An insurance company commits the tort of bad faith when it affirmatively engages in dishonest, malicious, or oppressive conduct in order to avoid a just obligation to its insured. See Parker v. Southern Farm Bureau Cas. Ins. Co., 326 Ark. 1073, 935 S.W.2d 556 (1996); R.J. "Bob" Jones Excavating Contractor, Inc. v. Firemen's Ins. Co., 324 Ark. 282, 920 S.W.2d 483 (1996); Reynolds v. Shelter Mut. Ins. Co., 313 Ark. 145, 852 S.W.2d 799 (1993). We have defined "bad faith" as dishonest, malicious, or oppressive conduct carried out with a state of mind characterized by hatred, ill will, or a spirit of revenge. See AMI 407; see also Affiliated Foods Southwest, Inc. v. Moran, 322 Ark. 808, 912 S.W.2d 8 (1995); American Health Care Providers, Inc. v. O'Brien, 318 Ark. 438, 886 S.W.2d 588 (1994). Mere negligence or bad judgment is insufficient so long as the insurer is acting in good faith. See Stevenson v. Union Std. Ins. Co., 294 Ark. 651, 746 S.W.2d 39 (1988). The tort of bad faith does not...