Timmons v. Royal Globe Ins. Co.

• Decision Date: 27 July 1982
• Docket Number: No. 53638,53638
• Citation: 653 P.2d 907,1982 OK 97
• Parties: John D. TIMMONS, Appellee, v. ROYAL GLOBE INSURANCE COMPANY, d/b/a Royal Indemnity Company, a Foreign corporation, and David Sowards, an individual, Appellants.
• Court: Oklahoma Supreme Court

Page 907

653 P.2d 907

1982 OK 97

John D. TIMMONS, Appellee, v. ROYAL GLOBE INSURANCE COMPANY, d/b/a Royal Indemnity Company, a Foreign corporation, and David Sowards an individual, Appellants.

No. 53638.

Supreme Court of Oklahoma.

July 27, 1982.

Rehearing Denied Sept. 27, 1982.

Appeal from the District Court in and for Creek County, Bristow Division, Jess I. Miracle, Trial Judge.

Plaintiff brought an action against defendant Royal Globe Insurance Company and its agent alleging damages arising from breach of the implied duty to deal fairly and act in good faith. Plaintiff's cause of action arises out of the crash of an airplane insured by Royal Globe and Royal Globe's failure to carry out its obligations under the contract of insurance. The action was tried to a jury and the jury returned a verdict for plaintiff for actual damages, pain and suffering, and punitive damages. The defendants appeal.

REVERSED IN PART. AFFIRMED, ON CONDITION AS STATED, IN PART.

Rhodes, Hieronymus, Holloway & Wilson, Bert M. Jones, Chris L. Rhodes, R.P. Redemann, Tulsa, for appellants.

W.C. "Bill" Sellers, Inc., Sapulpa, McBride & Bonnell, Inc., Tulsa, for appellee.

HARGRAVE, Justice.

The appellants, Royal Globe Insurance Company and David Sowards, bring this appeal from a jury verdict and subsequent judgment for the plaintiff, John D. Timmons, in the amount of $9,126.86 actual damages, $25,000 damages for mental pain and suffering, and three million dollars punitive damages.

The initial petition in this action was filed on October 28, 1976; the action was removed to Federal Court and subsequently remanded to the State Court. The appellant, Royal Globe, answered, generally denying allegations of conspiracy to defeat payment of claims, slander and malicious interference with business enterprises, and reserving the right to answer further upon completion of discovery. On December 1, 1978, plaintiff amended alleging Royal Globe and Sowards had maliciously and in bad faith refused to pay the claim made against plaintiff's insurance policy and to defend plaintiff against the claims of the passengers injured in the plane crash that initiated this action. Globe demurred to this petition, alleging the amendment was barred by the statute of limitations and that demurrer was overruled. After discovery, Globe filed a motion for partial summary judgment against the punitive damage claim which was overruled the day of trial.

The factual surrounding of this litigation revolves around an excursion in a Piper aircraft to and from Alaska carrying six persons. The plaintiff, John D. Timmons, was the pilot of the aircraft. He had purchased a policy of insurance through the Walter Bryce Insurance Agency and Mr. Homer Hilst, agent of Royal Globe. The policy was issued for two years beginning September 26, 1972.

On the return from Alaska on August 3, 1973, the Piper crashed in the region of Hell's Canyon, Wyoming. With plaintiff were his wife, his son and daughter-in-law. Also in the aircraft at the time of the crash were guests Sally Mae and Robert H. Wilker, related by marriage to plaintiff's son. The cause of the crash was listed as a density-altitude crash, which refers to an aircraft being too heavily laden for the lift that can be developed by the wings of the craft at a given atmospheric condition. Plaintiff also stated he found bird remains in the engine which possibly compounded the problem. The crash occurred in a remote area and all injured were brought out of the national forest by horseback.

When plaintiff arrived in Tulsa he found a note from Mr. Warren Edmon, an employee of Royal Globe. Pursuant to that note and the meeting it sought, the aircraft log books and the pilot's medical certificate and pilot's certificate were turned over to the employee.

Royal Globe hired an investigator working out of Colorado to investigate the crash. One of his memos contained in the insurance file reflects that the aircraft's airworthiness certificate was on board the airplane at the crash site. This presence was required as a condition of the policy. On one contract with plaintiff, Mr. Lee represented himself as a salvage buyer over the telephone, and on the next call he referred to himself as an investigator working for Royal Globe. On a subsequent telephonic contact he represented himself as representing Flight Investigators, Inc. The call was terminated when plaintiff informed the caller he recognized his voice.

The airworthiness certificate was not seen again after the insurance investigator reported it to be present in the aircraft. Plaintiff's evidence disclosed that the Federal Aviation Administration was investigating the absence of the certificate and that Globe's agents were aware of that fact. In the face of the knowledge of this, Globe's employees did not inform the F.A.A. that their investigation showed the certificate was, at one time, present in the aircraft.

A further policy condition required that the plaintiff guard the wreckage from pilferage. Mr. Edmon informed Timmons after inquiry that since the crash site was so remote the aircraft need not be guarded. Despite the remote location, however, the avionics were stolen from the wreckage. Globe then listed failure to guard the aircraft as a reason for denying coverage in its investigation file.

Mr. Timmons' insurance contract also required the pilot of the insured aircraft to have the proper ratings as a condition of the policy. Timmons was rated to fly single engine land planes such as the one in which the accident occurred. Timmons also held a third-class medical certificate which was endorsed "student pilot only." In investigating whether the student pilot endorsement on the medical certificate was a breach of the proper ratings clause of the policy, Globe contacted an anonymous source within the Administration rather than seek Timmons' signature on an authorization to inspect the Federal Aviation Administration's confidential information. The record reflects a letter which states on its face that the informant must remain confidential. Although a private pilot rating is not usually issued under a Class 3 medical certificate, the letter reflects that the anomaly originated with the F.A.A. and not Timmons. Seven months after Timmons renewed his medical certificate (at the same time upgrading it to a Class 2 certificate) he attempted to rent an aircraft. Timmons was unable to complete the transaction inasmuch as Royal Globe was still contending that there was a problem with his medical certificate.

Failure to cooperate with the insurer was listed as one of the grounds for refusing to cover plaintiff's accident. One of the grounds for this assertion was plaintiff's failure to forward the documents (medical certificates and other records), in spite of the fact that Royal Globe had sent copies to the investigator in Colorado (Mr. Lee).

One of Royal Globe's employees told plaintiff at one point in the negotiations that if Timmons would discharge his attorney they could settle on more favorable terms.

The plaintiff's liability to the passengers, third parties to the insurance contract, has been discharged by Royal Globe Insurance. That judgment was over the limits of the insurance policy. The liability spoken of in earlier cases, such as American Fidelity & Casualty Co. v. Jones Trucking Co., 321 P.2d 685 (Okl.1958), and National Mutual Casualty Co. v. Britt, 200 P.2d 407, 203 Okl. 175 (1948), has been satisfied. This action does not emanate directly from this line of authority. Here we consider the liability of the insurer to the insured party for failure to deal fairly and act in good faith with its insured. Such an action was discussed in Christian v. American Home Assur. Co., 577 P.2d 899 (Okl.1977). In approving of such an action this Court stated at 904 and 905:

We approve and adopt the rule that an insurer has an implied duty to deal fairly and act in good faith with its insured and that violation of this duty gives rise to an action in tort for which consequential and, in a proper case, punitive, damages may be sought.

This Court discussed its perception of the implied duty to deal fairly with the insured in Christian, supra, by citing what was termed the clear analysis found in Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), to the effect that there is a single duty to deal fairly with the insured and third parties arising from the relationship established by the contract of insurance:

Thus in Comunale and Crisci we made it clear that '[l]iability is imposed [on the insurer] not for a bad faith breach of contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing.' In those two cases, we considered the duty of the insurer to act in good faith and fairly in handling the claims of third persons against the insured, described as a 'duty to accept reasonable settlements'; in the case before us we consider the duty of an insurer to act in good faith and fairly in handling the claim of an insured, namely a duty not to withhold unreasonably payments due under a policy. These are merely two different aspects of the same duty.... 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.... (Emphasis added.)

Thus there is but one duty to deal fairly and in good faith, which is owed by the insurer to both the insured and third parties. The prior action to require the insurer to pay claims of third parties has been reduced to judgment and that judgment has been satisfied. The prior judgment was final before this action was commenced. Defendant Royal Globe Insurance Co. states on appeal, citing Christian, supra, that this second action amounts to a prohibited split of a single cause of action into two lawsuits. The petition did not allege...