White v. Unigard Mut. Ins. Co.

• Decision Date: 29 December 1986
• Docket Number: No. 16228,16228
• Parties: Georgeana E. WHITE, Plaintiff-Respondent, v. UNIGARD MUTUAL INSURANCE CO., a Washington corporation, Defendant-Appellant. UNIGARD MUTUAL INSURANCE CO., a Washington corporation, Counterclaimant, v. Georgeana E. WHITE, Counterdefendant.
• Court: Idaho Supreme Court

Page 1014

730 P.2d 1014

112 Idaho 94

Georgeana E. WHITE, Plaintiff-Respondent, v. UNIGARD MUTUAL INSURANCE CO., a Washington corporation, Defendant-Appellant.

UNIGARD MUTUAL INSURANCE CO., a Washington corporation, Counterclaimant, v. Georgeana E. WHITE, Counterdefendant.

No. 16228.

Supreme Court of Idaho.

Dec. 29, 1986.

John P. Howard and David E. Day (argued), of Quane, Smith, Howard & Hull, Boise, for defendant-appellant.

Terry M. Michaelson (argued), Hamilton, Clark & Michaelson, Nampa, for plaintiff-respondent.

BISTLINE, Justice.

On February 14, 1984, a fire damaged the premises of Nampa Beauty College, owned by Georgeana White. White notified and submitted her claim to her Insurer, Unigard. Arson was suspected, and, subsequently, White and her daughter, Jan Blevins, were charged with arson and insurance fraud. However, at the preliminary hearings the charges were dismissed due to insufficient evidence.

White then demanded settlement of Unigard. Unigard required a sworn statement from White, which she provided. At the request of Unigard, White also made available for inspection various items damaged in the fire. Ultimately, Unigard denied coverage for the loss based upon its belief that White was responsible for the fire. (White's policy excluded coverage in the event of arson or other intentional acts of the insured).

Subsequently, White filed suit in state court. Unigard, a Washington corporation, filed in Federal District Court for the District of Idaho for declaratory relief. Ultimately the state action was removed to the federal court and the two actions were consolidated. Unigard moved for a partial summary judgment as to White's complaint at which time the District Court, pursuant to I.A.R. 12.1(a), certified the following questions concerning Idaho law: (1) does the State of Idaho recognize a tort action, distinct from an action on the contract, for an insurer's bad faith in settling the first party claims of its insured; and (2) is there a private right of action under Idaho's Unfair Claims Settlement Practices Act, Idaho Code § 41-1329 (1977), whereby an insured can sue the insurer for statutory violations committed in connection with the settlement of the insured's claim? The first question we answer in the affirmative and, based on that holding, find that a statutory remedy is neither prescribed nor necessary to assure the effectiveness of Idaho's Unfair Claims Settlement Practices Act, Idaho Code § 41-1329.

I

The first question of law certified by the U.S. District Court of the District of Idaho for review by this Court, pursuant to Idaho Appellate Rule 12.1(a), is whether Idaho recognizes a tort action, distinct from an action on the contract, for an insurer's bad faith in settling the first party claims of its insured.

In the recent case of Sullivan v. Allstate Insurance Co., 111 Idaho 304, 723 P.2d 848 (1986), we tangentially addressed the issue of an insurer's duty of good faith. In Sullivan, the plaintiffs had filed a claim for coverage under the uninsured motorist provision of their automobile insurance policy. Allstate refused the claim "on the basis that Julie Sullivan was the proximate cause of her own injuries." Id. at 305, 723 P.2d at 849. When the case went to arbitration, the arbitrators returned a finding of negligence on the part of Julie Sullivan in the amount of 35 percent. This Court in conclusion stated that "Allstate's denial of liability upon the grounds that Julie Sullivan's own negligence was the proximate cause of her damages, was not taken in bad faith. The uncontested finding of the arbitrators of 35 percent negligence on the part of Julie Sullivan speaks loudly in defense of the position of Allstate." Id. at 306, 723 P.2d at 850 (emphasis added). In other words, since the facts indicate that the plaintiff had been a contributing cause to her own injuries, Allstate's refusal to make payment under the policy was "justified" and, hence, not made in bad faith.

In the wake of Sullivan, we are in much the same position as was the Supreme Court of Wisconsin in Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978). In Anderson, the court noted that "[a]lthough such a cause of action has never been explicitly recognized in this state, implicit recognition to such a claim was given in the case of Drake v. Milwaukee Mutual Ins. Co., 70 Wis.2d 977, 236 N.W.2d 204 (1975)." Anderson, supra tortious breach of contract could be asserted against an insurer, it would not have proceeded to determine whether the facts were sufficient to state that cause of action, but it did just that. The claim of tortious breach of contract was thrown out, not because such a claim could not be asserted under Wisconsin law against an insurer, but because the facts pleaded were insufficient. Id.

                [112 Idaho 96] 271 N.W.2d at 373.   In discussing Drake, the court stated
                

As in Drake, the necessary implication of Sullivan is that a claim for a tortious breach of contract could be asserted against an insurer in some circumstances. Id. Likewise, in Sullivan, we found it unnecessary to elaborate further since under the facts of that case there was no genuine issue as to the insurer's "bad faith." The question presented by the federal district court in this case, however, requires some further discussion. While declining to rule on the particular facts of this case, we hold that: (1) there is a common law duty on the part of insurers to their insureds to settle first party claims in good faith and that a breach of this duty will give rise to an action in tort, but that (2) Idaho's Unfair Claims Settlement Practices Act, I.C. § 41-1329, does not give rise to a private right of action whereby an insured can sue the insurer for statutory violations committed in connection with the settlement of the insured's claim.

A. DUTY TO SETTLE IN GOOD FAITH

That there is a duty of good faith and fair dealing inherent in every contract is not disputed. Under the common law, "every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Restatement (Second) of Contracts § 205 (1979). "[A]ll courts are agreed that the insurer does owe to the insured some duty in this respect." Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 235 N.W. 413, 414 (1931).

The Supreme Court of Montana expressly held in Lipinski v. Title Ins. Co., 202 Mont. 1, 655 P.2d 970 (1983), despite a statutory provision which prohibits the imposition of punitive damages arising from a breach of contract, that "insurance companies have a duty to act in good faith with their insureds, and that this duty exists independent of the insurance contract and independent of statute." Id., 655 P.2d at 977 (emphasis added). Such a duty is beyond that which the policy imposes by itself--the duty to defend, settle, and pay--but is a duty imposed by law on an insurer to act fairly and in good faith in discharging its contractual responsibilities. Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, (1973).

Contrary to some authority, this duty arises not only in the context of third party situations (actions brought as a result of the insurer's failure to settle the claims of third parties within the policy limits of the insured), but also in first party actions (when the insured is personally filing a claim for benefits against the insurer under the policy). As the court in Gruenberg stated:

It is manifest that a common legal principle underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort. Gruenberg, supra, 108 Cal.Rptr. at 486, 510 P.2d at 1038 (emphasis added).

See also Rogers v. Pennsylvania Life Insurance Co., 539 F.Supp. 879 (S.D.Iowa, 1982); Tank v. State Farm Fire and Casualty Co., 105 Wash.2d 381, 715 P.2d 1133 (1986); Chavers v. National Security Fire and Casualty Co., 405 So.2d 1 (Ala.1981); Massey v. Armco Steel Co., 635 S.W.2d 596 (Tex.1982); Noble v. National American

[112 Idaho 97] Life Insurance Co., 128 Ariz. 188, 624 P.2d 866 (1979); Anderson v. Continental Insurance Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978); Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 157 Cal.Rptr. 482, 598 P.2d 452 (1979).

As the court in Anderson noted, "[t]he rationale which recognizes an ancillary duty on an insurance company to exercise good faith in the settlement of third-party claims is equally applicable and of equal importance when the insured seeks payment of legitimate damages from his own insurance company. That such a duty arises out of the relationship between the contracting parties themselves cannot be doubted." Anderson, supra, 271 N.W.2d at 375 (emphasis added).

The question before this Court, then, is not whether a duty of "good faith" exists, but rather whether a breach of this duty will give rise to an independent action in tort.

B. TORT OF BAD FAITH

There has been much confusion in the courts over this precise issue. In Anderson, supra, 271 N.W.2d at 374, the court noted that this confusion may be traced to the the fact that the tort of bad faith has been referred to by some as a tortious breach of contract. Id. at 374. The court was quick to note, however, that:

[w]hile ["tortious breach of contract" ] may be a convenient shorthand method of denominating the intentional conduct of a contracting party when it acts in bad faith to avoid its contract obligations, it is confusing and inappropriate, because it could lead one to believe that the wrong done is the breach of the contract. It obscures the fact that the bad faith conduct by one party to a...