Brief Fact Summary.
Plaintiff, insured by Defendant, an insurance company, brings suit claiming that Defendant asserting a breach of contract and tort claims when Defendant rejected Plaintiff’s offer to settle the claim without explanation. The trial court found for Defendant, and Plaintiff appealed.
Synopsis of Rule of Law.
An action involving a first party relationship between an insurer and its insured, a breach of duties and obligations will only give rise to a contracts claim, not a tort law claim.
Beck, Plaintiff, insured by Defendant, Famers Insurance Exchange, in which the policy provided that Plaintiff would be reimbursed for medical expenses and uninsured motorist benefits if Plaintiff was involved in an accident with an uninsured motorist. On January 16, 1982, Plaintiff was injured in a hit-and-run accident in which the owner of the vehicle that hit Plaintiff and left said the car was stolen, thus denying knowledge of the incident. The hit and run vehicle’s owner’s insurance company denied Plaintiff’s claim, causing Plaintiff to file a claim with Defendant for medical expenses and uninsured motorist benefits. Defendant granted Beck’s claim for medical expenses, nevertheless, Defendant denied Plaintiff’s claim for uninsured motorist benefits. On June 23, 1982, Plaintiff offered to settle the uninsured motorist benefits claim with Defendant for $20,000, which was the policy limit. Plaintiff asserted that the claim was worth significantly more than $20,000, but Defendant rejected Plaintiff’s offer without explanation. Thereafter, Plaintiff filed suit asserting breach of contract, bad faith in refusing to investigate or settle Plaintiff’s uninsured motorist claim, and intentional infliction of emotional distress against Defendant. During trial, Defendant offered to settle Plaintiff’s claim for uninsured motorist for $15,000, which Plaintiff accepted, due to alleged financial pressures resulting from the significant expenses incurred during the ten months after his accident. Plaintiff submitted an affidavit of a former insurance adjuster stating, which stated a prudent insurance company would have valued Defendant’s claim at $40,000. Likewise, Plaintiff contends that Defendant’s delay in settling the claim is evidence of Defendant’s bad faith. Defendant does not introduce any evidence to rebut this assertion in the affidavit. The trial court held for Defendant, and Plaintiff appealed.
Whether an action involving a first party relationship between an insurer and its insured, a breach of duties and obligations will give rise to a contracts claim and a tort law claim.
No, an action involving a first party relationship between an insurer and its insured, a breach of duties and obligations will only give rise to a contracts claim, not a tort law claim.
The implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim.View Full Point of Law
A reasonable jury could conclude that Defendant breached its implied obligation of good faith to Plaintiff. In a first-party relationship, such as a relationship between an insurer and its insured, a breach of the duties and obligations between those parties only gives rise to an action under contract law, not in tort. An insurers duty to act in good faith to settle or bargain in an insurance dispute is only one of the aspects of the duty of good faith and fair dealings. Further, contract law provides a sufficient basis for an insured to successful assert a claim of bad faith against the insurance company. Here, Plaintiff sought to recuperate benefits from Defendant, his own insurance company, a first-party relationship. This form of relationship is, by its very nature, adversarial. Defendant does not owe Plaintiff any fiduciary duties, therefore, Plaintiff may not bring tort claims against Defendant. Nonetheless, Plaintiff is entitled to bring an action in contract law against Defendant for Defendant’s alleged breach of the implied duty of good faith and fair dealing. Pursuant to the affidavit of Plaintiff’s former insurance adjuster and the additional evidence produced at trial, a reasonable jury could find that Defendant breached its implied duty of good faith and fair dealings to Plaintiff. Therefore, the trial court improperly dismissed Plaintiff’s complaint, and the trial court’s ruling is reversed and remanded.