Case Title: McCullough v. Golden Rule Ins. Co.

Citation: 

Docket Number: 88-193

State: wyoming

Court: Wyoming Supreme Court

Date: 1990-04-05T00:00:00Z

Document:
McCullough v. Golden Rule Ins. Co.1990 WY 35789 P.2d 855Case Number: 88-193Decided: 04/05/1990Supreme Court of Wyoming
CURTIS McCULLOUGH AND JUDITH M. McCULLOUGH, HUSBAND AND 
WIFE, PETITIONERS,

v.

GOLDEN RULE INSURANCE 
CO., 

AN ILLINOIS CORPORATION 
DOING BUSINESS IN WYOMING, 

RESPONDENT.

Stuart S. Healy 
of Healy & Kinnaird, Sheridan and Glenn E. Smith, Cheyenne, for 
petitioners.

Stephen S. 
Ashley of Ashley & Ashley, San Francisco, Cal., Thomas G. Gorman of Hirst 
& Applegate, Cheyenne, and Guy E. McGaughey, Jr. of McGaughey & 
McGaughey, Lawrenceville, Ill., for respondent.

George Santini, 
Cheyenne, for amicus curaie, Wyoming Trial Lawyers 
Ass'n.

John A. Sundahl 
and George E. Powers, Jr. of Godfrey, Sundahl & Jorgenson, Cheyenne and G.G. 
Greenlee of Murane & Bostwick, Casper, for amicus curiae, Defense Lawyers 
Ass'n of Wyoming, Inc.

Before 
THOMAS, URBIGKIT, MACY and GOLDEN, JJ., and BROWN, J., Ret.

URBIGKIT, Justice.

[¶1]      We consider two 
questions certified from the United States Court of Appeals for the Tenth 
Circuit:

Does an insurance company 
owe a duty of good faith to its policyholders not to unreasonably deny a claim 
for benefits under the policy, the breach of which duty gives rise to an 
independent tort action?

If such a tort action is 
permitted, in addition to showing that the claim was denied unreasonably and 
without proper cause, must the policyholder demonstrate that the insurance 
company intentionally, knowingly, or recklessly denied the claim for 
benefits?

[¶2]      The first 
certified question is answered "yes," but the second certified question is 
answered by enunciating another standard for proof of the tort of violation of 
the duty of good faith and fair dealing. In response, we adopt the independent 
tort thesis of Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973) and establish the "fairly debatable" objective standard care 
analysis of Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 
(1978) for any award of extra-contractual damages. The criteria for award of any 
punitive damages is provided by present Wyoming case law which will maintain a 
consistent rule in all cases and avoid differentiation between first-person or 
third-person insurance cases or with other punitive damage claims. 

[¶3]      The facts, as 
discerned from the certification order, disclose that this case was initiated by 
the medical insurance policyholder in Wyoming state district court and then 
removed on diversity grounds to the federal district court. The focus of the 
suit is a major medical health insurance policy purchased by Curtis and Judith 
McCullough from Golden Rule Insurance Company (Golden Rule). The policy was 
applied for and became effective June 1, 1983. The policy mandated a fifteen day 
waiting period before coverage could begin and defined a "preexisting condition" 
to deny coverage for any preexisting illness.

[¶4]      Subsequent 
surgical bills were incurred by Mrs. McCullough for which claims were denied by 
Golden Rule as preexisting. In the litigation in federal court, Golden Rule 
received an unfavorable jury verdict on a contract claim and a directed verdict 
on the companion tort bad faith claim. The basis of the directed verdict was the 
anticipation of the federal court that Wyoming, where this court had not 
previously spoken, would not adopt the first-person independent tort cause of 
action. McCullough appealed to the Tenth Circuit Court of Appeals from the 
directed verdict of the bad faith tort claim and the Tenth Circuit, noting our 
decision of Western Casualty and Surety Co. v. Fowler, 390 P.2d 602 (Wyo. 1964), 
certified the legal issue pursuant to W.S. 1-13-104 through 1-13-107 for our 
finite resolution since clear precedent in state law did not exist on 
implementation of first-person independent tort complaint.

ANALYSIS

1. First Question - 
Recognition of Bad Faith as a Tort

[¶5]      The McCulloughs, 
supported by amicus curiae brief,1 advance the premise that the legal 
duty of good faith and fair dealing arises from the contractual relationship but 
does not stem solely from the contract itself. Consequently, it is imposed by 
law and an independent tort action should be possible so the unequal bargaining 
power of the parties to an insurance contract is recognized in a way that would 
arguably deter bad faith claim practices by insurers.

[¶6]      Golden Rule, also 
buttressed by amicus curiae brief,2 strenuously argues that the implied 
duty of good faith and fair dealing is a simple contractual duty which prevents 
an independent tort action. On the first question, Golden Rule's gravamina, in 
addition to public policy concerns, are that legislative preemption has occurred 
and the theoretical bases of first-party bad faith actions are not sound. The 
preemption argument is that the Wyoming legislature has preempted the field by 
enacting the Unfair Trade Practices Act, W.S. 26-13-101 through 26-13-124 and an 
attorney's fees and interest recovery statute, W.S. 26-15-124(c)3. The attack on the utilization of 
first-party bad faith cuts to the fundamental difference between third-party and 
first-party situations focusing on the adversarial nature of first-party 
relationships where it is argued no fiduciary relationship develops, no 
relationship of trust or reliance on the contract appears, and no indicia of 
agency becomes present. Unlike the third-party situation, both the insured and 
the insurer in the first-party context are parties to the contract and their 
rights should be controlled solely by the insurance policy.

[¶7]      The DLA brief, in 
relation to the first question, essentially argues in parallel to the 
contentions of Golden Rule, but broadens the preemption argument to encompass 
the entire Wyoming Insurance Code in W.S. 26-1-101 through 26-38-106. It 
stresses that any recognition of first-party bad faith as a tort "can only 
disturb the balance that has been struck by the Wyoming Legislature." Also, it 
broaches the view that Arnold v. Mountain West Farm Bureau Mut. Ins. Co., Inc., 
707 P.2d 161    
           
           
           
             
             
              
   (Wyo. 1985) is controlling and should answer the first question in 
the negative. Justification in logic is presented by all litigants but, aside 
from their roots in economic interest, the direct inquiry is should Wyoming have 
the insurance company duty of good faith and fair dealing first-party tort cause 
of action and, if so, what should be the standard for application of the cause 
of action and with what effect on potential award of punitive 
damages.

[¶8]      While a majority 
of states have adopted this cause of action,4 the label attached to it and the 
standards to determine bad faith differ among the jurisdictions. The approaches 
divide into four main categories: (1) recognized as an independent tort;5 (2) labeled as contractual but 
allowing a broader range of damages which may include punitives;6 (3) characterized as contractual 
and confining to strictly benefit of the bargain damages;7 or (4) established statutorily.8 Despite the diversity among the 
jurisdictions, we believe the superior view recognizes the existence of the 
independent tort for violation of a duty of good faith and fair dealing in 
insurance policy application by the carrier to its insured.

[¶9]      Wyoming law has a 
consistent thread running from the 1964 case of Western Casualty and Surety Co., 
390 P.2d 602 involving the third-party situation of a failure to settle and 
Arnold, 707 P.2d 161 involving first-party uninsured motorist coverage, so that 
recognition of the independent action for the tort of first-party bad faith 
would be structurally consistent and could be expected.9 Additionally, this court in Tate v. 
Mountain States Tel. and Tel. Co., 647 P.2d 58, 63 (Wyo. 1982) held:

There are certain classes 
of contracts which create a relation out of which certain duties arise as 
implied by law independently of the express term of the contract. If the 
negligent breach of contract is also a breach of such duty the remedy is ex 
contractu and ex delicto. * * * Such is the situation in this case. Of course, a 
double recovery is not allowed.

The insurance 
contract is one of these special classes of contracts so that this duty of good 
faith and fair dealing imposed by law arises from the contractual relationship. 
Anderson, 271 N.W.2d  at 374; Hilker v. Western Automobile Ins. Co. of Ft. Scott, 
Kan., 204 Wis. 1, 231 N.W. 257 (1930). See also Hoiness-LaBar Ins. v. Julien 
Const. Co., 743 P.2d 1262 (Wyo. 1987); Hursh Agency, Inc. v. Wigwam Homes, Inc., 
664 P.2d 27, 32 (Wyo. 1983), liability could lie either for breach of contract 
or negligent default of duty imposed by contract; and Hagar v. Mobley, 638 P.2d 127, 137 (Wyo. 1981), where duty arose from statutory standards imposed on real 
estate brokers.

[¶10]   The fear that recognition of this 
cause of action will blur the distinction between traditional theories of tort 
and contract is unsound.

     The fear that such a 
holding would eliminate the "barrier" between tort and contract and lead 
generally to the awarding of punitive damages in all breach of contract cases is 
unwarranted. Permitting an insured to maintain a cause of action in tort is 
justified primarily on the basis of the "public service" nature of the insurance 
business and the unequal bargaining relationship between insurer and insured. 
These circumstances do not exist in all, or even in most, contracts.

Roberts v. 
Western-Southern Life Ins. Co., 568 F. Supp. 536, 555 n. 44 (N.D.Ill. 1983). See 
also Hoskins v. Aetna Life Ins. Co., 6 Ohio St.3d 272, 452 N.E.2d 1315 (1983). 
Additionally, this court has at least inferentially recognized that insurance 
contracts involve unequal bargaining power by adoption of the rate of 
construction favoring the insured. See Aetna Ins. Co. v. Lythgoe, 618 P.2d 1057 
(Wyo. 1980) and Alm v. Hartford Fire Ins. Co., 369 P.2d 216 (Wyo. 1962). See 
also Comment, Establishing the Tort of Bad Faith in Wyoming, XX Land & Water 
L.Rev. 625, 628 (1985), which recites the inequality of bargaining power thesis. 
See Neal v. State Farm Ins. Companies, 188 Cal. App. 2d 690, 10 Cal. Rptr. 781 
(1961). The foundational case of insurer liability as asserting rights to good 
faith and rejecting imposition of oppression was Hilker, 231 N.W.  at 258, which 
stated:

     In view of the fact 
that these contracts of insurance are prepared by the company and are not 
prescribed by law, the tendency of the decisions has been to extend, rather than 
to circumscribe, the field of liability on the part of the company and to hold 
that the rights of the insured "go deeper than the mere surface of the contract 
written for him by the defendant. Its stipulations imposed obligations based 
upon those principles of fair dealing which enter into every contract." Brassil 
v. Maryland Casualty Co., 210 N.Y. 235, 104 N.E. 622, 624, L.R.A. 1915A, 629, 
632.

That court 
further recited "`that it would be a reproach to the law if there were no remedy 
for so obvious a wrong as was inflicted upon this plaintiff.'" Id. 231 N.W.  at 
261 (quoting Brassil v. Maryland Casualty Co., 210 N.Y. 235, 104 N.E. 622, 624). 
On rehearing, Hilker v. Western Automobile Insurance Co. of Ft. Scott, Kan., 204 
Wis. 1, 235 N.W. 413, 415-16 (1931) stated:

     We can see no room to 
quibble upon the proposition that the insurer made an inadequate, a careless, if 
not shiftless, investigation of the facts with reference to the accident and 
injury, that it never at any time was in position to exercise a sound or 
good-faith judgment, and that in none of these respects did it meet the duty 
which it owed to the plaintiff.

[¶11]   An earlier authority on the 
emerging trend was Note, The Availability of Excess Damages for Wrongful 
Refusal to Honor First Party Insurance Claims - An Emerging Trend, 45 
Fordham L.Rev. 164 (1976). The countervailing view was stated in Thornton and 
Blaut, Bad Faith and Insurers: Compensatory and Punitive Damages, 12 Forum 699 
(1977).10

[¶12]   Wyoming generally recognizes the 
benefit of the bargain damages in relation to contractual damages. UNC Teton 
Exploration Drilling, Inc. v. Peyton, 774 P.2d 584 (Wyo. 1989); Robert W. 
Anderson Housewrecking and Excavating, Inc. v. Board of Trustees, School Dist. 
No. 25, Fremont County, Wyoming, 681 P.2d 1326 (Wyo. 1984); Panhandle Eastern 
Pipe Line Co. v. Smith, 637 P.2d 1020 (Wyo. 1981). Compare Atlas Const. Co. v. 
Slater, 746 P.2d 352 (Wyo. 1987), assessing detriment for tort damages which 
were proximately caused by breach of duty. The additional impetus for good faith 
is furnished by the contingencies as the price of bad faith which are provided 
by a tort standard protected duty. Crisci v. Security Ins. Co. of New Haven, 
Conn., 66 Cal. 2d 425, 58 Cal. Rptr. 13, 426 P.2d 173 (1967). See also J. 
McCarthy, Punitive Damages in Bad Faith Cases, § 1.8 (4th ed. 1987) in analysis 
of the effect of Crisci.

To deny an action in tort 
would deny such recovery and consequently encourage insurers to delay 
settlement. In contrast, an action in tort will provide necessary compensation 
for insureds and incentive for insurers to settle valid claims. * * * At worst, 
the availability of an action in tort will add nothing to the liability of 
insurers.

White v. Unigard 
Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014, 1018 (1986). See also Annotation, 
Insurer's Liability for Consequential or Punitive Damages for Wrongful Delay or 
Refusal to Make Payments Due Under Contracts, 47 A.L.R.3d 314 
(1973).

[¶13]   Preclusion by alternative statutory 
remedy has been denied acceptance in most jurisdictions unless the remedy would 
be as broad as the bad faith tort claim. It seldom is and would not be in 
Wyoming and we join the majority precept in rejection of statutory preemption. 
Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985). Furthermore, it is 
logically argued that Western Casualty and Surety Co., 390 P.2d 602 is 
dispositive since the statutory preemption or preclusion would logically apply 
to either type of bad faith claim. Clearly, the Wyoming statutes, W.S. 
26-15-124(c) and 26-13-124, and the entire insurance code, W.S. 26-1-101 through 
26-38-106, do not provide the same scope of remedies as found in the good faith 
and fair dealing independent tort remedy. See Comment, supra, XX Land & 
Water L.Rev. at 640 and W. Shernoff, S. Gage & H. Levine, Insurance Bad 
Faith Litigation, § 7.04[1] (1989).

2. Second Question - The 
Applicable Standard

[¶14]   We believe the appropriate test to 
determine bad faith is the objective standard whether the validity of the denied 
claim was not fairly debatable. As this test was further examined by Justice 
Heffernan in Anderson, 271 N.W.2d  at 376-77, he added:

     Whether a claim is 
"fairly debatable" also implicates the question whether the facts necessary to 
evaluate the claim are properly investigated and developed or recklessly ignored 
and disregarded.

     To show a claim for 
bad faith, a plaintiff must show the absence of a reasonable basis for denying 
benefits of the policy and the defendant's knowledge or reckless disregard of 
the lack of a reasonable basis for denying the claim. It is apparent, then, that 
the tort of bad faith is an intentional one. * * *

* * * * * *

     The tort of bad faith 
can be alleged only if the facts pleaded would, on the basis of an objective 
standard, show the absence of a reasonable basis for denying the claim, i.e., 
would a reasonable insurer under the circumstances have denied or delayed 
payment of the claim under the facts and circumstances. See, Hilker, supra, and 
Alt v. American Family Mut. Ins. Co., 71 Wis.2d 340, 237 N.W.2d 706 
(1976).

Thus, the 
utilization of this objective standard of whether appropriateness of the denial 
of the claim is fairly debatable will form the focus of this tort. The Alabama 
court substitutes the word "arguable" for debatable. King v. National Foundation 
Life Ins. Co., 541 So. 2d 502 (Ala. 1989). The logical premise of the debatable 
(or arguable) standard is that if a realistic question of liability does exist, 
the insurance carrier is entitled to reasonably pursue that debate without 
exposure to a claim of violation of its duty of good faith and fair dealing. 
White, 730 P.2d  at 1018; Fehring v. Republic Ins. Co., 118 Wis.2d 299, 347 N.W.2d 595 (1984).

[¶15]   Moreover, this decision today 
should not be interpreted as opening the floodgates for awarding punitive 
damages in each case where the claim of the bad faith tort may be submitted for 
trial determination.11 Although we recognize this tort, 
we believe that the awarding of punitive damages for the tort of bad faith 
should remain consistent in Wyoming law and require wanton or willful 
misconduct. See Mayflower Restaurant Co. v. Griego, 741 P.2d 1106 (Wyo. 1987); 
Weaver v. Mitchell, 715 P.2d 1361 (Wyo. 1986); Arnold, 707 P.2d 161; and Waters 
v. Trenckmann, 503 P.2d 1187 (Wyo. 1972). Cf. Oukrop v. Wasserburger, 755 P.2d 233 (Wyo. 1988). This posture is also consistent with the Wisconsin application 
in Anderson and other cases where both bad faith and punitive damage may have 
been claimed.

     We do not conclude, 
however, that the proof of a bad faith cause of action necessarily makes 
punitive damages appropriate. * * * For punitive damages to be awarded in 
addition to compensatory damages for the tort, there must be a showing of an 
evil intent deserving of punishment or something in the nature of special 
ill-will or wanton disregard of duty or gross or outrageous conduct. In the 
specific context of the intentional tort of bad faith, exemplary damages are not 
necessarily appropriate although the plaintiff be entitled to compensatory 
damages. For punitive damages to be awarded, a defendant must not only 
intentionally have breached his duty of good faith, but in addition must have 
been guilty of oppression, fraud, or malice in the special sense defined by 
Mid-Continent v. Straka [47 Wis.2d 739, 178 N.W.2d 28 (Wis. 1970)]. See also, 
Silberg v. California Life Ins. Co., supra, 11 Cal.3d [452] at 462, 113 Cal. Rptr. 711, 521 P.2d 1103 [(C.A. 1974)].

Anderson, 271 N.W.2d  at 379. Likewise, see Fehring, 347 N.W.2d 595. Cf. Annotation, 
Recoverability of Punitive Damages in Action by Insured Against Liability 
Insurer for Failure to Settle Claim Against Insured, 85 A.L.R.3d 1211 (1978) and 
J. McCarthy, supra, § 1.57.

CONCLUSION

[¶16]   Therefore, we recognize the tort of 
first-party bad faith and answer the first question affirmatively. We answer the 
second question by implementation of an objective standard of fairly debatable 
as the test of damage award recovery and retain the higher requirement of 
present Wyoming law for allowance of punitive damages.

THOMAS, Justice, 
dissenting.

[¶17]   I, too, dissent from the 
disposition of this case according to the majority opinion, and I am pleased to 
join in the perceptive and eminently correct dissenting opinion of Justice 
Golden. I agree that the rule articulated in Beck v. Farmers Insurance Exchange, 
701 P.2d 795 (Utah 1985), is a far better policy choice than the choice of a 
first-party bad faith tort cause of action as adopted in Gruenberg v. Aetna 
Insurance Company, 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973). I 
append some thoughts of my own.

[¶18]   My special concern is that in 
adopting a first-party bad faith cause of action in this instance we may have 
adopted it for all contractual relationships. The punitive damage claim then 
would have the same leverage in forcing settlements in all contract cases that 
it now has in personal injury and other tort cases. One must be reminded of Brer 
Rabbit's adventure with the Tar-Baby. Joel Chandler Harris, Uncle Remus, His 
Songs and His Sayings, at 7-11 (1880), as printed in Botkin, A Treasury of 
American Folklore, at 653-55 (1944). Once Wyoming realizes that it is stuck to a 
first-party bad faith cause of action, the efforts to find the legal equivalent 
of a briar patch where we can extricate ourselves from the Tar-Baby will become 
quite intense.

[¶19]   While that briar patch may be 
perceived by many observers as very thorny, it could be as essential to us as 
the proverbial briar patch was for Brer Rabbit. We might find it to represent a 
radical adjustment in the concept of punitive damages to the end that punitive 
damages would be invoked as a true social penalty rather than an enhanced 
recovery for the individual plaintiff. This approach already has been 
identified, and legislative models are in place. E.g. Colo. Rev. Stat. § 
13-21-102(4) (1973); Fla. Stat. Ann. § 768.73(2) (West 1988); Ga. Code Ann. § 
51-12-5.1(e)(2) (1987); Ill. Ann. Stat. ch. 110, para. 2-604.1 (Smith-Hurd 
1987); Iowa Code Ann. § 668A.1(2)(b) (West 1987); Mo. Ann. Stat. § 537.675 
(Vernon 1987); and Or. Rev. Stat. § 18.540 (1988). See Bell and Pearce, Punitive 
Damages and the Tort System, 22 U.Rich.L.Rev. 1 (1987). Other writers suggest 
this as an alternative to other reform measures such as abrogation of punitive 
damages altogether. Launie, The Incidence and Burden of Punitive Damages, 53 
Ins.Couns.J. 46, 50-51 (1986); Sales and Cole, Punitive Damages: A Relic That 
Has Outlived Its Origins, 37 Vand. L.Rev. 1117, 1170 (1984).

[¶20]   The essence of this approach is 
that any award of punitive damages is directed to the appropriate sovereign to 
be utilized to address social problems that may, or may not, be related to the 
misconduct of the defendant. Since it is regarded as a penalty imposed on behalf 
of the sovereign, the constitutional concept of double jeopardy is invoked so 
that only one award of punitive damages can be made for a single act of 
misconduct. Plaintiff's counsel would serve as a private attorney general for 
this purpose and, while counsel probably would be entitled to compensation for 
services rendered, the fee awarded may be less than that contracted for by the 
client.

[¶21]   In achieving the result represented 
by the majority opinion, the plaintiffs in this litigation may have achieved a 
true Pyrrhic victory. The gain of the right to assert punitive damages in a 
breach of contract action well may cost all future plaintiffs the windfall of 
punitive damages in any action. The punitive and deterrent effect will be 
maintained for the benefit of the public, but the injured, or damaged, party 
will have to be content with compensatory damages only. Perhaps that is a 
salutary result and should be pursued by the legislature in the next legislative 
session.

GOLDEN, Justice, dissenting, 
with whom THOMAS, J., joins.

[¶22]   In this first-party insurance 
setting on a breach of contract theory, the insured recovered from the insurer 
$3,546.28 in policy proceeds, $10,000 for emotional distress, and $31,309.91 in 
attorney's fees pursuant to W.S. 26-15-124(c) (June 1983 Repl.).1 The legislative policy behind this 
statute is "to encourage [settlements] and to chill any tendencies upon the part 
of insurance companies to unreasonably reject claims." State Surety Company v. 
Lamb Construction Company, 625 P.2d 184, 188 (Wyo. 1981).

[¶23]   The parties to this appeal have no 
quarrel about the particular elements of damages for which the insured has been 
compensated upon proving the insurer's breach of the implied obligation of good 
faith and fair dealing contained in the insurance contract. As ably analyzed and 
skillfully presented to this court by appellate counsel, the true cutting edge 
of this certified question is whether the insured is also entitled to a chance 
to recover punitive damages. If the insured's action against the insurer is 
identified and treated legally as a tort action, then the insured is entitled to 
a chance to recover punitive damages under a requisite standard of proof. On the 
other hand, if the insured's action is deemed to be a breach of contract action 
only, then the insured is not entitled to a chance to recover punitive damages 
unless, according to prevailing Wyoming law, the insurer engaged in fraudulent 
misconduct at the inception of the insurance contract. United States Through 
Farmers Home Administration v. Redland, 695 P.2d 1031, 1039 (Wyo. 
1985).

[¶24]   To justify the insured's 
entitlement to a chance to recover punitive damages, the insured argues that the 
implied obligation of good faith and fair dealing is imposed by law outside the 
insurance contract itself. The insured asserts that this implied obligation 
qualifies a tort duty. The insurer's breach of that duty triggers tort damages 
including, if proved, punitive damages. Litigants, courts and commentators who 
argue for the extraneous implied obligation concept maintain it is socially 
desirable in order to deter insurers from engaging in unfair claims practices. 
In their view, the specter of punitive damages available in a tort action is the 
form of deterrence best suited to achieve this goal.

[¶25]   In contrast, the insurer maintains 
the implied obligation of good faith and fair dealing is an integral, not 
extraneous, part of the insurance contract. The insurer argues that a breach of 
this integral obligation triggers contract remedies and statutory remedies, 
chilling an insurer's tendencies to engage in unfair claims 
practices.

[¶26]   We are asked to choose one concept 
or the other. The majority has chosen the extraneous implied obligation thesis 
of Gruenberg v. Aetna Insurance Company, 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973), and adopts the first-party bad faith tort cause of action. 
Since I disagree with the reasons advanced by the majority, and with the 
adoption of this new tort cause of action in light of existing breach of 
contract and statutory remedies, I respectfully dissent.

[¶27]   The strength of the majority 
opinion is seriously, perhaps fatally, compromised on the first page of the 
opinion when it expressly adopts the independent tort thesis of Gruenberg 
without analysis, and never again utters one word about the case. I do not 
understand decision-making that expressly declares reliance on a particular case 
and then forgoes any discussion about that case for the rest of the opinion. The 
silence is deafening. Perhaps it is explained by Gruenberg's own shaky reliance 
on two third-party, not first-party, cases.2 Or, perhaps the silence is 
explained by the well-reasoned rejection of Gruenberg's independent tort thesis 
by the Utah court in Beck v. Farmers Insurance Exchange, 701 P.2d 795 (Utah 
1985). We are left to speculate.

[¶28]   Apart from the majority's failure 
to analyze Gruenberg, the majority advances essentially five reasons in support 
of its decision. Considered individually or cumulatively, these reasons do not 
convince me that the time has come in Wyoming for the adoption of the 
first-party bad faith tort cause of action. The first reason given by the 
majority is that a consistent thread of Wyoming law, from Western Casualty and 
Surety Company v. Fowler, 390 P.2d 602 (Wyo. 1964), to Arnold v. Mountain West 
Farm Bureau Mutual Insurance Company, Inc., 707 P.2d 161 (Wyo. 1985), makes 
recognition of the tort cause of action structurally consistent and expected. 
Western Casualty was a third-party failure-to-settle case and Arnold was an 
uninsured motorist policy controversy where the appeal concerned only the trial 
court's refusal to instruct on punitive damages. Neither presented nor decided 
in either case was the question whether punitive damages may be recoverable in 
an insurance dispute if the conduct constituting a breach of the insurance 
contract rises to the level of an independent tort. The facts and issues in 
Western Casualty and Arnold are facially and substantively distinguishable from 
those here. In those cases I find no thread, and certainly no precedential 
value, with which to weave a golden garment of first-part bad faith tort. Those 
cases are only threads of straw and, unlike Rumpelstiltskin,3 the majority cannot spin them into 
gold. The integrity of the garment woven by a thread of such questionable 
quality must surely be suspect.

[¶29]   Far more precedential and important 
to this controversy is Kahn v. Traders' Insurance Company., 4 Wyo. 419, 34 P. 1059 (1893), unexplainably ignored by the majority. In this first-party 
insurance case, in which this court reversed a district court order that vacated 
a judgment in favor of the insured in an action to recover the proceeds of a 
fire insurance policy, this court described the implied duty of good faith and 
fair dealing in these terms:

Most abundant good 
faith is the very essence of these contracts of insurance, and that requires 
perfect candor and openness on the part of each of the parties. Insurance 
companies are just as much bound as the assured to endeavor heartily and 
strenuously to bring about a fair and a just and equitable settlement of loss 
incurred, for which they have contracted to indemnify the assured, and they have 
no sort of right when such loss has occurred to stand aloof and cast obstacles 
in the way of rather than assist in bringing about such settlement.

Id., 4 Wyo. at 
471, 34 P.  at 1075. (Emphasis added.)

[¶30]   Since good faith is the very 
essence of a contract of insurance, that good faith is an integral part of the 
contractual relationship. It cannot be, then, extraneous to that relationship, 
arising independently and imposed by law. Rather, the obligation is imposed by 
the parties themselves and is woven within the fabric of their contractual 
relationship. Kahn is controlling authority for that principle of law. In 
failing to treat Kahn and in relying on Western Casualty and Arnold, which are 
easily distinguished and not in point, the underpinnings of the majority opinion 
are seriously compromised. Kahn's theses that good faith is the very essence of 
an insurance contract and that the parties to the contract are obligated to deal 
fairly, justly and equitably with each other, arise from the consensual nature 
of the relationship. This was recognized in Beck in which the court rejected 
Gruenberg and refused to adopt the independent tort. In Beck the court held that 
the insured and insurer as parties to the contract have "parallel obligations to 
perform the contract in good faith, obligations that inhere in every contractual 
relationship." Beck, 701 P.2d  at 801. Pointing out the analytical weaknesses of 
Gruenberg's tort approach, Beck observed that in the third-party insurance 
setting a fiduciary relationship between insurer and insured exists which does 
not exist in the first-party insurance setting, where the insurer-insured 
relationship is, practically speaking, adversarial in nature. Thus, it is 
conceptually unsound to transfer the third-party rationale to justify the 
first-party thesis.

[¶31]   The second reason given by the 
majority in support of its decision is that the insurance contract is one of 
those special classes of contracts that create a relationship out of which 
certain duties arise as implied by law independently of the express terms of the 
contract. As authority for this proposition, the majority offers Tate v. 
Mountain States Telephone and Telegraph Company, 647 P.2d 58 (Wyo. 
1982).

[¶32]   I have several problems with the 
majority's use of Tate in this context. First, Tate was a telephone company 
case, not a first-party insurance case. Second, Kahn, a first-party insurance 
case, as controlling authority, holds that the parties' duties to deal with each 
other in good faith is the very essence of the insurance contract. Since those 
reciprocal duties are integral to the contractual relationship, they cannot 
arise as implied by law independently of, or extraneous to, that contract. 
Therefore, in the insurance contract context, Tate is not authoritative in light 
of Kahn. Third, the majority does not bother to explain how or why the insurance 
contract is one of those special classes of contracts referred to in Tate. "Bold 
assertion masquerades as reasoning. The object, quite clearly, is not to 
persuade, but to prevail." Webster v. Reproductive Health Services, ___ U.S. 
___, ___, 109 S. Ct. 3040, 3072, 106 L. Ed. 2d 410, 449, (1989) (Blackmun, J., 
concurring in part and dissenting in part, with whom Brennan, J. and Marshall, 
J., join).

[¶33]   The third reason given by the 
majority is that recognition of the tort cause of action is justified on the 
bases of the public service nature of the insurance business and the unequal 
bargaining relationship between insurer and insured. On this latter basis, the 
majority claims that this court, by adopting a rule of contract construction 
favoring the insured, at least inferentially recognized that insurance contracts 
involve unequal bargaining power. I find no analysis in the cited Wyoming cases 
involving rules of insurance contract construction that expresses the "unequal 
bargaining power" rationale. Instead, I find that this court applies the same 
general rules of contract construction routinely in cases involving different 
types of contracts, not just insurance contracts. Consequently, I question 
whether the majority can legitimately draw that inference. The rule favoring the 
insured is invoked only when ambiguity exists, simply because the insurer wrote 
the contract. This is consistent with the general rule in all contract cases 
where the contract is construed against the party who wrote it. The rule 
favoring the insured is not invoked because of the insurer's perceived greater 
bargaining power. None of our past insurance contract cases advance that 
rationale.

[¶34]   I find it telling that the majority 
also primarily relies on Hilker v. Western Automobile Insurance Co. of Ft. 
Scott, Kan., 204 Wis. 1, 231 N.W. 257 (1930), reh., 204 Wis. 1, 235 N.W. 413 
(1931), decided before the surge of state governmental regulation of the 
insurance business in the form of legislation, administrative rule-making, and 
judicially created doctrines. One of the aims of that regulation is to avoid the 
insurer's overreaching. K. Abraham, Distributing Risk, 37-43 (Yale University 
Press 1986); R. Keeton, Basic Text on Insurance Law, 537-43 (West Pub. Co. 
1971). Without a moment's consideration of Wyoming's statutory scheme of 
governmental regulation of the insurance business conducted in this state and 
its effect on the public service and greater bargaining power aspects of the 
issue at hand, the majority simply declares that the first-party bad faith tort 
is justified in Wyoming. "This `it-is-so-because-we-say-so' jurisprudence 
constitutes nothing other than an attempted exercise of brute force; reason, 
much less persuasion, has no place." Webster, ___ U.S. at ___, 109 S. Ct.  at 
3075, 106 L. Ed. 2d  at 458. I find no analysis whatsoever of why this new cause of 
action is justified in this state. Cutting to the heart of the matter, I find no 
analysis of why the specter of punitive damages is the treatment of choice to 
check the insurer's tendencies to engage in unfair claims practices. The 
majority opinion simply does not demonstrate that existing breach of contract 
remedies along with the statutory remedies of imposition of attorney's fees and 
interest on the amount of the judgment are inadequate or are not achieving the 
desired objective of chilling the insurer's bad faith tendencies.

[¶35]   The fourth reason advanced in the 
majority opinion is that a tort protected duty provides "additional impetus for 
good faith." As with the other reasons offered by the majority, its analysis of 
this reason is deficient. We are given neither explanation nor demonstration of 
why this "additional impetus" is necessary in Wyoming. As the majority opinion 
notes, Wyoming generally recognizes the benefit of the bargain damages in breach 
of contract cases. In Robert W. Anderson Housewrecking and Excavating, Inc. v. 
Board of Trustees, School District No. 25, Fremont County, Wyoming, 681 P.2d 1326, 1333 (Wyo. 1984), this court said:

Damages for breach of 
contract are calculated to put the plaintiff in the same position as if the 
contract had been performed, less proper deductions. The damage should 
compensate for the loss which would have been prevented by a full performance of 
the contract.

[¶36]   Earlier, in Panhandle Eastern 
Pipeline Company v. Smith, 637 P.2d 1020, 1027 (Wyo. 1981), this court 
recognized that "the rules of law on recovery of damages for breach of contract 
have to be very flexible." The court quoted favorably from 5 Corbin on 
Contracts, § 1002, at 33 (1964), to the effect that contract damages rules "must 
be regarded merely as guides to the court, leaving much to the feeling of the 
court created by the special circumstances of the particular case." Thus, Corbin 
informs us:

There is sufficient 
authority to justify the statement that damages will be awarded for mental 
suffering caused by the wanton or reckless breach of a contract to render a 
performance of such a character that the promisor had reason to know when the 
contract was made that a breach would cause such suffering, for reasons other 
than mere pecuniary loss.

Id. at § 1076, 
at 429. See, e.g., the first-party insurance cases of Cassady v. United 
Insurance Company, 370 F. Supp. 388 (W.D.Ark. 1974); Kewin v. Massachusetts 
Mutual Life Insurance Company, 409 Mich. 401, 295 N.W.2d 50 (1980); and Beck. I 
am in agreement with that said in Beck: "In an action for breach of a duty to 
bargain in good faith, a broad range of recoverable damages is conceivable, 
particularly given the unique nature and purpose of an insurance contract." 
Beck, 701 P.2d  at 802. In view of the broad range of compensatory damages 
available in a contract action and in view of the statutorily provided remedies 
of interest on the judgment and attorney's fees, I believe sufficient motivation 
presently exists to stifle an insurer's bad faith tendencies without the further 
imposition of the specter of punitive damages under an independent tort cause of 
action.

[¶37]   The final reason given by the 
majority opinion is expressed in terms of rejection of a notion of statutory 
preemption. Thus, since Wyoming's statutory remedies, in the form of W.S. 
26-13-124 (Cum.Supp. 1988) and 25-15-124(c) and the entire insurance code,4 do not provide the same scope of 
remedies as found in the bad faith tort remedy, the majority simply declares, 
without benefit of justification, that an increased scope of remedies is 
desired. That increased scope is punitive damages. As with its analysis of the 
other four reasons, the majority offers no persuasive explanation why this 
increased scope of remedies is necessary. Once again, "bald assertion 
masquerades as reasoning."

[¶38]   In conclusion, I am not convinced 
that Wyoming must adopt the first-party bad faith tort to accomplish what is 
already being accomplished under existing Wyoming law. I am reminded that "the 
danger to the jury system from society and its representative members of the 
legislature, arises from uncontrolled litigative excesses, unjustified in the 
logic of the law of tort or by the facts of the case. There is an abrogation of 
judicial responsibility which is uniformly resulting nationwide in attacks on 
the jury system. The vitality and suitability of the jury system remains 
unchallenged, but it is the timidity of the judiciary to control excesses that 
is being called into account." (Urbigkit, J., dissenting, in Clarke v. 
Vandermeer, 740 P.2d 921, 929 (Wyo. 1987), quoting Resnik, Failing Faith: 
Adjudicatory Procedure in Decline, 53 U.Chi.L.Rev. 494, 556 
(1986)).

FOOTNOTES

1 Wyoming Trial Lawyers 
Association (WTLA).

2 Defense Lawyers 
Association of Wyoming, Inc. (DLA).

3 W.S. 26-15-124(c) 
provides:

In 
any actions or proceedings commenced against any insurance company on any 
insurance policy or certificate of any type or kind of insurance, or in any case 
where an insurer is obligated by a liability insurance policy to defend any suit 
or claim or pay any judgment on behalf of a named insured, if it is determined 
that the company refuses to pay the full amount of a loss covered by the policy 
and that the refusal is unreasonable or without cause, any court in which 
judgment is rendered for a claimant may also award a reasonable sum as an 
attorney's fee and interest at ten percent (10%) per year.

4 See Comment, 
Establishing the Tort of Bad Faith in Wyoming, XX Land & Water L.Rev. 625 
(1985) and citations therein for an overview of this tort.

5 See Justin v. Guardian 
Ins. Co., Inc., 670 F. Supp. 614 (D.V.I. 1987); DiSalvatore v. Aetna Cas. & 
Sur. Co., 624 F. Supp. 541 (D.N.J. 1986); Washington v. Group Hospitalization, 
Inc., 585 F. Supp. 517 (D.D.C. 1984); Phillips v. Aetna Life Ins. Co., 473 F. Supp. 984 (D.Vt. 1979); Chavers v. National Sec. Fire & Cas. Co., 405 So. 2d 1 (Ala. 1981); United Services Auto. Ass'n v. Werley, 526 P.2d 28 (Alaska 1974); 
Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127, cert. 
denied 459 U.S. 1070, 103 S. Ct. 490, 74 L. Ed. 2d 632 (1982); Aetna Cas. & 
Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1984); Gruenberg, 
510 P.2d 1032; Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985); Buckman 
v. People Exp. Inc., 205 Conn. 166, 530 A.2d 596 (1987); Continental Ins. Co. v. 
Lynham, 293 A.2d 481 (D.C.App. 1972); White v. Unigard Mut. Ins. Co., 112 Idaho 
94, 730 P.2d 1014 (1986); Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988); 
Gibson v. National Ben Franklin Ins. Co., 387 A.2d 220 (Me. 1978); Weems v. 
American Sec. Ins. Co., 486 So. 2d 1222 (Miss. 1986); Lipinski v. Title Ins. Co., 
202 Mont. 1, 655 P.2d 970 (1982); Chavez v. Chenoweth, 89 N.M. 423, 553 P.2d 703 
(1976); United States Fidelity & Guaranty Co. v. Peterson, 91 Nev. 617, 540 P.2d 1070 (1975); Dailey v. Integon General Ins. Corp., 75 N.C. App. 387, 331 S.E.2d 148, review denied 314 N.C. 664, 336 S.E.2d 399 (1985); Newton v. 
Standard Fire Ins. Co., 291 N.C. 105, 229 S.E.2d 297 (1976); Corwin 
Chrysler-Plymouth, Inc. v. Westchester Fire Ins. Co., 279 N.W.2d 638 (N.D. 
1979); Hoskins v. Aetna Life Ins. Co., 6 Ohio St.3d 272, 452 N.E.2d 1315 (1983); 
Christian v. American Home Assur. Co., 577 P.2d 899 (Okla. 1977); Bartlett v. 
John Hancock Mut. Life Ins. Co., 538 A.2d 997 (R.I. 1988); Bibeault v. Hanover 
Ins. Co., 417 A.2d 313 (R.I. 1980); Nichols v. State Farm Mut. Auto. Ins. Co., 
279 S.C. 336, 306 S.E.2d 616 (1983); Matter of Certification of a Question of 
Law from the U.S. Dist. Court, Dist. of South Dakota, Western Div., 399 N.W.2d 320 (S.D. 1987); Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 
(Tex. 1987); Escalante v. Sentry Ins., 49 Wn. App. 375, 743 P.2d 832 (1987); and 
Anderson, 271 N.W.2d 368.

6 See Vernon Fire & 
Cas. Ins. Co. v. Sharp, 264 Ind. 599, 349 N.E.2d 173 (1976); Pirkl v. 
North-western Mut. Ins. Ass'n, 348 N.W.2d 633 (Iowa 1984); Lawton v. Great 
Southwest Fire Ins. Co., 118 N.H. 607, 392 A.2d 576 (1978); Jarvis v. Prudential 
Ins. Co. of America, 122 N.H. 648, 448 A.2d 407 (1982); Fleming v. Allstate Ins. 
Co., 106 A.D.2d 426, 482 N.Y.S.2d 519 (1984); Halpin v. Prudential Ins. Co. of 
America, 48 N.Y.2d 906, 425 N YS.2d 48, 401 N.E.2d 171 (1979), reargument denied 
49 N.Y.2d 801, 426 N.Y.S.2d 1029, 403 N.E.2d 466 (1980); Employers' Fire Ins. 
Co. v. Love It Ice Cream Co., 64 Or. App. 784, 670 P.2d 160 (1983); Beck v. 
Farmers Ins. Exchange, 701 P.2d 795 (Utah 1985); and Hayseeds, Inc. v. State 
Farm Fire & Cas. Co., 352 S.E.2d 73 (W. Va. 1986).

7 See A & E Supply 
Co., Inc. v. Nationwide Mut. Fire Ins. Co., 798 F.2d 669 (4th Cir. 1986), cert. 
denied 479 U.S. 1091, 107 S. Ct. 1302, 94 L. Ed. 2d 158 (1987) (Virginia law does 
not recognize the tort); Federal Kemper Ins. Co. v. Hornback, 711 S.W.2d 844 
(Ky. 1986); Johnson v. Federal Kemper Ins. Co., 74 Md. App. 243, 536 A.2d 1211, 
cert. denied, 313 Md. 8, 542 A.2d 844 (1988); Kewin v. Massachusetts Mut. Life 
Ins. Co., 409 Mich. 401, 295 N.W.2d 50 (1980); Saltou v. Dependable Ins. Co., 
Inc., 394 N.W.2d 629 (Minn.App. 1986); and Haagenson v. National Farmers Union 
Property and Cas. Co., 277 N.W.2d 648 (Minn. 1979); cf. Short v. Dairyland Ins. 
Co., 334 N.W.2d 384 (Minn. 1983) (duty to settle). See Comment, Federal Kemper 
Insurance Company v. Hornback and the Demise of First Party Bad Faith in 
Kentucky, 14 N.Ky.L.Rev. 415 (1988). Cf. Harvey and Wiseman, First Party Bad 
Faith: Common Law Remedies and a Proposed Legislative Solution, 72 Ky.L.J. 141 
(1983) (an early case of a bad prophecy).

8 See Leonard v. Firemen's 
Ins. Co. of Newark, N.J., 100 Ga. App. 434, 111 S.E.2d 773 (1959); Mohr v. Dix 
Mut. County Fire Ins. Co., 143 Ill. App.3d 989, 97 Ill.Dec. 831, 493 N.E.2d 638 
(1986); Debolt v. Mut. of Omaha, 56 Ill. App.3d 111, 13 Ill.Dec. 656, 371 N.E.2d 373 (1978); Duncan v. Andrew County Mut. Ins. Co., 665 S.W.2d 13 (Mo. App. 
1983); Chandler v. Prudential Ins. Co., 715 S.W.2d 615 (Tenn. App. 1986); and 
Fla. Stat. Ann. § 624.155 (West 1984).

9 In Arnold, 707 P.2d  at 
164, a modest award of damages was included in the jury verdict entered against 
the carrier for violation of a duty created by "the implied covenant of good 
faith." The carrier did not appeal and the issues presented on appeal considered 
claims of error made by the insured on the uninsured motorist provision in the 
policy.

10 A most thoughtful review 
of the bad faith tort is provided by the rehearing analysis of the Alabama court 
in Chavers, 405 So. 2d 1. See, likewise, Aetna Cas. & Sur. Co., 664 S.W.2d 463, where the large verdict was reversed on appeal. See also Langdon and 
Sytsma, The Duty of Good Faith and Fair Dealing and the Pre-Adjudicatory Role of 
the Insurance Company Advocate, 45 Ins.Couns.J. 309 (1978) and S. Ashley, Bad 
Faith Actions - Liability and Damages, ch. 2, § 2:19 and ch. 5 
(1984).

To 
be compared after the demise of Royal Globe Ins. Co. v. Superior Court of Butte 
County, 23 Cal. 3d 880, 153 Cal. Rptr. 842, 592 P.2d 329 (1979) in California by 
Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal. 3d 287, 250 Cal. Rptr. 116, 758 P.2d 58 (1988) is Practicum, The Overruling of Royal Globe: A "Royal 
Bonanza" For Insurance Companies, But What Happens Now?, 16 Pepperdine L.Rev. 
763 (1989).

11 Apparently, the 
principal objection of the dissent is to the application of even the very 
restrictive Wyoming law on punitive damages to adjusting and settlement 
misconduct of insurance companies who may intentionally or maliciously abuse 
rights of their policy holders. Outrageous conduct done with malice, bad motives 
or reckless indifference is neither so hard to define nor impossible to defend 
in seeking justice for the insured. Economic misconduct of this egregious 
character is most appropriately corrected by financial responsibility plus, if 
action was willful and wanton, punitive retribution. Witness recent cases, 
Eichenseer v. Reserve Life Ins. Co., 881 F.2d 1355 (1989), reh'g denied 894 F.2d 1414 (5th Cir. 1990) (medical policy denial caused by abjectively mishandled 
claim procedure); United Services Auto. Ass'n v. Wade, 544 So. 2d 906 (Ala. 1989) 
(unproved arson defense and incompetent adjustment procedure in denial of fire 
loss settlement); Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 733 P.2d 1073, 
cert. denied 484 U.S. 874, 108 S. Ct. 212, 98 L. Ed. 2d 177, reh'g denied 484 U.S. 972, 108 S. Ct. 477, 98 L. Ed. 2d 414 (1987) (use of arbitrary add on fee as a 
deduction from total loss settlement value as a course of conduct in reducing 
payments to insureds); and Gourley v. State Farm Mut. Auto. Ins. Co., 217 Cal. App. 3d 1111, 265 Cal. Rptr. 634 (1990) (use of seat belt defense against own 
insured when representative of insurer believed defense had a five to ten 
percent chance of success and realistic settlement was assiduously stonewalled). 
See, however, South Carolina Ins. Co. v. McKenzie, 547 So. 2d 25 (Miss. 1989), 
where lack of good faith was not proved and the jury verdict of $475,000 was 
reduced to $1,813 actual damages. Likewise, see State Farm Fire & Cas. Co. 
v. Nicholson, 777 P.2d 1152, 1158 (Alaska 1989), where that court 
comprehensively considered and then adopted the tort of bad faith in first-party 
insurance cases by following Gruenberg, 510 P.2d 1032, and then reversed even a 
nominal punitive damage award where the insurance company's conduct "[t]o 
support punitive damages, * * * must be `outrageous, such as acts done with 
malice or bad motives or reckless indifference to the interests of another.'" 
(Quoting Sturm, Ruger & Co., Inc. v. Day, 594 P.2d 38, 46 (1979), overruled 
on other grounds sub nom. Dura Corp. v. Harned, 703 P.2d 396 (Alaska 1985).) 
Accord Guy v. Commonwealth Life Ins. Co., 894 F.2d 1407 (5th Cir. 
1990).

FOOTNOTES for J. Golden 
Dissent

1 Formerly W.S. 
26-15-126.

2 Comunale v. Traders 
& General Insurance Company, 50 Cal. 2d 654, 328 P.2d 198 (1958): and Crisci 
v. Security Insurance Company of New Haven, Connecticut, 66 Cal. 2d 425, 58 Cal. Rptr. 13, 426 P.2d 173 (1967).

3 Rumpelstiltskin, A 
Comparative Anthology of Children's Literature (Holt, Rinehart and Winston, Inc. 
1972).

4 W.S. 26-1-101 through 
26-33-111 (June 1983 Repl.).