Title: Jarvis v. Farmers Ins. Exchange

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Jarvis v. Farmers Ins. Exchange1997 WY 131948 P.2d 898Case Number: 96-164Decided: 12/04/1997Supreme Court of Wyoming

W. TODD JARVIS and LISA L. JARVIS, husband and 
wife, 

Appellants (Plaintiffs), 

 

v. 

 

FARMERS INSURANCE EXCHANGE, a California Insurance 
Company, 

Appellee (Defendant).

 

Appeal 
from the District Court of Carbon County 

The 
Honorable Kenneth Stebner, Judge

 

 

Representing 
Appellants:
Janet L. 
Tyler, Laramie.

 Representing 
Appellee: 

Deborah M. 
Kellam and George E. Powers, Jr. of Sundahl, Powers, Kapp & Martin, 
Cheyenne..

 

Before TAYLOR, C.J., and 
THOMAS, MACY, GOLDEN and LEHMAN, JJ.

TAYLOR, Chief 
Justice. 

[¶1]      Appellants 
brought suit against their insurer alleging bad faith failure to settle a claim. 
A pedestrian allegedly injured in a car/pedestrian accident filed suit against 
Mr. Jarvis and his employer. Appellants claim their insurer's negligent failure 
to settle the claim before trial cost them unnecessary independent attorney fees 
and other monetary and emotional damages. The district court dismissed their 
claim pursuant to W.R.C.P. 12(b)(6), finding that a third-party claim must be 
premised on a judgment in excess of policy limits.

 

[¶2]      We 
affirm.

 

I. 
ISSUES

 

[¶3]      Appellants, W. 
Todd Jarvis and Lisa L. Jarvis (the Jarvises), present a single issue for 
review:

 

Whether an insured is barred from asserting a claim 
for third party bad faith merely because of a fortuitous verdict in the 
underlying personal injury action in which the insured was the 
Defendant?

 

[¶4]      Appellee, Farmers 
Insurance Exchange (Farmers), responds:

 

1. Can a claim for third-party bad faith exist in the 
absence of a verdict in excess of policy limits?

 

II. 
FACTS

 

[¶5]      On January 25, 
1993, Mr. Jarvis was involved in a car/pedestrian accident on westbound I-80. 
The accident occurred when Mr. Jarvis braked to avoid hitting a pedestrian 
crossing the highway at the scene of another accident which had taken place just 
minutes before. The braking action caused Mr. Jarvis' truck to spin on black 
ice, and as the truck moved backwards into the median, the passenger side door 
mirror apparently grazed the pedestrian, Robert Grewe (Grewe). Despite Grewe's 
protests, he was taken from the scene to the hospital, where he was discharged 
shortly thereafter with nothing more than bruises.

 

[¶6]      At the time of 
the accident, the Jarvises were covered under an automobile insurance policy 
issued by Farmers. Mr. Jarvis reported the accident to his insurer and filed an 
accident report with the State of Wyoming the day after the accident. On or 
about February 2, 1993, Mr. Jarvis received a telephone call from Grewe who 
stated he would be willing to settle the matter for a payment of a few thousand 
dollars. Mr. Jarvis did not agree to such payment and called his insurance agent 
to advise him of the telephone call he had received from 
Grewe.

 

[¶7]      On February 9, 
1993, a claims adjuster from Farmers stopped by to see Mr. Jarvis and took 
photographs of the truck. Mr. Jarvis gave the claims adjuster the records he had 
of the accident, including the accident report filed with the State. Farmers did 
not initiate any further communication with Mr. Jarvis for nine months. However, 
on two different occasions, once in July 1993 and again in the fall, Mr. Jarvis 
questioned his insurance agent as to the status of Grewe's claim. Mr. Jarvis was 
assured that the claim was being handled "professionally and competently * * 
*."

 

[¶8]      Mr. Jarvis 
received no further information regarding the claim until he was served with a 
lawsuit on November 22, 1993, claiming damages in the range of $820,000.00 and 
naming Mr. Jarvis and his employer as defendants.

 

[¶9]      On December 8, 
1993, during a telephone conversation with a Farmers claims adjuster, Mr. Jarvis 
was informed that some time earlier, an inexperienced adjuster had "dropped the 
ball." The Jarvises were told that previous negotiations had stalled when 
Farmers offered to settle for $2,000.00 to $4,000.00, but Grewe insisted on a 
payment of $6,000.00 to $8,000.00. On December 9, 1993, Mr. Jarvis received a 
letter from Farmers informing him that he might wish to retain his own attorney, 
at his own expense, for potential damages above the policy limits and claims not 
covered under the defense clause of his policy. Mr. Jarvis followed the advice 
and hired his own attorney.

 

[¶10]   After the lawsuit was filed, 
Farmers made several offers to settle the lawsuit, including an offer to settle 
for the $50,000.00 policy limits, but all offers were refused. The case went 
before a jury in February 1995, which resulted in a verdict which absolved Mr. 
Jarvis and his employer from all liability and awarded Grewe nothing. Despite 
the favorable verdict, the Jarvises filed a third-party bad faith claim against 
Farmers alleging that Farmers' negligence in the initial negotiations forced 
them to incur independent attorney fees, suffer lost wages, and suffer emotional 
anxiety and stress from having to endure the trial process. Farmers responded by 
filing a motion to dismiss the Jarvises' claim pursuant to W.R.C.P. 12(b)(6) 
because the Jarvises could not allege a judgment in excess of policy 
limits.

 

[¶11]   After a hearing on the motion to 
dismiss, the district court issued its decision letter dismissing the Jarvises' 
claim. The order granting defendant's motion to dismiss was entered on April 17, 
1996, and this appeal timely followed.

 

III. 
STANDARD OF REVIEW

 

[¶12]   A motion to dismiss under W.R.C.P. 
12(b)(6) is a drastic remedy and will be granted only when it is certain from 
the face of the complaint that the plaintiffs are unable to assert any facts 
which would entitle them to relief. Darrar v. Bourke, 910 P.2d 572, 575 
(Wyo. 1996) (quoting Cranston v. Weston 
County Weed and Pest Bd., 826 P.2d 251, 254-55 (Wyo. 1992)); Herrig v. Herrig, 844 P.2d 487, 490 
(Wyo. 1992). On review, all the facts stated in the complaint are taken as true 
and viewed in the light most favorable to the plaintiffs. Darrar, 910 P.2d  at 575 (quoting Cranston, 826 P.2d at 254-55); 
Herrig, 844 P.2d  at 
490.

 

IV. 
DISCUSSION

 

[¶13]   The sole issue on appeal is whether 
an insured must plead the existence of a judgment in excess of policy limits as 
a prerequisite to a claim of third-party bad faith against an insurer. This is a 
case of first impression in Wyoming, as no previous case has been presented 
which asserted this claim in the absence of a judgment or settlement beyond 
policy limits.

 

[¶14]   "A cause of action for `third 
party' bad faith will lie when a liability insurer fails in bad faith to settle 
a third-party claim within policy limits against its insured." Herrig, 844 P.2d  at 490. Wyoming first 
recognized this claim in Western Cas. 
& Sur. Co. v. Fowler, 390 P.2d 602, 605-06 (Wyo. 1964). There, an 
employee sued an employer after falling from a ladder. Although the employee 
offered to settle the claim well within the employer's insurance policy limit of 
$10,000.00, the insurer refused the employee's offer. At trial, the employee was 
awarded over $18,000.00. Eventually, the matter was settled when the insurer 
paid the policy limit, and the insured/employer was required to pay $5,000.00. 
The insured then successfully sued his insurer for the difference between the 
settlement and the insurance policy limits. On appeal, the insurer argued that 
the evidence was insufficient to show bad faith and that the district court 
erred in its instructions defining bad faith. Id. at 603.

 

[¶15]   We affirmed the district court's 
definition of the duty of the insurer to the insured as 
follows:

 

[I]t was the defendant's duty to exercise 
intelligence, good faith, and honest and conscientious fidelity to the common 
interest of the plaintiff as well as of the defendant and give at least equal 
consideration to the interest of the insured, and, if it fails to do so, it acts 
in bad faith. * * * "Bad faith" or conversely "good faith" must be determined as 
of the time the offer was made and rejected and that good faith meant a bona 
fide belief that the insurer had a good possibility of winning the lawsuit or 
that the claimant's recovery in the lawsuit would not exceed the limits of the 
insurance policy.

 

Id. at 
606.

 

[¶16]   Since Fowler, we have addressed a third-party 
bad faith action in Wyoming only as it is distinguished from other claims 
against an insurer. State Farm Mut. Auto. 
Ins. Co. v. Shrader, 882 P.2d 813, 826 (Wyo. 1994); Herrig, 844 P.2d  at 490; Darlow v. Farmers Ins. Exchange, 822 P.2d 820, 827 (Wyo. 1991). In both Shrader and Herrig, we described the claim solely in 
the context of an excess judgment. Shrader, 882 P.2d  at 826; Herrig, 844 P.2d  at 
490.

 

[¶17]   The Jarvises argue that under the 
language in Fowler, Farmers breached 
its duty at the time it failed to continue to negotiate with Grewe and that the 
breach directly caused them damage other than any payment to Grewe. They contend 
that the existence of an excess judgment is, therefore, not an element of their 
claim but merely one type of damage which can be recovered in a third-party bad 
faith action. Based on this reasoning, the Jarvises now ask us to expand the 
context of a third-party bad faith claim to situations in which an excess 
judgment does not exist. We respectfully decline to do so.

 

[¶18]   The separate duties found in 
first-party and third-party bad faith actions have been clearly delineated. Shrader, 882 P.2d  at 825-26. Situations 
involving only the insured and its insurer cannot be compared to those in which 
a third party brings a claim against the insured and independently determines 
whether to be reasonable in settlement or in valuation of his claim. Thus, the 
Jarvises' reliance on the language in cases describing the duty of the insurer 
in first-party bad faith actions will not apply when deciding whether, apart 
from duty, an excess judgment is a prerequisite in third-party bad faith 
actions. See Darlow, 822 P.2d  at 827 
(the duty owed to an insured is often characterized by the nature of the 
claim).

 

[¶19]   The Jarvises cite to Campbell v. State Farm Mut. Auto. Ins. 
Co., 840 P.2d 130 (Utah App.), cert. 
denied, 853 P.2d 897 (Utah 1992) in support of their argument. There, the 
Utah appeals court overturned summary judgment in favor of the insurer, holding 
that the insurer's breach of duty occurred at the time it unreasonably rejected 
a settlement offer. In that case, the facts demonstrate that the insured was 
exposed to a substantial excess judgment. The court held that payment of the 
excess judgment after final appeal did not preclude the insured's bad faith 
claims. Id. at 132-39. However, 
responding to a policy argument presented by State Farm Mutual Automobile 
Insurance Company, the court determined that an excess judgment may not be a 
necessary prerequisite to a third-party bad faith claim:

 

Moreover, State Farm seems to ignore the fact that an 
insured who is ultimately victorious against a third party or who incurs a 
judgment below the policy limits would have great difficulty stating a claim for 
bad faith. While our decision does not completely rule out that possibility, the 
existence of an excess judgment is the single most important indicia that an 
insurer's decision not to settle within the policy limits was unreasonable. 
Conversely, the entry of a judgment below the policy limits is compelling 
evidence that the insurer acted with sound judgment. Thus, the chances of an 
insured successfully maintaining a claim for bad faith in the face of such 
evidence would appear to be slim indeed.

 

Id. at 
141 n. 23. We do not find this sufficient foundation on which to build a new 
road to insurer liability. Moreover, the Jarvises fail to cite to any case which 
found a cause of action for third-party bad faith in the absence of an excess 
judgment or settlement.

 

[¶20]   To the contrary, we find the 
holding in Allstate Ins. Co. v. 
Campbell, 334 Md. 381, 639 A.2d 652 (1994) persuasive. There, the insurer 
declined to settle a claim when the party injured in an automobile accident 
offered to settle within the policy limits. The offer was subsequently withdrawn 
and the insured received the insurer's recommendation that he obtain counsel 
with respect to any excess liability. The insured requested payment of his 
independent attorney fees, but the insurer denied the request. The insured then 
filed suit for declaratory judgment based on bad faith for failure to settle. 
The insurer moved to dismiss the case as premature, and prior to the court's 
ruling, the insurer settled the claim within policy limits. On appeal, the sole 
issue was whether an insured must be exposed to an excess judgment as a 
prerequisite to a claim for bad faith for failure to settle. Id. 639 A.2d  at 
653-56.

 

[¶21]   Finding that an excess judgment was 
necessary to the accrual of a third-party bad faith claim, the Maryland court 
noted:

 

An insurer does not have an absolute duty to settle a 
claim within policy limits, although it may not refuse to do so in bad faith. 7C 
[J.A.] Appleman, [Insurance Law and 
Practice,] § 4711 at 390 [(Berdal ed., 1979)]. But, while an insurer has a 
duty to enter into good faith negotiations "where reasonable and feasible" to 
settle a claim within policy limits, * * * there is no requirement that it "rush 
to the settlement of a claim" against an insured to avoid an excess judgment. 7C Appleman, supra, § 4711 at 
377.

 

Campbell, 
639 A.2d  at 659. As did the Maryland court, we decline to extend a cause of 
action for bad faith for failure of the insurer to initially settle a claim 
which is followed by a judgment or settlement within policy 
limits.

 

[¶22]   Neither do the facts of this case 
compel a different result. As we stated in Fowler, 390 P.2d  at 606, "the crucial 
factor * * * is whether evidence available to defendant upon proper 
investigation strongly showed there was liability of the [insured] and was, in 
bad faith, disregarded by the insurer when offer of settlement was made." This 
necessarily assumes that strong evidence regarding the insured's liability 
exists. Indeed, the facts as pled by the Jarvises, and as found by the jury, 
established that Grewe's claim against Mr. Jarvis was totally without merit. 
Were we to adopt the Jarvises' argument, an insurer would be subject to suit for 
failing to settle even the most frivolous of claims if the person claiming 
against the insured was willing to settle within policy limits at the outset. We 
will not open that door.

 

V. 
CONCLUSION

 

[¶23]   A cause of action by an insured 
against the insurer for a failure, in bad faith, to settle a claim will not 
accrue prior to the entry of a judgment against the insured in excess of policy 
limits. Affirmed.