Source: http://www.butler.legal/torts-for-tots-bad-faith-and-other-independent-torts
Timestamp: 2019-04-21 11:19:24+00:00

Document:
This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #8 (August 28, 2008).
An insurance policy is a contract between two (or more) parties for indemnification. On one side of this commercial transaction is the insurance company – a business entity willing to indemnify others for losses that may occur in the future. The business model is designed to base decisions on actuarial and statistical risk analysis, marketing and price competition, and superior customer service. On the consumer, willing to pay a reasonable premium for protection against the risk of loss, with the expectation of security in the event a loss occurs. This contractual bond between insurer and insured is undoubtedly a business transaction. The insurer-insured relationship is one selected based on a meeting of the minds between the parties for their mutual best interest. However, it is inescapable that the insurance company takes on responsibilities to its insureds, similar to the responsibilities of a parent to a child.
The insureds' expectations of an insurer start with the insurance policy, but do not end there. Social responsibility in the United States calls for good faith claim handling, whereby the insurer is not permitted to place its own best interest above the interests of its insured. Every legal action alleging "bad faith" by an insurance company is a reflection of the heightened responsibilities arising out of the special relationship between the insurer and its insured.
Thus, like the responsibilities of a parent caring for his or her own child, American tort jurisprudence now generally recognizes in both first-party and third-party insurance claims, an insurer's obligation to act not only in its self interest, but equally in the interests of its insureds.
Moreover, even when an action for insurer "bad faith" is not available, it has been universally recognized that an insured could still sue an insurer for independent torts such as fraud,13 intentional infliction of emotional distress,14 exploitation of the elderly,15 deceptive and unfair trade practices,16 and other forms of duress and coercion.17 Other independent torts may also be available such as defamation,18 tortious interference with business relations,19 or civil theft.20 The difference between the tort of bad faith and these independent torts, is that the independent torts are applicable to everyone, and are not derived from the special relationship between an insurance company and its insured.
Tort law is our social conscience reflected in the writings of our legislative and judicial branches of government. The remedy for disappointed expectations of insured consumers -- to the extent those expectations go beyond policy benefits -- is best left to the law of tort, not contract. However, insureds continue to sue for breach of contract to recover extra-contractual damages, and to allege independent torts against insurers that are nothing more than veiled allegations of insurer bad faith. The reasons for this are discussed below.
If the bad faith action is not permitted to proceed with the insurance coverage issue, then how can a plaintiff secure an unfair advantage in litigation?
While "independent torts" should be used to punish the misconduct of all corporate and private citizens alike, including insurance companies, no one should acquiesce to baseless accusations. Since false accusations cannot be ignored, it helps to understand the reasons behind them so that insurers know how to properly respond.
(1) exposure; and (2) expense. Extra-contractual and punitive damages are generally not available in the absence of egregious behavior amounting to an independent tort.30 Insureds forced to wait for resolution of the coverage issues are therefore limited in the remedies available. Some may attempt to sue for "bad faith" inappropriately disguised as one or more "independent torts" to avail themselves of extra-contractual and punitive damages. This obviously presents more potential exposure of the insurance company at the outset of litigation, and is often an effective tool used to extort settlements on frivolous claims.
One question that remains unresolved, at least in Florida, is whether work product which is required to be disclosed in a bad faith case is also discoverable in a case involving other independent torts.33 Recognizing the opportunity to force an insurer into expensive, distracting and frustrating litigation, some insureds will intentionally allege independent torts and demand responses to intrusive and extremely burdensome discovery to test the patience of the insurance company defendant. This is simply another avenue of extortion through litigation.
The best way to ensure security for both the insured and the insurer is patient vigilance.
Care: Careful screening and hiring of personnel, implementation of high standards, proper training to ensure compliance with the standards set, comprehensive guidelines for them to follow in executing their job responsibilities, adequate supervision to prevent inadvertent misconduct of inexperienced employees and intentional misconduct of rogue or disgruntled employees, and appropriate incentives to promote quality claim handling, will minimize exposure where wrongful conduct is alleged.
Discipline: Even with due care, some insureds will file frivolous lawsuits. Just as a parent gives "tough love" to a defiant child, only proper discipline will minimize the impact of the rancor of a bitter insured's ranting. Refuse to give in to extortion. Remember, the plaintiff's bar learns from the example you set.
An insurer, like a parent, will be held to a higher standard. Be a good role model. Be caring and strong. Be patient, but firm. Choose your battles. Above all, be ever aware that the way you conduct your own affairs will have great influence on the choices of those who look to you for guidance.
1 Nelson v. State Farm Mut. Auto. Ins. Co., 988 F.Supp. 527 (E.D.Pa.,1997) (citations omitted) ("[A]n insurer must act with the utmost good faith toward its insured. This heightened duty is necessary because of the special relationship between the insurer and the insured, as well as very nature of the insurance contract."); Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172 (Miss.1990) ("In the insurance context a special relationship arises out of the parties' unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insureds' misfortunes in bargaining for settlement or resolution of claims").
2 See, e.g., Genet v. President of Del. & Hudson Canal Co., 136 N.Y. 593, 611 32 N.E. 1078, 1082 (N.Y. 1893).
3 State Farm Mut. Auto. Ins. Co. v. LaForet, 658 So. 2d 55, 58 (Fla. 1995), citing Roger C. Henderson, The Tort of Bad Faith in First-Party Insurance Transactions: Refining the Standard of Culpability and Reformulating the Remedies by Statute, 26 U.Mich. J.P.L. Ref. 1 (Fall 1992) at 19-22.
6 Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980).
7 Accord Opperman v. Nationwide Mut. Fire Ins. Co., 515 So. 2d 263, 267 (Fla. 5th DCA 1987), citing Spencer v. Aetna Life and Cas. Ins. Co., 227 Kan. 914, 611, p. 2d 149, 151-52 (1980) (citing multiple cases recognizing first-party bad faith actions); see also Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 730 N.Y.S.2d 272, 276-77 (N.Y.A.D. 2001) (citing cases from Alaska, Arizona, California, Colorado, Connecticut, Idaho, Indiana, Iowa, Kentucky, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Texas, and Wyoming); for a discussion of the historical development of the duty of good faith in first and third-party insurance contracts, see Nisberg, Alan J., The Implied Covenant of Good Faith and Fair Dealing, Mealey's Litigation Report: Insurance Bad Faith, Vol. 19 #20, p. 23 (Feb. 21, 2006).
8 American Academy of Pediatrics, Your Baby's First Year (1998), p. 506.
9 See, e.g., Laird v. CMI Lloyds, __ S.W.3d __, 2008 WL 275837 (Ct. of App. Tex. 2008) ("an insured in not entitled to recover extra-contractual damages unless the complained-of actions or omissions cause injury independent of the injury resulting from a wrongful denial of policy benefits. The threshold of bad faith is reached when a breach of contract is accompanied by an independent tort.") (citations omitted); Bellemere v. GEICO Gen. Ins. Co., 977 So. 2d 363 (Ct. of App. Miss 2007) (applying Florida law) ("the grounds necessary to allow recovery of punitive damages under Florida' common law rules are that the conduct of the insurer against the interests of the insured must be so egregious as to constitute an independent tort."), citing T.D.S. v. Shelby Mut. Ins. Co., 760 F.2d 1520 (11th Cir. 1985); Continental Information Systems Corp. v. Federal Ins. Co., 2003 WL 145561 (S.D.N.Y. 2003) ("[I]n order to obtain extra-contractual damages, there must be allegations of a tort, independent of plaintiff's claim of bad faith denial of insurance coverage.").
10 Jurisdictions throughout the United States do not agree on what conduct is independent from breach of the insurance contract. For example, in Ingrim v. State Farm Fire & Cas. Co., 249 F.3d 743 (8th Cir. 2001) (applying Iowa law), the United States Appellate Court held that inadequately investigating a fire claim, falsely accusing insureds of setting fire to their home, exploiting the insured's vulnerable emotional and financial position, retroactively canceling the policy, and employing deceptive investigation techniques, were "on the policy" and thus could be barred by the insurance policy's suit limitations clause. By contrast, in Murphy v. Allstate Ins. Co., 83 Cal. App. 3d 38, 147 Cal. Rptr. 565 (4th Dist. 1978), the California Appellate Court found that wrongful conduct of an insurance company with respect to repair and restoration fo the insured's property after a fire, as well as bad-faith refusal or delay in paying, and intentional infliction of emotional distress was not conduct "on the policy," and therefore was not barred by a policy suit limitations clause. Similarly, in Cramer v. Insurance Exchange Agency, 275 Ill. App. 3d 68, 211 Ill. Dec. 436, 655 N.E.2d 465 (3d Dist. 1995), appeal allowed, 164 Ill. 2d 560, 214 Ill. Dec. 318, 660 N.E.2d 1267 (1995), rev'd on other grounds, 174 Ill. 2d 513, 221 Ill. Dec. 473, 675 N.E. 2d 897 (1996), allegations of common law fraud against the insurance company for unreasonable conduct in denying the insurance claim was not barred by the policy's suit limitation clause.
11 See, e.g., Lorange v. Fortis Ins. Co., __ P.3d __, 2008 WL 2764588 (Mont. 2008) (quoting Montana's Unfair Trade Practice Act which provides for an independent cause of action when an insurer fails in good faith to timely and equitably settle claims).
12 See footnote 9; see also, Goodson v. American Standard Ins. Co. of Wisconsin, 89 P.3d 409, 416 (Colo. 2004 (allowing emotional distress damages in a bad faith case); Lorange, *36-38 (allowing both emotional distress and punitive damages in a bad faith case).
13 See, e.g., Cook v. Medical Savings Ins. Co., 2008 WL 2805472 (10th Cir. 2008) (applying Oklahoma law); Greene v. Well Care HMO, Inc., 778 So. 2d 1037, 1042 (Fla. 4th DCA 2001).
14 See, e.g., Greene, supra.
15 See, e.g., Prudential Property and Cas. Ins. Co. v. Gerber, 773 So. 2d 571 (Fla. 5th DCA 2000).
17 See, e.g., Pain and Surgery Ambulatory Surgical Center v. Liberty Mutual Ins. Co., 2007 WL 181 4083 (D.N.J. 2007) ("[T]ort law provides sufficient deterrents for outrageous behavior where an insurance company's actions arise to the level of an [i]ndependent tort ... such as threats by the insurer's agents to kill the insured and the insured's children.'"); see also Gerber, 773 So. 2d at 571 ("Suppose Prudential's agents held a gun to the injured's head to obtain the release. Would this conduct be excusable... ?"); but cf. Pillsbury Co. v. Nat'l Union Fire Ins. Co. of Pittsburg, P.A., 425 N.W.2d 244, 251 (Minn. App. 1988) (affirming dismissal of action for coercion because the insured was not induced to do or perform some act under circumstances which deprived him of the exercise of his free will).
18 Pillsbury Co. v. Nat'l Union Fire Ins. Co. of Pittsburg, P.A., 425 N.W.2d 244, 250 (Minn. App. 1988) (affirming summary judgment dismissing action for defamation by an insurance company that denied coverage, because "[i]n order to prevail on the defamation claim, the defamation must be independent of the alleged breach of contract and not part of the malicious conduct associated with the breach.").
19 See, e.g., Tamiami Trail Tours, Inc. v. Cotton, 463 So. 2d 1126 (Fla. 1985). In Florida, the elements of this business tort are as follows: (1) the existence of a business relationship, not necessarily evidenced by an enforceable contract, under which the plaintiff has legal rights; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the business relationship. Of course, the insured cannot sue its own insurer for intentional interference with the insurance contract itself. The defendant in this species of tort must be a third party who is external to the business relationship with which intentional interference is claimed. O.E. Smith's Ferns, Inc. v. George, 545 So. 2d 298 (Fla. 1st DCA 1989). A third party is one with no connection or interest in the contact. Mendendez v. Veech Acceptance, 521 So. 2d 178 (Fla. 3d DCA 1988); Roberts Co. v. B.P.O. Ltd., 222 So. 2d 633 (Fla. 3d DCA 1975).
20 Fla. Stat. §772.11 provides a cause of action for treble damages and attorneys' fees for civil theft. However, it is not "civil theft" for an insurance company to withhold policy proceeds. Civil theft cannot be based on a breach of contract between the parties. See generally Rosen v. Marlin, 486 So. 2d 623 (Fla. 3d DCA 1986), review denied 494 So. 2d 1151 (Fla. 1986). The alleged civil theft must be a separate act, distinct from the contractual arrangement between them. Russo v. Heil Construction, Inc., 549 So. 2d 676 (Fla. 5th DCA 1989); Nova Flight Center v. Viega, 554 So. 2d 626 (Fla. 5th DCA 1989); Rosenthal Toyota, Inc. v. Thorpe, 824 F.2d 897 (11th Cir. 1987) (applying Florida law).
21 See Level the Playing Field: Abate or Stay the Bad Faith Action Pending Resolution of the Underlying Liability or Coverage Case, Mealey's Litigation Report: Insurance Bad Faith, Vol. 14, #6 (July 25, 2000).
22 See, e.g., Cunningham v. Standard Guaranty Ins. Co., 630 So. 2d 179, 181 (Fla. 1994); Fla. Stat. §627.4136.
23 See, e.g., Vest v. Travelers Ins. Co., 753 So. 2d 1270 (Fla. 2000).
24 See Oxymoronic ("Tortious Breach of Contract"), Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).
26 See, e.g., Kurnik v. Cooper Health System, 2008 WL 2829963 (N.J.Super. 2008); Pham v. State Farm Mut. Auto. Ins. Co., 70 P.3d 567, 571 (Colo.App.2003); Industrial Fire & Cas. Ins. Co. v. Romer, 432 So. 2d 66 (Fla. 4th DCA 1983).
27See, e.g., Buckley Towers Condominium, Inc. v. QBE Ins. Corp., Case No.: 07-22988-CIV-MORENO/TORRES (S.D.Fla. 2008) (unreported decision) (holding that Florida law does not recognize an action for breach of the implied contractual covenant of good faith and fair dealing against an insurer independent of the tort of "bad faith"); Cf. Adolf Jewelers, Inc. v. Jewelers Mut. Ins. Co., 2008 WL 2857191 (E.D. Va 2008) (applying Virginia law, holding that an insured may recover "general and consequential" damages for breach of the duty of good faith, but proof of an independent tort is required to recover punitive damages); Pain and Surgery Ambulatory Surgical Center v. Liberty Mut. Ins. Co., 2007 WL 1814083 (D.N.J. 2007); see also Kurnik, supra.
28 See Oxymoronic ("Tortious Breach of Contract"), Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).
29 American Academy of Pediatrics, Caring For Your Baby and Young Child (2004), p. 538.
30 See, e.g., Pain and Surgery Ambulatory Surgical Center v. Liberty Mutual Ins. Co., 2007 WL 1814083 (D.N.J. 2007); Bettius & Sanderson, P.C. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 839 F.2d 1009, 1015-17 (1988) (applying Virginia law).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 §772
 v. 
 v. 
 v. 
 v. 
 v. 
 §627
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.