Opinion ID: 1924699
Heading Depth: 2
Heading Rank: 1

Heading: Bad-Faith and Breach-of-Contract Claims

Text: We first recognized the tort of intentional bad faith in insurance actions in Chavers v. National Sec. Fire & Cas. Co., 405 So.2d 1 (Ala.1981). [A]n actionable tort arises for an insurer's intentional refusal to settle a direct claim where there is either `(1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal.' Chavers, 405 So.2d at 7, quoting Vincent v. Blue Cross-Blue Shield of Alabama, Inc., 373 So.2d 1054, 1067 (Enbry, J., dissenting). The plaintiff asserting a badfaith claim bears a heavy burden. Le-Fevre v. Westberry, 590 So.2d 154, 159 (Ala.1991). To establish a prima facie case of bad-faith refusal to pay an insurance claim, a plaintiff must show that the insurer's decision not to pay was without any ground for dispute; in other words, the plaintiff must demonstrate that the insurer had no legal or factual defense to the claim. LeFevre, 590 So.2d at 159. `[T]he insured must eliminate any arguable reason propounded by the insurer for refusing to pay the claim.' LeFevre, 590 So.2d at 159 (quoting Burns v. Motors Ins. Corp., 530 So.2d 824, 827 (Ala.Civ.App.1987)). [A] finding of bad faith based upon rejection of an insurer's legal argument should be reserved for extreme cases. The right of an insurer to deny a claim on any arguable legal issue is to be as zealously guarded as is its right to decline benefits on any debatable issue of fact, the test of reasonableness being the same. Safeco Ins. Co. of America v. Sims, 435 So.2d 1219, 1226 (Ala.1983) (Jones, J., concurring specially). Our cases have distinguished between a normal bad-faith claim and an abnormal bad-faith claim. In a normal bad-faith claim, the factual dispute centers around the reasonable, but conflicting, inferences that may be drawn from the evidence. Safeco Ins. Co. of America v. Sims, 435 So.2d at 1225 (Jones, J., concurring specially). For a normal bad-faith claim to be submitted to the jury, the underlying contract claim must be so strong that the plaintiff would be entitled to a preverdict judgment as a matter of law. National Savings Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala.1982). If a fact issue exists, making a judgment as a matter of law on the contract claim inappropriate, then the bad-faith claim fails and should not be submitted to the jury. Id., 419 So.2d at 1362. Because the factual dispute here centered around whether the uninsured motorist, Vaden, or the insured motorist, Walters, was negligent, Barton's claim was a normal bad-faith claim. Thus, for Barton's bad-faith claim to be submitted to the jury, she must be entitled to a preverdict judgment as a matter of law on her underlying contract claim. Regarding the strength of the breach-of-contract claim, Shelter argues that the trial court erred by applying Alabama law when it construed the parties' rights and liabilities under the contract. [5] Specifically, Shelter argues that the trial court should have applied Missouri law because the insurance policy was purchased by Walters, who is a Missouri resident; the policy insured a vehicle that was principally garaged in the state of Missouri; and the policy was delivered in the state of Missouri. [6] In Cotton v. State Farm Mutual Automobile Insurance Co., 540 So.2d 1387 (Ala. 1989), we affirmed a trial court's judgment applying Tennessee law when it construed the uninsured-/uninsured-motorist benefits of a State Farm policy insuring a vehicle that was principally garaged in Alabama. Because the policy was issued and delivered in Tennessee and because the insured had never informed State Farm that his vehicle was principally garaged in Alabama, we held that the policy must be construed according to Tennessee law. Cotton, 540 So.2d at 1388. In this case, the facts that support applying Missouri law are even more compelling than those presented in Cotton. In addition to the fact that the Shelter policy was purchased and delivered in Missouri by a Missouri resident, the insured vehicle was principally garaged in Missouri. Therefore, the trial court erred by not applying Missouri law when it construed the Shelter policy. Regarding the Shelter policy, we initially note that the section of the Shelter policy addressing uninsured-motorist coverage states that Shelter will pay damages for bodily injury sustained by an insured which such insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle. (Emphasis in original.) [7] Under Missouri law, to recover uninsured-motorist benefits, Barton has the burden of proving (1) that the person who caused her injuries was uninsured, (2) that the uninsured person was legally liable to her, and (3) the amount of damages. Byrn v. American Universal Ins. Co., 548 S.W.2d 186, 187 (Mo.Ct.App.1977)(citing Hill v. Seaboard Fire & Marine Ins. Co., 374 S.W.2d 606, 609 (Mo.Ct.App.1963)). Barton alleges that Shelter breached the contract to which she was a third-party beneficiary, because, she argues, (1) Vaden's negligence proximately caused the accident and/or (2) Walters's negligence caused the accident. The evidence appears undisputed that Vaden was, in fact, uninsured on the date of the accident. However, to recover for breach of contract based on the uninsured-motorist provision, Barton was also required to prove that Vaden was legally liable for the injuries she suffered. The documents received and reviewed by Shelter's claim representative, Medley, indicated that Vaden was traveling in the right westbound lane of Hough Road and that he moved into the left westbound lane just before the accident. Although Barton and Walters testified that Vaden appeared to be traveling at an excessive rate of speed just before the accident, Walters also testified that he saw oncoming traffic in the right westbound lane, but believed that all of those vehicles were turning right at the intersection at which his vehicle was stopped. It is undisputed that the accident occurred while Walters was attempting to make a left turn onto Hough Road and that the vehicles collided in Vaden's lane of traffic. Finally, Medley testified that he believed Walters was solely liable for the accident. These facts are sufficient to present as a triable issue the question whether Vaden's negligence caused Barton to be legally entitled to recover under the uninsured-motorist provision of the contract, thereby defeating Barton's attempt to present a triable issue on the bad-faith claim. Likewise, Barton did not eliminate any legal or factual defense to her claim for uninsured-motorist benefits based on Walters's negligence. We recognize that were we to apply Alabama law, the Alabama Guest Statute, § 32-1-2, Ala.Code 1975, would preclude any direct action by Barton against Walters for any negligence on his part in causing her injuries. [8] However, we are constrained to interpret the policy in accordance with Missouri law. Although Missouri has no guest statute, its courts have applied the guest statute of another state in an uninsured-motorist case that was factually similar to the case before us. In Byrn v. American Universal Ins. Co., 548 S.W.2d 186 (Mo.Ct.App. 1977), Byrn's personal representatives sued her uninsured-motorist carrier for money damages for injuries arising from an automobile accident that occurred in Iowa. The driver of the vehicle in which Byrn was a passenger had no liability insurance. Unlike Missouri, Iowa had a guest statute. Iowa's guest statute provided that an owner or operator of a car [would] not be liable for damage[ ] to a guest unless ... such damage was caused as a result of the reckless operation by him of such motor vehicle. Byrn, 548 S.W.2d at 187 (citing § 321.494 Iowa Code, 1975). The Missouri Court used the most significant relationship test outlined in § 145 of Restatement (Second) Conflict of Laws to determine whether the Iowa guest statute or Missouri tort law should apply. The factors the Missouri court considered were: `(a) the place where the injury occurred, `(b) the place where the conduct causing the injury occurred, `(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and `(d) the place where the relationship, if any, between the parties is centered.' Byrn, 548 S.W.2d at 189, quoting § 145, Restatement (Second) Conflict of Laws (1971). Although Byrn was a resident of Missouri, the Missouri court held that the Iowa guest statute should apply because the driver resided in Iowa, the uninsured vehicle was registered in Iowa, the guesthost relationship was created in Iowa, and the accident occurred in Iowa. Accordingly, the Missouri court determined that Byrn's representatives were not legally entitled to recover damages under her uninsured-motorist policy. Applying those same principles, we conclude that the Alabama guest statute should apply in this case. Although Walters was a Missouri resident and his vehicle was registered in Missouri, the guesthost relationship was created in Alabama and the accident occurred in Alabama. Thus, we will apply the Alabama Guest Statute, § 32-1-2, Ala.Code 1975, and applicable Alabama caselaw construing that statute. Barton argues that she is an uninsured motorist pursuant to our holding in Hogan v. State Farm Mutual Automobile Insurance Co., 730 So.2d 1157 (Ala.1998) (overruled on other grounds, Williamson v. Indianapolis Life Ins. Co., 741 So.2d 1057 (Ala.1999)). In Hogan, we read the provisions of the Alabama Guest Statute, § 32-1-2, Ala.Code 1975, in conjunction with the Uninsured Motorist Statute, § 32-7-23, Ala.Code 1975, and determined that a passenger who is precluded from recovery by the Alabama Guest Statute may nevertheless be legally entitled to recover damages from her own uninsured-motorist carrier. Hogan, 730 So.2d at 1159. However, we did not hold in Hogan that a passenger may be legally entitled to recover damages under the uninsured-motorist provision of the driver's policy of insurance. Barton was not an uninsured under the Shelter policy, and our holding in Hogan, supra, does not make her one. Our holding in Hogan does nothing more than entitle Barton to recover under the uninsured-motorist provision of her own policy. To allow Barton to recover under a policy that Walters, the driver, had purchased and paid for would be to controvert the purpose and tenor of the Alabama Guest Statute. Thus, the only way Barton could recover uninsured-motorist benefits under the Shelter policy would be for her to step into Walters's shoes and establish that he was legally entitled to recover. To establish that Barton was legally entitled to recover uninsured-motorist benefits under the policy, she must prove that Vaden's negligence proximately caused the accident. The jury rendered the following verdict: We, the jury, find for the plaintiff Barton and against the defendant Shelter Mutual on the uninsured motorist claim and assess plaintiff's damages at $250,000.00, having found negligence by both Vaden and Walters. The verdict form gave the jury the option of finding negligence on the part of Vaden or Walters, or both. Because the jury determined that both men were negligent, Alabama's contributory negligence laws prevent Walters from being legally entitled to recover under the uninsured-motorist provisions of the Shelter policy. Although the jury found Walters negligent in his operation of the vehicle, Walters's negligence is not imputed to Barton. See Adams v. Coffee County, 596 So.2d 892, 895 (Ala.1992)(to impute the negligence of the driver of an automobile to a passenger, the passenger must have had some authority or control over the car's movement). Because a factual issue remained as to which driver proximately caused Barton's injuries, the trial court properly submitted her breach-of-contract claim to the jury. Accordingly, because Barton was not entitled to a judgment as a matter of law on her breach-of-contract claim, the trial court erred by submitting Barton's badfaith claim to a jury.