Opinion ID: 1601607
Heading Depth: 2
Heading Rank: 2

Heading: Does a genuine issue of material fact exist as to the basis for the Joneses' bad-faith claims?

Text: In their complaint, the Joneses alleged both a normal bad-faith claim and an abnormal bad-faith claim. This Court has defined normal and abnormal bad faith in the following manner: In the `normal' bad-faith case, the plaintiff must show the absence of any reasonably legitimate or arguable reason for denial of a claim. [State Farm Fire & Cas. Co. v.] Slade, 747 So.2d [293] at 306 [(Ala.1999)]. In the `abnormal' case, bad faith can consist of: 1) intentional or reckless failure to investigate a claim, 2) intentional or reckless failure to properly subject a claim to a cognitive evaluation or review, 3) the manufacture of a debatable reason to deny a claim, or 4) reliance on an ambiguous portion of a policy as a lawful basis for denying a claim. 747 So.2d at 306-07. ... `Bad faith ... is not simply bad judgment or negligence. It imports a dishonest purpose and means a breach of a known duty, i.e., good faith and fair dealing, through some motive of self-interest or ill will.' Slade, 747 So.2d at 303-04 (quoting Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981)). Singleton v. State Farm Fire & Cas. Co., 928 So.2d 280, 283 (Ala.2005). In order to recover on a normal bad-faith claim, the plaintiff must prove: (1) the existence of an insurance contract; (2) an intentional refusal to pay the claim; and (3) the absence of any lawful basis for refusal and the insurer's knowledge of that fact or the insurer's intentional failure to determine whether there is any lawful basis for its refusal. Acceptance Ins. Co. v. Brown, 832 So.2d 1, 16 (Ala.2001). 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. Shelter Mut. Ins. Co. v. Barton, 822 So.2d 1149, 1155 (Ala.2001). However, `[t]he rule in abnormal cases dispensed with the predicate of a preverdict JML [judgment as a matter of law] for the plaintiff on the contract claim if the insurer had recklessly or intentionally failed to properly investigate a claim or to subject the results of its investigation to a cognitive evaluation.' White v. State Farm Fire & Cas. Co., 953 So.2d 340, 348 (Ala. 2006) (quoting Employees' Benefit Ass'n v. Grissett, 732 So.2d 968, 976 (Ala. 1998)).
As to their normal bad-faith claim, the Joneses contend that there is no reasonable or justifiable ground for Alfa's refusal to pay the disputed claim. In support of their argument, they note their own testimony that no cracks existed in the brick veneer or the drywall of their house before Hurricane Opal. They further argue that this testimony is supported by Sanders's testimony that he did not see or recall seeing any damage or cracks to the exterior of the Joneses' house when he inspected the house during the summer of 1995. The Joneses contend that upon inspecting their house after Hurricane Opal Ralph Jones informed them that he believed that wind had become trapped under the carport during Hurricane Opal, thus lifting and shifting the roof of the house, and that the soil in Coffee County was not prone to cause settlement. Likewise, the Joneses contend that Sanders told Harold Jones upon learning of the nonrenewal of the Joneses' policy by Alfa that Alfa did not stand a snowball['s] chance in hell of being successful if the claim was litigated because the cracks and other damage were not present when he inspected the house during the summer of 1995. The Joneses also contend that their case is analogous to this Court's recent decision of White v. State Farm Fire & Casualty Co., supra. In White, a windstorm blew off portions of the roof of a building that housed a business, and the interior of the building suffered water damage. The business received an estimate for repair of the roof after the business's office manager had a telephone conversation with an individual with State Farm's claims office indicating that it should go ahead and repair the roof and keep the receipts for the work because it might be a week before a State Farm adjuster could visit the building. The business received an estimate to replace the roof with a roof consisting of a single-ply rubber membrane, although the damaged roof was a built-up roof. Six days after the storm, an adjuster with State Farm's national catastrophe team inspected the building and authorized White, the managing partner for the owner of the building, to proceed with the repairs. The next day the adjuster left a telephone message for White, stating that she needed a signed copy of the roofing company's proposal and needed to know whether the new roof was an upgrade. White attempted unsuccessfully to contact the adjuster and finally the next day spoke with someone at State Farm who told him to fax the signed proposal to State Farm, which White did. White also told the State Farm employee that the new roof was not an upgrade. White was unable to contact the adjuster, and ultimately contacted the leader of the national catastrophe team. The team leader told White that State Farm's estimate for the roof replacement was approximately $20,000 less than the proposal from the roofing company. State Farm arrived at its estimate using a computerized estimating tool. State Farm then issued a check to the owner of the building for the damage to the exterior and interior of the building, including the amount of State Farm's estimate for replacing the roof. Upon inquiry by White, the team leader maintained that the repair of the roof had been authorized. Only after White retained counsel did State Farm decide to give him the benefit of the doubt and offer to pay the difference between State Farm's estimate and the roofing company's proposal. White and his company rejected State Farm's offer. White and his company sued State Farm, alleging bad-faith failure to pay an insurance claim. The trial court entered a summary judgment in favor of State Farm, and White appealed. Reversing the summary judgment, this Court held: Based on the present state of the record in this case, we conclude that material questions of fact exist that make a summary judgment on the bad-faith claim improper. White and his office manager ... testified that two different State Farm agents told them to repair the roof. White insists that [the adjustor] not only authorized him to proceed with the repairs, but she also told him it would be a day before State Farm had the check processed for the claim. White says no one at State Farm ever told him that there was a question whether State Farm would pay the claim. John Hill, a State Farm manager, testified that if State Farm authorized repairs, then it should have paid the entire $43,395 proposed by Quality Roofing. Other State Farm employees testified, however, that if [the adjustor] had indeed authorized White to proceed with the repairs proposed by Quality Roofing, it would not have been necessary for her to have prepared an estimate, which she did. 953 So.2d at 350. The Joneses argue that the same thing that happened to White happened to them. They contend that Sanders told them two days after Hurricane Opal to proceed with repairs to their roof. Likewise, the Joneses allege that Ralph Jones told them that the cracks in the interior and exterior walls of their house were not caused by settlement and that he believed that wind had become trapped in their carport during Hurricane Opal, thus lifting and shifting the roof of their house. They further allege that Sanders repeatedly assured them that their claim would be paid. Alfa, however, argues that White is distinguishable from this case because it was never disputed in White that the windstorm had caused the damage to the roof, whereas in this case whether the cracks in the walls of the house were caused by Hurricane Opal is disputed. Instead, Alfa notes that in White State Farm refused to pay the full cost to replace the roof, arguing that the new roof was an upgrade. Alfa also argues that Adams v. Auto-Owners Insurance Co., 655 So.2d 969 (Ala. 1995), and Chastain v. Baldwin Mutual Insurance Co., 495 So.2d 684 (Ala.Civ.App. 1986), support their contention that the summary judgment should be affirmed. In Adams, an insured claimed roof damage caused by high winds and a severe thunderstorm. Both the insurer's adjuster and an engineer hired by the insurer concluded that the vast majority of roof damage was caused, not by high winds or a thunderstorm, but by age and deterioration. This Court concluded that the investigations of the adjuster and engineer provided reasonably arguable and legitimate reasons for denying the insured's claim; thus the summary judgment in favor of the insurer on the insured's bad-faith claim was due to be affirmed. Likewise, in Chastain, the insureds contended the roof of their manufactured home was damaged by a storm, but the insurer's adjuster who inspected the manufactured home found no evidence of damage to the manufactured home. In affirming the summary judgment in favor of the insurer as to the insureds' bad-faith claim, the Court of Civil Appeals held that the insureds would not have been entitled to a directed verdict (now a judgment as a matter of law) on their breach-of-contract claim because a disputed question of fact existed as to whether the roof damage was caused by wind. This Court agrees with Alfa that the Joneses' claim is distinguishable from those in White because in White there was no question as to the cause of the roof damage. As this Court has previously held in regard to a judgment as a matter of law, `the ultimate question is whether the nonmovant has presented sufficient evidence to allow the case or the issue to be submitted to the jury for a factual resolution.' State Farm Fire & Cas. Co. v. Williams, 926 So.2d 1008, 1012 (Ala.2005) (quoting Delchamps, Inc. v. Bryant, 738 So.2d 824, 830 (Ala.1999)). In other words, the nonmovant must present substantial evidence in order to withstand a judgment as a matter of law. We conclude that this matter is analogous to Adams, supra, and Chastain, supra, because it is apparent that Ralph Jones's report creates a question of material fact that would preclude the Joneses from receiving a preverdict judgment as a matter of law on the underlying breach-of-contract claim. Accordingly, we affirm the summary judgment on the Joneses' normal bad-faith claim.
The Joneses also argue that the trial court erred in entering a summary judgment for Alfa on their abnormal bad-faith claim. They argue that Alfa intentionally or recklessly failed to investigate the claim because neither Ralph Jones nor Bradshaw ever inspected the roof of the Joneses' house or their attic. Specifically, they argue that Ralph Jones focused exclusively on the foundation to the exclusion of all evidence available to him even though they had made a specific claim for roof damage and the hurricane had blown a tree onto the eave of their house. They also argue that neither Ralph Jones nor Bradshaw gathered any before and after evidence from the Joneses or from any other source. The Joneses note that their expert witness, Andrew Beverly, stated that [a]ny investigation by Alfa that did not include the above-described activities would not satisfy proper claims handling practice. In State Farm Fire & Casualty Co. v. Slade, 747 So.2d 293 (Ala.1999), this Court addressed a similar situation. In Slade, a retaining wall attached to the insureds' house collapsed after it was struck by lightning, causing the ground around the pool area to give way. The insureds subsequently noticed cracking in the ceilings and interior and exterior walls of their house, and they informed their insurer of the cracks. The insured also had three separate firms determine what had caused the cracks, and all three reports indicated that the cracks were caused by settling and sifting of the soil beneath the house, which was caused by the collapse of the retaining wall. The insurer hired a structural engineer to inspect the house, but the insurer did not inform the structural engineer about the lightning strike nor tell the engineer that it was the insurer's claim-handling policy to attempt to find coverage for the insured. The engineer was not qualified to conduct nor did he conduct an investigation regarding possible lightning damage. After visiting the property with the structural engineer, the insurer's claims superintendent sent the insureds a reservation-of-right letter. The engineer concluded that the damage to the house was the result of post-construction differential foundation settlement; subsequently the insurer denied the insureds' claim. However, the insurer did not communicate this to the insureds. Instead, the insurer refused to give the insureds a copy of the engineer's report and continued to hire more engineers to investigate, even telling one engineer to investigate the property with the purpose being to defend the insurance company against any claim of lightning-related, settlement, or structural damage. Over five months after deciding to deny the claim, the insurer wrote a formal denial letter to the insureds. The insureds then sued the insurer, alleging various claims, including a claim of abnormal bad-faith failure to investigate. In affirming the trial court's denial of the insurer's motion for a judgment as a matter of law, this Court observed: `The absence of a debatable reason not to pay a claim cannot be grounded on the vagaries of construction of an ambiguity.' [ Employees' Benefit Ass'n v.] Grissett , 732 So.2d [968,] 977 [(Ala. 1998)]. An insurer can be liable for the tort of bad faith when it fails to properly investigate the insured's claim. Thomas [v. Principal Fin. Group, 566 So.2d 735 (Ala. 1990)]. Here, the [insureds] produced substantial evidence, in the form of expert testimony, indicating that the term `dwelling' did include their retaining wall. They also presented substantial evidence indicating that [the insurer] did not investigate their claim properly. The [insured] produced evidence indicating that [the insurer] never, in the course of its investigation, sent to their home someone who was qualified to conduct a lightning investigation. The [insureds] presented evidence indicating that [the insurer] never interviewed any of the witnesses present on the day lightning struck their retaining wall. The [insureds] presented expert testimony indicating that these omissions amounted to an improper investigation, on the basis that an investigation of a claim such as the [insureds] made required the use of a lightning expert. The [insureds] also presented evidence indicating that [the insurer] did not investigate lightning as a cause. The [insureds] produced evidence indicating that [the insurer] told its engineer ... to investigate a `possible soil problem' and that it did not tell [the engineer] about the lightning strike. This evidence conflicted with [the insurer's] `Good Faith Claims Handling' video, which was admitted into evidence and which contained a statement that [the insurer's] claims-handling policy was to attempt to find coverage. This evidence, the [insureds] say, shows that [the insurer] never investigated the possibility that lightning directly struck their dwelling, a fact, which if proven, would negate the application of the earth-movement exclusion. The [insureds] maintain that this failure created a question of fact as to whether [the insurer] properly investigated their claim, and, therefore, that the trial court properly submitted this portion of their bad-faith claim to the jury. We agree. Furthermore, [the insurer's] argument on this point, i.e., that it cannot be held liable because it believes it properly investigated noncovered events and found evidence that noncovered events caused the [insureds'] loss, is unacceptable. An insurance company's duty to investigate does not extend only to those events that are not covered. As this Court stated in [Aetna Life Insurance Co. v.] Lavoie, 505 So.2d [1050,] 1052-53 [(Ala. 1987)], an insurance company has a `responsibility to marshal all ... facts' necessary to make a determination as to coverage ` before its refusal to pay.' (Emphasis in original.) This duty must include a duty to investigate a covered event that an insured claims has caused his loss. Otherwise, the duty to properly investigate, imposed by the law regarding the tort of bad faith and recognized in [ Gulf Atlantic Life Insurance Co. v.] Barnes, [405 So.2d 916 (Ala. 1981)], would be meaningless. Therefore, we reject [the insurer's] contention, and we hold that this portion of the [insureds'] bad-faith claim was properly submitted to the jury. Slade, 747 So.2d at 315-16. Similarly, even though the Joneses filed a claim with Alfa for damage to their roof, even though the roof had clearly visible damage from the hurricane, and even though the Joneses contended that the damage to their house was caused by the hurricane, neither Bradshaw nor Ralph Jones inspected the roof or the attic during their investigation of the Joneses' claim. It was not until after the Joneses' house had been extensively damaged by fire and after Alfa had canceled the Joneses' farm owner's policy that Alfa sent Ralph Jones, along with three other engineers, to the Joneses' house to reinspect the house, including the charred attic and roof. As Alfa's attorney admitted during oral argument before this Court, Alfa sent the engineers to the Joneses' house after the fire out of fear that litigation may arise because of Alfa's denial of the Joneses' claim following Hurricane Opal, its cancellation of the Joneses' policy, and the fire damage to the Joneses' house. The following facts taken as a whole create a jury question. After Hurricane Opal, Alfa never investigated any records it had of the condition of the Joneses' house before the hurricane. The record reflects that Alfa never contacted a realtor who visited the Joneses' house three days before Hurricane Opal made landfall, even though, according to Harold Jones, Bradshaw had inquired about purchasing the Joneses' residence. Alfa never inquired of the Joneses as to who would have seen their house before Hurricane Opal and never attempted to interview anyone who may have visited the Joneses' house before Hurricane Opal. Alfa never considered its own rewrite inspection of the Joneses' house, including photographs of the exterior of the house and never inquired of Sanders, its own employee, as to the condition of the Joneses' house when he conducted the rewrite inspection, even though Sanders testified that he did not recall seeing any cracks in the interior or exterior walls of the Joneses' house when he conducted the rewrite inspection three months before Hurricane Opal. [3] As this Court observed in Slade, an insurance company has a `responsibility to marshal all ... facts' necessary to make a determination as to coverage ` before its refusal to pay.' ... This duty must include a duty to investigate a covered event that an insured claims has caused his loss. 747 So.2d at 316. Considering the evidence contained in the record that is before this Court, there is certainly a question of fact as to whether Alfa met its duty to marshal all facts necessary to make a determination as to coverage before it denied the Joneses' claim. Thus, the trial court erred in granting Alfa's motion for a summary judgment as to the Joneses' claims of abnormal bad-faith failure to properly investigate the Joneses' insurance claim and failure to investigate the condition of the house before Hurricane Opal. We therefore reverse the summary judgment entered by the trial court in favor of Alfa on the abnormal bad-faith claim.