Opinion ID: 2049700
Heading Depth: 1
Heading Rank: 3

Heading: the extent of liability of atlantic mutual insurance company

Text: Atlantic argues that under its policy its liability is limited to the face amount, namely $50,000. Since we have determined that Nichols was the agent of the insured in procuring the amount of insurance, we are in general agreement with Atlantic that its liability is limited to $50,000. However, Atlantic failed to pay over this sum at the time when Aetna entered into its agreement with Etheridge absolving the Mongillos from further liability save for a right of action against Atlantic for such coverage as its policy might be construed to afford. It is undisputed that from the time of that agreement, March 1, 1974, Atlantic has made no unequivocal tender of the sum of $50,000, nor has it paid said amount into the registry of court on behalf of either its insured or the personal-injury claimant suing partly in his own interest and partly for the reimbursement of Aetna. Although there is some suggestion that Atlantic did offer the sum of $50,000 prior to the settlement agreement, such offer was not unequivocal. Indeed, it has been set forth in an affidavit by Etheridge's attorney that [w]hen Atlantic was approached to join in the settlement agreement, it refused to pay the $50,000, formally denying coverage as to the deceased Mongillo, and offered instead to pay $25,000. Based upon the stipulation of the parties and the present posture of Atlantic, its refusal to contribute the face amount of its policy at the time of the structured settlement, March 1, 1974, was untenable and insupportable. Aetna took steps to protect the Mongillos, its insured, from great potential liability, including accrual of interest. At that time it clearly became the duty of Atlantic to take similar steps up to the face amount of its policy. Such an action would not have precluded Atlantic from litigating additional amounts claimed to be due. The position taken by Atlantic in offering only half the face amount of the policy was in disregard of the best interests of the Mongillos to whom it owed a duty to act fairly in accordance with the terms of its contract. See Bibeault v. Hanover Insurance Co., R.I., 417 A.2d 313, 319 (1980). It is true that we stated in Factory Mutual Liability Insurance Co. v. Cooper, 106 R.I. 632, 262 A.2d 370 (1970), that a liability insurer was limited to the face amount set forth in the relevant policy and was not obligated to pay interest in excess of its policy limit added to a judgment pursuant to G.L. 1956 (1969 Reenactment) § 9-21-10, as amended by P.L. 1981, ch. 54, § 1 (although the insured was liable for the full amount of the judgment). 106 R.I. at 635, 262 A.2d at 372. That holding arose out of an interpretation of the language of an insurance policy and did not include a determination of the obligation of an insurer toward its insured if, by reason of its conduct, it has arbitrarily and unnecessarily exposed its insured to liability in excess of the policy coverage. Although we have held that there is no action in tort for bad-faith refusal to pay the claim of an insured, under a standard fire-insurance policy, in the absence of legislative action, [2] A.A.A. Pool Service & Supply Inc. v. Aetna Casualty & Surety Co., 121 R.I. 96, 98-100, 395 A.2d 724, 725-26 (1978), that holding did not extend to any other type of insurance policy beyond the standard fire-insurance policy prescribed for the State of Rhode Island. Id. at 100, 395 A.2d at 726. In the case at bar, Aetna has been subrogated to the rights of the Mongillos as well as to the rights of Etheridge, pursuant to the agreement of March 1, 1974. The action by Etheridge against Atlantic is in vindication both of his own right against the insurer pursuant to the provisions of the direct-action statute, § 27-7-2, and of the Mongillos's rights in the event that such a judgment was required to be paid by Alice as the owner of the boat in question. Under the circumstances of this case, we are of the opinion that to allow Alice to have been exposed to the payment of pre-judgment interest, but to insulate Atlantic from such payment even though it arbitrarily refused to pay the face amount of the policy in settlement, would lead to an unjust result. Atlantic would suffer no sanction even though it abandoned its insured by refusing to offer in settlement that which it was clearly obligated to pay, namely the face amount of its policy. Therefore, we hold that Atlantic is liable to pay to Etheridge the sum of $50,000 together with interest thereon at the rate of 12 percent from the time of the structured settlement, namely March 1, 1974, down to the date of the entry of the modified judgment in the Superior Court. Thereafter, Atlantic will be liable for postjudgment interest at the rate of 12 percent pursuant to the provisions of G.L. 1956 (1969 Reenactment) § 6-26-1, as amended by P.L. 1981, ch. 54, § 2 until the date of payment.