Opinion ID: 2640593
Heading Depth: 2
Heading Rank: 1

Heading: unreasonableness and breach.

Text: ¶ 26 An insurer has an implied-in-law duty to act in good faith and deal fairly with the insured to ensure that the policy benefits are received. Christian v. American Home Assurance Co., 1977 OK 141, 577 P.2d 899, 901. An insurer may not treat its own insured in the manner in which an insurer may treat third-party claimants to whom no duty of good faith and fair dealing is owed. Newport v. USAA, 2000 OK 59, ¶ 15, 11 P.3d 190, 196. In dealing with third parties, however, the insured's interests must be given faithful consideration and the insurer must treat a claim being made by a third party against its insured's liability policy as if the insurer alone were liable for the entire amount of the claim. See American Fidelity & Casualty Co. v. L.C. Jones Trucking Co., 1957 OK 287, 321 P.2d 685, 687. ¶ 27 In other words, insurers were required to approach settlement as if the $10,000.00 policy limits did not exist and to ignore the policy limits during settlement negotiations. See Berglund v. State Farm Mutual Auto. Ins. Co., 121 F.3d 1225, 1227-1228 (8th Cir.1997). The reason for the rule is that an insurance company, in dealing with a third-party claim against its insured, is acting in a fiduciary capacity toward its insured by virtue of the terms of the insurance policy which give the insurer the authority to determine whether an offer of compromise or settlement should be accepted or rejected [ American Fidelity & Casualty Co. v. G.A. Nichols Co., 173 F.2d 830, 832 (10th Cir. 1949)], or the insurer is acting as an agent of the insured, the carrier being in control of disposition of the claim. See American Fidelity & Casualty Co. v. L.C. Jones Trucking Co., 321 P.2d at 687. ¶ 28 The essence of an action for breach of the duty of good faith and fair dealing is the insurer's unreasonable, bad-faith conduct ... and if there is conflicting evidence from which different inferences may be drawn regarding the reasonableness of insurer's conduct, then what is reasonable is always a question to be determined by the trier of fact by a consideration of the circumstances in each case. McCorkle v. Great Atlantic Ins. Co., 1981 OK 128, 637 P.2d 583, 587. [6] A central issue in any analysis to determine whether breach has occurred is gauging whether the insurer had a good faith belief in some justifiable reason for the actions it took or omitted to take that are claimed violative of the duty of good faith and fair dealing. See Buzzard v. McDanel, 1987 OK 28, 736 P.2d 157, 159. To the extent American Fidelity & Casualty Co. v. L.C. Jones Trucking Co., 321 P.2d at 687, may have implied that a simple negligence standard was approved or adopted as to the level of culpability necessary to be shown for liability to attach to an insurer for breach of the duty of good faith and fair dealing in relation to the handling of a third-party claim made against the insured, i.e., the situation involved here, that case is expressly overruled, but only to such extent. [7] In our view, under Christian and later cases, the minimum level of culpability necessary for liability against an insurer to attach is more than simple negligence, but less than the reckless conduct necessary to sanction a punitive damage award against said insurer. In PART VII, infra, we discuss the minimum level of culpability necessary to warrant a punitive damage recovery against an insurer for breach of the duty of good faith and fair dealing. ¶ 29 Insurers argue here they cannot be held liable for breach of the duty of good faith and fair dealing because they tendered the policy limits and never received an unconditional settlement offer from Smith's attorneys. Put another way, insurers assert insured had to show the third party (i.e., Smith or her representatives) made an unconditional offer to settle within policy limits and insurers refused the offer; i.e., that liability for a failure to settle within policy limits always requires that the insurer received an unconditional settlement offer from the third-party claimant and that the unconditional offer was refused. Insurers allege the absence of either an unconditional settlement offer or an insurer's refusal to pay policy limits defeats an insured's claim for breach of the duty of good faith and fair dealing. We have been unable to unearth any Oklahoma decision that has held the mere tender of policy limits to a third-party claimant and/or the lack of an unconditional settlement offer from the third party, will always be sufficient to defeat an insured's claim for breach of the duty of good faith and fair dealing and, in effect, relieve an insurer of compliance with its duty to safeguard the interests of its insured, irrespective of other salient circumstances or considerations. ¶ 30 Although during settlement negotiations or discussions with Smith's attorneys, insurers, of course, had no duty to actually offer or pay, with their money, more than the limits of the policy, evidence submitted is sufficient to support a reasonable finding insurers did not approach the matter or make decisions concerning it, as if they alone were responsible for the entire amount of the claim being made by Smith. Evidence exists to show insurers did little, if anything, between the time of the statement request and the Berry/Wallis telephone call to work out some alternative, e.g., an affidavit, in lieu of a face-to-face statement encounter with Smith's lawyers. Instead of trying to work something out, Wallis sent the statement-refusal letter telling Burton to send back the $10,000.00 policy limits check if she no longer wished to settle, a settlement she denied having ever entered into. Rather than only involving offering the policy limits or responding to unconditional settlement offers, the duty of good faith and fair dealing in this third party situation required insurers to reasonably respond to reasonable requests from Smith's lawyers in an effort to settle the case for the protection of their insured, the person whose financial life or health was hanging in the balance. Whether they did so, in our view, was for the jury to consider, a consideration that could include asking the question, would someone whose own financial health or life was at stake have acted in the manner that insurers did? ¶ 31 The statement request also implicated the extent to which insurers were required to consult, communicate with and inform their insured regarding that request and its potential impact on settlement negotiations/discussions insurers were involved in, as it was insured's assets and his potential bankruptcy (i.e., his financial future) at issue if the matter did not settle for the policy limits. Surely, a rational jury could conclude based on the evidence that insurers failed in their communicative/consultative duty. A rational jury could also conclude that insured was entitled to reasonable information concerning the statement request and settlement implications thereof in order for him to have necessary input concerning the request so that an informed decision as to how best to respond could be formulated, giving due consideration to his input and desires in such regard. In that it was insured's financial health implicated above the $10,000.00 policy limits, it could be found it was incumbent on insurers to consult with him on the matter. ¶ 32 A central question here is whether someone who was on a personal errand, who was not drinking and who clearly did not have assets or the financial wherewithal to satisfy the claim being made by Smith (in light of her extensive injuries and medical bills), would have acquiesced in a statement or taken affirmative steps to attempt to work out some solution with Smith's lawyers in lieu of such a statement, rather than following the course insurers followed. We believe a rational juror could view insurers' conduct as almost daring Smith's lawyers to file suit against insured, without even informing him a statement (or something in lieu thereof) might result in a quick settlement of the matter within the policy limits. Such act(s) and/or omission(s) of insurers were sufficient to create jury questions as to the reasonableness of insurers' conduct and as to breach of the duty of good faith and fair dealing. ¶ 33 Contrary to insurers' position(s), a carrier's duty of good faith and fair dealing in the situation reasonably shown by this record involves more than making an offer to settle for or within policy limits, or simply not refusing unconditional settlement offers within those limits. It has even been held, if an insured's liability is clear and the injuries of a claimant are so severe that a judgment in excess of policy limits is likely, the insurer has an affirmative duty to initiate settlement negotiations. Powell v. Prudential Property & Casualty Ins. Co., 584 So.2d 12, 14 (Fla. App. 3rd Dist.1991), review denied, 598 So.2d 77 (Fla.1992). In the instant case, regardless of who initiated settlement discussions/negotiations, part of same involved what rational jurors could find was a reasonable request for insured's statement. Although liability might well be defeated when a condition or request by a third-party claimant may only rationally be considered an unreasonable one from the perspective of the insured and, possibly, even from the insurer's perspective depending on the particular circumstances, the same cannot be said when the condition or request is reasonable or may properly be found such by the trier of fact, and the insurer's unreasonable response to it inures to the detriment of its own insured in violation of the duty of good faith and fair dealing. ¶ 34 Also, a legally binding, unconditional offer of settlement from the claimant is not a prerequisite to maintaining an action of this type where the insured has been exposed to an excess verdict. Alt v. American Family Mutual Ins. Co., 71 Wis.2d 340, 237 N.W.2d 706, 709 (1976). In the circumstances here, insurers could be found to have had an affirmative duty to seize a reasonable opportunity to protect insured from the potential for excess liability and their duty consisted of more than merely playing a passive role in the settlement process. See Alt, 237 N.W.2d at 713. To us, this appears certainly true when, as here, the lawyers acting on behalf of Smith expressed a willingness to consider settlement within the policy limits. See id. at 712-713. ¶ 35 It has also been recognized that an insurance company's decisions regarding settlement must be made based on a thorough investigation of the underlying circumstances of the claim and on informed interaction with the insured. Mowry v. Badger State Mutual Casualty Co., 129 Wis.2d 496, 385 N.W.2d 171, 178 (1986). The duty of an insurance company in this type of situation includes the duty of timely and adequately informing insured of the progress of settlement negotiations. Baker v. Northwestern National Cas. Co., 22 Wis.2d 77, 125 N.W.2d 370, 373 (1963). Here, that would include timely and adequately informing insured of the statement request, particularly given its importance as to settlement probability within the policy limits. ¶ 36 In this third-party-type situation, an insurer's duty of good faith and fair dealing includes the duty to act in a diligent manner in relation to investigation, negotiation, defense and settlement of claims being made against the insured. See State Automobile Ins. Co. v. Rowland, 221 Tenn. 421, 427 S.W.2d 30, 33 (1968). The duty to inform the insured of settlement opportunities is one of the duties subsumed within the duty of good faith owed by an insurer to an insured. Berges v. Infinity Ins. Co., 896 So.2d 665, 680 (Fla.2004). Although failure to so inform does not automatically establish breach of the duty of good faith and fair dealing, it is one factor the jury may consider in deciding whether the insurer acted in violation of the duty of good faith and fair dealing. Id. The settlement opportunity in the instant case was tied to the statement request and, of course, that request, along with the potential for settlement if it was given, is what could reasonably have been found necessary to be relayed to and discussed with insured. In the final analysis, we believe sufficient evidence as to unreasonableness and breach of the duty of good faith and fair dealing by insurers is contained in the trial record such that these elements were properly supported and properly submitted to the jury for its consideration.