Opinion ID: 1450195
Heading Depth: 1
Heading Rank: 2

Heading: Negligent Performance of an Insurance Contract

Text: Farm Bureau next mounts several arguments against the tort claims of the farming corporations. Its primary points are that Arkansas does not recognize an independent tort for negligent performance of an insurance contract and that recovery of damages under both contract and tort claims amounts to double recovery. The crux of Farm Bureau's argument is that the language of the insurance policies controls any claims by the farming corporations against Farm Bureau and that their theory of tort relief has not been adopted in this state. We agree on both points. There is no question about the fact that the insurance policies exclude consequential damages for the farming corporations by viewing the following language: 14. EXCLUSIONS . . . . b. Consequential, special or indirect damages. . . . But, in addition, with respect to the tort claims, Arkansas has never recognized the tort of failure to act (nonfeasance) apart from the tort of bad faith. See Findley v. Time Ins. Co., 264 Ark. 647, 653, 573 S.W.2d 908, 911 (1978) (Prosser has pointed out that an action in tort cannot ordinarily be based upon a breach of contract which amounts to mere nonfeasance, which means not doing the thing at all, as distinguished from misfeasance, which means doing it improperly.). This court has upheld tort claims in two non-insurance cases where the conduct could be characterized as misfeasance. In Westark Specialties, Inc. v. Stouffer Family Ltd. Partnership, 310 Ark. 225, 836 S.W.2d 354 (1992), this court noted that courts have extended tort liability for misfeasance whenever the misconduct involves a foreseeable, unreasonable risk of harm to the plaintiff's interests. In Westark Specialties , this court held that a tenant could maintain a negligence action against the landlord for a breach of the contractual duty to maintain the sprinkler system which the landlord had failed to do. This court held that the claim in negligence was permitted because the harm was both foreseeable and unreasonable. Based on this court's description, the action in tort appeared to be one for misfeasance. Similarly, in Terminix International Co. v. Stabbs, 326 Ark. 239, 930 S.W.2d 345 (1996), this court allowed a tort action for wrongful acts of misfeasance arising out of the performance of a contract where the risk was foreseeable and unreasonable. This court held that [a] termite company's failure to properly inspect a residence and report on the extent of damage can be said to involve a foreseeable, unreasonable risk of harm to potential buyers of the residence. Terminix Int'l Co., 326 Ark. at 243, 930 S.W.2d at 348. [3] In the case at hand, the farming corporations claim that their tort theory for delayed payment is supported by the following statement made by this court in Reynolds v. Shelter Mutual Insurance Co., 313 Ark. 145, 852 S.W.2d 799 (1993): [T]he rule as stated in Findley , provides yet another remedy in tort for an insured who feels his claim has not been adequately investigated by his insurer. Although an insurer's actions, or inaction as the case may be, may not amount to a claim for bad faith, those same actions or inactions may support a claim in contract for non-performance (breach of contract) or a claim in tort for defective performance. Reynolds, 313 Ark. at 149-50, 852 S.W.2d at 802. We disagree with the farming corporations' characterization of this statement. The context of this language, which cites to the Findley case, clearly denotes that Arkansas has not recognized a tort for mere nonperformance by an insurance carrier. Furthermore, the focus of this court in Findley was to discuss the tort of bad faith, which it described as an extension of the well-established rule by which a liability insurance company may be accountable in tort for its failure to settle a claim within the policy limits. Findley, 264 Ark. at 649, 573 S.W.2d at 909. We went on to discuss the situation where an insurer is confronted with a conflict of interest in how to settle an insurance claim. We said that that conflict of interest has led the courts to hold, as we did in Blissett [ Members Mut. Ins. Co. v. Blissett, 254 Ark. 211, 492 S.W.2d 429 (1973)] and earlier cases, that the insurance company may be liable for fraud, bad faith, or negligence if it fails to investigate and settle a claim against its insured. Id. (emphasis added). Later in Findley , this court specifically stated that it does not agree with the rule that an insurance company exposes itself to an action in tort simply by denying a claim. We added that the [m]ere refusal to pay insurance cannot constitute wanton or malicious conduct when, as here, an actual controversy exists with respect to liability on the policy. Id. at 651, 573 S.W.2d at 910. This court emphasized that if this were not the rule, then a claimant could recover punitive or exemplary damages in every action that involved a refusal to pay an insurance policy. See id. Despite this analysis in Findley , the farming corporations attempt to convince this court that the distinction between nonfeasance and malfeasance is irrelevant in the instant case because the foreseeability requirement for negligent performance has been established. They refer to the testimony of a Farm Bureau witness, Kevin McKenzie, who stated that both he and Farm Bureau were aware of the foreseeable harm and damage to Mitchell if the insurance claim was not timely paid. According to the farming corporations, the actions of Farm Bureau constituted misfeasance because Farm Bureau did not merely sit on its hands and do nothing. Rather, the agents of Farm Bureau came to the farms on three occasions but refused to meet the demands of the corporations. We conclude that it is clear from this court's case law that Farm Bureau's actions exhibit a dispute over the measure of damages dating back to 1997, when settlement negotiations began. A failure to satisfy the farming corporations' claims may breach the applicable contracts, but it is not actionable in tort. Stated differently, the farming corporations have not proven that Farm Bureau acted wrongly (misfeasance), but simply that they failed to act with the necessary dispatch (nonfeasance) and agree to the dollar figures of the farming corporations. As already illustrated in this opinion, the two cases described above ( Westark Specialties, Inc . and Terminix International Co . ) recognize causes of action in tort for wrongful action or misfeasance  not nonfeasance. Thus, the appellees have not cited to this court a case from our jurisdiction that recognizes a cause of action in tort apart from bad faith or wrongful action. In sum, the mere refusal to pay a disputed insurance claim cannot constitute misfeasance, not to mention wanton or malicious conduct, when there is an actual controversy with respect to liability. See Findley, supra . The farming corporations' claim for bad faith was dismissed by the circuit court in 1998, and those corporations have been awarded judgment for damages for breach of contract totaling $76,500. That is their sole avenue for relief under the facts of this case. We reverse the judgment of the circuit court awarding the farming corporations damages in tort for nonperformance of the insurance contracts and dismiss due to the absence of a recognized cause of action.