Opinion ID: 1316495
Heading Depth: 1
Heading Rank: 12

Heading: Additional Causes Of Action In The West Virginia Action

Text: In addition to the declaratory judgment action, however, the appellants brought several other claims in their West Virginia complaint. They also allege breach of contract, statutory bad faith or unfair trade practices, common law bad faith, and an intentional tort claim. These additional claims, with the exception of the breach of contract claim, arise from West Virginia law and could not have been brought in New York. Obviously, adjudication as to the declaratory judgment action in New York also extinguishes the breach of contract claim because there is now no underlying contractual duty on which to base such a claim. We find, further, that the determination that there is no coverage under the D & O policy extinguishes the common law bad faith and intentional tort claims as well. Our case law is clear that in order for a policyholder to bring a common law bad faith claim against his insurer, according to Hayseeds, Inc. v. State Farm Fire & Cas., 177 W.Va. 323, 352 S.E.2d 73 (1986) and its progeny, the policyholder must first substantially prevail against his insurer on the underlying contract action. See also Shamblin v. Nationwide Mut. Ins. Co., 183 W.Va. 585, 396 S.E.2d 766 (1990) (concerning the insurer's duty of good faith and fair dealing to an insured who is a tortfeasor); and Marshall v. Saseen, 192 W.Va. 94, 450 S.E.2d 791 (1994) (concerning uninsured and underinsured motorist coverage). The premise underlying Hayseeds was that the insurer had contractually promised the insured such coverage. Consequently, the insurer had a duty to settle with its insured on a claim for which the insured was legally entitled to recover. If the insurer declined to settle, and the insured was required to sue and then substantially prevailed, the insurer was liable for not just the verdict but also for attorney fees and incidental damages. Marshall, 192 W.Va. at 100, 450 S.E.2d at 797. Because of the New York court's determination that the appellee owes no contractual obligation to the appellants under the D & O policy, the appellants cannot substantially prevail on an underlying contract action against the appellee. Therefore, the appellee cannot be liable to the appellants for attorney fees and incidental damages in a common law bad faith claim. The appellants' intentional tort claim must fail for the same reason. A clear predicate to recovering punitive damages in a common law bad faith action wherein the policyholder alleges that the insurer knew the policyholder's claim was proper, but willfully, maliciously and intentionally denied the claim, is that the policyholder substantially prevail on the underlying contract claim. [19] See McCormick v. Allstate Ins. Co., 197 W.Va. 415, 426, 475 S.E.2d 507, 518 (1996) (a clear predicate to recovering punitive damages in a Hayseeds claim is that the plaintiff `substantially prevail' on his underlying claim). Again, the appellants are now unable to prevail on the underlying contract action. Therefore, we find that the circuit court did not err in ruling that Jordache, Avi Nakash, Ralph Nakash and Joseph Nakash are precluded by the principles of res judicata and collateral estoppel from litigating the breach of contract, common law bad faith and intentional tort claims in West Virginia. Accordingly, we affirm the circuit court's denial of the appellants' Rule 60(b) motion concerning their breach of contract, common law bad faith, and intentional tort claims. We note, however, that the appellants also brought a claim for the violation of the West Virginia Unfair Trade Practices Act, W.Va.Code § 33-11-4(9)(b), (c), (d), (e), and (f). This is not a claim that could have been brought in the New York action. It is also not a claim that rests on substantially prevailing on the underlying contract action. The conditions and predicate for bringing a case under Jenkins v. J.C. Penney Casualty Insurance Company, 167 W.Va. 597, 280 S.E.2d 252 (1981), are wholly different from those necessary for bringing an underlying contract action or for bringing an action under Hayseeds, Inc. v. State Farm Fire & Casualty, 177 W.Va. 323, 352 S.E.2d 73 (1986). Whereas under Hayseeds it is necessary that a policyholder substantially prevail on an underlying contract action before he may recover enhanced damages, under Jenkins there is no requirement that one substantially prevail; it is required that liability and damages be settled previously or in the course of the Jenkins litigation. Jenkins instead predicates entitlement to relief solely upon violation of the West Virginia Unfair Trade Practices Act, W.Va.Code § 33-11-4(9), where such violation arises from a general business practice on the part of the insurer. Syllabus Point 9, McCormick, supra . Because the appellants' statutory bad faith settlement claim was not disposed of in the New York adjudication, we find that the circuit court erred in ruling that the appellants are precluded from bringing such an action by the principles of res judicata and collateral estoppel. Accordingly, we reverse the circuit court's denial of the appellants' Rule 60(b) motion as to the single statutory bad faith settlement claim.