Opinion ID: 1203232
Heading Depth: 1
Heading Rank: 3

Heading: bad faith tort

Text: Regarding the borrowers' tort claim of bad faith, when this case went to trial, the trial court did not have the benefit of our recent decision in Black Canyon Racquetball Club, Inc. v. Idaho First National Bank, 119 Idaho 171, 804 P.2d 900 (1991), in which we rejected the tort of bad faith in the commercial lending context. In Black Canyon, a bank customer brought an action against the bank alleging, among other things, that the bank had committed the tort of bad faith by breaching an alleged oral contract to make a commercial loan. In Black Canyon, this Court distinguished the borrower-lender relationship from the insured-insurer relationship in White v. Unigard, 112 Idaho 94, 730 P.2d 1014 (1986), in which this Court adopted the tort of bad faith in the insurance context. The Court in Black Canyon stated: While this Court in Unigard did hold that a duty exists in an insurer-insured relationship, the breach of which can result in an action for bad faith, the rationale behind that adoption in Unigard was based upon the special relationship which exists between insurer and insured. 112 Idaho at 99 [730 P.2d 1014]. The Court in Unigard went on to point out that it is the unique `personal' (non-commercial) nature of insurance contracts which justifies the imposition of the duty of good faith and fair dealing. Id. The reasons stated in Unigard for creating a duty by an insurer to an insured, the breach of which can result in the tort of bad faith breach of an insurance contract, do not apply in a debtorcredit relationship. The Unigard opinion noted that insurance contracts are invariably fixed, standardized contracts whose terms are not negotiated and are executed in a non-commercial setting. The insurer prepares the insurance contract, while the insured seldom, if ever, reads  much less understands  the terms of the agreement. In contrast, the alleged bank loan involved in this case was a commercial transaction between a bank and a business borrower. The bank loan under negotiation was not an invariably fixed, standardized contract .. . in a non-commercial setting, which was the basis for the Court's ruling in Unigard. Rather, the transaction here was a commercial one, which would have created a debtor-creditor relationship, for which both the terms and the security for the loan were under negotiation. Accordingly, the policy reasons for establishment of the tort of bad faith breach of an insurance contract in Unigard is not applicable here. 119 Idaho at 176, 804 P.2d at 905. The borrowers make several arguments in support of their claim that Black Canyon ought not to be applied to this case and that the trial court correctly submitted the bad faith tort issue to the jury. The crux of each of the borrowers' arguments is that the circumstances surrounding commercial loan transactions are similar to those in an insurer-insured relationship. According to the borrowers, both types of transactions usually involve performance of a public service, an adhesion contract, and disparity in bargaining power between the lender and borrower, all of which create a special relationship such as the Court found in Unigard. The Walkers further argue that Black Canyon does not apply because, since this Court ultimately held in that case that there was no valid contract between the parties, the attempt to distinguish White constitutes dictum which is not binding in this case where there is a valid contract between the parties. [7] We have reviewed the arguments of the borrowers in support of their bad faith tort claim, and the cases cited by them, and are nevertheless convinced that our decision in Black Canyon was correct. The bad faith tort, which had its genesis in the peculiar nature of the first-party insurance contract, as explained in White v. Unigard , has no application outside the first-party insurance context, as we clearly spelled out in the Black Canyon case. We adhere to our decision in Black Canyon. [8] JOHNSON and BOYLE, JJ., and SCHROEDER and McKEE, JJ. Pro Tem., concur.