Opinion ID: 4521243
Heading Depth: 4
Heading Rank: 2

Heading: First- or third-party bad faith

Text: In Wyoming, breach of the duty of good faith and fair dealing can lead to a cause of action for either “first party” or “third party” bad faith. Id. at 490; accord Shrader, 882 P.2d at 825–26. Big Bear’s allegation falls within neither classification. Mr. Rimer’s claim for underinsured motorist coverage is a first-party claim, because “[t]he insured involved in an accident with an [underinsured] motorist makes a direct claim for benefits to the insurer.” Shrader, 882 P.2d at 826. A cause of action for “first party” bad faith will lie when an insurer in bad faith refuses to pay its insured’s direct claim for policy benefits. Bad faith in this context would occur if an insurer knowingly or recklessly denied a first-party claim for insurance benefits without having a reasonable basis for doing so. Herrig, 844 P.2d at 490 (citations omitted). Big Bear cannot state a claim for first-party bad faith because Big Bear never brought a “direct claim for policy benefits” of its own to Homestate. See id. The only Policy claim at issue, the UIM claim, was brought by Mr. Rimer. And Homestate did not “knowingly or recklessly” deny this claim; rather, it came to a successful settlement. See id.; see also Int’l Surplus Lines Ins. Co. v. Univ. of Wyo. Research Corp., 850 F. Supp. 1509, 1527 (D. Wyo. 1994) (stating that a procedural first-party bad faith claim “involv[es] only two parties, the insurer and the insured”). 22 As opposed to first-party claims, “[w]hen the benefit derives from the insurer’s duty to defend the insured against third-party actions, that relationship is characterized as a third-party claim.” Darlow v. Farmers Ins. Exch., 822 P.2d 820, 827 (Wyo. 1991). Third-party bad faith will lie when a liability insurer fails in bad faith to settle a third-party claim within policy limits against its insured. Bad faith in this context would occur if an excess judgment were obtained under circumstances when the insurer failed “to exercise intelligence, good faith, and honest and conscientious fidelity to the common interest of the [insured] as well as of the [insurer] and [to] give at least equal consideration to the interest of the insured.” Herrig, 844 P.2d at 490 (citations omitted) (quoting W. Cas. & Sur. Co. v. Fowler, 390 P.2d 602, 606 (Wyo. 1964)). This category is likewise inapplicable, for no third-party claim is at issue. Mr. Rimer’s UIM claim was a first-party claim against Homestate, not a third-party claim against Big Bear. And Big Bear does not classify the Division’s lien as a third-party claim that Homestate “fail[ed] in bad faith to settle.” See id.; Appellant Br. at 25 (“Big Bear did not allege that the Policy it paid for would or should cover the Division’s workers’ compensation lien . . . .”). Therefore, “[a]s disclosed by the facts of this case, Appellants do not fit the mold necessary to bring an action against [Homestate] for either ‘third party’ or ‘first party’ bad faith.” Herrig, 844 P.2d at 491. Nor is Big Bear’s bad faith claim saved by reference to Hatch v. State Farm Fire and Casualty Co. “Hatch stands for the proposition that ‘breach of an express covenant [in the policy] is not a necessary prerequisite to an action for bad faith.’” App. 287 (alteration in original) (quoting 842 P.2d at 1099). Rather, Hatch held that even if an insurer’s treatment of a claim is “fairly debatable” under the policy terms, the insurer can 23 still be found to have “investigated, handled or denied the claim” in bad faith. 842 P.2d at 1099. Appellants seek to apply this reasoning to Homestate’s failure to thoroughly investigate Mr. Rimer’s claim and “alert[] Big Bear to the employee misclassification.” Appellant Br. at 37. But unlike Big Bear’s claim here, Hatch involved a first-party claim by an insured for policy benefits. 842 P.2d at 1090. Thus, Appellants have identified no Wyoming precedent where insurer bad faith was found in any context other than a direct first-party claim for benefits or an adversarial third-party claim for indemnification. Big Bear’s claim does not fit either mold, and it consequently cannot make out a bad faith claim under Wyoming law. And, even if Hatch applied, Big Bear has failed to plead facts indicating Homestate “engag[ed] in oppressive and intimidating claim practices,” id. at 1099, or “performed no form of satisfactory investigation,” Cornhusker, 786 F.3d at 859. As this court previously stated, Hatch “powerfully demonstrates the egregious level of misconduct that typically gives rise to liability for procedural bad faith—a level of insurer misconduct that is not even arguably present here.” Cornhusker, 786 F.3d at 859. Count II of the FAC is not plausible and the district court properly dismissed it. Breach of the Implied Covenant of Good Faith and Fair Dealing Count III of the FAC alleges a breach of the implied contractual covenant of good faith and fair dealing. Appellants argue Homestate violated this covenant by failing to give notice of Mr. Rimer’s UIM claim or to include Big Bear in the settlement negotiations, thereby “foreclosing Big Bear’s chance to be heard and to participate” in the workers’ compensation lien release executed between Mr. Rimer and the Division. 24 Appellant Br. at 42. Appellants have again fallen short of pleading facts sufficient to “nudge[]” this claim “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. In Scherer Construction, LLC v. Hedquist Construction, Inc., 18 P.3d 645 (Wyo. 2001), the Wyoming Supreme Court adopted § 205 of the 2d Restatement of Contracts9 and held “that parties to a commercial contract may bring a claim for breach of the implied covenant of good faith and fair dealing based on a contract theory.” Id. at 655. However, the Scherer court cautioned this concept “is not a limitless one”: The covenant “may not . . . be construed to establish new, independent rights or duties not agreed upon by the parties.” Id. at 653. Rather, “[t]he implied obligation must arise from the language used or it must be indispensable to effectuate the intention of the parties.” Id. at 653 (quoting Garrett v. BankWest, Inc., 459 N.W.2d 833, 841 (S.D. 1990)). “Whether there has been a breach of the covenant of good faith and fair dealing is a factual inquiry that focuses on the contract and what the parties agreed to.” Id. at 654 (quoting Gilmore v. Duderstadt, 961 P.2d 175, 182 (N.M. Ct. App. 1998)). A claim can be properly dismissed as a matter of law “where the actions alleged to have breached the covenant were in conformity with the clear contract language.” City of Gillette v. Hladky Constr., Inc., 196 P.3d 184, 197 (Wyo. 2008). But dismissal is not appropriate if the “conduct involved self-dealing beyond the mere exercise of contract rights or in violation 9 “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Restatement (Second) of Contracts § 205 (Am. Law Inst. 1981). 25 of the community standards of decency, fairness, or reasonableness.” Scherer, 18 P.3d at 654 n.2. The district court properly dismissed Count III because Big Bear did not plausibly plead that any action taken by Homestate in its handling of the UIM claim was not “in conformity with the clear contract language.” See Hladky, 196 P.3d at 197. Big Bear, in fact, cites no pertinent Policy language, in either the FAC or its briefing in support of Count III. While it vaguely accuses Homestate of “not conduct[ing] a full examination” of the claim, Appellant Br. at 44, Big Bear does not dispute that Mr. Rimer was “‘occupying’ a covered ‘auto’” at the time of the accident, see App. 159, and it presents no factual basis for alleging Homestate failed to investigate “whether there was any underinsured exposure,” Appellant Br. at 44.10 In short, Appellants have failed to adequately challenge Homestate’s assertion that it simply “exercised its rights and obligations under the Policy’s UM endorsement.” Appellee Br. at 23–24. “[U]under the facts in the record, [Homestate’s] actions alleged as the basis for the breach of the implied covenant were in conformity with the clear language of the contract.” Scherer, 18 P.3d at 654 n.2. As a result, Count III is legally insufficient, because Big Bear has also failed to adequately plead that Homestate engaged in “self- 10 Earlier in its briefing, Big Bear admitted it “did not allege that the Policy it paid for would or should deny Mr. Rimer’s underinsured motorist claim.” Appellant Br. at 26. 26 dealing” or violated “community standards of decency, fairness or reasonableness” in handling Mr. Rimer’s UIM claim.11 Id. at 653–54. Wyoming law prohibits the use of the covenant “to establish new, independent rights or duties not agreed upon by the parties.” Scherer, 18 P.3d at 653. Big Bear seeks to impose extracontractual duties upon Homestate respecting the adjustment and settlement of Mr. Rimer’s UIM claim. It also asserts an independent right to intervene in Mr. Rimer’s negotiations with the Division—which appears nowhere in the Policy—in hopes of safeguarding its own economic interest. In so doing, Appellants are “urging the [c]ourt to impose duties on Homestate, retroactively and outside any contractual agreement, which would operate to protect and indemnify [Appellants] from their own negligence i[n] failing to make payments required for coverage under Wyoming’s worker’s compensation laws.” App. 289. 11 Big Bear asserts an affidavit from a retained legal expert establishes that Homestate violated “Wyoming standards of decency, fairness, and reasonableness.” Appellant Reply Br. at 7. But this affidavit is not properly subject to our review. In addressing a Rule 12(c) motion, this court’s function “is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.” Tal v. Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006) (quotation marks omitted). As a result, we may consider only the facts in the complaint, attached documents central to the plaintiff’s claim, and “mere argument contained in a memorandum in opposition to dismiss.” Cty. of Santa Fe v. Pub. Serv. Co. of N.M., 311 F.3d 1031, 1035 (10th Cir. 2002) (quotation marks omitted). We thus reject Big Bear’s ancillary attempt to introduce a plausible dispute as to whether Homestate’s actions “went beyond the exercise of contract rights and amounted to self-dealing or a violation of community standards of decency, fairness or reasonableness.” City of Gillette v. Hladky Constr., Inc., 196 P.3d 184, 197 (Wyo. 2008). 27 As the district court reasoned, the liability Big Bear seeks to escape “was not a consequence, collateral or otherwise, of Homestate’s adjustment and settlement of Rimer’s UIM claim,” but rather arose “by operation of law because Big Bear was delinquent in making payments for worker’s compensation coverage.” App. 279. There is no colorable claim that the implied covenant of good faith and fair dealing is invoked to avoid such liability. Big Bear must instead take up its grievance with Wyoming, for the consequences that flowed from the Division’s alleged misclassification of Mr. Rimer—a purported error for which Homestate was in no way responsible.