Parker v. Southern Farm Bureau Cas. Ins. Co.
Annotate this Case
Rickey PARKER v. SOUTHERN FARM BUREAU
CASUALTY INSURANCE COMPANY
95-1134 ___ S.W.2d ___
Supreme Court of Arkansas
Opinion delivered December 23, 1996
1. Discovery -- trial court has wide discretion -- when abuse of
discretion will be found. -- The trial court has wide
discretion in matters pertaining to discovery and a trial
court's decision will not be reversed absent an abuse of
discretion; abuse of discretion has been found where there has
been an undue limitation of substantial rights of the
appellant under the prevailing circumstances; a motion for
production of documents must be considered in the light of the
particular circumstances which give rise to it, and the need
of the movant for the information requested.
2. Discovery -- goal of discovery to allow litigant to prepare
adequately. -- In cases where the appellant is relegated to
having to prove his claim by documents, papers, and letters
kept by the appellee, the scope of discovery should be
broader; this factor is considered in deciding whether there
has been an abuse of discretion in denying a discovery
request; the goal of discovery is to permit a litigant to
obtain whatever information he may need to prepare adequately
for issues that may develop without imposing an onerous burden
on his adversary.
3. Discovery -- protective order properly granted -- no abuse of
discretion found. -- Where, during the course of discovery,
appellee provided appellant with substantial information and
material regarding the billing and notice procedures, and
appellant did not request cancellation notices issued by
appellee to other policyholders prior filing his cause of
action, and appellant did not show how notices sent after his
lawsuit was filed would be relevant to his bad-faith claim,
the supreme court could not say that the trial court abused
its discretion in granting the protective order limiting
discovery; a cause of action for bad faith must exist and be
complete at the time such a lawsuit is filed; a motion for
production of documents must be considered in the light of the
particular circumstances which give rise to it and the need of
the movant for the information requested.
4. Discovery -- work product not equal to attorney-client
privilege. -- Work product is not the same as a privilege that
protects the sanctity of confidential communications; the
attorney-client privilege and the work-product rule the
principles upon which they are based, while susceptible to
confusion, are separate and distinct.
5. Discovery -- trial court has broad discretion in matters
relating to discovery -- no abuse of discretion found. -- The
trial court's ruling excluding certain portions of appellant's
claim file under the work-product doctrine was upheld where
appellant did not explain how these documents were pertinent
to his claim of bad faith, nor did he argue that he was
prejudiced by their exclusion; no abuse of discretion was
shown; a trial court has broad discretion in matters
pertaining to discovery, and that discretion will not be
second-guessed by the appellate court absent an abuse of
discretion that is prejudicial to the appealing party.
6. Torts -- insurance companies -- when liability for bad faith
may be incurred. -- An insurance company may incur liability
for the first-party tort of bad faith when it affirmatively
engages in dishonest, malicious, or oppressive conduct in
order to avoid a just obligation to its insured; the tort of
bad faith requires affirmative misconduct, without a good-
faith defense; the affirmative conduct must be dishonest,
malicious, or oppressive in an attempt to avoid the insurer's
liability under an insurance policy.
7. Torts -- bad faith -- affirmative misconduct must be present
for liability to be incurred. -- The tort of bad faith cannot
arise merely from the denial of a claim, without some
affirmative misconduct; a cause of action must exist and be
complete at the time the action is commenced; the subsequent
occurrence of a material fact cannot aid in maintaining it.
8. Torts -- none of appellee's conduct after filing of complaint
could be used by appellant to support his claim of bad faith -
- appellee's action did not rise to level of bad faith. --
Where none of the conduct by appellee after the filing of the
complaint, including legal positions asserted, could provide
a basis for appellant's bad-faith claim, and it was not
apparent from the abstract that the lack of notice was even
raised by appellant prior to the filing of the lawsuit, the
court could not say that appellee's action, albeit mistaken,
in denying the claim for nonpayment of premium constituted
dishonest, malicious, or oppressive conduct rising to the
level of bad faith.
9. Attorney & client -- amount of fee awarded -- trial court has
superior perspective in determining. -- Due to the trial
court's superior acquaintance with the record and the quality
of the service rendered, the supreme court will usually defer
to the trial court's superior perspective in awarding
attorney's fees and will reverse only when there has been an
abuse of discretion.
10. Attorney & client -- amount of fee awarded -- factors to be
considered. -- The amount of the fee should not be such that
attorneys would avoid the type of litigation, or fail to
sufficiently prepare, that the fee should be commensurate with
the time and amount of work involved, and the ability present
and necessary to meet the issues that arise in the case; the
amount recovered in the action is a relevant consideration.
11. Attorney & client -- award of fee -- factors for determination
of amount. -- The following factors are relevant in the
determination of an award of attorney's fees: (1) the
experience and ability of the attorney; (2) the time and labor
required to perform the service properly; (3) the amount
involved and the result obtained in the case; (4) the novelty
and difficulty of the issues involved; (5) the fee customarily
charged for similar services in the locality; (6) whether the
fee is fixed or contingent; (7) the time limitations imposed
upon the client in the circumstances; and (8) the likelihood,
if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the
lawyer.
12. Attorney & client -- factors properly considered -- no abuse
of discretion found in fee awarded. -- Where appellant
submitted a detailed bill for 117.60 total hours, it was
virtually impossible to separate those services related to the
coverage claim and those related to the bad-faith claim, the
fee was very large in relation to appellant's recovery, and
the trial court, in its order, considered these and all of the
relevant factors presented in the case, the supreme court
could not say that there was an abuse of discretion in the
award of the fee.
Appeal from Ashley Circuit Court; Sam Pope, Judge; affirmed on
appeal; affirmed on cross appeal.
Arnold, Hamilton, & Streetman, for appellant.
John Richard Byrd, Sr., for appellee.
Andree Layton Roaf, Justice.
This is an insurance case. Rickey Parker sued Southern Farm
Bureau Casualty Insurance Company ("Farm Bureau"), contending that
an insurance policy Farm Bureau issued to him covered losses he
sustained in an automobile accident. Farm Bureau denied coverage,
claiming that the policy issued to Parker had expired due to
nonpayment of the premium. The trial court granted summary
judgment to Parker on the issue of coverage, and granted summary
judgment to Farm Bureau on Parker's bad-faith claim. Parker
asserts on appeal that the trial court 1) impermissibly limited the
scope of discovery, 2) erroneously dismissed his bad-faith claim,
and 3) arbitrarily reduced his request for attorney's fees. On
cross-appeal, Farm Bureau argues that the attorney's fees should
have been further reduced. We affirm on appeal and on cross-
appeal.
The facts which led to this litigation may be summarized as
follows. Farm Bureau issued an automobile insurance policy to
Parker on June 6, 1993. The policy was for a six-month term, from
September 9, 1993, through December 9, 1993, with a total premium
of $745.35. Parker elected to pay the premium in quarterly
installments, and made the initial payment of $377.77 at issuance
of the policy.
Farm Bureau mailed Parker a "Billing Notice" on August 11,
1993, advising him that his quarterly payment was due, that his
coverage would expire on September 9, 1993, if the payment was not
made, and that he would receive no further renewal notice. Farm
Bureau did not receive Parker's payment by September 9, 1993.
Although Parker's check register indicated that he wrote a check to
Farm Bureau for the premium on September 2, 1993, this check never
cleared his bank.
Parker's daughter was involved in a two-vehicle accident while
driving one of Parker's insured vehicles. She was at fault in the
accident. Parker's vehicle was damaged in the amount of $1,456.21,
and the other vehicle sustained damages in the amount of $439.70.
Parker reported the accident to his Farm Bureau agent on September
17, 1993, and also filed a claim for his losses.
On September 22, 1993, Farm Bureau mailed Parker a
"Cancellation Reminder Notice" informing him that his policy was
canceled September 9, 1993, because the quarterly premium had not
been paid. The notice invited Parker to reinstate his coverage.
Parker took the notice to his Farm Bureau agent on September 27,
1993, and also showed the agent his check register with the
notation of a check for the September 2nd premium payment. Parker
paid the premium on September 27, and his Farm Bureau agent
attempted to reinstate Parker's coverage effective September 9,
1993. However, Farm Bureau's underwriting department refused to
allow the retroactive reinstatement and instead reinstated the
policy effective October 4, 1993.
Parker's efforts to settle the claim with Farm Bureau were
unsuccessful, and he filed suit against the company on July 13,
1994. Parker sued Farm Bureau for failure to comply with the terms
of his policy and with Ark. Code Ann. 23-89-304 (Michie. Repl.
1992), which requires ten days' notice of cancellation for
nonpayment of insurance premiums. Parker also asserted a claim for
the first party tort of bad faith for the failure to pay his claim.
He sought recovery for the damages to his vehicle, statutory
penalty, attorney's fees, punitive damages, and a declaratory
judgment that Farm Bureau was required to pay the damages sustained
by the other driver.
The trial court granted Parker summary judgment on the issue
of insurance coverage, finding that Farm Bureau failed to comply
with the ten-day notice requirement. The trial court granted Farm
Bureau summary judgment on the bad-faith claim. Parker was awarded
$1,403.73, which included the twelve percent statutory penalty, and
attorney's fees in the amount of $10,676. Farm Bureau was also
adjudged liable for the other driver's damages of $439.59.
Parker appeals from the dismissal of his bad faith claim and
from the trial court's award of less than the requested attorney's
fees. Parker also asserts that the trial court erroneously limited
the scope of discovery, which he needed to establish his claim of
bad faith. Farm Bureau cross-appeals the trial court's award of
attorney's fees.
Although Farm Bureau does not appeal the award of summary
judgment on the issue of coverage, it is necessary to review the
basis of the trial court's ruling on this question in order to
address Parker's arguments regarding his bad-faith claim. Parker's
policy was for a six-month period, and the declaration sheet issued
stated that the policy period was June 9, 1993, through December 9,
1993. The trial court based its award of summary judgment upon
Farm Bureau's failure to comply with the notice provision of
Parker's policy and with the ten-day notice required by Arkansas
statute. This statutory notice requirement is found in the
subchapter dealing with cancellation and nonrenewal of automobile
liability, physical damage and collision policies, and provides as
follows:
No notice of cancellation to any named insured shall be
effective unless mailed or delivered at least twenty (20)
days prior to the effective date of cancellation,
provided that, where cancellation is for nonpayment of
premium, at least ten (10) days' notice of cancellation
accompanied by the reason therefor shall be given.
Ark. Code Ann. 23-89-304(a)(2) (emphasis added).
Parker's policy contained a provision entitled "Cancellation,"
which essentially tracked the statutory notice provision, and
provided as follows:
If we cancel your policy, for non payment of premium, we
will notify you in writing at least ten (10) days before
the date of cancellation. If we cancel your policy for
any other reason we will notify you in writing at least
twenty (20) days before the date of cancellation. . . .
The policy period will end of the date and time stated in
the notice.
(Emphasis added.) The policy contained a further provision
concerning renewal premium and policy periods:
Your Declaration or renewal certificate will show the
policy period. Unless cancelled, this policy may be
renewed at our option if the required premium is paid by
you and accepted by us. Failure to pay on time will end
coverage. If your policy does expire and you send a
later payment of the required premium, we may reinstate
at our option, as of the date and time the payment is
received. A new policy period is then established.
The only notice Farm Bureau sent to Parker prior to
cancellation of his policy was the following "Billing Notice," sent
twenty-seven days before his quarterly installment payment was due:
It is time to make your quarterly premium payment on your
auto policy. Please accept this notice that your
coverage is due to expire 12:01 am, 09-09-93. To keep
your coverage in force please mail us your payment before
that date. In order to reduce expenses this will be the
only renewal notice you will receive. . . .
Farm Bureau insisted to the trial court and continued to
assert on appeal that Parker only purchased insurance for three
months, and that the statutory notice of cancellation thus did not
apply to a policy which expired by its own terms. Farm Bureau also
maintained, alternatively, that the billing notice sent to Parker
satisfied the statutory notice requirement. The trial court found
that Farm Bureau's reliance on the case of Farmers Ins. Co. v.
Hall, 263 Ark. 734, 567 S.W.2d 296 (1978) was misplaced because in
Hall, this court held that the ten-day cancellation notice was not
required where a policy expired on its own terms because the
insured failed to pay a renewal premium before the policy
expiration date. The holding in Hall was thus not applicable to
cancellation for failure to pay an installment payment. Farm
Bureau did not appeal the grant of summary judgment on this issue
and finally admitted during oral argument before this court that it
had failed to comply with the statutory notice requirement. With
this background in mind, we turn to the arguments which Parker
raises regarding his claim of bad faith.
1. Restriction of discovery.
Parker first argues that the trial court erroneously
restricted his efforts to discover certain records maintained by
Farm Bureau which were relevant to his claim of bad faith. This
argument concerns two discovery requests which must be addressed
separately.
A. Farm Bureau's cancellation notices to other insureds.
During the course of discovery, Parker sought to obtain the
twenty most recent notices mailed by Farm Bureau to its insureds
giving notice of its intent to cancel automobile insurance for non-
payment of premiums. On appeal, Parker argues that the notices
might contain evidence of Farm Bureau's bad faith in denying his
claim if other insureds similarly situated received the ten-day
cancellation notice. Parker had earlier discovered that Farm
Bureau maintained a dual-system of billing. Farm Bureau admitted
to the dual-system during discovery, provided Parker with copies of
the two types of notices sent to its insureds, and its employees
explained the system in great detail during depositions. According
to Farm Bureau, the type of notice sent to its policyholders
depended on whether or not "clean billing" was involved. Farm
Bureau defined clean billing as quarterly, semi-annual, or annual
billing of renewal and installment premiums, where no change had
been made in the policy. The only notice sent in that instance was
the "Billing Notice" like the one sent to Parker, approximately
thirty days prior to the due date of the renewal or installment
premiums. A notice of cancellation was not sent until twelve days
after the termination of the coverage.
Farm Bureau used a different procedure when it was necessary
to send an additional bill during the term of the policy for
reasons such as the addition of a vehicle, driver, or coverage, or
the insured's failure to pay Farm Bureau dues. These policyholders
received a bill for the additional premium approximately twenty-
five days before the due date. If the additional premium or Farm
Bureau dues remained unpaid twelve days after the due date, they
were mailed a notice advising them that the policy would be
cancelled in ten days if the additional payment was not received.
Thus, the second category of policyholders received the statutory
ten-day notice of cancellation, and in effect, twenty-two days
after the due date to pay the premium and avoid cancellation of
policy, while Parker and policy holders similarly situated received
no notice prior to cancellation.
Farm Bureau resisted discovery of the notices to its insureds
as not relevant, and violative of the privacy rights of its policy
holders. The trial court found that Parker had discovered how and
why Farm Bureau billed some insureds differently from others, and
thus the additional relevancy of the notices had not been shown.
Parker argues that the trial court abused its discretion in denying
him the right to inspect and copy these notices.
This court has long held that the trial court has wide
discretion in matters pertaining to discovery and that a trial
court's decision will not be reversed absent an abuse of
discretion. Stein v. Lukas, 308 Ark. 74, 823 S.W.2d 832 (1992)
(citing Marrow v. State Farm Ins. Co., 264 Ark. 227, 570 S.W.2d 607
(1978)). Although we recognize the magnitude of the trial court's
discretion in discovery matters, we have found an abuse of
discretion where there has been an undue limitation of substantial
rights of the appellant under the prevailing circumstances.
Rickett v. Hayes, 251 Ark. 395, 473 S.W.2d 446 (1971). A motion
for production of documents must be considered in the light of the
particular circumstances which give rise to it, and the need of the
movant for the information requested. Marrow, supra.
Parker is correct in his assertion that in cases where the
appellant is relegated to having to prove his claim by documents,
papers, and letters kept by the appellee, the scope of discovery
should be broader. Marrow v. State Farm Ins. Co., 264 Ark. 227,
570 S.W.2d 607 (1978). We consider this factor in deciding whether
there has been an abuse of discretion in denying a discovery
request. Id. The goal of discovery is to permit a litigant to
obtain whatever information he may need to prepare adequately for
issues that may develop without imposing an onerous burden on his
adversary. Id.
In Marrow, this court held that the appellant's discovery had
been unduly limited, finding it significant that the appellant was
in the position of having to prove his fraud case by the testimony
of officers and agents of the insurance company, and by documents,
papers, and letters, written and kept by the insurance company.
That the information sought was not otherwise available to the
party making the request, and that evidence pertaining to the
issue, if there was any, would likely be in the files of the
insurance company were said to be "very pertinent circumstances."
Id.
Clearly, the general principles articulated in Marrow are
applicable to a claim of bad faith. However, the materials held
discoverable in Marrow were directly related to the insurance claim
at issue, and we stated in Marrow that this court has never
sanctioned "an outright and unadulterated fishing expedition."
Moreover, the fact remains that during the course of discovery
Farm Bureau provided Parker with substantial information and
material regarding the billing and notice procedures. Virtually
all of the discovered evidence and deposition testimony
corroborated Farm Bureau's position that it did, in fact, have a
dual billing-notice system with regard to what it defined as "clean
billing," as opposed to other billing situations involving a change
in the policies. The trial court found this evidence significant
in issuing the protective order for the notices.
Furthermore, Parker's first request for the ten most recent
cancellation notices was filed October 26, 1994, and his second
request for the twenty most recent cancellation notices was filed
January 20, 1995. Parker's action for bad faith asserting failure
to comply with the statutory notice provision was filed on July 13,
1994. However, he did not request cancellation notices issued by
Farm Bureau to other policy holders prior to July 13, 1994. His
cause of action for bad faith must exist and be complete at the
time his lawsuit was filed, Elston v. Wilborn, 208 Ark. 377, 186 S.W.2d 662 (1945), and Parker does not show how notices sent after
his lawsuit was filed would be relevant to his bad-faith claim.
As we stated in Marrow, supra, a motion for production of
documents must be considered in the light of the particular
circumstances which give rise to it and the need of the movant for
the information requested. Given the particular circumstances and
our standard of review, we cannot say that the trial court abused
its discretion in granting the protective order.
B. Parker's claim file.
Parker also sought to discover all Farm Bureau inter-office
memoranda relating to his claim, to which Farm Bureau objected.
Farm Bureau submitted Parker's thirty-eight page claim file to the
trial court for an in camera inspection. The trial court determined
that four pages of the file would not be discoverable, finding that
they were prepared in anticipation of litigation under Ark. R. Civ.
P. 26(b)(3).
The four pages of the claims file that the trial court found
were prepared in anticipation of litigation were all inter-office
memoranda between two Farm Bureau employees, sent from November 22,
1993 to May 23, 1994.
On appeal, Parker argues that the four pages were not matters
covered by the attorney-client privilege. However, Farm Bureau
does not assert that the materials are protected by the attorney-
client privilege, nor did the trial court base its ruling on
attorney-client privilege. Instead, the trial court found that
Parker had threatened suit in November of 1993, and "after that
point in time, certain documents may have been prepared in
anticipation of litigation or may reflect representatives of Farm
Bureau's legal theories concerning any defense to the threatened
suit."
Work product is not the same as a privilege which protects the
sanctity of confidential communications. In discussing the
attorney-client privilege and the work-product rule, this court has
observed that "[t]he two rules and the principles upon which they
are based, while susceptible to confusion, are separate and
distinct." Arkansas Nat'l Bank v. Cleburne County Bank, 258 Ark.
329, 525 S.W.2d 82 (1975).
The discoverability of an insured's claim file under the work-
product doctrine has been considered on many occasions by courts in
other jurisdictions. However, Parker's argument does not address
the basis for the trial court's ruling, and he consequently
provides no discussion of the rulings in these cases. We could
dispose of this point in his appeal on the basis that he has
offered no authority or convincing argument on this issue, however
there is a further reason for upholding the trial court's ruling in
this instance. We have stated that a trial court has broad
discretion in matters pertaining to discovery, and that discretion
will not be second-guessed by the appellate court absent an abuse
of discretion that is prejudicial to the appealing party. Wade v.
Grace, 321 Ark. 482, 902 S.W.2d 785 (1995); Morris v. Cullipher,
306 Ark. 646, 816 S.W.2d 878 (1991).
Here, the trial court found that Parker was not entitled to
discover four pages out of a thirty-eight page claim file. The
four excluded pages provide in substance as follows:
-- Page 16 -- memo dated November 22, 1993. I had phone
call with Streetman [Parker's attorney] on 11-18-93,
forwarding dictated report. Since underwriting has
determined insurance not in force, I am closing file.
-- Page 15 -- memo dated November 23, 1993. Streetman
does not have proof that Parker wrote check, however, he
feels that he has a strong circumstantial case.
Streetman states that Parker's check register shows that
he wrote a premium check to Farm Bureau one week before
expiration of the policy. Streetman asks us to
reconsider, or he will litigate.
-- Page 13 -- memo dated May 11, 1994. I am enclosing
under cover memo dated May 11, 1994, some evidence that
Streetman feels is enough to win the case. I advised him
that our position has not changed, Streetman indicated
willingness to compromise.
-- Page 12 -- memo dated May 23, 1994. I contacted
Streetman and advised him our position is unchanged
unless they can produce the cancelled check.
Parker does not explain how these documents were pertinent to his
claim of bad faith, nor does he argue that he was prejudiced by
their exclusion. He simply asserts that the claim file is
discoverable because it contains the evidence that he needs to show
bad faith and that he should be allowed full, complete and
unfettered access to his entire claim file. We cannot discern any
information in these memos that Parker did not otherwise possess,
and he has not shown that he was prejudiced by the trial court's
exclusion of these documents.
2. Bad-faith claim.
This court has stated that an insurance company may incur
liability for the first-party tort of bad faith when it
affirmatively engages in dishonest, malicious, or oppressive
conduct in order to avoid a just obligation to its insured. R.J.
Jones Excavating Contr. v. Firemen's Ins., 324 Ark. 282, 920 S.W.2d 483 (1996); Employers Equitable Life Ins. Co. V. Williams, 282 Ark.
29, 665 S.W.2d 873 (1984). Stated another way, we have often
explained that the tort of bad faith requires affirmative
misconduct, without a good-faith defense; the affirmative conduct
must be dishonest, malicious, or oppressive in an attempt to avoid
the insurer's liability under an insurance policy. See, e.g.,
Reynolds v. Shelter Mut. Ins. Co., 313 Ark. 145, 852 S.W.2d 799
(1993).
In the present case, Parker argues that his bad-faith claim is
based on Farm Bureau's intentional failure to comply with the
statutory and policy provision requiring the ten-day notice of
intent to cancel for nonpayment of premiums, and Farm Bureau's
intentional failure to give him a twelve-day grace period that it
gave to some of its other insureds.
Parker contends that Farm Bureau engaged in oppressive conduct
by persisting in its assertion that Parker had only a three-month
policy, and that this policy was not cancelled, but had expired.
He contends that Farm Bureau knew these assertions and its reliance
on Hall, supra, were unfounded. Parker further suggests that Farm
Bureau's failure to appeal the summary judgment granted to him on
the issue of coverage is evidence that Farm Bureau's conduct was
willful and intentional, and not based in good faith.
Parker points to numerous instances of Farm Bureau's allegedly
oppressive conduct throughout the course of the litigation by
reference to positions taken in its pleadings, briefs, affidavits,
and the depositions of its employees. The problem with Parker's
argument is that all of the evidence he points to occurred after
his complaint was filed and during the course of the litigation.
He points to no specific affirmative misconduct, other than the
denial of his claim, and the refusal to retroactively reinstate his
policy prior to the filing of his lawsuit on July 13, 1994. Nor
does he explain how Farm Bureau's conduct was "dishonest,
malicious, or oppressive" prior to the filing of his lawsuit.
Moreover, there is nothing in Parker's abstract to indicate that he
even asserted a claim for violation of the notice provisions prior
to the filing of his complaint. In fact, the memoranda which the
trial court excluded from discovery reflect that Parker's position
in settlement discussions with Farm Bureau as late as May, 1994,
was that he had paid the premium before the cancellation of the
policy.
The tort of bad faith cannot arise merely from the denial of
a claim, without some affirmative misconduct. See Arkansas Mun.
League Mun. Health Ben. Fund, 285 Ark. 419, 688 S.W.2d 720 (1985).
It is also well-established that a cause of action must exist and
be complete at the time the action is commenced. Elston v.
Wilborn, 208 Ark. 377, 186 S.W.2d 662 (1945). The subsequent
occurrence of a material fact cannot aid in maintaining it. Id.
Therefore, none of the conduct by Farm Bureau after the filing of
the complaint, including legal positions asserted, can provide a
basis for Parker's bad-faith claim. Farm Bureau's dogged
insistence on misapplying Hall could provide tangible evidence of
bad faith had it occurred before Parker's action was filed.
However, it is not apparent from the abstract that the lack of
notice was even raised by Parker prior to the filing of the
lawsuit. Consequently, we cannot say that Farm Bureau's action,
albeit mistaken, in denying the claim for non-payment of premium
constitutes dishonest, malicious, or oppressive conduct rising to
the level of bad faith.
3. Attorney's fee award.
Parker's final point on appeal is that the trial court erred
in arbitrarily reducing his requested attorney fees by one-third,
from $16,096 to $10,676, and in failing to award reimbursement for
reasonable trial expense.
On cross-appeal, Farm Bureau contends that the trial court
abused its discretion by awarding the appellant $10,676 in
attorney's fees on a claim valued at only $1,646. Parker's
attorney submitted a bill to the trial court for attorney's fees in
the amount of $16,096. Pursuant to Ark. Code. Ann. 23-79-208
(Repl. 1992), which provides for attorney's fees in loss claims,
the trial court awarded $10,676 in fees, reducing the requested
amount by one-third. The trial court found it significant that the
matter was vigorously defended on both the bad-faith and notice
issue, noting that the issues were "intricately connected," and
difficult to separate from one another. The trial court also made
the following findings:
The court is convinced that some of the effort of Mr.
Streetman in this case was directed toward the bad faith
claim, which is a tort action rather than a contract
action. The court's opinion, based on what it has seen
in handling the case to date, is that the claim for
attorney's fees should be reduced by one-third. ...
* * *
The court is not unmindful that this figure is
approximately five times the amount recovered, which is
one of the factors to be consider in setting attorney's
fees. However, it is not the only factor, and when the
time spent by Mr. Streetman. . . and the considerable
vigour [sic] of the defense on the notice claim is
measured in to the equation, the court finds the fee set
reasonable.
On appeal, Parker argues that the fee should not have been
reduced, and on cross-appeal, Farm Bureau asserts that the fee
should have been further reduced by another third. In this regard,
we have said that due to the trial court's superior acquaintance
with the record and the quality of the service rendered, we will
usually defer to the trial court's superior perspective in awarding
attorney's fees and will reverse only when there has been an abuse
of discretion. Gill v. Transcriptions, Inc., 319 Ark. 485, 892 S.W.2d 258 (1995).
In Old Republic Ins. Co. v. Alexander, 245 Ark. 1029, 436 S.W.2d 829 (1969), this court upheld a $6,000 fee on a $51,000
recovery under Ark. Stat. Ann. 66-3239. We stated that the
amount of the fee should not be such that attorneys would avoid the
type of litigation, or fail to sufficiently prepare, that the fee
should be commensurate with the time and amount of work involved,
and the ability present and necessary to meet the issues that arise
in the case. Furthermore, the amount recovered in the action is a
relevant consideration.
In Northwestern Nat'l Life Ins. Co. v. Heslip, 309 Ark. 319,
832 S.W.2d 463 (1992), this court affirmed a $19,500 fee on a
$36,000 award pursuant to Ark. Code. Ann. 23-79-208. The court
outlined the following factors as relevant in the determination of
the fee: 1) experience and ability of the attorney; 2) time and
labor required to perform the service properly; 3) amount involved
and the result obtained in the case; 4) novelty and difficulty of
the issues involved; 5) the fee customarily charged for similar
services in the locality; 6) whether the fee is fixed or
contingent; 7) the time limitations imposed upon the client in the
circumstances; and 8) the likelihood, if apparent to the client,
that the acceptance of the particular employment will preclude
other employment by the lawyer.
In the present case, Parker submitted a detailed bill for
117.60 total hours. While it is virtually impossible to separate
those services related to the coverage claim and those related to
the bad faith claim, the large amount of the fee in relation to
Parker's recovery is obvious, and we have said that the amount
recovered is a proper consideration.
Farm Bureau expresses policy concerns that other attorneys
will bring frivolous bad-faith claims in coverage cases in order to
recover a larger fee. Parker replies that because this was a
relatively small claim, the conduct of Farm Bureau was especially
egregious, and that the larger fee should be upheld in order to
encourage competent attorneys to take on such small cases.
The trial court, in its order, considered these and all of the
relevant factors presented in this case. We cannot say that there
was an abuse of discretion in the award of the fee.
Affirmed on appeal and affirmed on cross-appeal.
Special Justice Elton A. Rieves, III, joins in this opinion.
Jesson, C.J., and Dudley, J., not participating.
Glaze, J., concurring.
Brown, J., and Special Justice Michael E. Stubblefield,
dissenting.
=================================================================
Tom Glaze, Associate Justice, concurs.
I agree that the trial court should be affirmed, but for a
different reason than that set out in the majority opinion. The
main substantive issue on appeal is whether the trial judge erred
in dismissing appellant Rickey Parker's bad-faith claim.
In making his decision, the judge had before him appellee
Southern Farm Bureau Casualty Insurance Company's theory that,
under the holding in Farmers Ins. Company v. Hall, 263 Ark. 734,
567 S.W.2d 296 (1978), Southern Farm was not required to give an
insured the ten-day cancellation notice provided in Ark. Code Ann.
23-89-304 (Repl. 1992). In the Hall decision, Hall elected to
renew his six-month liability policy which was to commence on
January 3, 1975. However, he failed to pay his premium until
January 25, 1975, shortly before his vehicle was damaged in a
collision. Hall had previously received an "Offer to Renew" notice
on December 11, 1974, from Farmers Insurance, informing him that
the renewal date was January 3, 1975. Although the trial court
held in Hall's favor, finding his policy was still in force, this
court reversed, holding the policy by its own terms had lapsed.
The Hall court stated the following:
Appellant [Farmers Insurance] was not required to
give notice of cancellation of the policy under Ark.
Stat. Ann. 66-4007 - 66-4013 (Supp. 1977) [now Ark.
Code Ann. 23-89-301 -308 (Repl. 1992)]. There was no
cancellation of the policy. If the offer to renew had
not been made, the policy would have expired by its own
terms. Notice of cancellation of a policy may be
required upon nonpayment of the premium under 66-4008,
but this requirement applies only to a cancellation by
unilateral action of the insurer before the end of the
policy term and not an automatic termination by
expiration of the policy period. (Emphasis added.)
In the present case, Southern Farm had established a billing
system like Farmers Insurance in the Hall case, where a "renewal
notice" was sent to the insured prior to the policy's renewal or
expiration date. Southern Farm's contention was that Parker had
paid only for three-month's coverage, and Southern Farm, in good
faith, had notified Parker prior to the three-month period that his
policy would lapse, unless Parker had paid his six-month premium in
full. Parker clearly failed to do so. Even so, the trial court
still determined Parker's policy was in force. The trial court
held that Southern Farm's interpretation of the Hall decision was
wrong and that, while the company contended Parker's policy was
like a renewal policy such as the one in Hall, Parker's policy,
instead, was for a six-month term and only three months had
expired. The trial court concluded that, unlike the Hall decision,
Parker was not renewing his policy, and Southern Farm was required
to give Parker the ten-day cancellation notice in 23-89-304(a)(1)
when he failed to pay the three-month premium balance owed on his
policy.
Even though the trial court rejected Southern Farm's legal
theory concerning this ten-day notice issue, it decided the
company's argument had been made in good faith. In my view, to
overturn the trial court's decision would tend to chill legitimate
legal arguments. While Parker is convinced Southern Farm's
argument was spurious, the trial court was not so sure (and neither
am I), especially since Southern Farm's theory was based upon legal
precedent similar to the situation in this case. Also, while
Parker seems convinced that Southern Farm's failure to accept
responsibility for Parker's claim was personally and oppressively
directed at him, Southern Farm had mailed Parker a timely "renewal
notice" like the one utilized in the Hall case. That notice very
clearly informed Parker that the notice was the only one he would
receive if he intended to keep his coverage in force. Southern
Farm's "renewal notice" was based upon Hall, and even though it was
ultimately held by the trial court to be invalid, that holding
does not mean Southern Farm was in bad faith in adopting such a
notice procedure. At least, I cannot say the trial court erred in
reaching such a conclusion.
In other issues, Parker asserts the trial court erred in
denying him certain discovery which might have led him to evidence
bearing on the "bad faith" issue. For example, Parker claims that,
if he could have obtained Southern Farm's twenty most recent
notices to its insureds who were to be cancelled for nonpayment of
premiums, he might have been able to show if he was being treated
differently from other insureds who were similarly situated.
I agree with Parker that our rules establishing discovery
procedures should be given a broad and liberal interpretation.
However, in reading Parker's brief and listening to oral argument,
I fail to understand the relevance of the information sought by
Parker or how it could help his case. Undoubtedly, Southern Farm
had established a dual-notice system which, when applied to Parker
and others in his circumstances, the trial court held was invalid.
That being said, I think the trial court was quite right in denying
his discovery request.
=================================================================
Robert L. Brown, Associate Justice, dissents.
It is difficult to conceive of what could be more significant
in bad faith litigation than for an insured to be able to determine
how other insureds in the same situation were treated by the
carrier. The majority has decided that this information is not
pertinent and that Parker in this case must give absolute credence
to the carrier's representation that uniform procedures relating to
cancellations were followed in this case. I disagree. The essence
of litigation is proof -- not representations by an adversary of
what should have been done. Parker ought not to be bound by what
Farm Bureau states its general procedures were. He is entitled to
go behind Farm Bureau's statements to verify what in reality was
done with regard to cancellations.
The majority characterizes this quest for verification as a
"fishing expedition." I cannot conclude that an attempt to confirm
averred practices of an insurance carrier is anything of the kind.
Farm Bureau holds the information. It has made statements under
oath that it should be required to substantiate, and our rules and
case law certainly support this conclusion.
Arkansas Rule of Civil Procedure 26(b)(1) permits discovery of
all relevant information which is defined as information which is
non-privileged and which "appears reasonably calculated to lead to
the discovery of admissible evidence." The seminal case in this
area is Marrow v. State Farm Ins. Co., 264 Ark. 227, 570 S.W.2d 607
(1978). In Marrow, the complaint was brought by the victim of a
car accident against the insurance carrier of the tortfeasor for
fraud in misrepresenting the amount of liability coverage. The
victim moved for documents held by the carrier pertaining to the
claim. The request was denied by the trial court, and summary
judgment was entered in favor of the carrier. We reversed the
summary judgment on the basis that discovery was impermissibly
curtailed. First, we noted that the trial court has broad
discretion in discovery matters and will only be reversed for abuse
of that discretion. But we went further and stated that we would
find abuse of that discretion when the substantial rights of the
moving party are limited. We said:
In this case, we find an abuse of discretion in the
denial of appellant's last motion for production of
documents. In so doing, we consider the fact that
appellant, if he has any claim against State Farm, is
placed in the position of having to prove it by the
testimony of officers and agents of State Farm and by
documents, papers and letters, written by them and kept
by State Farm. In such a case, the scope of discovery
permitted should be broader than otherwise and appellant
here should be permitted to inspect any writing in the
files of the insurance company which might lead to
admissible evidence. See Connecticut Mutual Life Ins.
Co. v. Shields, 17 FRD 273 (S.D., N.Y., 1955); Dow
Chemical Co. v. Monsanto Co., 256 F.S. 315 (S.D., Ohio,
1966).
Marrow, 264 Ark. at 236-37, 570 S.W.2d at 613. See also Rickett v.
Hayes, 251 Ark. 395, 473 S.W.2d 446 (1971); Heinrich v. Harp's Food
Stores, Inc., 52 Ark. App. 165, 915 S.W.2d 734 (1996); Ashmore v.
Ford, 267 Ark. 854, 591 S.W.2d 666 (Ark. App. 1980).
The majority in the instant case hinges its truncation of
discovery on two factors: (1) that the request is an outright and
unadulterated fishing expedition; and (2) that Farm Bureau has a
dual-billing system and, thus, was treating its insureds
differently for cancellation-notice purposes. First, I disagree
that this is an unadulterated fishing expedition for reasons
already stated. Secondly, the fact that Farm Bureau gave different
billing notices for Category X insureds involving renewal and
installment premiums due versus Category Y insureds where
additional premiums were assessed for changes in coverage, and only
gave ten-day cancellation notices for Category Y insureds, does not
resolve Parker's dilemma. He wants to know whether any Category X
insureds received cancellation notices for failure to pay when he
did not.
Parker asked for the 20 most recent cancellation notices
mailed by Farm Bureau to its insureds. When Farm Bureau moved for
a protective order, Parker responded that he was entitled to this
information "to see if [Farm Bureau] dealt with [the 20]
differently than [himself]." At the first hearing on the discovery
request, counsel for Parker argued to the court:
We think under the liberal discovery rules that we are
entitled to that information. Were that not true, you
could never really and completely prove the tort of bad
faith for failure to pay insurance coverage because you
need to see what the insurance company itself has done
and said with regard to your file, your own claim, as
well as how they have treated other or similarly situated
claimants and whether they dealt with this plaintiff
differently than they have dealt with other claimants,
and was there some reason for that. This relates to both
the last ten (10) notices of cancellation that they gave
to their insureds for non-payment of premiums and to
information from our own claim file. (Emphasis added.)
The trial court denied the discovery request due to irrelevance and
granted the protective order.
What transpired next was the trial court's grant of summary
judgment on the bad-faith claim for the stated reason that "the
court finds an insufficient factual basis to support it." My
response to that statement in the court's order is that Parker was
foreclosed, at least in part, from developing his factual basis.
Again, this was not a fishing expedition. Nor was it an
effort to garner information merely for impeachment purposes. It
was an attempt by Parker to verify essential representations by
Farm Bureau that went to the heart of his bad faith claim. If Farm
Bureau in fact was treating him differently, this would comprise a
vital element of his case and would be probative of dishonesty on
the part of the carrier. I would not shut the door on this
essential inquiry but would require Farm Bureau to support its
representation made in sworn depositions that all insureds like
Parker were treated the same. Finally, I am not troubled by
privacy concerns for the 20 insureds. Redaction of names and other
information that might identify those insureds could be easily
accomplished, and the trial court could review the redacted notices
in camera to assure privacy rights are protected.
Also, the majority focuses on the post-litigation point for
the first time in its opinion. It was not raised at trial or by
the parties in this appeal. The time frame for the notices to be
discovered could have been fleshed out at the trial court level had
not the door to discovery been shut and bolted.
I respectfully dissent.
=================================================================
Michael E. Stubblefield, Special Justice, dissents.
I would affirm the trial courtþs ruling on the issues of
insurance coverage, the statutory twelve percent penalty, and
attorneyþs fees. But because I think the discovery in this case
was unduly restricted by the trial courtþs protective order, I
would reverse and remand on the bad faith and discovery issues.
Summary judgment is an extreme remedy which should only be
granted when there is no factual dispute. When considering a
motion for summary judgment, the court views the facts in the
light most favorable to the party against whom judgment is
sought, and when reasonable minds might differ as to conclusions
to be drawn from the facts disclosed, a summary judgment is not
proper. Culpepper v. Smith, 302 Ark. 558, 792 S.W.2d 293 (1990).
I think the facts in this case show that reasonable minds might
differ as to conclusions to be drawn from the insurance companyþs
handling and denial of the plaintiffþs claim.
Unlike the majority, I am convinced that denial of a claim
may be evidence of bad faith where, as here, the insurance
company acknowledges that statutory law and its own policy
require a ten-day notice of cancellation. As noted in Justice
Glazeþs concurring opinion, the defendant insurance company in
the instant case relied on the ruling in Farmers Ins. Co. v.
Hall, 263 Ark. 734, 567 S.W.2d 296 (1978) for the proposition
that it was not required to give the ten-day notice. But that
stance was based on a plain misapplication of Hall to the facts
of the instant case, and was inconsistent with the companyþs
admission in discovery that their policy language and the
applicable statute, Ark. Code Ann. 23-89-304(a)(2), required a
ten-day notice of cancellation to the insured. Farm Bureauþs
agents also admitted that no such notice was sent to the insured
in this case. So the companyþs alleged good-faith denial of
coverage was based on a disingenuous argument which, I contend,
is tangible evidence of bad faith.
And I believe that the trial court abused its discretion in
denying the plaintiff the requested discovery of Farm Bureauþs
cancellation notices sent to twenty other policyholders. The
insured argued in the trial court that he should be allowed to
make discovery of twenty cancellation notices sent to other
insureds of the company who were similarly situated, but he was
denied access by the trial courtþs ruling that the requested
discovery was irrelevant and, in any case, would violate the
privacy of other policyholders. The insuredþs effort to produce
evidence of bad faith was thereby effectively foreclosed. The
majority opinion condones that ruling as fair application of
discovery rules and caselaw, but I agree with Justice Brownþs
cogent analysis of the discovery issue in his dissent.
Especially telling is his point that þ[t]he essence of litigation
is proof -- not representations by an adversary of what should
have been done.þ If we accept the proposition that an insurance
companyþs disparate treatment of a policyholder in denying
coverage may be shown to be oppressive or dishonest conduct rising
to the level of bad faith, then a policyholder who has reason to
suspect that he may have been treated disparately from other
policyholders should be allowed reasonable access to defense
documents which may show that his suspicions are accurate (or
inaccurate). Even if characterized as a þfishing expeditionþ
(with which characterization I disagree), discovery of twenty
notices would not have been burdensome or oppressive for the
insurance company. And if the insurance companyþs defense was
genuine and there was, in fact, no disparate or unfair treatment
of the plaintiff, then the companyþs good faith would have been
established without doubt. As the trial court left it, the
plaintiff was summarily overruled and outpowered.
Farm Bureau issued a six-month policy to the insured which
was, according to the declaration page of the policy, to be
effective through December 9, 1993. But the company took the
position (and staunchly maintained it throughout this action and
through oral argument on appeal), that the policy had lapsed for
non-payment of premium after three months. Insurance contracts
are adhesion contracts in the truest sense of the word. 2 Couch on
Insurance 3d 22:11 (1995). The insurance company drafts the
language and is in the best position to understand its meaning.
Therefore, this court has long followed the majority rule that the
intent to exclude coverage in insurance contracts should be
expressed in clear and unambiguous language, and that such
provisions are strictly construed against the insurance company
and liberally construed in favor of the insured. Nationwide Mut.
Ins. Co. v. Worthey, 314 Ark. 185, 861 S.W.2d 307 (1993).
Insurers and their legal counsel know this well. The trial court
in this case found in the insuredþs favor on the coverage question
on grounds that Farm Bureau failed to comply with the ten-day
notice requirement. The company has not appealed that ruling.
Yet the company insisted throughout this litigation that it was
genuinely defending its denial of coverage on the belief that it
had fully complied with the ten-day notice required by policy
language and Ark. Code Ann. 23-89-304(a)(2). That argument is
clearly untenable. Did it amount to bad faith? Was it dishonest,
malicious, or oppressive under the analysis of Aetna Cas. & Surety
Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1984)
and its progeny?
This court has stated that the tort of first party bad faith
requires a showing of dishonest, malicious, or oppressive conduct
by the insurer in an effort to avoid contractual liability. Aetna
Cas. & Surety Co. v. Broadway Arms Corp., supra; see also R.J.
þBobþ Jones Excavating Contractor, Inc. v. Firemenþs Ins. Co., 324
Ark. 282, 920 S.W.2d 483 (1996); Employers Equitable Life Ins. Co.
v. Williams, 282 Ark. 29, 665 S.W.2d 873 (1984). While the
evidence in this case may have been insufficiently developed to
prove absolutely the presence of bad faith, I posit that the
denial of coverage notwithstanding the plain language of the
policy is prima facie evidence of bad faith sufficient to avoid
summary judgment. Farm Bureau denied coverage for a lengthy
period of several months, at least enough time to force the
insured to seek legal aid with his claim. His lawyerþs detailed
billing record shows that considerable effort was expended to
resolve the dispute over a minor claim, all of which was resisted
by the insurer. And while the suit itself may have somehow
encouraged the insurer to dig in its heels on the claim, that is
not in itself sufficient justification for continuing to deny a
claim. I do not think an insuredþs filing suit can be fairly
characterized, as the majority has suggested, as sufficient
provocation of an insurer to shield the insurer from being found
guilty of engaging in bad faith. Adversarial relationships are
often spawned by the passage of time and what appears on the
surface to be slight resistance. It is possible, rather, that
Farm Bureauþs personnel, perhaps all the while smiling, consoling,
and reassuring their policyholder of their personal regrets, were
acting in bad faith. I disagree with the majorityþs apparent
belief that all evidence of bad faith must have occurred before
suit is filed, or that it must be patent and striking. Such a
belief would encourage all insurers þmerelyþ to delay payment of
claims and deny coverage long enough to provoke their insureds to
file suit for recovery, after which the insurers are effectively
insulated from bad-faith claims. That would be especially true in
such a case as the one at bar, where a claim of less than $2,000
would produce a very slight penalty under the 12% provisions of
Ark. Code Ann. 23-79-208. I am of the opinion that inordinate
foot-dragging and delay or unreasonable denial of coverage may be
strong evidence of bad faith. I would let that issue go to the
jury.
Therefore, I respectfully dissent.
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