Lauzon v. State Farm Mutual Auto Ins. Co.

Lauzon v. State Farm Mutual Auto Ins. Co. (95-176); 164 Vt 620; 674 A.2d 1246

[Filed 05-Dec-1995]


                               ENTRY ORDER

                      SUPREME COURT DOCKET NO. 95-176

                            NOVEMBER TERM, 1995


Phillip H. Lauzon                    }     APPEALED FROM:
                                     }
                                     }
     v.                              }     Chittenden Superior Court
                                     }
State Farm Mutual Auto               }
Insurance Company                    }     DOCKET NO. S128-93CnC


       In the above-entitled cause, the Clerk will enter:

       Plaintiff Phillip Lauzon appeals the grant of summary judgment in
  favor of defendant State Farm Insurance Company.  We affirm.

       Plaintiff's suit arose out of a collision with an uninsured motorist
  on U.S. Route 7 in South Burlington on February 25, 1987.  At the time of
  the accident, plaintiff was insured by defendant for injury and damages
  caused by an uninsured motorist.  The parties settled plaintiff's claim for
  property damages resulting from the accident, but were unable to reach
  agreement on personal injury damages.

       In January 1990, plaintiff filed a claim against defendant under the
  uninsured motorist provision of his insurance policy, seeking compensation
  for personal injuries.  Defendant filed a subrogation suit in plaintiff's
  name against the uninsured motorist on February 20, 1990. Because of
  uncertainties surrounding the nature and extent of plaintiff's injuries,
  defendant moved to compel arbitration of plaintiff's uninsured motorist
  claim.  Plaintiff then amended his complaint, alleging additional claims of
  bad faith, violation of the Vermont Insurance Trade Practices Act, and
  breach of fiduciary duty.  Relying on a provision in plaintiff's insurance
  policy allowing either party to request arbitration, the superior court
  granted defendant's motion to compel arbitration.  In March 1992, a panel
  of three arbitrators found in favor of plaintiff, awarding him $17,500,
  which defendant paid in full.

       On January 4, 1993, the superior court granted a default judgment in
  favor of defendant in its subrogation action against the uninsured
  motorist.  On January 27, 1993, plaintiff initiated the present action
  against defendant, alleging (1) tortious bad faith, (2) breach of the duty
  of good faith and fair dealing, (3) breach of fiduciary duty, and (4)
  violation of 8 V.S.A. § 4724. Defendant moved for summary judgment, and the
  superior court granted the motion.

       Plaintiff appeals the grant of summary judgment only on the issues of
  tortious bad faith, 

  

  breach of the duty of good faith and fair dealing, and breach of
  fiduciary duty.  We review a motion for summary judgment using the same
  standard applied by the trial court: summary judgment is appropriate only
  when the materials before the court clearly show that there is no genuine
  issue of material fact.  Morrisville Lumber Co. v. Okcuoglu, 148 Vt. 180,
  182-83, 531 A.2d 887, 888-89 (1987).  The burden of proof rests on the
  moving party, and the opposing party must be given the benefit of all
  reasonable doubts and inferences in determining whether a genuine issue of
  material fact exists.  Price v. Leland, 149 Vt. 518, 521, 546 A.2d 793, 796
  (1988).
  
       Plaintiff alleges that defendant acted in bad faith in the handling of
  his insurance claim. We recently held that an action for bad faith failure
  of an insurer to pay a claim filed by its insured exists in Vermont. 
  Bushey v. Allstate Ins. Co., No. 95-069, slip op. at 3 (Vt. Oct. 27, 1995). 
  To establish a claim for bad faith, a plaintiff has the burden to show that
  (1) the insurance company had no reasonable basis to deny benefits of the
  policy, and (2) the company knew or recklessly disregarded the fact that no
  reasonable basis existed for denying the claim. Id.  Plaintiff failed to
  meet this burden.  Defendant presented facts that show reasonable bases for
  its actions, and plaintiff did not dispute these facts or rebut them with
  admissible evidence. Under the terms of the contract between plaintiff and
  defendant, the question of liability and the extent of that liability must
  either be agreed upon by the parties or go to arbitration.  Defendant
  refused to pay the claim and requested arbitration because the nature and
  extent of plaintiff's injuries were "fairly debatable."  Because a
  realistic question regarding the extent of liability existed, defendant's
  actions do not rise to the level of bad faith.  See Id., slip op. at 5
  (insurance company may challenge claims that are fairly debatable and will
  be found liable for bad faith only where it has intentionally denied or
  failed to process a claim without reasonable basis.); see also Baxter v.
  Royal Indem. Co., 285 So. 2d 652, 656 (Fla. Dist. Ct. App. 1973) (insurer's
  exercise of contractual right to arbitration is not bad faith).

       Further, we do not agree that the assertion by defendant of its
  contractual and statutory right to subrogation constituted bad faith.  When
  the action against the third party was brought, defendant had already paid
  the property damage claim and was facing a substantial claim for personal
  injuries.  It had advised plaintiff of its intent to bring suit and of his
  right to assert his claim for personal injuries against the uninsured
  motorist.  The statute of limitations barring the claims was about to
  expire.  Plaintiff has not shown how this action undermined or destroyed
  his right to collect damages under the contract or otherwise prejudiced his
  rights.  We reach the same conclusion with respect to plaintiff's claim
  that defendant breached its duty of good faith and fair dealing.  See
  Carmichael v. Adirondack Bottled Gas Corp. of Vt., 161 Vt. 200, 208, 635 A.2d 1211, 1216 (1993) (duty of good faith and fair dealing is implied in
  every contract to assure that party does not undermine or destroy other's
  rights to receive benefits of agreement).

       Finally, plaintiff argues that defendant's actions in handling his
  uninsured motorist claim constituted a breach of defendant's fiduciary duty
  to plaintiff.  This argument demonstrates a general misunderstanding of the
  law regarding first-party insurance claims.  An insurer owes no fiduciary
  duty to its insured in a claim arising under an uninsured motorist

 

  provision.  See, e.g., Weese v. Nationwide Ins. Co., 879 F.2d 115, 121 (4th
  Cir. 1989); Szumigala v. Nationwide Mut. Ins. Co., 853 F.2d 274, 279-80 n.7
  (5th Cir. 1988).  The respective interests of insurer and insured in such
  an action are adverse.  If the insurer can prove that the uninsured
  motorist was not liable or that the insured did not suffer the claimed
  damages, then the insurer avoids liability to the insured.  Because
  defendant owed no fiduciary duty to plaintiff, there could be no breach of
  any such duty.

       Affirmed.




                              BY THE COURT:



                              _______________________________________
                              Frederic W. Allen, Chief Justice

                              _______________________________________
                              Ernest W. Gibson III, Associate Justice

                              _______________________________________
Ú-¿                           John A. Dooley, Associate Justice
À-Ù   Publish
                              _______________________________________
Ú-¿                           James L. Morse, Associate Justice
À-Ù   Do Not Publish
                              _______________________________________
                              Denise R. Johnson, Associate Justice