Opinion
C.A. PC-2012-5368
01-19-2017
SUMMIT INSURANCE COMPANY v. ERIC STRICKLETT, SCOTT ALVES, JOHN ALVES, AND CATHY ALVES
For Plaintiff: Ronald Langlois, Esq. For Defendant: Paul S. Cantor, Esq.; Michael R. DeLuca, Esq.
Providence County Superior Court
For Plaintiff: Ronald Langlois, Esq.
For Defendant: Paul S. Cantor, Esq.; Michael R. DeLuca, Esq.
DECISION
LANPHEAR, J.
This matter came on for trial on the motion of Summit Insurance Company (Summit) for a declaratory judgment. The declaratory judgment seeks to determine the rights and obligations of the parties pursuant to a Rhode Island Automobile Insurance Policy issued by Summit to one of the Defendants, Eric Stricklett.
Specifically, Summit is seeking a declaration as to whether Summit has an obligation to pay any amounts (interest or attorneys' fees) beyond its policy limits on any judgment in connection with an underlying personal injury action. The counterclaim Plaintiffs in this action, Scott Alves, John Alves, and Cathy Alves (the Alves) are Plaintiffs in the underlying case pending against Mr. Stricklett in the Providence County Superior Court (PC-2011-5499). In the underlying action, the Alves are seeking the recovery of damages arising out of an automobile accident that occurred on April 26, 2002 when Mr. Stricklett struck Scott Alves with his automobile. The Alves filed a counterclaim against Summit asserting that Summit is liable for all accrued prejudgment interest on all of the Alves' damages, and that Summit is also liable for all damages over and above any policy limits.
I Facts and Travel
On April 26, 2002, while driving his automobile on Newport Avenue in the city of Pawtucket, Rhode Island, Erick Stricklett hit a young pedestrian, Scott Alves. (Trial Ex. BB, Uniform Accident Report.) The numerous witnesses that were interviewed separately unanimously stated that Scott ran across the street without looking. Id. At the time of the accident, Mr. Stricklett was insured pursuant to a Summit Insurance Company Personal Automobile Policy with bodily injury coverage of $25,000 per person and $50,000 per accident. (Trial Ex. L, Letter from Summit). In December of 2002, Summit visited the scene of the accident and took photographs. (Agreed Statement of Facts ¶ 7). On December 18, 2002 and January 2, 2003, counsel for the Alves forwarded a copy of all of Scott's medical records and bills for his treatment as of that date to Summit. (Trial Exs. F and G, Letters to Summit.) On March 24, 2003, Summit wrote to the Alves' counsel explaining that they investigated the claim and found that Mr. Stricklett was not at fault for the boy's injuries, and as a result, Summit would not be making any settlement offers on the case. (Trial Ex. H, Letter of Dennis J. Franchetti.) On April 15, 2003, counsel for the Alves returned correspondence to Summit stating that to the contrary, they felt as though Mr. Stricklett was at fault and they were going to proceed with the claim. (Trial Ex. I, Letter from the Alves' counsel to Dennis J. Franchetti.) Time passed, and all counsel appeared to be inactive on this claim for about eight years. (Agreed Statement of Facts ¶ 8.)
On February 16, 2011, counsel for the Alves again wrote to Summit reminding them of the claim and advising that they were pursuing a lawsuit against Mr. Stricklett. (Trial Ex. J, Letter from the Alves' counsel to Dennis J. Franchetti.) In June of 2011, counsel for the Alves sent a written demand letter to Summit for $300,000. (Trial Ex. O, Letter from the Alves' counsel, June 15, 2011.) The letter claimed that Summit was responsible for $25,000 in insurance coverage plus the $275,000 in interest on all of Scott's damages for Summit's failure to proceed in good faith. Id. One week later, Summit offered Mr. Stricklett's full policy limit of $25,000 to the Alves. (Trial Ex. P, Letter of June 22, 2011.) Counsel for the Alves notified Summit a few weeks after that they were not interested in this offer and were going to proceed with filing suit. (Trial Ex. Q, Letter from the Alves' counsel, July 13, 2011.)
On September 26, 2011, the Alves filed suit against Summit's insured, Mr. Stricklett, in Providence Superior Court, C.A. No. PC-2011-5499. (Trial Ex. U, Summons and Complaint filed by the Alves.) Due to Scott's minority at the time of the accident, he filed that action with his parents as his representatives. The suit alleged that Mr. Stricklett negligently operated his vehicle. On or about October 16, 2012, Summit filed this separate action, asking the Court to issue a declaratory judgment determining whether Summit had a duty to pay any damages beyond the policy limits.
II
Standard of Review
Declaratory Judgment
Summit seeks a declaratory judgment to establish that it is not responsible for any interest or expenses over and above the policy limits of Mr. Stricklett's policy coverage. The Uniform Declaratory Judgments Act (UDJA) "grants broad jurisdiction to the Superior Court to 'declare rights, status, and other legal relations whether or not further relief is or could be claimed.'" Tucker Estates Charlestown, LLC v. Town of Charlestown, 964 A.2d 1138, 1140 (R.I. 2009) (citing G.L. 1956 § 9-30-1). This Court has discretion to grant or deny declaratory relief under the UDJA. R.I. Orthopedic Soc'y v. Blue Cross & Blue Shield of R.I., 748 A.2d 1287, 1289 (R.I. 2000).
III
Analysis
A
Insurance Policy Language
Summit first contends that an insurer is not bound to provide indemnification beyond the scope of the coverage described in the insurance policy. Summit references Factory Mut. Liability Ins. Co. v. Cooper, 106 R.I. 632, 637, 262 A.2d 370 (R.I. 1970) in support of its claim that no insurer is bound to provide indemnification beyond the scope of the coverage described in the insurance policy.
The policy at bar contains the following language:
"In addition to our limit of liability, we will pay on behalf of a covered person:
Prejudgment interest awarded against the "insured" on the entire judgment if we reject a written settlement offer by the plaintiff that is equal to or less than the applicable limit of liability. Where this does not apply, we will pay prejudgment interest awarded against the "insured" on that part of the judgment we pay."
Relying on the policy language, Summit insists that it is only obligated to pay prejudgment interest on the "entire judgment" only when it "reject[s] a written settlement offer by the Plaintiff that is equal to or less than the applicable limit of liability." On June 15, 2011, counsel for the Alves sent Summit a written demand for a $300,000 settlement, substantially above the written limit of liability. (Trial Ex. O, Letter to Summit.) Summit contends that because there has never been a written settlement offer within the policy limits, there is no contractual obligation to pay interest above the policy limits.
An insurance policy is a contract between the insurer and the insured. Provisions of an insurance policy are interpreted in accord with the rules established for the construction of contracts. Beacon Mut. Ins. Co. v. Spino Bros., Inc., 11 A.3d 645, 649 (R.I. 2011). Accordingly, the Court views the language within the "four corners of [the] policy, viewing it in its entirety [and] affording its terms their 'plain, ordinary, and usual meaning.'" Town of Cumberland v. R.I. Interlocal Risk Mgmt. Trust, Inc., 860 A.2d 1210, 1215 (R.I. 2004). When the terms of a contract are clear and unambiguous, it must be applied as written, and absent fraud, mutual mistake, or other similar cause, the parties are bound by the terms of a written instrument. Phillips v. Columbus Wholesale Grocery Co., 60 R.I. 47, 197 A. 197, 198 (1938). Courts tend to "refrain from engaging in mental gymnastics or from stretching the imagination to read ambiguity into a policy where none is present." Mallane v. Holyoke Mut. Ins. Co. in Salem, 658 A.2d 18, 20 (R.I. 1995). However, if the policy terms are vague or capable of more than one reasonable meaning, the policy is strictly construed in favor of the insured. Id. Additionally, seeking to ascertain the intent of the parties, an insurance policy is examined in its entirety and the language used is given its plain, ordinary and usual meaning. Nagy v. Lumbermens Mut. Cas. Co., 100 R.I. 734, 737, 219 A.2d 396 (1966).
The terms used in Mr. Stricklett's policy are unambiguous and should be given their plain, ordinary, and usual meaning. The first sentence of the standard interest clause states that, Summit agrees to pay the "[p]rejudgment interest awarded against the 'insured' on the entire judgment if we reject a written settlement offer by the plaintiff that is equal to or less than the applicable limit of liability." The applicability of the standard interest clause is exceptionally clear. The meaning of the standard interest clause is obvious and it leaves no room for another interpretation and as such, the terms must be applied as written. Phillips, 60 R.I. at 47, 197 A. at 198. Summit received and rejected only one settlement offer, and it was over the limit of liability. Because Summit did not reject a written settlement offer that was equal to or less than the applicable limit of liability, it is not responsible for an award of prejudgment interest pursuant to the first sentence of the standard interest clause.
The second portion of this policy clause, "[w]here this does not apply, we will pay prejudgment interest awarded against the 'insured' on that part of the judgment we pay" is more ambiguous. The Alves argue that this segment conflicts with the Rhode Island rulings in Skaling I, (finding prejudgment interest must be added to the judgment entered by the court); and Asermely v. Allstate Ins. Co., (finding insurer liable for the amount that exceeds policy limits unless it can show that insured was unwilling to accept settlement offer). Skaling v. Aetna Ins. Co., 742 A.2d 282, 292 (R.I. 1999); Asermely v. Allstate Ins. Co., 728 A.2d 461, 464 (R.I. 1999). The Alves rely exclusively on a Superior Court case to establish that any provision in an insurance contract that conflicts with state law must be superseded by the state law. See Foote v. GEICO Indem. Corp., No. WC-2011-0040, 2013 WL 486922 (R.I. Super. Jan. 5, 2013). Unlike the policy in Foote, the policy at bar is alleged to violate trends in state case law, rather than mandatory coverage minimums mandated by statute.
As the case of Skaling v. Aetna Ins. Co., 742 A.2d 282, 292 (R.I. 1999) is commonly referred to as "Skaling I, " this Court will use the same reference herein.
The Alves have failed to demonstrate that the policy language is contrary to Rhode Island law and should therefore be superseded. They have not established a clear violation of either a statute, or prior case law. The findings from Skaling I and Asermely do not precisely align with those at bar. While the facts in those cases justified awards of prejudgment interest, here there is no sweeping rule that Summit's policy language violated. Summit's policy language does not disturb Rhode Island law, and accordingly, Summit should not be held liable for prejudgment interest in excess of their stated insurance policy limits because of the plain meaning of the language within their policy. Factory Mut. Liability Ins. Co., 106 R.I. at 637, 262 A.2d at 373.
For example, the Alves declare "In Skaling I the Rhode Island Supreme Court ruled that insurance companies must pay all prejudgment interest that accrues on claims against their insureds." Skaling I, 742 A.2d at 291. Alves' Mem. 28, Nov. 13, 2015. Aetna was Mr. Skaling's insurer in Skaling I, and the high court found that third party insurer cases were "readily distinguishable." Skaling I, 742 A.2d at 291.
B
Prejudgment Interest Statutory Provisions
In their pre-trial memorandum, the Alves next contend that they should be awarded prejudgment interest based on two statutes, either G.L. 1956 § 27-7-2.2 or § 9-21-10, and that each mandate the inclusion of such an interest in different situations. The Court will examine each of these statutes in seriatim.
1
Rejected Settlement Offer Statute
According to Summit, the rejected settlement offer statute, § 27-7-2.2, is not applicable in this matter; therefore, additional interest is not assessed. Summit again contends the statute should be construed by its plain language, which is inapplicable to the facts at hand. However, the Alves assert that even though the statutory language does not perfectly fit the facts, the statute should still be applied. The statutory language states:
"In any civil action in which the defendant is covered by liability insurance and in which the plaintiff makes a written offer to the defendant's insurer to settle the action in an amount equal to or less than the coverage limits on the liability policy in force at the time the action accrues, and the offer is rejected by the defendant's insurer, then the defendant's insurer shall be liable for all interest due on the judgment entered by the court even if the payment of the judgment and interest totals a sum in excess of the policy coverage limitation. This written offer shall be presumed to have been rejected if the insurer does not respond in writing within a period of thirty (30) days." Sec. 27-7-2.2.
This statute "attempts to reinvigorate the normal balance in negotiating power by shifting to the non-settling insurer the risk that a plaintiff's judgment, when combined with interest, will exceed applicable policy limits." Armacost v. Amica Mut. Ins. Co., 821 F.Supp. 75, 79 (D.R.I. 1993). Section 27-7-2.2 demonstrates the Legislature's intent to encourage insurance companies to settle when they are liable to other parties for wrongs committed by those that they insure. Skaling I, 742 A.2d at 291. The straightforward language of § 27-7-2.2 indicates that it applies to any civil action in which the plaintiff makes a written offer to the defendant's insurer to settle the action in an amount equal to or less than the coverage limits and said offer is rejected by the defendant's insurer. DeMarco v. Travelers Ins. Co., 26 A.3d 585, 617 (R.I. 2011).
Both parties interpret the Skaling I case as persuasive to prove their respective points. In Skaling I, Skaling was severely injured when he fell from a railroad trestle outside his home while attempting to rescue Marty Webber, a passenger in a Jeep automobile operated by Shaun Menard, an underinsured tortfeasor. Skaling I, 742 A.2d at 286. Skaling sought compensation from Aetna, his own insurer, pursuant to the uninsured/underinsured motorist (UM) provisions of his automobile insurance policy. Id. Aetna denied the Skaling claim based on the determination that Skaling's injuries did not arise from the ownership, maintenance, or use of the Menard vehicle. Id. Skaling then filed a complaint in Providence Superior Court seeking a declaration that he was entitled to compensation from Aetna under the UM provision of his insurance policy. Id. A jury found that Skaling's injuries were proximately caused by Menard's negligence and awarded him $1,174,500 in damages. Id. at 286-87. Skaling then made a motion for the addition of prejudgment interest pursuant to both § 27-7-2.2 and § 9-21-10 which was denied by the trial justice. Id. at 287. Aetna filed a motion for a new trial, which was also denied. Id. Both parties appealed claiming error in the denial of their respective motions. Id.
The jury reduced its original damage award of $1,305,000 by 10 percent based on its finding that Skaling's own negligence was a contributing proximate cause of his injuries.
On appeal, Skaling asserted that because he sent a written demand to Aetna to settle for the limit of his UM policy and the demand was rejected, interest should be added to the judgment based on the entire award under § 27-7-2.2. Skaling I, 742 A.2d at 290. Skaling conceded that although Aetna is not a defendant "covered by liability insurance, " as mandated by the statute, the statute should nevertheless apply because Aetna is a liability insurer. Id. Contrarily, the Court disagreed reasoning that the statute would not be interpreted beyond its clear meaning. Skaling I, 742 A.2d at 291. The Court explained that the language of the statute is "neither complex nor ambiguous, and construing its language strictly does not produce a result that is absurd or unreasonable." Id. The Court drew reference to the plain language of the statute which precludes the addition of prejudgment interest when the defendant is a liability insurer, rather than a party that is covered by an insurer. Because the statute did not apply, the trial court's ruling denying an award of interest to Skaling pursuant to § 27-7-2.2 was affirmed. Id.
In the immediate case, this Court is not persuaded to deviate from the Skaling I reasoning. Where the language of a statute is clear on its face, its plain meaning must generally be given effect. Gilbane Co. v. Poulas, 576 A.2d 1195, 1196 (R.I. 1990). Moreover, "[i]t is only when the insurance company receives and turns down a within policy limits offer and a jury returns a verdict which, with prejudgment interest, exceeds the policy limits, that the company must pay more than it contracted to pay." Armacost, 821 F.Supp. at 82. Additionally, our Supreme Court has been reluctant to extend the prejudgment interest statutes by implication. DiLuglio v. Providence Auto Body, Inc., 755 A.2d 757, 775 (R.I. 2000); Clark-Fitzpatrick, Inc./Franki Foundation Co. v. Gill, 652 A.2d 440, 451-52 (R.I. 1994).
The facts of the case at bar do not fit within the purview of the language contained in the rejected settlement offer statute because Summit did not receive an offer from the Alves within the policy limits. Sec. 27-7-2.2. On June 15, 2011, counsel for the Alves sent a written settlement demand to Summit for $300,000-well in excess of the coverage limit of $25,000. (Trial Ex. O, Letter from counsel for the Alves to Summit). Consequently, rejection of the $300,000 offer in 2011 did not trigger additional liability.
The language of § 27-7-2.2 on its face is "neither complex nor ambiguous" and thus will be strictly construed. Reading the language in a plain, ordinary, and usual manner, § 27-7-2.2 is not applicable to the present case where no policy limits offer was received or rejected. Skaling I, 742 A.2d at 291.
2
Prejudgment Interest Statute
Next, the Alves suggest that Summit must pay all prejudgment interest pursuant to the State's purpose and policy behind § 9-21-10. The statute provides:
"[i]n any civil action in which a verdict is rendered or a decision made for pecuniary damages, there shall be added by the clerk of the court to the amount of damages interest at the rate of twelve percent (12%) per annum thereon from the date the cause of action accrued, which shall be included in the judgment entered therein." Sec. 9-21-10.
The instant case is devoid of a verdict, decision, or arbitration award, and to award prejudgment interest pursuant to the statute would be to presume a fact in evidence that does not exist and may never exist. The issuance of a declaratory judgment would be overly speculative.
While the Court has sought to render declaratory judgment on the insurance coverage issues in the hope that it would facilitate the termination of controversies, the issue of interest is one which is routinely resolved post-trial. Capital Properties, Inc. v. State, 749 A.2d 1069 (R.I. 1999). The Court declines to issue a declaratory judgment on the issue of post-judgment interest pursuant to the statute.
The Court notes, without deciding, that the award of prejudgment interest under the statute may be contrary to the statute's purposes. A purpose of the prejudgment interest statute is to encourage early settlement of claims. Skaling I, 742 A.2d at 292, and to reward an injured plaintiff for delay in receiving compensation to which they are legally entitled. Martin v. Lumbermen's Mut. Cas. Co., 559 A.2d 1028, 1031 (R.I. 1989). Are the purposes thwarted by a plaintiff declining to propose a settlement for over eight years? The Court also notes that prejudgment interest is "not an element of damages, [but] is purely statutory and is peremptorily added to the [award] by the clerk." DiMeo v. Philbin, 502 A.2d 825, 826 (R.I. 1986).
C
Insurer's Duties to the Insured and Third Parties
The main issue in this motion for declaratory judgment request is whether Summit owes duties to its insured (Mr. Stricklett), or a third party (the Alves), or others. Two recent significant cases departed from existing law to define the duties of an insurer. The parties heavily rely on each of these cases, Skaling v. Aetna Ins. Co. (Skaling II), 799 A.2d 997 (R.I. 2002) and Asermely, to press their positions. The Defendants in this matter assert that these controlling cases impose an affirmative duty on Summit to engage in timely settlement negotiations with third party claimants, to make reasonable settlement offers, and impose a fiduciary duty to protect the insured from excess liability. Summit contends that they do not have any obligation to the Alves because they are third-party claimants, not insureds of Summit, and that Asermely does not even apply to the facts at hand. Each case will be considered in turn.
Skaling II
The Alves' primary contention is that Summit has a duty to engage in timely settlement negotiations, a duty to conduct an adequate investigation, and a duty to protect the insured from excess liability. The Alves, who are not the insureds, contend that Summit owes these duties to the Alves and violated the duties. To support this conclusion, the Alves rely mainly on Skaling II, 799 A.2d at 1000.
Following the decision in Skaling I, supra, defendant Aetna filed a motion for summary judgment on the insurer bad faith claim. Aetna argued that Skaling's claim against the underinsured tortfeasor (Menard) was a fairly debatable claim, thereby Aetna should be relieved of any liability for insurer bad faith. Skaling II, 799 A.2d at 1001. Summary judgment was granted to Aetna, and Mr. Skaling appealed again.
For a recitation of the facts and ruling of Skaling I, refer to pages 8-9, supra.
Ultimately, the Skaling II Court issued several significant holdings. First, the Court held that liability is imposed where the insurer intentionally or recklessly fails to properly investigate a claim, fails to subject its investigation to an appropriate cognitive evaluation and review, or otherwise acts in an oppressive and unreasonable manner. Skaling II, 799 A.2d at 1009. The Court reasoned that, "[i]nsurers doing business in Rhode Island have an implied obligation to promptly and fully respond to their insured, to investigate a claim and to subject that claim to appropriate review." Id. at 1010 (emphasis added). "An insurer has a responsibility to assemble all the facts necessary for a fair and comprehensive investigation before [refusing] to pay a claim and may not base a defense to bad faith on later acquired information." Id. While the Court explained that an insurer is obliged to engage in settlement discussions to relieve the insured from the burden of litigation, plaintiff must demonstrate an absence of a reasonable basis in law or fact for denying the claim or an intentional or reckless failure to properly investigate the claim and subject the result to cognitive evaluation. Id. at 1011-12.
The Court held that although a fairly debatable claim is a necessary condition to avoid liability for bad faith, it is not always a sufficient condition; rather, the appropriate inquiry is whether there is sufficient evidence from which reasonable minds can conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable. Id. at 1011 (citing Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276, 280 (2000)).
This Court does not find any evidence tending to show that Summit intentionally failed to properly investigate a claim, failed to subject its investigation to an appropriate cognitive evaluation and review, or otherwise acted in an oppressive and unreasonable manner. Skaling II, 799 A.2d at 1009. Summit began its investigation properly by investigating the scene of the accident and obtaining the State of Rhode Island Uniform Accident Report regarding the accident and police investigation. (Agreed Statement of Facts ¶ 7) (Trial Ex. BB, Uniform Accident Report.) The report reflected that Scott Alves' companion, Justin Sousa, witnessed the accident and told the police that Scott Alves ran across Newport Avenue without looking. Id. Three other witnesses were interviewed separately and all corroborated Sousa's statement that Scott Alves ran into the street without looking. Id. Notably, Mr. Stricklett was never issued any motor vehicle violations from the police. Id. Summit rationally concluded that Mr. Stricklett was not at fault for the accident and therefore it would not cover Alves' injuries (Trial Ex. H, Letter to the Alves). Summit acted reasonably and conducted an "appropriate cognitive evaluation and review" of the claim. The insurer assembled all the facts necessary for a fair and comprehensive investigation before refusing to pay. Skaling II, 799 A.2d at 1010. There is insufficient evidence to suggest that a reasonable mind could conclude that in the investigation, evaluation, and processing of the claim, Summit acted unreasonably or knew that their conduct was inappropriate. Id. at 1011. Summit did not intentionally fail to investigate this claim nor did Summit fail to subject its investigation to a proper cognitive review.
Skaling II stated that an insurer is obliged to engage in settlement discussions to relieve the insured from the burden and expense of litigation. Id. at 1011-12. The record is bereft of evidence that Summit acted to the contrary. Summit participated in settlement discussions from 2002 to 2003; thereafter, the Alves suddenly stopped all communications. Summit received a letter from the Alves on April 15, 2003 stating that they were still pursuing the claim, yet they took no further action until 2011 (Trial Ex. I, Letter to Summit). It is not Summit's duty to respond to empty threats, followed by years of inaction. Although settlement discussions with the Alves were never extensive, Summit exhibited reasonable settlement behavior. After a proper investigation and concluding that the injuries to Scott Alves were not Mr. Stricklett's fault, Summit notified the Alves that it would not respond to settlement. The evidence demonstrating that the collision was not Mr. Stricklett's fault was so overwhelming that Summit's minimal settlement discussions did not breach any duty.
Instead, with this flat denial, the Alves were left to initiate litigation forthwith.
The Skaling II Court was satisfied that to determine bad faith, "[t]he appropriate inquiry is whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable." Skaling II, 799 A.2d at 1011 (citing Zilisch, 196 Ariz. 234, 995 P.2d at 280. In addition, the Court explained that, "an intentional failure on the part of the insurer to determine whether there is a lawful basis to deny the claim, standing alone, is bad faith." Skaling II, 799 A.2d at 1011.
In their trial memorandum, the Alves draw parallels between Summit and Aetna to suggest that the insurer acted in bad faith; however, the two insurance companies' actions were quite different. Aetna, in Skaling II, never offered to settle the claim in any amount, did not participate in settlement discussions at all, and refused to arbitrate the dispute. Skaling II, 799 A.2d at 1015. Aetna's denial of the claim was on a "narrow and subjective" reading of the policy provisions without observing case law in the jurisdiction. Id. In the case at bar, Summit bases its denial on more than a simple policy reading. The police report, the numerous witness statements, the lack of citations to Mr. Stricklett, all substantiate that Mr. Stricklett was not at fault. Markedly, the Alves stopped communicating with Summit. Although an insurer is obligated to consider reasonable settlement offers, they are not obligated to search out and encourage adversaries when they rationally conclude that their insured was not at fault. In Skaling I, litigation moved quickly: the loss occurred in October 1995, the claim was sent in 1996, and suit was filed in 1998 and heard by the Supreme Court in 1999. Skaling I, 742 A.2d at 286-87. Unlike the plaintiff in Skaling I, the Alves let their claim lurk in the shadows for almost a decade. Here, the accident happened in April of 2002, the claim was sent in early 2003, the suit against Mr. Stricklett did not commence until September of 2011, and this action was not filed until October of 2012.
This Court finds persuasive the fact that the Alves took no action from 2003 until 2011- some eight years- when they were already armed with counsel and a claim they contended was worth $300,000. Although the statute of limitations had not tolled because of Scott Alves' young age, the Alves appeared to be more anxious to litigate against the insurer than to resolve the claim. On June 22, 2011, the attorney for Summit sent to counsel for the Alves an offer to pay the full policy amount of $25,000. (Trial Ex. P, Letter from Attorney Hines, June 22, 2011.)
In a case decided two months ago, the Rhode Island Supreme Court discussed the concepts of waiver and forfeiture. The Court held that the failure to press a jurisdiction defense for three and a half years constituted a forfeiture of the defense. Pullar v. Cappelli, 148 A.3d 551 (R.I. 2016). Clearly, waiting years to waken a dormant claim or defense is frowned upon.
The Alves suggest that a reasonable insurer would have employed an expert in accident reconstruction before denying the claim. However, Summit easily determined the sequence of events, the lack of contradictory evidence, and multiple witness statements corroborating the events. An insurance company need not always retain an expert to resolve a claim where there is minimal (if any) evidence in support of it.
Not every refusal to pay a claim amounts to bad faith. "A plaintiff must demonstrate an absence of a reasonable basis in law or fact for denying the claim or an intentional or reckless failure to properly investigate the claim and subject the result to cognitive evaluation." Skaling II, 799 A.2d at 1012. The Alves have not demonstrated the absence of a reasonable basis for Summit denying their claim. Summit explained to the Alves that Stricklett was not at fault for the collision. (Trial Ex. H, Letter to the Alves, Mar. 24, 2003.) The Alves have not met their burden of demonstrating an absence of a reasonable basis in law or fact for Summit denying their claim nor have they shown a reckless failure to properly investigate their claim and subject the result to cognitive evaluation. In these circumstances, it is obvious that Summit had a reasonable basis in law and in fact for denying the claim that went unrequited by the Alves for almost a decade.
Summit reasonably relied on the evidence in the record in support of their contention that Mr. Stricklett was not at fault. There were numerous witnesses that observed Scott Alves run into the street without looking, the police never filed any sort of citation against Mr. Stricklett indicating that he broke a law, and Scott Alves entered the busy roadway without using a crosswalk. (Trial Ex. BB, Uniform Accident Report). See G.L. 1956 §§ 31-18-3, 5, and 7.
Asermely v. Allstate Insurance Company
The Alves also rely on Asermely, to support their position that Summit has a duty to the Alves and should be liable for damages over the policy limits. 728 A.2d at 461. Asermely struck the rear of a vehicle operated by Mark Rendine and owned by Julieanne Bernier. Bernier's car was insured by Allstate under a policy with a $50,000 limit. Id. at 462. Asermely initiated the suit against Rendine and Bernier. An arbitrator found Asermley 25 percent liable and the defendant's insured 75 percent at fault, resulting in an award for Asermely for $47,557.37. Id. Asermely accepted the award but Allstate rejected and proceeded to trial, irrespective of the fact that the amount was within the policy limits. Id.
After trial, the jury decided that Asermely was 60 percent at fault while defendant's insured was 40 percent at fault, resulting in an award of $86,333.57 in damages and interest to Asermely. Id. Allstate then issued a check to Asermely for only $50,000 as "[f]inal settlement of any and all claims arising from bodily injury and property damage caused by accident on 7/9/84." Id. at 462-63.
Asermely did not accept the check but pressed for the judgment amount. Significantly, Rendine and Bernier (Allstate's insureds) assigned their rights to the plaintiff. Id. at 463. Allstate issued a second check for $50,000 without the previous limiting language and Asermely cashed it, but then initiated a five-count complaint against Allstate. On summary judgment, the trial court dismissed counts 1, 3 and 4. Asermely thereafter filed a timely appeal. The trial justice granted the defendant's motion for summary judgment on counts 2, 3 and 4. Asermely again filed a timely appeal. In discussing the bad faith claim, the Supreme Court held that the trial court correctly granted summary judgment because the insurer had a "reasonable basis for denying benefits." Id. at 464. However, the high court guided the trial courts in future cases by declaring:
The complaint contained five counts. Asermely, 728 A.2d at 463. Count 1 claimed entitlement to interest in excess of the policy limits pursuant to § 27-7-2.2; count 2 alleged that defendant breached its duty to exercise good faith; count 3 sought damages for defendant's alleged refusal to pay the policy limits until a year and a half after the judgment; count 4 sought damages based on bad faith under § 9-1-33; and count 5 alleged breach of contract. Id.
". . . if a plaintiff has made a reasonable written offer to a defendant's insurer to settle within the policy limits, the insurer is obligated to seriously consider such an offer. If the insurer declines to settle the case within the policy limits, it does so at its peril in the event that a trial results in a judgment that exceeds the policy limits, including interest. If such a judgment is sustained on appeal or is unappealed, the insurer is liable for the amount that exceeds the policy limits, unless it can show that the insured was unwilling to accept the offer of settlement. The insurer's duty is a fiduciary obligation to act in the best interests of the insured. Even if the insurer believes in good faith that it has a legitimate defense against the third party, it must assume the risk of miscalculation if the ultimate judgment should exceed the policy limits." Id.
Even though the Supreme Court dismissed the bad faith count, it created an expansive new rule broader than § 27-7-2.2 and carrying great consequences. Clauson v. New England Ins. Co., 254 F.3d 331, 340 n.9 (1st Cir. 2001). A specific showing of bad faith was no longer required to obtain an award over the policy limits. Our Supreme Court was clear about its desire to instill fairness with insurers and their insureds, and limit any heavy-handed tactics.
The high court focused its findings of an expanded duty on insurers' "fiduciary obligation to act in the best interests of the insured." While Mr. Skaling was seeking recovery against his own insurer for underinsured coverage, Ms. Asermely not only sued on her own behalf, but received an assignment of the insureds' rights. The Alves' case at bar stands in different shoes. They are not insureds but the claimants against the insured.
Undaunted, the Alves argue that Summit owes broad duties to them even though the Alves are not the insureds. They seek recovery for all damages significantly above the policy limits because Summit allegedly violated the new rule set forth in Asermely. The cases are dissimilar because (1) the Alves were never insureds of Summit; (2) Mr. Stricklett never assigned his rights under the insurance contract to the Alves; and (3) the same fiduciary duty is not extended to the Alves.
The Court specifically noted that the fiduciary duty that an insurance company has to its insured "extends not only to the insurance company's own insured, but also, as in this case, to a party to whom the insureds have assigned their rights." Asermely, 728 A.2d at 464.
Secondly, the Asermely decision declares that an insurance company is obligated to "consider seriously a plaintiff's reasonable offer to settle within the policy limits." Asermely, 728 A.2d at 464. There is no proof that counsel for the Alves sent a clear offer to settle to Summit's counsel some nine years after the loss. On June 15, 2011, counsel for the Alves sent a settlement offer of $300,000 to Summit, which was drastically outside the $25,000 policy limit. (Trial Ex. O, Letter to Summit.) Seven days after the June 15, 2011 settlement proposal, Summit wrote back to Alves offering the full policy limit of $25,000. Interest over the policy limits is not triggered by the Asermely ruling in the case at bar.
The facts of the present case further contrast with the facts in Asermely. In the case at bar, there is no showing of overt bad faith by Summit. In Asermely, Allstate did not respond to any offers and did not tend any offers. Here, there is no showing of deceitfulness, obstinacy, or unsubstantiated denial. Section 9-1-33 offers a cause of action for an insured when an insurer wrongfully and in bad faith refuses to pay or settle an insurance claim. In Bartlett v. John Hancock Mut. Life Ins. Co., our Supreme Court set forth elements for a showing of bad faith. Bartlett, 538 A.2d 997 (R.I. 1988). The Court held that "[t]here cannot be a showing of bad faith when the insurer is able to demonstrate a reasonable basis for denying benefits." Id. at 1000. When a claim is "fairly debatable, " no liability in tort will arise. Id. (quoting Bibeault v. Hanover Ins. Co., 417 A.2d 313, 319 (R.I. 1980)).
Here, unlike in Asermely, Summit did not act outwardly subversive by sending a check for less than the judgment amount with limiting language. Summit simply lowballed a proposal because it contended Mr. Stricklett was not at fault inasmuch as Scott Alves darted into the middle of the street. It had a reasonable basis for denying benefits to Mr. Stricklett. (Trial Ex. BB, Uniform Accident Report.) Surely, the Alves' claims were "fairly debatable, " unlike those in Asermely. Bibeault, 417 A.2d at 319.
A claim is fairly debatable when there is an arguable reason, a reason that is open to dispute or question. 14 Couch on Insurance § 204:28 (3d ed. 2005).
The Alves are Not Insureds So No Skaling or Asermely Duties are Owed
Without question, the relationship between an insurance carrier and its insured is special, with unique obligations running to and from each of the parties. Quoting a variety of cases from other states (omitted herein), the Rhode Island Supreme Court has held, "[t]he duty of an insurer to deal fairly and in good faith with an insured is implied by law. Since violation of this duty sounds in contract as well as in tort, the insured may obtain consequential damages for economic loss and emotional distress and, when appropriate punitive damages." Bibeault, 417 A.2d at 313, (quoting Christian v. Am. Home Assurance Co., 577 P.2d 899 (Okl. 1977)).
More recently, the Rhode Island Supreme Court held, "[i]t has been held unequivocally that an insurer has a duty to act in the best interests of its insured in order to protect the insured from excess liability." Med. Malpractice Joint Underwriting Ass'n of R.I. v. R.I. Insurers' Insolvency Fund, 703 A.2d 1097, 1102 (R.I. 1997). "As suggested in that case an insurer must refrain from acts that demonstrate greater concern for the insurer's monetary interest than the financial risk attendant to the insured's situation." Id. at 1102. Our highest Court further stated, "[w]e should not be understood as retreating from the principle that an insurer doing business in Rhode Island is obligated to act in good faith in its relationship with its policyholders." Papudesu v. Med. Malpractice Joint Underwriting Ass'n of R.I., 18 A.3d 495, 499 (R.I. 2011) (quoting Bibeault, 417 A.2d at 319) (internal quotation marks omitted).
These obligations do not necessarily run from the insurance company to an uninsured claimant. "The relationship between the claimant and the insurance carrier for a third party alleged to be liable is an adversary relationship giving rise to no fiduciary obligation on the part of such insurance carrier to the claimant. Any obligation to deal with settlement offers in good faith runs only to the insured." Auclair v. Nationwide Mut. Ins. Co., 505 A.2d 431 (R.I. 1986); see also Canavan v. Lovett, Schefrin & Harnett, 745 A.2d 173, 174 (R.I. 2000); Cianci v. Nationwide Ins. Co., 659 A.2d 662, 667 (R.I. 1995).
The same relationship distinction runs through our statutes and case law, including the cases relied upon by the Alves here. For example, Mr. Skaling was always the insured of Aetna (having an uninsured motorist policy with Aetna) Skaling I, 742 A.2d at 285. Similarly, Michelle Asermely was not an insured of Allstate originally but Allstate's insureds, Mark Rendine and Julieanne Bernier, assigned their rights to Ms. Asermely so that Ms. Asermely was subrogated into the shoes of the insureds. Asermely, 728 A.2d at 463. Finally, in DeMarco, Mr. DeMarco was not an insured of Travelers originally. Travelers' insureds, Leo H. Doire and Virginia Transportation Corp., assigned their rights to Wayne DeMarco so that Mr. DeMarco could assert the rights of the insureds. DeMarco, 26 A.3d at 600. Significantly, each of these parties possessed the rights of the insured parties. Perhaps the Bibeault case best illustrates the particular, distinct relationship between an insurer and its insureds:
In each of the above-mentioned cases, the plaintiffs had made offers to settle for specific amounts, unlike the case at bar.
"The members of this court are of the opinion that an insurer doing business in Rhode Island is obligated to act in good faith in its relationship with its policyholders. A violation of this duty will give rise to an independent claim in tort in which, as in the present controversy, there has been a specific finding that the insurer has in bad faith refused to pay the claims due an insured. Recognition of this tort in Rhode Island does not, however, imply that whenever an insurance company loses a dispute in court regarding the validity of a claim, it breaches the implied-in-law duty of good faith. If a claim is 'fairly debatable, ' no liability in tort will arise." Bibeault, 417 A.2d at 319.
Accordingly, the present case can be easily distinguished from Asermely, Skaling, and DeMarco based on the significant fact that the Alves are not the insureds of Summit and as a result, should not possess the unique rights belonging only to insureds.
Insurer's Duty to its Owners
An insurer has a fiduciary duty to protect only its insured from excess liability, and this obligation extends to a party whom the insureds have assigned their rights. Skaling II, 799 A.2d at 1005-06; Asermely, 728 A.2d at 464. However, it is important to note that insurance companies have obligations to their own customers and owners. A fiduciary relationship exists between a corporation and its stockholders. Bader v. Alpine Ski Shop, Inc., 505 A.2d 1162, 1167 (R.I. 1986) (citing Sladen v. Rowse, 115 R.I. 440, 347 A.2d 409 (1975)). Like other shareholder companies, insurance companies' shareholders are primarily interested in maximizing profit.
"As profit-maximizing enterprises, publicly traded stock companies' overriding mandate is to make as much money as possible for their shareholders. Policyholders who pay premiums are merely revenue streams for publicly traded stock companies. And the payments of policyholders' losses are expenses that reduce insurers' profits. Thus, the profit imperative dictates that insurers relentlessly seek to increase revenues while decreasing expenses for the benefit of their shareholders." Christopher C. French, The Role of the Profit Imperative in Risk Management, 17 U. Pa. J. Bus. L. 1081, 1085 (2015).
Summit has some obligation to its shareholders to settle and pay claims reasonably. Because of its obligation to its owners, it is necessary for Summit to investigate each claim properly so that fraudulent claims are not funded. Here, Summit conducted a proper investigation and decided that this claim was undeserving of payment, due to the fact that the insured was never at fault. This Court cannot say that rationally choosing not to pay a claim that an insurer believes is unmeritorious creates an inference of bad faith.
IV Conclusion
Summit does owe a duty to the Alves to act in a reasonable manner and in good faith in settling the claim against Mr. Stricklett. The Court finds that Summit fulfilled this duty and acted appropriately. Accordingly, Summit is not required to pay all prejudgment interest that has accrued on the action.