Opinion
No. 22393
Date: May 24, 1999 Motion for Rehearing and Transfer Denied June 18, 1999.
APPEAL FROM CIRCUIT COURT OF CHRISTIAN COUNTY, HON. JAMES L. EIFFERT.
Dale L. Davis, and Robert D. Lewis, Crouch, Davis, Lewis Rykowski, Springfield, for Defendant-Appellant.
Thomas H. Hearne, Michael T. Pivac, Hearne Pivac, Springfield, for Plaintiff-Respondent.
Shrum, P.J., dissents and files dissenting opinion. Montgomery, J., concurs.
In this jury-tried case, plaintiff homeowner sued defendant insurance company for the fire loss of his home. Two counts were submitted. One was for the insurance benefits under the policy; the other was for defamation and punitive damages. The jury found for plaintiff on both counts and the trial court entered judgment accordingly.
On appeal, defendant does not challenge the award of the insurance proceeds. Rather, its five points concern the defamation count. Its first point is dispositive. In that point, it alleges the trial court erred in overruling its motion for directed verdict and submitting the defamation count to the jury. It contends that the "purported defamation claim" was legislatively preempted and precluded by statutory provisions concerning vexatious refusal to pay, even though defendant was exempt from those provisions. We agree that the vexatious refusal to pay statute preempted this cause of action. We therefore reverse the judgment on the defamation count.
Background
On August 20, 1996, plaintiff purchased a fire policy from defendant, insuring his home up to $50,000 and its contents up to $15,000. On April 1, 1997, the home and its contents were destroyed by fire.
On July 1, 1997, defendant wrote plaintiff denying the claim. The registered letter deliverable to addressee only stated that the claim was being denied because the "loss resulted from an intentional act committed by you or at your direction." The letter also set forth provisions of the policy pertaining to intentional acts.
Plaintiff filed suit. At trial, plaintiff testified that on April 1, 1997, he was sick and stayed home from work. It was cool that morning and he turned up the heaters, including one in the bathroom. Around 8:00 a.m. he fell asleep; he first noticed smoke around 11:00 a.m. He felt heat coming from behind the bathroom door and when he opened it, flames came out the door.
Plaintiff ran outside and hollered to a neighbor for help. The neighbor came and the two of them got a water hose and attempted to put out the fire. They were unsuccessful. In the meantime, neighbor's wife called the fire department. When it arrived, it was unable to do anything other than contain the fire.
The next morning, a cause-and-origin insurance investigator met plaintiff at the property. Among other things, the investigator took plaintiff's statement and received his permission to conduct an investigation into the fire's origin. Following his investigation, he concluded the fire "was a result of intentionally poured flammable liquids in the house."
Plaintiff denied setting the fire or having it set. The insurance investigator testified that he identified "the fire as being a set fire" and expressed the opinion that plaintiff set the fire. In support of that statement, he displayed pictures he took at the scene that he said indicated a "liquid-accelerant-burn pattern."
However, the investigator conceded that "qualified, competent cause-and-origin investigators looking at the same burn patterns can attribute the causes to different things."
Moreover, he acknowledged that when the presence of an ignitable liquid is suspected, the "better practice [is] to test for presence of accelerants by use of gas chromatograph or mass spectrometry," but he did not request such tests and none were conducted.
Before sifting through the debris and finding the burn patterns, the investigator talked with the neighbor who came to plaintiff's aid in fighting the fire. The neighbor told him that when he saw the fire, it was coming "out down the hallway." Although neighbor was standing in the living room where investigator said the burn patterns existed, neighbor did not say anything about the floor underneath him burning. Investigator did not ask neighbor if he smelled any accelerant, nor did investigator talk to neighbor about the living room floor, or anything else, after going through the debris and reaching the conclusion concerning the burn patterns. The investigator did not find any containers used to spread an accelerant.
Defendant's general manager acknowledged familiarization with the terms "red flags of fraud or red flags of arson." These red flags are things that stick out to a claims person when a claim is presented, such as more than one mortgage, late payments, recent divorce, previous thefts, multiple claims, flammable pour-patterns in a fire scene, etc. The only red flag defendant found was the pour pattern at the fire scene.
Following receipt of defendant's July 1 letter denying the claim, plaintiff contacted an insurance agent seeking coverage for the other buildings on his property. When the agent asked about coverage for his house, plaintiff told her it had burned. She then asked the status of the claim and he told her defendant was denying the claim. When she asked why, plaintiff showed her the denial letter. After seeing the letter, the agent said that none of the companies their agency represented would cover him.
Another agent also testified that none of the companies he represented would insure plaintiff under the circumstances. Further, defendant's general manager acknowledged that he could not think of any insurance company that would not want to know about prior losses when considering a new application for coverage.
Statutory Preemption
In its first point, defendant alleges the trial court erred in denying its motion for directed verdict and submitting the defamation count. It argues that the "purported defamation claim was legislatively preempted and precluded by the provisions of sections 375.296 and 375.420, R.S.MO. and the statutory exemption as provided in section 380.511.1, R.S.MO."
Sections 375.296 and 375.420 pertain to suits against certain insurance companies for failure to timely pay in accordance with policy terms. In such situations, if it appears from the evidence that the refusal was vexatious and without reasonable cause, the policyholder may receive damages for vexatious refusal to pay and attorney fees. Section 375.296. The amount permitted to be awarded is limited to "twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars and a reasonable attorney's fee." Section 375.420.
All statutory references are to RSMo 1994 unless otherwise indicated.
Missouri appellate courts have previously considered the preclusive effect of these statutes on other tort claims. In Duncan v. Andrew County Mut. Ins. Co. , 665 S.W.2d 13 (Mo.App. W.D. 1983), the plaintiffs-policyholders sued the defendant insurance company in two counts. One count alleged soybeans, tools, and equipment were stolen and claimed damages under a rider providing theft coverage. Id. at 14-15. The other count sought actual and punitive damages predicated on defendant's bad faith refusal to pay the theft loss. Id. at 15.
Prior to trial, the trial court granted defendant's motion to dismiss the bad faith count. Its order stated that the "tort of bad faith in first party claims against insurance companies has not been recognized in Missouri." Id.
On the theft loss, defendant's answer denied that plaintiffs owned the soybeans and other personal property alleged in the petition. Id. at 16. Also, in an answer to an interrogatory, defendant stated that it refused to pay for the items because plaintiffs did not own any soybeans at the time of the alleged theft. Id. In effect, defendant said that plaintiffs were lying. The ownership of the soybeans was a hotly contested issue. The jury awarded plaintiffs basically the amount they sought and both sides appealed. Id. at 15-16.
The western district opinion discussed the trial court's dismissal of the bad faith count. It recognized that other jurisdictions have rejected extension of the tort of bad faith to first party claims against insurance companies on a theory of preemption where regulatory safeguards have been legislatively enacted. Id. at 19. It held that section 375.420 prescribing damages for vexatious refusal to pay was a "clear expression of public policy on the subject vitiating any need for extending the tort of bad faith to first party claims. To hold otherwise, would, for all practical purposes, constitute a repeal of Sec. 375.420, supra, by judicial fiat due to the broader vista of damages envisioned under the tort of bad faith." Id. at 20.
Further, in the Duncan case, as here, the defendant was a county mutual insurance company. At the time of the Duncan decision, section 380.060, RSMo 1978, exempted county mutual insurance companies from the provisions of section 375.420. Today, section 380.511.1 has a similar effect. The Duncan court held that the theory of preemption precluded the extension of the tort of bad faith against such companies notwithstanding their exemption from the provisions of the vexatious refusal to pay statute. Id. at 20. It therefore affirmed the trial court's order dismissing the bad faith count. Id.
Two years later, the eastern district considered the issue of preemption. Halford v. American Preferred Ins. , 698 S.W.2d 40 (Mo.App.E.D. 1985). There, plaintiff's house was destroyed by a fire and he brought suit for his loss, including damages for vexatious refusal to pay. The trial court directed a verdict on the vexatious refusal to pay claim and the jury awarded plaintiff damages for his loss. Neither side appealed those determinations. Id. at 41.
In Speck v. Union Elec. Co. , 731 S.W.2d 16 (Mo.banc 1987), the supreme court overruled another point in Halford. Id. at 20, n.2.
Subsequently, plaintiff filed a second, multi-count petition. The trial court dismissed three counts and the plaintiff appealed. In the first count, plaintiff's petition alleged defendant negligently, carelessly, willfully, wantonly, fraudulently, and with malicious conduct denied his proof of loss, and "carelessly and negligently failed and refused to reasonably, fairly, and adequately investigate Plaintiff's proof of loss." Id. The court held that the tort claims in this count "have been preempted by Sec. 375.420." Id.
In the second count, plaintiff alleged that defendant "made a concerted and malicious effort to damage, destroy, interfere with, and interrupt the business and financial associations of the Plaintiff by unreasonably making an extensive investigation in the financial affairs and records of the Plaintiff." Id. at 42. In holding the dismissal of this count was proper, the court said:
Although phrased in terms of tortious interference with business, the allegations in Count II derive from the insurance companies' investigation of plaintiff's insurance claim. The scope and purpose of an insurance claim investigation is an important consideration in determining whether or not a refusal to pay an insurance claim is reasonable. If, as plaintiff claims, the insurance companies failed to conduct a good faith investigation designed to ascertain the merits of plaintiff's insurance claim, then plaintiff had a cause of action under Sec. 375.420 and no independent tort action lies.
Id. at 43.
Finally, as to the other count, the Halford court said it "attempted to allege a prima facie tort." Id. It held that since the vexatious refusal statute preempts an independent bad faith tort cause of action, it should "preempt a bad faith tort claim disguised in terms of prima facie tort as well." Id. The trial court's judgment dismissing those three counts was affirmed.
This court followed Halford in Shafer v. Automobile Club Inter-Insurance Exchange , 778 S.W.2d 395 (Mo.App.S.D. 1989). There, the plaintiff sued for refusal to pay an uninsured motorist claim and "tortious breach of contract." Id. at 396. The trial court sustained a motion to dismiss the tort claim. In affirming that holding, this court said that "Section 375.420 preempts a tort action for negligence in denying a claim on an insurance policy. [citing Halford]. In this case, plaintiff's attempt in Count V to state a cause of action in tort is preempted by the remedy granted under the statute." Id. at 400.
This court also followed Halford in Meeker v. Shelter Mut. Ins. Co., 766 S.W.2d 733 (Mo.App.S.D. 1989). There, the plaintiffs sued the defendant insurance company for, among other things, its negligent conduct in denying their claim. Id. at 736. The trial court dismissed the count on the basis that the count was preempted by the vexatious delay statute. Id. This court affirmed, holding that the negligence claim was preempted, citing Halford. Id. at 742-43.
The Missouri Supreme Court addressed the issue of preemption in 1987. Catron v. Columbia Mut. Ins. Co. , 723 S.W.2d 5 (Mo.banc 1987). The plaintiffs sued their insurance company in two counts. The first count was for windstorm damage to their mobile home; the second was a prima facie tort for failure to negotiate and pay the claim in good faith. Id. The trial court dismissed the second count and plaintiffs received a jury award and judgment on the first count.
On appeal, plaintiffs' alleged the trial court erred in dismissing the prima facie tort count. The supreme court recognized that the Duncan "decision effectively eliminated the bad faith tort in first party claims by an insured." Id. at 6. It acknowledged that Duncan so held even though the county mutual insurance company was exempt from the operation of the vexatious delay statute. Id.
In the supreme court's case, the defendant insurance company was also exempt from the operation of the vexatious refusal to pay statute. Id. Nevertheless, the court affirmed the dismissal of the prima facie tort claim. It stated that if the plaintiffs "were allowed to bring a prima facie tort action it would circumvent the will of the legislature in enacting the vexatious delay and the exemption statutes." Id. (emphasis added).
Before turning to the facts in the case before us, brief mention must be made of holdings concerning vexatious refusal to pay. In Allen v. State Farm Mut. Auto. Ins. Co. , 753 S.W.2d 616 (Mo.App.E.D. 1988), the court recognized that the standard necessary to support a vexatiousness award had been relaxed. Id. at 620. It noted that the adequacy of an insurer's investigation of a claim may be considered evidence of vexatiousness. Also, the denial of liability without stating any ground for denial is sufficient to warrant the submission of vexatious damages. Id.
This court cited and followed Allen in Russell v. Farmers Merchants Ins. Co. , 834 S.W.2d 209 (Mo.App.S.D. 1992). There, this court said, "Examples of evidence of vexatiousness include a refusal to pay based on an inadequate investigation and a denial of liability without stating any ground for denial." Id. at 221. Further, we said that "where there is evidence that the insurer's reliance on the results of an investigation is not reasonable, the question is for the jury." Id. See also Pace Properties, Inc. v. American Mfrs. Mut. Ins. Co. , 918 S.W.2d 883, 888 (Mo.App.E.D. 1996) (evidence that "an insurer unreasonably relied on the results of its own investigation" creates a question for the jury on vexatiousness).
We turn now to the case before us. Here, there was ample evidence from which a jury could have found vexatious refusal to pay. A jury could have found that the origin investigator's investigation was inadequate. That investigator apparently based his conclusion that plaintiff personally set the fire on his finding of pour patterns and that plaintiff was at the house at the time of the fire. In view of the admittedly subjective nature of a determination of pour patterns, his failure to have other tests run could be considered by the jury in determining this issue.
Moreover, the investigator's failure to interview the neighbor who helped fight the fire after the investigator made his determination of pour patterns could be considered by the jury as evidence that the investigator was not objective in examining the fire scene. There was sufficient evidence from which a jury could find that the investigation was inadequate and that defendant's reliance thereon was unreasonable.
Having said that, we recognize that such statements are of little solace to plaintiff. The General Assembly granted this defendant and other similar mutual property insurance companies an exemption from "all provisions of other insurance laws of this state except as otherwise specifically designated in this chapter." Sec. 380.511.1. Chapter 380 does not contain a vexatious refusal to pay provision. Thus, these statutes prevented plaintiff from submitting a vexatious damages claim to the jury.
Even though a vexatious damage claim could not be submitted, our supreme court held in Catron that preemption still precluded bringing a separate cause of action. To do so would "circumvent the will of the legislature in enacting the vexatious delay and the exemption statutes." Catron , 723 S.W.2d at 6.
Under the holdings of Catron, Duncan, Halford, Shafer, and Meeker, and under the facts of this case, the preemptive effect of the vexatious damages statute precludes plaintiff's defamation claim. The trial court's judgment on the defamation count is reversed and judgment is entered for defendant on that count.
The author of the dissenting opinion states that his position is "confirmed" by Hunt v. Gerlemann, 581 S.W.2d 913 (Mo.App.E.D. 1979). We disagree. Unlike the facts before us, in Hunt, the insurance company paid plaintiff's fire loss. Id. at 914. Thereafter, the plaintiff's petition alleges that her former insurance agent made the alleged statements. The issue of preemption was not raised nor mentioned. Rather, the appellate court said that "in this extremely close and bothersome case we hold that opposed to a motion to dismiss, plaintiff's petition does state a cause of action." Id. at 916.
Respectfully, I dissent. In my view, the cases relied upon by the majority do not control.
The plaintiffs in those cases alleged they were wronged and damaged by their own insurance company's arbitrary refusal to pay, settle, or adequately investigate their insured losses. Although their petitions sounded in tort, i.e., bad faith tort, prima facie tort, negligence, or a "tort-based" remedy for breach of contract, the redress sought in each case was for damage caused by the insurer's arbitrary refusal to investigate or pay a particular claim. However, the legislature, through section 375.420, provides a statutory means "'to correct the evil of an arbitrary refusal for the sole purpose of delaying the plaintiff in the collection of his claim.'" Willis v. American Nat'l Life Ins. Co., 287 S.W.2d 98, 104 (Mo.App. 1956) (quoting Bouligny v. Metropolitan Life Ins. Co., 179 S.W.2d 109, 112 (Mo.App. 1944)). Missouri courts interpret section 375.420 as the exclusive remedy for that "evil." See Catron v. Columbia Mut. Ins. Co., 723 S.W.2d 5, 6 (Mo.banc 1987); Shafer v. Automobile Club Inter-Ins. Exch., 778 S.W.2d 395, 400 (Mo.App. 1989); Meeker v. Shelter Mut. Ins. Co., 766 S.W.2d 733, 742-743 (Mo.App. 1989); Halford v. American Preferred Ins., 698 S.W.2d 40, 42-43 (Mo.App. 1985), overruled on other grounds by Speck v. Union Elec. Co., 731 S.W.2d 16, 18 (Mo.banc 1987); Duncan v. Andrew County Mut. Ins. Co., 665 S.W.2d 13, 18-20 (Mo.App. W.D. 1983).
In my view, however, Plaintiff's defamation count presents an entirely different issue. Defendant has not cited to a single case, nor in the time available for research have I been able to find one, which interprets section 375.420 as the exclusive statutory remedy to redress any abuse by an insurer in disposing of first-party claims under polices of property insurance. Nor do I believe that section 375.420 should be so interpreted.
As with any statute, section 375.420 must be interpreted with these principles in mind:
"'The primary rule of construction of statutes is to ascertain the lawmakers' intent, from the words used if possible; and to put upon the language of the Legislature, honestly and faithfully, its plain and rational meaning and to promote its object, and "the manifest purpose of the statute, considered historically," is properly given consideration.'"
Willis, 287 S.W.2d at 104 (quoting Cummins v. Kansas City Pub. Serv. Co., 66 S.W.2d 920, 925 (Mo.banc 1933)). The Willis court declared that the "'obvious purpose'" of Missouri's vexatious damage statute "'is to correct the evil of an arbitrary refusal for the sole purpose of delaying the plaintiff in the collection of his claim'" (quoting Bouligny, 179 S.W.2d at 112) and "'to force prompt payment of such losses'" (quoting Missouri State Life Ins. Co. v. Lovelace, 58 S.E. 93, 102 (Ga. App. 1907) (interpreting the Missouri statute)). Willis, 287 S.W.2d at 104.
The words of section 375.420 are simple and plain, but they are also limited in scope: "[I]f it appears . . . that such company has refused such loss without reasonable cause or excuse, the court or jury may . . . allow the plaintiff [limited] damages." When the language and objects of section 375.420, "considered historically," are given what I believe is proper consideration, I find nothing to indicate the legislature intended to give insurance companies carte blanche to abuse their insureds in any fashion they choose and permit them to act with impunity or only minimal consequences.
Suppose, for example, while investigating a fire loss to a barn, an adjuster enters the insured's house without permission, takes the insured's computer from the home and keeps it (claiming it contains incriminating evidence), and assaults the insured as he tries to prevents the taking of his personal property. Are the torts of trespass, conversion, and assault as described in this example preempted by section 375.420? I do not believe the legislature intended that result nor am I persuaded that it intended the result reached by the majority.
I am confirmed in my view by Hunt v. Gerlemann, 581 S.W.2d 913 (Mo.App. 1979). There, the plaintiff filed suit for slander against Robert Gerlemann, her former insurance agent, and Bouef Berger Mutual Insurance Company, his employer. Id. at 914. Plaintiff's petition alleged Gerlemann made the following remarks to plaintiff in the presence of others:
"How did you set the fire?"
"If you rebuild, don't call us."
"You'll be lucky to find anybody to insure you."
The trial court dismissed the plaintiff's petition for failure to state a cause of action. On appeal, the plaintiff argued that the petition was sufficient to charge the agent with falsely accusing her of an indictable crime — arson of insured property as defined in section 560.030 RSMo 1969; consequently, she argued that the trial court committed reversible error when it dismissed her petition. The eastern district agreed, holding that the plaintiff could and did state a cause of action for slander against both defendants. Id. at 916.
I acknowledge that the potential preemptive effect of section 375.420 on the plaintiff's defamation claim was not an issue expressly decided in Hunt. Even so, I deem it instructive because had the Hunt court believed the plaintiff's claim was preempted by section 375.420, then it should have affirmed the dismissal for failure to state a claim.
Defamation is "an unprivileged communication or publication of false and defamatory matter which injures the reputation of another." Laun v. Union Elec. Co. of Missouri, 350 Mo. 572, 166 S.W.2d 1065, 1070[7] (1942). "The essence of defamation is an invasion of the plaintiff's interest in reputation." Jenkins v. Revolution Helicopter Corp., Inc., 925 S.W.2d 939, 944[6] (Mo.App 1996). Falsely accusing an insured of arson and the attendant harm to reputation, has the potential to harm and cause damage for a lifetime. On the other hand, refusal "to pay [an insured] loss without reasonable cause or excuse" is a one-time incident giving rise to a single damage. I believe that the majority has expanded the preemptive effect of section 375.420 far beyond what the legislature intended.
Finally, I have reviewed Defendant's other claims of trial court error and am persuaded none warrant reversal. Accordingly, I would affirm the judgment of the trial court.