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LOYAL AMERICAN LIFE INS. v. MATTIACE5/24/1996
From the date the tort of bad faith failure to pay an insurance claim was created 15 years ago in Chavers v. National Security Fire & Casualty Co., 405 So.2d 1, 7 (Ala. 1981), until now, when the tort no longer resembles the tort originally created, I have been concerned that insurers could be assessed punitive damages for conduct that traditionally amount to a simple breach of contract. The result reached by the majority in this case is inconsistent with the fundamental principles of due process, in that the decision permits the infliction of punitive damages in a case in which an insurer legally refused to pay a claim.
When the tort of bad faith was created in Chavers, authorizing the recovery of punitive damages, the majority of the Court at that time stated:
" n actionable tort arises for an insurer's intentional refusal to settle a direct claim where there is either '(1) no lawful basis for the refusal [to pay] coupled with actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal.' "
405 So.2d at 7. Several members of the Court, as it was then constituted, expressed concern about the creation of the new tort and about the direction the Court was taking. See, Chavers, 405 So.2d at 11-17. (Torbert, C.J., and Maddox, Almon, and Embry, JJ., dissenting).
The concerns of the dissenters were soon fulfilled because it was not long before the Court decided National Savings Life Ins. Co. v. Dutton, 419 So.2d 1357 (Ala. 1982), and modified the test it had established in Chavers. In Dutton, the Court adopted a policy regarding what I call the "normal" versus the "abnormal" bad faith case:
"In the normal case in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury."
419 So.2d at 1362 (emphasis added). The Court today cites both Chavers and Dutton and purports to follow the test set out in Chavers. The majority says that " n bad faith cases involving an insurer's refusal to pay a claim on a policy, this Court has established the 'directed verdict on the contract claim' standard," but in a footnote to that statement of the Chavers rule, the majority states the principle it applies in this case as follows:
"This [Chavers] test is not applicable to every bad faith claim. Even if an insured is not entitled to a directed verdict on the contract claim, the bad faith claim can be submitted to the jury if the insurer recklessly or intentionally fails to properly investigate a claim or subject the results of the investigation to a cognitive evaluation and review. Further, the trial court need not expressly direct a verdict in favor of the plaintiff on a breach of contract claim in order to submit a bad faith claim to the jury. The trial court must simply determine that the plaintiff has met the standard of proof required for a directed verdict."
679 So.2d at 235 (n. 2) (citations omitted). The majority then goes further and says: "Thus, a critical issue is whether Loyal American was legally entitled to rescind Joseph's policy based on his failure to inform Loyal American of his DUI conviction." 679 So.2d at 235. If the majority, in addressing this "critical issue," was discussing the law relating to the contract cl
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