Lucas v. State Farm Fire & Casualty Co.

SCHROEDER, Justice,

dissenting.

The Court’s perception of the issue in this case opens the flood gates to bad faith claims with scant underpinnings and the potential for oppressive litigation that must ultimately be paid for in insurance rates. The Court notes that “the central issue is whether Lucas’s surgery-related claim was reasonably in dispute, thus rendering the claim fairly debatable. More specifically, we must decide if a genuine issue of material fact exits as to whether State Farm was challenging the validity of a fairly debatable claim.” The Court concludes that since Dr. Smith attributed the need for surgery to the accident, there was sufficient evidence to take this case beyond summary judgment on the basis that there was a question of fact on the issue of whether the claim was fairly debatable.

Doubtless there is evidence that the need for surgery can be attributed to the accident. That is not the dispositive point. There is also substantial medical evidence, excluding the Medical Claims Review Services, Inc. evaluation, that the need for surgery was not related to the accident. On the face of the medical history it is clear that the claim is fairly debatable. There is no opinion expressed by Dr. Smith or otherwise that the claim is not fairly debatable. With the abundance of differing medical opinions from treating physicians the claim in this case is clearly debatable.

If the courts are unable to perform a basic gatekeeping function to close out bad faith claims of this nature, it is time to re-examine White v. Unigard and adopt the approach set forth in Justice Bakes’ dissent, treating such claims as breach of contract actions with punitive damages when appropriate.

In White v. Unigard, the Court made the following observation:

The tort of bad faith breach of insurance contract, then, has its foundations in the common law covenant of good faith and fair dealing and is founded upon the unique relationship of the insurer and the insured, the adhesionary nature of the insurance contract including the potential for overreaching on the part of the insurer, *679and the unique, “non-commercial” aspect of the insurance contact.

112 Idaho at 100, 730 P.2d at 1020 (emphasis added).

The underpinnings of White v. Unigard no longer exist. This Court has consistently treated a breach of the covenant of good faith and fair dealing as a contract claim and not a tort action. See Hummer v. Evans, 129 Idaho 274, 280, 923 P.2d 981, 987 (1996) (“A breach of the covenant [of good faith and fair dealing] is a breach of the employment contract, and is not a tort. The potential recovery results in contract damages, not tort damages.”) (citing Metcalf v. Intermountain Gas Co., 116 Idaho 622, 626, 778 P.2d 744, 748 (1989)); Beco Constr. Co. v. City of Idaho Falls, 124 Idaho 859, 865, 865 P.2d 950, 956 (1993) (“The covenant of good faith and fan-dealing is implied in contract not in tort; the breach of which results in contract damages, not tort damages.”) (citing Idaho First Nat’l Bank v. Bliss Valley Foods, Inc., 121 Idaho 266, 288, 824 P.2d 841, 863 (1991)).

White now stands out by its divergence in creating a tort for the breach of the covenant of good faith and fair dealing in a contract. That divergence may be tolerable if the courts exercise a screening function. But when the opinion of a physician that medical treatment was necessary because of an accident can lead to a bad faith tort claim in the face of other medical evidence that the medical treatment did not relate to the accident, the White experiment has failed. It is no answer that the eases without merit will be screened out at trial. By that time the expenses of litigation will have done their damage to those who bear the burden of paying premiums. This is not misplaced sympathy for insurance companies and their shareholders. It is self-defense for consumers against premiums that must reflect the payment of claims. Under the facts of this case to be economically responsible a company must pay claims in which a doctor says the injury was the result of an accident regardless of the quality of medical evidence that says otherwise. To fail to pay means the company must incur the expenses of litigation which often will exceed the claim.

One of the observations in White v. Unigard is that “an action in tort will provide necessary compensation for insureds and incentive for insurers to settle valid claims.” 112 Idaho at 98, 730 P.2d at 1018. Unfortunately, the construction given to the facts in this case provides an insurer an incentive (virtually a necessity) to pay invalid claims. That was not the intention of White v. Unigard: “Of course the mere failure to immediately settle what later proves to be a valid claim does not of itself establish ‘bad faith.’ As indicated earlier, the insured must show the insurer ‘intentionally and unreasonably denies or delays payment____’” Id. at 100, 730 P.2d at 1020.

There is no reasonable reading of the facts in this case that State Farm intentionally or unreasonably denied payment. It has challenged the obligation to pay based upon significant medical evidence. If it is wrong, it has a contractual obligation to pay the claim and pay attorney fees to its insured. But there is no factual basis for a bad faith claim.

Generally, “the rule of stare decisis dictates that we follow [controlling precedent], 'unless it is manifestly wrong, unless it has proven over time to be unjust or unwise, or unless overruling it is necessary to vindicate plain, obvious principles of law and remedy continued injustice.” Houghland Farms Inc. v. Johnson, 119 Idaho 72, 77, 803 P.2d 978, 983 (1990). This Court should overrule White v. Unigard to bring it in line with this Court’s recognition that the breach of the covenant of good faith and fair dealing is a breach of contract, not a tort. Further, the Court should recognize that White v. Unigard is an unnecessary and aberrational extension of the law that is too costly to perpetuate. Overruling White v. Unigard would not mean that insureds would be without a remedy. The insureds have a claim for breach of contract, a right to attorney fees if successful, and a right to punitive damages if the insurance company’s conduct is egregious. There may also be a claim for intentional infliction of emotional distress in limited instances. The insurance companies and their premium payers are, however, no longer held hostage to pay or else suffer a tort claim in cases such as this where the claim is *680clearly debatable. Insureds get what they paid for. They do not get a club to wield whenever a debatable claim is presented.