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Summit Insurance Co. v. Stricklett

Supreme Court of Rhode Island

January 15, 2019

Summit Insurance Company
Eric Stricklett et al.

          Providence County Superior Court (PC 12-5368) Associate Justice Jeffrey A. Lanphear

          For Plaintiff: Ronald Langlois, Esq.

          For Defendants: Michael R. De Luca, Esq. Stephen J. Sypole, Esq. Paul S. Cantor, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.


          Gilbert V. Indeglia Associate Justice

         In this declaratory-judgment action, defendants Scott Alves, John Alves, and Cathy Alves (the Alveses) appeal from a Superior Court judgment in favor of the plaintiff, Summit Insurance Company (Summit). The parties had sought, as an initial matter, to clarify Summit's liability for prejudgment interest and damages above the policy limits set forth in Summit's automobile insurance contract with its insured, defendant Eric Stricklett (Mr. Stricklett), pursuant to Asermely v. Allstate Insurance Company, 728 A.2d 461 (R.I. 1999), and its progeny. After a hearing on this issue, the trial justice issued a written decision, and final judgment was entered against the Alveses.[1] The parties appeared before this Court on December 5, 2018, for oral arguments after full briefing of the issues. Upon due consideration of the parties' arguments, we affirm the judgment of the Superior Court, albeit for different reasons than those set forth in the trial justice's decision.[2]


         Facts and Travel

         The pertinent facts of this case, which are largely undisputed, are as follows. On April 26, 2002, a car operated by Mr. Stricklett struck and injured Scott Alves, who was eleven years old at the time.[3] Scott suffered a fractured tibia and fibula and underwent three surgeries to repair the fractures. At the time of the incident, Mr. Stricklett's vehicle was insured by Summit under a policy with a $25, 000 per person, $50, 000 per accident coverage limit.[4]

         In December 2002, the Alveses provided Summit with Scott's medical records. The Alveses alerted Summit that Scott was still undergoing treatment for his injuries and that medical bills from Hasbro Children's Hospital had not yet been obtained. Shortly thereafter, the Alveses sent Scott's hospital bills to Summit.[5] In March 2003, Summit informed the Alveses that it had investigated the claim and had determined that Mr. Stricklett was not at fault for Scott's injuries.[6]Summit further responded that it would "make no offers on this case." In a letter dated April 15, 2003, the Alveses' attorney responded that he disagreed with Summit's conclusion and that he and his clients were "still in the process of pursuing this claim."

         No further communication occurred between the parties for nearly eight years. On February 16, 2011, a new attorney for the Alveses informed Summit by letter that the Alveses planned to proceed with a lawsuit against Mr. Stricklett.[7] The new attorney indicated that he disagreed with the denial of Scott's claim, and he asked Summit to provide information regarding the policy limits in their contract with Mr. Stricklett. Summit responded on April 6, 2011, requesting that the Alveses contact the insurance company to discuss the claim.[8] In a letter dated April 8, 2011, the Alveses responded and requested that Summit provide them with a copy of the entire policy, including all endorsements, offering to forward a package of Scott's records and bills to Summit. They stated that they would "not be in a position to discuss settlement * * * until [they had] seen the entire policy."

         On May 9, 2011, the Alveses sent Scott's medical records and bills to Summit. Included in the package were hospital bills totaling $59, 792.66 and a bill from University Orthopedics for $20, 945. In the same letter, the Alveses stated that they were still waiting to receive a copy of the insurance policy. Then, in June 2011, after being informed that Summit could not locate a copy of the insurance policy, the Alveses made a settlement demand of $300, 000 to Summit. The Alveses stated that Summit was liable for the policy limit of $25, 000, and they added that, because Summit had failed to previously offer its policy limits, the insurer would "undoubtedly be held liable for all interest over and above the policy limit." They also asserted that, if Summit failed to settle and the case proceeded to trial, it would be "liable for all damages over and above the policy limits in accordance with Asermely * * *." Summit responded several days later by offering its policy limits, $25, 000, on behalf of Mr. Stricklett. However, the Alveses rejected this offer and filed suit against Mr. Stricklett on September 26, 2011, after the parties had exchanged several more letters but were unable to reach a settlement.

         Subsequently, Summit filed a complaint for declaratory relief, naming Mr. Stricklett and the Alveses as defendants. In that action, Summit requested that the court determine "whether Summit has an obligation to pay any sums beyond its policy limits in connection with the underlying action[.]" Specifically, Summit asked the court to declare that Summit had "no duty to pay interest beyond its policy limits on any judgment in connection with the underlying action" and that it had "no duty to pay the Alves[es] anything beyond its policy limits on any judgment in connection with the underlying action[.]" The Alveses filed a counterclaim for declaratory relief solely against Summit, alleging that Summit was liable for "pre-judgment interest accrued upon all damages" from Scott's injuries and "for all damages over and above any provable policy limit * * *."[9] Mr. Stricklett submitted an answer to Summit's complaint, but he only indirectly participated in the litigation that followed.

         Summit and the Alveses filed cross-motions for summary judgment in the declaratory-judgment action, which were denied after the hearing justice determined that there were genuine issues of material fact concerning what had transpired between the parties in 2003, following the Alveses' claim. In the meantime, an issue had arisen regarding whether the declaratory-judgment action should be heard and decided before the tort suit went to trial. The Alveses submitted a motion requesting that the declaratory-judgment action be given priority, and the Superior Court granted that motion.[10]

         At the declaratory-judgment hearing, the Alveses opened by stating that, under Asermely and its progeny, this Court had created a "duty of good faith and fair dealing" on the part of an insurance company "that runs to both * * * the first party claimant insured and also to third party claimants." The Alveses also stated that an assignment was not required to activate the duty, arguing that the facts of both Asermely and DeMarco v. Travelers Insurance Company, 26 A.3d 585 (R.I. 2011), "just so happen[ed]" to involve assignments. Specifically, the Alveses averred that certain language in our opinion in DeMarco evidenced this purported extra-contractual duty of good faith and fair dealing.[11] The Alveses noted that, despite the fact that they had not made a settlement demand within the policy limits in the eight years between 2003 and 2011, Asermely created a strict duty on the insurer to proactively engage in settlement discussions. The Alveses stated that bad faith on the part of the insurer is not a required showing, especially where the claimant's injuries were severe and the policy limits are small in comparison. Moreover, the Alveses cited to our opinion in Kolc v. Maratta, 113 R.I. 160, 319 A.2d 14 (1974), as well as G.L. 1956 § 31-14-3(a) and G.L. 1956 § 31-18-8, arguing that, because there exists a duty to anticipate that minors might dart into the road, Summit should have known that Mr. Stricklett would have been found at least partly at fault for the accident and, therefore, should have offered to settle on his behalf.

         Summit responded that Asermely and DeMarco were distinguishable from the instant case in that both involved assignments of the insured's claims against the insurer and an offer from the injured party to the insurance company within the policy limits. Moreover, Summit, citing to our opinion in Auclair v. Nationwide Mutual Insurance Company, 505 A.2d 431 (R.I. 1986), argued that an assignment was specifically necessary for a third party to have standing under Asermely because "[a]ny obligation to deal with settlement offers in good faith runs only * * * to the insured." Auclair, 505 A.2d at 431. Summit similarly distinguished Skaling v. Aetna Insurance Co., 742 A.2d 282 (R.I. 1999) (Skaling I), and Skaling v. Aetna Insurance Company, 799 A.2d 997 (R.I. 2002) (Skaling II), on the basis that those cases involved first-party claims brought by an insured against an insurer, where the insurance company clearly owed a duty to the plaintiff-insured. Summit then averred that its investigation of the claim, which consisted of a review of the police report, was adequate for purposes of fulfilling any duty it might have had to investigate the Alveses' claim in good faith.

         One year later, the trial justice issued a written decision granting judgment in favor of Summit. In that decision, the trial justice first interpreted Summit's insurance policy and determined that the interest provision in that policy did not require that Summit pay interest in excess of the policy limit and that this contract provision did not violate Rhode Island law. Next, the trial justice interpreted the rejected settlement offer statute, G.L. 1956 § 27-7-2.2, [12] and decided that the statute did not apply in this case because the Alveses had never made an offer to Summit at or around the policy limits. He then declined to rule on whether the prejudgment interest statute, G.L. 1956 § 9-21-10, [13] was applicable in this case, stating that it would have been premature to decide this issue.

         The trial justice then addressed what he characterized as the main issue in the case: Whether Summit owed a duty to its insured, to the Alveses, or to others. First, the trial justice found that there was no evidence to show that Summit failed to properly investigate the Alveses' claim, failed to engage in settlement discussions, or unreasonably denied their claim. The trial justice cited to Summit's investigation of the police report of the accident in finding that there was no bad faith on Summit's part in denying the Alveses' claim. He also found that this Court's opinion in Asermely was distinguishable from the present case in several respects. The trial justice pointed out that, because the Alveses were neither Summit's insureds nor assignees of the rights of Summit's insureds, they were owed no duty under Asermely. Next, the trial justice emphasized that an insurer owes its insured "unique rights belonging only to insureds." He observed that insurance companies also owe a duty to their shareholders to pay claims reasonably and to avoid paying fraudulent claims.

         In a ruling that would seem to contradict his previous analysis, the trial justice concluded that "Summit does owe a duty to the Alves[es] to act in a reasonable manner and in good faith in settling the claim against Mr. Stricklett." He went on to state that Summit had fulfilled this duty and had acted appropriately under the circumstances. The trial justice declared that Summit is "not required to pay all prejudgment interest that has accrued on the action."

         Final judgment entered against the Alveses on March 13, 2017; and, on March 17, 2017, ...

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