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.
OPINION
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]
I
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, ...