Opinion
Case No. 2:99cv566K.
March 22, 2001.
MEMORANDUM DECISION AND ORDER
This matter is before the court on Defendant Travelers Property Casualty's ("Travelers") Motion for Partial Summary Judgment. A hearing on that motion was held on March 14, 2001. At the hearing, Travelers was represented by H. Michael Drake, and Plaintiff John Taxiarchos dba Broadway Deli ("Mr. Taxiarchos") was represented by Bruce A. Winchell. Before the hearing, the court considered carefully the memoranda and other materials submitted by the parties. Since taking the matter under advisement, the court has further considered the memoranda and exhibits submitted by the parties. Now being fully advised, the court renders the following Memorandum Decision and Order.
I. BACKGROUND
This action was filed by Mr. Taxiarchos against his insurer, Travelers, for Travelers' alleged failure to promptly honor a fire insurance policy on Mr. Taxiarchos' business, which suffered fire damage five days after the policy was issued. The crux of Mr. Taxiarchos' Amended Complaint is that Travelers failed to timely investigate his claim, refused to make advances requested by Mr. Taxiarchos, failed to pay the claim when liability became reasonably clear, and refused to pay what Mr. Taxiarchos asserts is the amount covered by the policy.
Mr. Taxiarchos has alleged claims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) intentional infliction of emotional distress, (4) fraud, and (5) estoppel. In the Second Cause of Action, Mr. Taxiarchos requests "tort-like" damages in excess of $5 million, and in the Third and Fourth Causes of Action, he requests punitive damages in the amount of $5 million.
In the instant motion, Travelers has moved to dismiss (1) Mr. Taxiarchos' request for $5 million in "tort-like" damages in the Second Cause of Action, (2) Mr. Taxiarchos' Third Cause of Action, alleging intentional infliction of emotional distress, (3) Mr. Taxiarchos' Fourth Cause of Action, alleging fraud, and (4) Mr. Taxiarchos' request for $5 million in punitive damages in the Third and Fourth Causes of Action.
II. DISCUSSION
A. Punitive Damages Under the Implied Covenant of Good Faith and Fair Dealing
Travelers seeks dismissal of Mr. Taxiarchos' request for $5 million in "tort-like" damages related to his Second Cause of Action, breach of the implied covenant of good faith and fair dealing. Travelers claims that, under Utah law, punitive damages cannot be awarded for breach of contract. Travelers emphasized that this rule applies even if the contract was breached willfully and maliciously. See Jorgenson v. John Clay Co., 660 P.2d 229, 232-33 (Utah 1983). Travelers claims that a first-party claim by an insured against his insurer for breach of the implied covenant of good faith and fair dealing is a contract cause of action. Thus, the insured can recover, at most, general and "reasonably foreseeable" consequential damages, but cannot recover tort or punitive damages unless a separate tort is involved. See Beck v. Farmers Ins. Exchange, 701 P.2d 795, 800-801 n. 3 (Utah 1985). Travelers contends that a request of $5 million in tort-like damages cannot be a request for general and "reasonably foreseeable" consequential damages; rather, such an amount can be construed only as an impermissible request for punitive damages, which is being used as an "in terrorem" weapon in settlement negotiations.
Mr. Taxiarchos, on the other hand, claims that he is entitled to recover both economic and non-economic "tort-like" damages for a breach of the implied covenant. He argues that, in Crookston v. Fire Insurance Exchange, 817 P.2d 789, 805 (Utah 1991), the court held that the jury's award of compensatory damages for the defendant insurer's failure to pay a property damage claim and breach of its implied duty of good faith, in the amount of $323,399 for economic loss and $492,427 for emotional distress and loss of financial reputation was not excessive. He also cites Billings v. Union Bankers Insurance Co., 918 P.2d 461 (Utah 1996), for the proposition that, in cases involving a first-party insurer's breach of contract and bad faith, Utah courts have "departed form the restrictive traditional contract damages approach and followed a course more closely aligned with a tort damages approach." Id. at 466.
In a first-party relationship between an insurer and its insured, the duties and obligations of the parties are contractual rather than fiduciary. "Without more, a breach of those implied or express duties can give rise only to a cause of action in contract, not one in tort." Beck, 701 P.2d at 800. Clearly, punitive damages are not available for breach of the implied covenant of good faith and fair dealing. See Beck, 701 P.2d at 800-01; Canyon Country Store v. Bracey, 781 P.2d 414, 423 (Utah 1989); Jorgenson at 232-33. Mr. Taxiarchos' request for $5 million in "tort-like" damages is greatly exaggerated and is tantamount to a request for punitive damages. Consequently, Mr. Taxiarchos' request for $5 million in conjunction with his claim for breach of the implied covenant of good faith and fair dealing is dismissed.
However, Mr. Taxiarchos is entitled to seek both general damages ( i.e., those flowing naturally from the breach) and consequential damages ( i.e., those reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made). See Beck, 701 P.2d at 801. The Utah Supreme Court has recognized that "damages from losses well in excess of the policy limits, such as for . . . a business, may therefore be foreseeable and provable." See id. at 802.
B. Intentional Infliction of Emotional Distress
To analyze this claim, the facts of this case must be more fully fleshed out. In March 1998, Mr. Taxiarchos purchased the assets of a business known as the Broadway Deli, including its personal property and the real property on which it was located. Most of the money was borrowed, and the loan was secured by a trust deed on the real property. On April 29, 1998, Travelers issued an insurance policy for the Broadway Deli. On May 4, 1998, five days later, the Broadway Deli suffered damage from a fire. Travelers did not complete its investigation until approximately December 17, 1998 and issued a check to Mr. Taxiarchos in the amount of $56,244.29 on that date. In the meantime, Mr. Taxiarchos was unable to pay his mortgage, and a foreclosure sale took place, resulting in the loss of his property and business.
There appear to be many disputed facts regarding the events that took place between the time of the fire in May 1998 and the completion of the investigation in December 1998. Mr. Taxiarchos claims that he had asked Travelers for an advance on numerous occasions and that he (or and agent) had informed Travelers of the imminent foreclosure. Mr. Taxiarchos claims that Travelers never responded to the requests for an advance. He blames Travelers for the alleged egregious delay that resulted in the foreclosure sale and the loss of his property. According to Mr. Taxiarchos, Travelers admits that, even if Mr. Taxiarchos had been involved in setting the fire (an allegation that was eventually ruled out), it should have at least paid the actual cash value payments to the mortgage holder to be applied to loan payments, with an agreement that the amount would ultimately be offset against the Mr. Taxiarchos' claim after completion of the investigation.
Travelers, on the other hand, blames Mr. Taxiarchos for the delay, claiming, among other things, that he delayed the examination under oath, failed to produce necessary documents until October, and failed to send Proofs of Loss until mid-October. Travelers denies that it knew about the foreclosure sale and claims that, by the time it learned of the sale, it was too late to cure the default because over ninety days had passed.
Travelers also contends that Mr. Taxiarchos has not accurately supported his "disputed" facts and that a close scrutiny of the evidence cited by Mr. Taxiarchos in his attempt to create factual disputes will reveal that Mr. Taxiarchos has misrepresented the evidence. The court, however, need not decide which facts are genuinely at issue or whether any such genuinely disputed facts are material because, even assuming that Mr. Taxiarchos' facts are supported by the record, Mr. Taxiarchos cannot succeed on his claim for intentional infliction of emotional distress.
To state a claim for intentional infliction of emotional distress, a plaintiff must allege that the defendant
intentionally engaged in some conduct toward the plaintiff, (a) with the purpose of inflicting emotional distress, or, (b) where any reasonable person would have known that such would result; and his actions are of such a nature as to be considered outrageous and intolerable in that they offend against the generally accepted standards of decency and morality.Jackson v. Brown, 904 P.2d 685, 687-88 (Utah 1995). To be considered outrageous, "`[t]he conduct must evoke outrage or revulsion; it must be more than unreasonable, unkind, or unfair.'" Franco v. The Church of Jesus Christ of Latter-Day Saints, No. 981893, 2001 WL 228354, at *8 (Utah Mar. 9, 2001) (quoting 86 C.J.S. Torts ¶ 27, § 70, at 722). Furthermore, "`[a]n act is not necessarily outrageous merely because it is tortious, injurious, or malicious, or because it would give rise to punitive damages, or because it is illegal.'" Id. (quoting 86 C.J.S. Torts at 722-23).
This opinion has not yet been released for official publication.
There is no evidence that Travelers intentionally engaged in conduct toward Mr. Taxiarchos with the purpose of inflicting emotional distress. Also, even if Travelers would or should have known that emotional distress would result from its actions, there is no evidence that would permit a reasonable jury to conclude that the actions taken by Travelers are of such a nature as to be considered outrageous and intolerable in that they offend against the generally accepted standards of decency and morality. Consequently, Mr. Taxiarchos' claim for intentional infliction of emotional distress is dismissed.
The dismissal of Mr. Taxiarchos' claim for intentional infliction of emotional distress has no bearing on whether he can seek damages for mental anguish in connection with his claim for breach of the implied covenant. In Beck, the Utah Supreme Court recognized that, because "insurance frequently is purchased not only to provide funds in case of loss, but to provide peace of mind for the insured or his beneficiaries . . . in unusual cases, damages for mental anguish might be provable." 701 P.2d at 802; see also Billings v. Union Bankers Ins. Co., 918 P.2d 461, 466 (Utah 1996) (stating that one who breaches the implied covenant of good faith and fair dealing "may be held liable for broad consequential damages foreseeably caused by the breach, damages which might include those for mental anguish. . . ."). Obviously, "the foreseeability of any such damages will always hinge upon the nature and language of the contract and the reasonable expectations of the parties." Beck, 701 P.2d at 802.
C. Fraud
Travelers also contends that Mr. Taxiarchos' allegations and evidence do not support a claim for fraud because Mr. Taxiarchos cannot prove that there was a promise accompanied by a present intention not to perform it, made for the purpose of deceiving the promisee. See Cerritos Trucking Co. v. Utah Venture No. 1, 645 P.2d 608, 611 (Utah 1982). Mr. Taxiarchos must show by clear and convincing evidence that Travelers did not intend to perform the promise at the time it was made. Travelers argues that there are no specific allegations in the Amended Complaint demonstrating that Travelers did not intend to make good on its policy at the time it was issued.
To the contrary, Mr. Taxiarchos argues that his claim extends beyond Travelers' characterization of his claim and includes allegations that Travelers falsely stated the reasons why advances could not be made to him. Mr. Taxiarchos points to a July 13, 1998 letter in which Travelers stated that it could not advance money to him for various reasons, which Mr. Taxiarchos claims are false. This letter, however, does not provide sufficient evidence to sustain a fraud claim.
To establish fraud under Utah law, a party must prove by clear and convincing evidence each of the following elements:
"(1) That a representation was made; (2) concerning a presently existing material fact; (3) which was false; (4) which the representor either (a) knew to be false, or (b) make recklessly knowing that he had insufficient knowledge upon which to base such representation; (5) for the purpose of inducing the other party to act upon it; (6) that the other party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his injury and damage."Franco, 2001 WL 228354 at *9 (quoting Mikkelson v. Quail Valley Realty, 641 P.2d 124, 126 (Utah 1982) (additional citations omitted)).
Again, even assuming that Mr. Taxiarchos' facts are true, he has failed to demonstrate that there is evidence that could satisfy the elements of a fraud claim. Thus, his fraud claim is dismissed.
D. Punitive Damages
Finally, Travelers seeks the dismissal of Mr. Taxiarchos' claims for punitive damages under both his fraud and intentional infliction of emotional distress claims. Travelers argues that punitive damages may be awarded for only three types of conduct: (1) willful and malicious conduct; (2) intentionally fraudulent conduct; or (3) conduct that manifests a knowing and reckless indifference toward and disregard of the rights of others. This conduct must be proved by "clear and convincing evidence." Utah Code Ann. § 78-18-1(1)(a). Travelers asserts that Mr. Taxiarchos has not come forward with evidence that would satisfy any of the foregoing requirements.
Mr. Taxiarchos essentially contends that genuine issues of material fact exist regarding whether Travelers acted with reckless disregard of its insured's interests, and therefore, his requests for punitive damages should not be dismissed. Mr. Taxiarchos also contends that punitive damages are available even if his tort claims are dismissed, claiming that Section 78-18-1(1)(a) of the Utah Code provides an independent basis for recovering punitive damages.
Regardless of whether Mr. Taxiarchos has come forward with evidence that would satisfy the requirements for a punitive damage award, there is no basis for an award of punitive damages because Mr. Taxiarchos' tort claims have been dismissed. See Beck, 701 P.2d at 800-01; Highland Constr. Co. v. Union Pacific R.R. Co., 683 P.2d 1042, 1049 (Utah 1984); Jorgenson, 660 P.2d at 232. Contrary to Mr. Taxiarchos' assertions, punitive damages are not available as an independent cause of action; rather, they are a claim for relief available in connection with a tort cause of action. The Utah Punitive Damages Awards Statute (the "Punitive Damages Act") does nothing to provide a plaintiff with an independent basis for punitive damages. That Act provides:
Except as otherwise provided by statute, punitive damages may be awarded only if compensatory or general damages are awarded and it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and a disregard of, the rights of others.
Utah Code Ann. § 78-18-1(1)(a).
The plain wording of the statute demonstrates that punitive damages are not available unless compensatory or general damages are awarded, which necessarily connotes that a plaintiff must first succeed on an independent claim to be entitled to punitive damages. In addition, the conclusion that the independent claim must be a tort claim is compelled by the Act's language stating that punitive damages may be awarded only if "it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of" the specified conduct.
Moreover, there is no indication whatsoever that the legislature intended for the Punitive Damages Act to change the previous well-settled law that punitive damages are not available for contract claims. Indeed, in Wood v. Utah Farm Bureau Insurance Co., No. 20000349-CA, 2001 WL 102010 (Utah Ct.App. 2001), the only Utah decision of which this court is aware that discusses punitive damages-arising under the Punitive Damages Act — in connection with a claim for breach of the implied covenant, the Utah Court of Appeals reiterated that "[p]unitive damages `cannot be awarded for a breach of contract unless the breach amounts to an independent tort.'" Id. at *7 (quoting Highland Constr. Co. v. Union Pacific R.R. Co.,, 683 P.2d 1042, 1049 (Utah 1984)). Accordingly, Mr. Taxiarchos' claims for punitive damages are dismissed.
The Opinion has not yet been released for publication in the permanent law reports. The preliminary opinion can also be found at 414 Utah Adv. Rep. 37 (Utah Ct.App. Feb. 8, 2001).
The Punitive Damages Act pertains to claims arising on or after May 1, 1989.
III. CONCLUSION
For the foregoing reasons and good cause appearing, IT IS HEREBY ORDERED that Travelers' Motion for Partial Summary Judgment is GRANTED. Mr. Taxiarchos' Third Cause of Action (Intentional Infliction of Emotional Distress) and his Fourth Cause of Action (Fraud) are DISMISSED. His requests for punitive damages are also DISMISSED.