Maryland and Bad Faith (Continued from page 7)
signal that the court may be willing to allow some first party tort claims against insurance carriers. Mesmer v. Maryland Automobile Insurance Fund 12
involved a
carrier’s complete denial of coverage and refusal to defend under an automobile li- ability insurance policy. No declaratory judgment action was brought by either of the parties to resolve the issue of cover- age prior to litigation of the underlying claim. Counsel for the plaintiff demanded payment of the policy limit in settlement of the claim and then took the case to trial, where a verdict in excess of the policy limit was rendered. Following the verdict, the insured defendants (by then judgment debtors) brought suit alleging breach of contract and negligence and thereafter assigned their cause of action to the plain- tiff, who was then joined in the action. The Court of Appeals, in affirming the granting of a motion for summary judg- ment, held that the facts of the case did not “give rise to the tort action of an al- leged bad faith failure to settle a third party claim against the insured,”13
rise to an action for breach of contract, in which the measure of damages was lim- ited to the policy limit and the cost of defending the underlying action. The decision conspicuously avoids discussing a first party bad faith claim and treats the case as an attempt to extend bad faith fail- ure to settle claims to include those where coverage has been completely denied. The duty to defend, however, is a first party obligation within a liability policy. The court’s rationale for its ruling in
the Mesmer case, along with the court’s conspicuous failure to explicitly mention or reject a cause of action for first party bad faith, may be an indication of the court’s possible willingness at some future time to entertain, under an appropriate set of facts, either a cause of action for first party bad faith or tort actions utiliz- ing more traditional tort principles to bring about essentially the same result. While Mesmer precludes such a tort ac- tion where there has been a complete disclaimer of coverage under the policy, the court’s reasoning, discussed below, would not necessarily extend to a denial of the right to pursue a tort claim for ac- tions based on either contractual liability or the administration of the claim.
12353 Md. 241, 725 A2d 1053 (1999) 13
Id. at 252, 725 A.2d 1053 (emphasis sup- plied).
8
In setting out the basis of its decision,
the Mesmer Court discussed the circum- stances under which it had previously held that a tort action could be founded on a contractual duty and reiterated that al- though a tort action may be founded on a contractual duty, the tort must have an independent basis in the law. The Mesmer Court indicated that when the dispute is over the defendant’s complete failure to recognize or undertake any contractual obligation whatsoever, the plaintiff is or- dinarily limited to a breach of contract remedy. It is when the defendant has pro- ceeded on the basis that a contractual obligation exists, has undertaken that obligation, and has undertaken it in vio- lation of the appropriate standard of care, that the plaintiff may, in some circum- stances, maintain a tort action.14 The court noted that this distinction had been historically characterized as that of nonfeasance versus misfeasance: Some earlier cases set forth this distinc- tion in terms of “nonfeasance” and “misfeasance.”
Professor Prosser has but did give
explained (William L. Prosser, Hand- book of the Law of Torts, § 92, at 614-615 (4th ed.1971, footnotes omitted): ‘The relation between the remedies in contract and tort presents a very confusing, field, still in process of de- velopment, in which few courts have made any attempt to chart a path.
* * *
The line of division which developed quite early was that between ‘nonfea- sance,’ which meant not doing the thing at all, and ‘misfeasance,’ which meant doing it improperly. Much scorn has been poured on the distinction, but it does draw a valid line between the complete non-performance of a promise, which in the ordinary case is a breach of contract only, and a defective performance, which may also be a matter of tort. In general the courts have adhered to the line thus drawn; and a failure even to begin or at- tempt performance of an agreement to lend money, to employ the plaintiff, to furnish transportation, to deliver goods ordered, to furnish light for a room, to obtain the dissolution of an injunction and permit the plaintiff to proceed with the construction of a road, or to attend as a physician, all are held to amount to mere breaches of contract, for which no tort action will lie.’
Later, Prosser continued: ‘Where the defendant has done some-
thing more than remain inactive, and is to be charged with ‘misfeasance,’ the pos- sibility of recovery in tort is considerably increased.... [A] carrier remains liable in tort, as well as on the contract, for negli- gent injury to a passenger or for carrying him past his station, for negligent loss or damage to goods shipped, or for delay in their delivery. Here again the duty is an incident of the relation rather than the contract, and the carrier would be liable if the passenger were carried free. ‘Beyond this the American courts have extended the tort liability for misfeasance to virtually every type of contract where defective performance may injure the promisee. An attorney or an abstractor examining a title, a physician treating a patient, a surveyor, an agent collecting a note or lending money or settling a claim, or a liability insurer defending a suit, all have been held liable in tort for their neg- ligence.... The principle which seems to have emerged from the decisions in the United States is that there will be liability in tort for misperformance of a contract whenever there would be liability for gra- tuitous performance without the contract--which is to say, whenever such misperformance involves a foreseeable, unreasonable risk of harm to the interests of the plaintiff.’ (Id. at 616-618, footnotes omitted) (emphasis added). See also 3 Harper, James and Gray, The Law of Torts, § 18.6, at 725-730 (2d ed.1986); W. Page Keeton, Prosser and Keeton on the Law of Torts, § 92 (5th ed.1984); Speiser, Krause and Gans, The Ameri- can Law of Torts, §§ 1:20, 1:21 (1983); Restatement of the Law, Second, Torts, § 323.
Although later Maryland cases have
disapproved of the “nonfeasance” and “misfeasance” terminology, we have generally recognized the distinction set forth above. 15 It would appear from the reasoning of the Court of Appeals in Mesmer that mis- feasance by a first party carrier in the performance of contractual obligations conceded by the carrier to be due to the plaintiff could give rise to a tort cause of action. The court’s quotation of the dis- cussion in Prosser on attorneys, abstracters, physicians and surveyors would naturally lead one to examine the job performed by most insurance claims personnel in administering a first party claim, because in this day and age, insur-
14Id. at 254, 725 A.2d 1053. Trial Reporter 15Id. at 254-256, 725 A.2d 1053. Spring 2000
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