NATURE OF INSURANCE CONTRACT RAWLINGS V FARMERS RAWLINGS

NATURE OF INSURANCE CONTRACT

RAWLINGS V. FARMERS

RAWLINGS V. FARMERS • What is the procedural history of this case? • What happened in this case? (First person)

RAWLINGS V. FARMERS • You are the lawyer for Rawlings • Who is on your witness list?

RAWLINGS V. FARMERS • What does taken in the light most favorable to the party sustaining the judgment? • Did Farmers promptly pay the first party claim?

RAWLINGS V. FARMERS • What is a case of first impression? What was the issue here? • What motivates Farmers in this case? What is the end game for Farmers?

RAWLINGS V. FARMERS • Who is Daryl Schultz? • “There is nothing to see here” • What did Rawlings try to do to protect his interest? • Specifically asked whether he should have his own investigation done • Farmers refers insured to investigative firm who in turn referred him to back to Farmers.

RAWLINGS V. FARMERS • What does Rawlings do? • Before filing a lawsuit, what did Rawlings’ lawyer do? How did Farmers respond? • Files complaint with Arizona Department of Insurance. Farmers responds by demanding that Rawlings pay half • How does Rawlings ultimately get the report?

RAWLINGS V. FARMERS • Write the lawsuit for Rawlings? What to claim? • Breach of contract • Tort of bad faith

RAWLINGS V. FARMERS • What was the big case that Farmers cites? • Noble v. National American • Who relies on this case besides Farmers? • How should Noble be interpreted according to Farmers? • Because Farmers paid the claim in full and without delay, it could not be liable for bad faith. Farmers argues that actionable bad faith should be limited to the unfounded refusal or delay in payment of a valid claim.

RAWLINGS V. FARMERS • What is the ultimate issue in the case? • Whether an insured violates the covenant of good faith and fair dealing when, for the purpose of protecting its own interests*, it acts improperly to impede its insured’s recovery of the uninsured portion of the loss. • What is covenant of good faith? • Neither party will act to impair the right of the other to receive the benefits which flow from their agreement or contractual relationship. • What is the employment law analogy here?

RAWLINGS V. FARMERS • Holding of the case • One of the key benefits that flow from the insurance contract is the insured's expectation that his insurance company will not wrongfully deprive him of the very security for which he bargained or expose him to the catastrophe from which he sought protection. Conduct by the insurer which does destroy the security or impair the protection purchased breaches the implied covenant of good faith and fair dealing implied in the contract. This is not to say, of course, that the insurer must pay claims which are not covered, or take any other action inconsistent the contract. For example, we have held that the covenant of good faith and fair dealing implied in at-will employment contracts does not protect an employee from a “no cause” termination because such a tenure provision is inconsistent with the nature of such contracts.

RAWLINGS V. FARMERS • Rationale of the case • In delineating the benefits which flow from an insurance contract relationship we must recognize that in buying insurance an insured usually does not seek to realize a commercial advantage but, instead, seeks protection and security from economic catastrophe. Thus, the insured's object in buying the company's express covenant to pay claims is security from financial loss which he may sustain from claims against him and protection against economic catastrophe in those situations in which he may be the victim. In both cases, he seeks peace of mind from the fears that accompany such exposure. • Disparity in bargaining power

RAWLINGS V. FARMERS • What is an adjudicatory responsibility? • The insurer evaluates the claim, determines whether it falls within the coverage provided, assesses its monetary value, decides its validity and passes upon payment. Although the insured is not without remedies if he disagrees with the insurer, the very invocation of those remedies detracts significantly from the protection or security which was the object of the transaction. Thus, the insurance contract and the relationship it creates contain more than the company’s bare promise to pay certain claims when forced to do so; implicit in the contract and the relationship is the insurer’s obligation to play fairly with its insured. • Is there adjudicatory responsibility?

RAWLINGS V. FARMERS • What is the difference between an adjudicatory responsibility and insurance company’s responsibility? • What is a fiduciary duty? • Fiduciary duty is the legal obligation of the highest degree for one party to act in the best interest of another. The party charged with the obligation is the fiduciary, or on entrusted with the care of property or money. • Is there a fiduciary duty here? • No. But equal consideration.

RAWLINGS V. FARMERS • What was the ultimate award? (We will see this case again)