Fraioli v. Metropolitan Property & Casualty Insurance

748 A.2d 273, 2000 R.I. LEXIS 85, 2000 WL 355556

• Court: Supreme Court of Rhode Island
• Decided: April 6, 2000
• Docket: 99-60-Appeal
• Status: Published

Opinions

OPINION

PER CURIAM.

This case came before the Court for oral argument on March 7, 2000, pursuant to an order that directed both parties to appear in order to show cause why the issues raised by this appeal should not be summarily decided. After hearing the arguments of counsel and examining the memo-randa filed by the parties, we are of the opinion that cause has not been shown and, therefore, we proceed to decide the issues at this time.

The plaintiff, Mario Fraioli (plaintiff), has appealed from a Superior Court judgment entered in favor of defendant, Arnica Mutual Insurance Company (Arnica). The facts in this case are undisputed.

The plaintiff was involved in a motor vehicle accident on May 11, 1994, with another vehicle operated by Stephen Hay (Hay or tort-feasor). The plaintiff had a passenger, Vincent DiPippo (DiPippo), in his vehicle. Both plaintiff and his passenger were injured. At the time of the accident, plaintiff was insured for both liability and uninsured/underinsured motorist coverage under a policy issued by Arnica. DiPippo was insured by Prudential Insurance Company (Prudential). Both plaintiff and DiPippo were represented by the same attorney, Charles Casale (Casale). The other vehicle involved in the collision was owned by Hay, and was insured by Metropolitan Property and Casualty Insurance Company (Metropolitan). The policy limits on Hay’s insurance were $25, 000/$50,000.

In 1995, Casale obtained permission from Prudential to settle DiPippo’s claim with the tort-feasor for the policy limit of $25,000. This letter was mistakenly placed in plaintiffs file.

Beginning in January 1995 and continuing until May 1995, Casale made numerous requests, both written and oral, to Arnica seeking permission to settle plaintiffs claim with Hay’s insurance carrier for the policy limit applicable to a single person. During this period Metropolitan had not made an offer to settle for the policy limits. However, it was conceded at oral argument that Arnica, on the basis of Ca-sale’s requests, had caused an asset check to be made in respect to the tort-feasor. This asset check revealed that Hay had no appreciable assets.

In May 1995, Casale, believing that Arni-ca had given permission to settle with the tort-feasor, agreed on plaintiffs behalf to settle with Metropolitan for the $25,000 policy limit. When he discovered his error, Casale again asked Arnica for permission to settle but was refused. Thereafter, plaintiff filed an action in Superior Court seeking a declaratory judgment that Arni-ca had wrongfully and in bad faith withheld consent. After an evidentiary hearing, the trial justice entered judgment in favor of Arnica on the ground that it had not consented to plaintiffs settlement with the tort-feasor for the policy limits.

The statute relating to the preservation of rights against a claimant’s under-insured motorists carrier is G.L.1956 § 27-7-2.1(h), which reads in pertinent part as follows:

“In the event that the person entitled to recover against an underinsured motorist recovers from the insurer providing coverage pursuant to this section, that insurer shall be entitled to subrogation rights against the underinsured motorist and his or her insurance carrier. Release of the tortfeasor with the consent of the company providing the underin-sured coverage shall not extinguish or bar the claim of the insured against the underinsurance carrier regardless of whether the claim has been liquidated.”

We have held that this statute read together with a consent exclusion in the insurance policy requires that a plaintiff obtain the consent of his or her underin-sured insurance carrier before settling with the tort-feasor, and that failure to do so will render the uninsured motorist’s coverage inapplicable. See Pickering v. American Employers Insurance Co., 109 R.I. 143, 155, 282 A.2d 584, 591 (1971). In Pickering, we observed that consent exclusions in insurance policies are enforceable because they serve an important purpose — “they safeguard the insurer’s right of subrogation.” Id. This statute provides insurers with a measure of financial protection. See DiTata v. Aetna Casualty and Surety Co., 542 A.2d 245, 248 (R.I.1988).

In the instant case, the Arnica policy stated in part:

“A. We do not provide Uninsured Motorist Coverage for bodily injury sustained by any person:

2. If that person or the legal representative settles a bodily injury claim without our consent.”

It was conceded at oral argument that had plaintiff requested Arnica’s consent to settle with Metropolitan after the offer was made, Arnica would have had no basis upon which to refuse consent. It is also undisputed that during the months when plaintiff had requested permission to settle, there had been no settlement offer from Metropolitan actually placed on the table to plaintiff which could have been communicated to Arnica. Nevertheless, Arnica conducted the asset check as a precautionary step. It is beyond question that Arnica was in no way prejudiced by the failure to repeat the request for permission after the offer had been made. It is also true, as we have said in Manzo v. Amica Mutual Insurance Co., 666 A.2d 417 (R.I.1995), that a showing of prejudice on the part of the underinsured motorist carrier is not necessary in order to deny coverage. We have also held that an insurance company has a fiduciary obligation to act in the “ ‘best interests of its insured * * * [and to] refrain from acts that demonstrate greater concern for the insurer’s monetary interest than the financial risk attendant to the insured’s situation.’ ” Asermely v. Allstate Insurance Co., 728 A.2d 461, 464 (R.I.1999). In that case we did not specifically consider whether such a fiduciary obligation extended to his or her relationship with his or her own insurer in an underinsured context. We have, however, stated in Bolton v. Quincy Mutual Fire Insurance Co., 730 A.2d 1079, 1080-81 (R.I.1999), that “[w]hen an insurance company denies its insured permission to settle within a tortfeasor’s policy limit, it exposes itself to an action in bad faith for breach of its obligation to its insured in situations where there is no obvious and reasonable basis for its refusal.”

Arnica argues that this obligation to respond reasonably and promptly to a request to settle for policy limits does not arise until an offer has been made. It is conceivable that Arnica’s argument might have merit in some factual contexts. However, here, the request was made before the offer. The asset check was run. No appreciable assets were discovered. It is conceded that if the request had been repeated, it could not have reasonably been refused.

In respect to the ruling relating to consent, an ancient maxim is applicable — “ces-sante ratione, cessat ipsa lex” .(when there is no longer a reason for a rule, the rule ceases to be effective). We are of the opinion that allowing Arnica to deny coverage under the narrow facts of this case would be to elevate form over substance.

For the reasons stated, we sustain the plaintiffs appeal, reverse the judgment in favor of the defendant, and remand the case to the Superior Court with directions to enter judgment for the plaintiff that he is entitled to recover under the policy such amount as may be determined in an appropriate proceeding to be due and owing from the carrier, provided, however, that under the facts of the case we hold that Arnica is not liable for bad faith.