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The Tort of Bad Faith Breach of Contract: When, If at All, Should It Be Extended Beyond Insurance Transactions?, 64 Marq

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The Tort of Bad Faith Breach of Contract: When, If at All, Should It Be Extended Beyond Insurance Transactions?, 64 Marq Marquette Law Review Volume 64 Article 1 Issue 3 Spring 1981 The orT t of Bad Faith Breach of Contract: When, If At All, Should It Be Extended Beyond Insurance Transactions? Thomas A. Diamond Follow this and additional works at: http://scholarship.law.marquette.edu/mulr Part of the Law Commons Repository Citation Thomas A. Diamond, The Tort of Bad Faith Breach of Contract: When, If At All, Should It Be Extended Beyond Insurance Transactions?, 64 Marq. L. Rev. 425 (1981). Available at: http://scholarship.law.marquette.edu/mulr/vol64/iss3/1 This Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion in Marquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contact [email protected]. MARQUETTE LAW REVIEW Vol. 64 Spring 1981 Number 3 THE TORT OF BAD FAITH BREACH OF CONTRACT: WHEN, IF AT ALL, SHOULD IT BE EXTENDED BEYOND INSURANCE TRANSACTIONS? THOMAS A. DIoND* I. INTRODUCTION Implied as a matter of law within every contract is a cove- nant of good faith and fair dealing requiring that neither party do anything which will injure the right of the other to receive the benefits of the agreement.' Through application of this covenant, a breach of contract may be found when a promisor, by his bad faith conduct, has jeopardized or de- stroyed a promisee's opportunity to reap the expected benefit of the bargain, even though that conduct failed to violate ex- pressed provisions of the agreement.2 In recent years, courts in several jurisdictions have given this implied covenant extra- contractual relevancy by holding the breach thereof to be tor- tious,3 thereby permitting the injured promisee remedial relief * Professor of Law, Whittier College School of Law. B.S., University of Penn- sylvania; L.L.B., University of California, Los Angeles; LL.M., New York University School of Law. 1. 3 A. CORBIN, CONMRACTS § 541, at 97 (1960); 5 S.WMLISTON, A TRFATI E ON THE LAW OF CoNTRACrs § 670, at 159 (3rd ed. 1961); Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 VA. L. REv.195, 232-52 (1968); U.C.C. § 1-203; Brown v. Superior Court, 34 Cal. 2d 559, 564, 212 P.2d 878, 881 (1949); Martindell v. Lake Shore Nat'l Bank, 15 Ml.2d 272, 286, 154 N.E.2d 683, 690 (1958); Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publish- ing Co., 30 N.Y. 2d 34, 45, 281 N.E.2d 142, 144, 330 N.Y.S.2d 329, 333, cert. denied, 409 U.S. 875 (1972); Shaw v. E. I. DuPont De Nemours & Co., 126 Vt. 206, 209, 226 A.2d 903, 906 (1967). 2. Summers, "Good Faith" in General ContractLaw and the Sales Provisions of the Uniform Commercial Code, 54 VA. L. REv. 195, 234 (1968). 3. See, e.g., United Services Auto. Ass'n v. Werley, 526 P.2d 28, 33 (Alaska 1974); Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573-74, 510 P.2d 1032, 1036, 108 Cal. MARQUETTE LAW REVIEW [Vol. 64:425 that would not have been available in an action founded on contract,4 including damages for mental suffering, economic Rptr. 480, 484-85 (1973); Crisci v. Security Ins. Co., 66 Cal. 2d 425, 432, 426 P.2d 173, 178, 58 Cal. Rptr. 13, 18 (1967); Grand Sheet Metal Prods. Co. v. Protection Mut. Ins. Co., 34 Conn. Supp. 46, -, 375 A.2d 428, 430 (1977); Lange v. Fidelity & Cas. Co. of N.Y., 290 Minn. 61, 185 N.W.2d 881, 885 (1971); First Security Bank v. Goddard, 593 P.2d 1040, 1047 (Mont. 1979); United States Fid. & Guar. Co. v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (1975); Travelers Ins. Co. v. Montoya, 90 N.M. 556, 557, 566 P.2d 106, 107 (Ct. App. 1977); Corwin Chrysler-Plymouth, Inc. v. Westchester Fire Ins. Co., 279 N.W.2d 638, 643 (N.D. 1979); Kirk v. Safeco Ins. Co., 28 Ohio Misc. 44, 46, 273 N.E.2d 919, 921 (1970); Christian v. American Home Assurance Co., 577 P.2d 899, 904 (Okla. 1978); Espinoza v. Safeco Title Ins. Co., 598 P.2d 346, 349 (Utah 1979); Anderson v. Continental Ins. Co., 85 Wis. 2d. 675, 686, 271 N.W.2d 368, 374 (1978). 4. See text accompanying notes 34-37 infra. 5. See, e.g., Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 579-80, 510 P.2d 1032, 1041, 108 Cal. Rptr. 480, 489 (1973); Crisci v. Security Ins. Co., 66 Cal. 2d 425, 433, 426 P.2d 173, 179, 58 Cal. Rptr. 13, 19 (1967); Christian v. American Home Assurance Co., 577 P.2d 899, 904 (Okla. 1978); Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 695-96, 271 N.W.2d 368, 378 (1978). Recovery for emotional distress arising from defendant's tortious conduct has been limited by policy considerations inherent in the various causal requirements for damages resulting from tortious conduct. See W. PROSSER, HANDBOOK OF THE LAW OF ToRs § 43, at 257 (4th ed. 1971); RESTATEMENT (SECOND) OF TORTS § 435(2) (1965); Green, Foreseeability in Negligence Law, 61 COLUM. L. REV. 1401 (1961). Tradition- ally, there has been a reluctance to permit recoveries for emotional distress absent physical injury or impact so as to protect against fictitious claims. 2 F. HARPER & F. JAMES, THE LAW OF TORTS § 18.4, at 1031-32 (1956); C. McCORMICK, HANDBOOK ON THE LAW OF DAMAGES § 89(b), at 319-22 (1935); W. PROSSER, HANDBOOK OF THE LAW OF TORTS § 54, at 328-29 (4th ed. 1971). Insurance bad faith breach cases have permitted recovery for emotional distress despite the absence of impact or injury when the bad faith breach caused substantial economic injury to the insured. Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 579, 510 P.2d 1032, 1041-42, 108 Cal. Rptr. 480, 489 (1973); Crisci v. Security Ins. Co., 66 Cal. 2d 425, 433, 426 P.2d 173, 179, 58 Cal. Rptr. 13, 19 (1967); Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 695-96, 271 N.W.2d 368, 378 (1978). "Obviously, where... the claim is actionable and has resulted in substantial damages apart from those due to mental distress, the danger of fictitious claims is reduced. ." Crisci v. Security Ins. Co., 66 Cal. 2d 425, 433, 426 P.2d 173, 179, 58 Cal. Rptr. 13, 19 (1967). There is a split of authority as to whether substantial economic injury is itself a prerequisite to recovery for emotional distress, see Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 695-96, 271 N.W.2d 368, 378 (1978). See Delos v. Farmers Ins. Group, Inc., 93 Cal. App. 3d 642, 155 Cal. Rptr. 843 (1979), in which the court permitted the award of damages for emotional distress although the tort caused no independent economic or property injuries other than attorneys' fees to prosecute the claim. The court regarded the defendant's refusal to pay substantial insurance proceeds that were due under its policy with plaintiff as sufficient "to establish the genuineness of his claim for mental distress." Id. at 659, 155 Cal. Rptr. at 854. Delos probably reflects the California position, considering the recent case of Molien v. Kaiser Foundation Hosp., 27 Cal. 3d 916, 616 P.2d 813, 167 Cal. Rptr. 831 (1980). In that case, plaintiff alleged the tort of negligent infliction of emotional dis- 19811 BREACH OF CONTRACT losses not foreseeable at the time of execution of the con- tract,' and punitive damages.7 As fascinating as the remarkable growth of this fledgling tress and, despite the absence of impact or injury, sought recovery for emotional dis- tress damages allegedly incurred when his wife was negligently misdiagnosed by de- fendant as having syphillis. In upholding plaintiff's claim, the court abolished the impact or injury rule, in favor of an ad hoc "genuineness" test. Quoting from Rodri- gues v. State, 52 Hawaii 186, 472 P.2d 509 (1970), the court stated: "In cases other than where proof of mental distress is of a medically significant nature. the gen- eral standard of proof required to support a claim of mental distress is some guaran- tee of genuineness in the circumstances of the case." Id. at 930, 616 P.2d at 821, 167 Cal. Rptr. at 839 (footnotes omitted). Based upon the premises and the holding of Molien, it is likely that in bad faith tort cases in California the court will not insist upon proof of substantial economic injury but will instead view each case on its merits to determine whether, in the con- text of all the facts, it appears reasonably certain that plaintiff did indeed suffer emo- tional distress and that emotional distress was a reasonable consequence of defen- dant's tort. 6. See, e.g., Silberg v. California Life Ins. Co., 11 Cal. 3d 452, 460-62, 521 P.2d 1103, 1108-10, 113 Cal. Rptr. 711, 716-18 (1974); United States Fidelity & Guar. Co. v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (1975); Corwin Chrysler-Plymouth, Inc. v. Westchester Fire Ins. Co., 279 N.W.2d 638, 643 (N.D. 1979); Christian v. American Home Assurance Co., 577 P.2d 899, 904 (Okla. 1978). 7. Punitive damages are not an essential concomitant of defendant's tortious con- duct. The bad faith required for breach of the covenant of good faith and fair dealing is not necessarily tantamount to the malevolent state of mind required for punitive damages.
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