Valley Boys, Inc. v. State Farm Fire and Casualty Company

Filing 37

MEMORANDUM AND ORDER denying 21 Motion for Reconsideration. Ordered by Senior Judge Joseph F. Bataillon. (ADB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
VALLEY BOYS, INC.,
Plaintiff,

8:14CV159

v.
MEMORANDUM AND ORDER
STATE FARM FIRE AND CASUALTY
COMPANY;
Defendant.

This matter is before the court on defendant State Farm Fire and Casualty
Company's ("State Farm's") motion to reconsider, Filing No. 21, the Court’s October 22,
2014, Memorandum and Order, Filing No. 20, denying State Farm’s motion to dismiss
the plaintiff's bad faith claim, Filing No. 11. State Farm submits additional authority
showing that Douglas County, Nebraska, District Courts have recently dismissed bad
faith claims in similar cases brought by assignees against Nebraska insurers. See
Filing No. 22, Index of Evid., Ex. 1; Filing No. 27, Index of Evid., Exs. 1-3. State Farm
also urges the court to address the anti-assignment provision in the policy as it relates
to the validity of the assignments at issue. Filing No. 21, Motion at 2.
The court has reviewed the parties' submissions and finds the court's earlier
order should stand. In four similar cases, Douglas County, Nebraska, District Courts
found no contractual relationship exists between Valley Boys and insurers and found
that "a bad faith claim is not a right under the policy and may not be assigned." Filing
No. 27, Index of Evid., Ex. 3, Valley Boys, Inc. v. United Servs. Automobile Assoc., et
al., No. CI 14-3139, Order at 9-10; see also Filing No. 22, Index of Evid., Ex. 1, Valley
Boys, Inc. v. Travelers Commercial Ins. Co., et al., No. 14-3078, Order at 3; Filing No.

27, Index of Evid., Ex. 1, Valley Boys, Inc. v. Auto-Owners Ins. Co., No. CI 14-2443,
Order at 12; Filing No. 27, Index of Evid., Ex. 2, Valley Boys, Inc. v. Farm Bur. Prop. &
Cas. Co., No. CI 14-2375, Order at 7. This court is not persuaded by the State Courts'
analysis of the issue.1 The court finds the cases cited by the State district courts are
inapposite and do not support the proposition that bad faith claims cannot be assigned
as a matter of law.

See Braesch v. Union Ins. Co., 464 N.W.2d 769, 776 (Neb.

1991)(holding "only(1) an injured policyholder who is also a 'covered person' or (2) a
policyholder who is also a beneficiary may bring a cause of action in tort against the
policyholder's insurer for failure to settle the policyholder's insurance claim," but not
addressing the issue of assignment by a policyholder/beneficiary), disapproved on other
grounds, Wortman v. Unger, 578 N.W.2d 413, 417 (Neb. 1998); Mutual of Omaha Bank
v. Kassebaum, 814 N.W.2d 731, 737 (Neb. 2012)(finding an assignment of unliquidated
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The State District Courts appear to conflate the contract claim for breach of a
duty of good faith and fair dealing and the tort of “bad faith”. The tort of bad faith is a
separate claim. Although the tort is theoretically based on the breach of a duty of good
faith and fair dealing, it is a separate tort. A claim for breach of duty of good faith and
fair dealing is a contract action and is limited to contractual remedies. Recovery for the
tort, however, includes extra-contractual remedies including statutory attorney fees.
Essentially, the contract defines the duty for purposes of the tort, but the tort is a
separate claim, and is not dependent on the contract. See Acquista v. New York Life
Ins. Co., 730 N.Y.S.2d 272, 276 (N.Y. App. Div. 2001) (stating "[i]n view of the
inadequacy of contract remedies where an insurer purposefully declines or avoids a
claim without a reasonable basis for doing so, a majority of states have responded to
this need for a more suitable remedy by adopting a tort cause of action applicable to
circumstances where an insurer has used bad faith in handling a policyholder's
claim")(citing Braesch, 464 N.W.2d at 773).
This cause of action is generally stated as a breach of the insurer's duty of
good faith. Under this approach, where an insured demonstrates more
than merely a denial of benefits promised under a policy of insurance, but
instead, that the insurer's denial of the claim was deliberately made in bad
faith, with knowledge of the lack of a reasonable basis for the denial, the
insured may be entitled to compensatory tort damages.
Id. at 277.

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proceeds from a personal injury claim valid and enforceable).

The great weight of

authority indicates bad faith claims are assignable. See, e.g., Transit Cas. Co. v. Smith,
410 F.2d 210, 212 (5th Cir. 1969); Olmstead v. Allstate Ins. Co., 320 F. Supp. 1076,
1077-78 (D. Colo. 1971)(applying Colorado law); Liberty Mut. Ins. Co. v. Davis, 412
F.2d 475, 484 (5th Cir. 1969) (applying Florida law); Steedly v. London & Lancashire
Ins. Co. 416 F.2d 259, 262 (6th Cir. 1969) (applying Kentucky law); Crabb v. National
Indem. Co., 205 N.W.2d 633, 232 (S.D. 1973); Moutsopoulos v. American Mut. Ins. Co.,
607 F.2d 1185, 1189 (7th Cir. 1979) (applying Wisconsin law).
The court agrees, however, with the State Courts' determination that the antiassignment provision does not bar the plaintiffs' breach of contract claim. See, e.g.,
Filing No. 27, Index of Evid., Ex. 3, Valley Boys, Inc. v. United Servs. Automobile
Assoc., et al., No. CI 14-3139, Order at 6-7 (stating "the court finds that the Policies'
non-assignment clause applies to pre-loss assignments only and does not render the
Insureds' post-loss assignments invalid.") Under Nebraska law, post-loss claims are
assignable. See Folgers Architects Ltd. v. Kerns, 633 N.W.2d 114, 126-27 (Neb. 2001)
(noting distinction between an interest in the performance of an executory contract and
a claim for damages for breach of a fully executed contract). In other words, the antiassignment provision prohibits assignment of the policy, but not assignment of claims
under the policy. See 3 Couch on Insurance § 35:8 (3d ed. 2014); accord Windey v.
North Star Farmers Mut. Ins. Co., 43 N.W.2d 99, 102 (Minn. 1950) (stating
"[a]ssignment, after loss, of proceeds of insurance does not constitute an assignment of
the policy, but only of a claim or right of action thereon" ); Valley Boys, Inc. v. Allstate

3

Ins. Co., No. 14cv3148, Filing No. 18, Memorandum and Order at 4. Accordingly, the
court finds the defendant's motion for reconsideration should be denied.
IT IS HEREBY ORDERED that defendant's motion for reconsideration (Filing No.
21) is denied.
Dated this 6th day of February, 2015
BY THE COURT:
s/ Joseph F. Bataillon
Senior United States District Judge

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