Embry v. Innovative Aftermarket Systems L.P.
247 P.3d 1158
Okla.2010Background
- Plaintiff Embry sues Innovative Aftermarket Systems and insurers over deficiency payment on a car loan after a total loss, seeking bad faith and negligence damages.
- Contract (gap protection) terms specify deficiency equals actual cash value settlement minus loan payoff; contract language chosen solely by Innovative.
- Marketing materials and the brochure illustrate how the deficiency is calculated and promoted as protecting customers from financial obligation.
- Trial court granted summary judgment eliminating bad faith and negligence theories; CA reversed on initial appeal, finding issues of fact on bad faith and that the contract resembles insurance.
- On remand, the trial court again granted summary judgment, concluding no common-law bad-faith claim and not addressing tort liability for bad faith.
- Supreme Court granted certiorari to determine if tort bad-faith liability can arise from a non-traditional contract under a special relationship and if summary judgment was proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bad faith/tort liability lies for breach of the implied covenant. | Embry argues a special relationship existed and miscalculated the deficiency, constituting bad faith. | Defendants contend no tort bad faith since contract terms and belief non-insurance negate liability. | Bad faith liability exists; remanded for trial on that theory. |
| Whether negligence is an independent theory of recovery. | Negligence may support recovery independent of the implied covenant. | Duty to act reasonably in performance is encompassed by good faith/due care; no independent negligence claim. | Negligence theory eliminated; dismissed as independent recovery. |
| Whether the contract creates a special relationship justifying tort liability. | The sale/gap contract and disclosures create an adhesion-like relationship causing bad faith liability. | No special relationship unless contract is insurance; factual beliefs not dispositive. | Special relationship present; tort liability for bad faith may proceed. |
| Whether summary judgment was proper given expert evidence and factual disputes on bad faith. | Expert evidence supports potential tortious conduct and reasonable belief of wrongdoing. | Evidence shows no wrongful conduct as a matter of law; summary judgment appropriate. | Summary judgment improper on bad faith; proper on negligence. |
Key Cases Cited
- First National Bank and Trust of Vinita v. Kissee, 1993 OK 96 (OK) (implied covenant and bad-faith theory in contract performance)
- Rodgers v. Tecumseh Bank, 1988 OK 36 (OK) (adhesion contract, special relationship, and implied duties)
- Christian v. American Home Assurance Co., 1977 OK 141 (OK) (special relationship and bad-faith considerations)
- Garnett v. Government Employees Insurance Co., 2008 OK 43 (OK) (determinative standard for when bad faith can be submitted to jury)
- C & E Services, Inc. v. Ashland, Inc., 498 F. Supp. 2d 242 (D.D.C. 2007) (reasonableness and good faith in contract performance)
- Hillers v. Local Federal Savings and Loan Association, 1951 OK 57 (OK) (good faith and reasonable diligence concepts in contract performance)
- Malson v. Palmer Broadcasting Group, 1997 OK 42 (OK) (summary-judgment standard with evidentiary defense in motions)