This case raises one issue: Does an insurer’s duty to act in good faith and deal fairly with its insureds extend to a class 2 insured passenger covered by a named insured’s uninsured motorist policy? The question is answered in the affirmative.
Toby Townsend was a covered passenger in a car owned by Abner Penn and driven by his son Michael. Penn’s car was struck by a car driven by Lee. Lee had liability coverage up to $50,000, but Townsend incurred over $900,000 in damages from the collision. Townsend filed a claim with Penn’s uninsured (underinsured) motorist carrier, State Farm Mutual Insurance Company (State Farm) seeking the $25,000 policy limit amount.
In his petition, Townsend included a claim against State Farm for failing to deal fairly and act in good faith towards him. State Farm moved to dismiss the claim. It argued that there was no contractual nor statutory relationship between Townsend and State Farm because Townsend was not a party to Penn’s uninsured motorist policy. Thus, State Farm argued, Townsend had no standing to bring a bad faith action. The trial court dismissed the bad faith claim and Townsend appealed.
The Court of Appeals reversed the trial court finding “no cogent reason for not requiring an insurer to deal fairly and in good faith with all insureds [whether they be named insureds or class 2 insureds] asserting uninsured/underinsured claims under a policy for the automobile in which they are injured.” The cause was remanded to the trial court. This Court granted State Farm’s petition for certiorari review of a first impression question.
The question is whether a class 2 insured automobile passenger who is covered under another person’s uninsured motorist policy may bring a bad faith action against the insurer. This Court agrees with the Court of Appeals’ conclusion that the claim should not have been dismissed.
An action for breach of an insurer’s implied-in-law duty of good faith and fair dealing has long been recognized. Originally, an action was allowed when an insurer wrongfully refused to settle a third-party claim against the insured. When the third party obtained a judgment for an amount over the policy limit, the
insured
brought a bad faith action against the insurer to recover that amount.
See, e.g., Boling v. New Amsterdam Casualty Co.,
Standing to bring such an action, however, has been denied to third-party claimants who are mere strangers to the contract of insurance. For example, in
Allstate Insurance Co. v. Amick,
This Court has recognized a distinction between “class 1” and “class 2” insureds. Class 1 insureds are the named insured and resident relatives of the named insured. Class 2 insureds are permissive users and occupants of an insured vehicle.
Rogers v. Goad,
State Farm cites
Babcock v. Adkins,
This Court held that the injured passengers could recover under the policy covering the involved vehicle but they could not stack the uninsured motorist policies covering uninvolved vehicles. This was because “[njeither the passenger nor the purchaser of the policy would have any legitimate contractual expectation that one injured solely by reason of his presence in a vehicle would be entitled to a recovery under other policies belonging to the named insured covering vehicles which were not involved in the accident.” Id. at 1343. The same cannot be said of Townsend’s claim.
Penn, the named insured, purchased protection from uninsured motorists for himself, for family members, for permissive users, and for passengers. This gave rise to a legitimate contractual expectation that the insurer would act in good faith and deal fairly with all insureds, whether they were of a class 1 or class 2. Babcock’s distinction between class 1 and insureds and class 2 insureds did not affect Townsend’s standing to bring a bad faith action.
Townsend had standing for another reason. He enjoyed a statutory relationship with State Farm by virtue of section 3636 of title 36 of the Oklahoma statutes. Subsection B of that provision requires insurers to offer uninsured motorist coverage “for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles.... ” By this provision, the legislature established a statutory relationship between the insurer and all insureds.
Townsend, as a class 2 insured under the uninsured motorist policy, should have been allowed to assert his bad faith claim against State Farm. The Court of Appeals was correct in reversing the trial court’s dismissal of Townsend’s claim.
CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS OPINION VACATED; TRIAL COURT REVERSED; CAUSE REMANDED TO TRIAL COURT.