Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—4th Cir.: Unlawful settlement practices claim sounded in tort rather than contract, (Mar 11, 2014)

By Jody Coultas, J.D.

Actions brought pursuant to the West Virginia Unfair Trade Practices Act (WVUTPA) sound in tort and not in contract, according to the U.S. Court of Appeals in Richmond, Virginia (Kenney v. The Independent Order of Foresters, March 10, 2014, Floyd, H.). Thus, a widow pursuing an action against an insurance company for the unlawful handling of a life insurance claim could pursue punitive damages, attorney fees, and costs of suit, which are not available in contract cases.

A former Virginia resident purchased a life-insurance policy from The Independent Order of Foresters (IOF), and later increased the policy amount. After moving to West Virginia, the policy holder died and his wife sought to collect the total policy benefits. IOF initially refused to pay the increased policy amount, but reversed course just twelve days before an administrative hearing was scheduled the West Virginia Office of the Insurance Commissioner. The beneficiary then sued IOF pursuant to the WVUTPA, arguing that IOF’s handling of her claim constituted an unlawful settlement practice. IOF removed the case to federal court, and the district court granted IOF’s motion to dismiss.

WVUTPA claims sound in tort rather than contract, according to the court. Where the behavior at issue is a breach of specific terms of the contract without any reference to the legal duties imposed by law upon the relationship created thereby, the action is contractual. Where the essential claim is a breach of a duty imposed by law, the action is in tort. The claims at issue were not predicated on the terms of the policy itself, but rather on IOF’s handling of the claim for proceeds on the policy. The beneficiary’s claims also sounded in tort, as opposed to contract, based on the type of damages available under the WVUTPA and the type of relief prayed for in the complaint. Punitive damages are not available in contract cases. The beneficiary sought punitive damages rather than damages based on the terms of the insurance policy.

West Virginia law applied to the beneficiary’s claims, according to the court. Choice of law in torts cases is generally governed by the rule of lex loci delicti. Under the lex loci delicti approach, courts apply the “law of the place of the wrong.” IOF argued that the injury would have been felt in Virginia, where the policy was issued and where the insured applied for the increase in coverage. However, the claims were based on IOF’s handling of the claim while the beneficiary resided in West Virginia. Therefore, the injury was felt in West Virginia.

The district court erred in determining that the Section 145(1) Restatement (Second) of Conflict of Laws required the court to apply Virginia law, according to the court. Under the most significant relationship choice-of-law test, courts look at the place where the injury occurred; the place where the conduct causing the injury occurred; the residence of the parties; and the place where the relationship between the parties was centered. The injury occurred in West Virginia, the letter denying the full benefit of the policy was sent from IOF’s Toronto, Canada office, and the relationship between the beneficiary and IOF was centered in West Virginia where the benefits were denied. Because none of the relevant facts concerned Virginia, Virginia did not have the most significant relationship to the claims.

The court also noted that the WVUTPA allows plaintiffs to recover for unfair settlement practices independent of any claim on a policy or contract, while Virginia’s analogous statute does not recognize a separate cause of action in tort for bad-faith dealing over an insurance contract. West Virginia’s favoritism toward laws that align with its own public policy trumps any comity to Virginia’s law.

The beneficiary stated a claim upon which relief can be granted should she prevail on the merits, according to the court.

The case is No. 13-1788.

Attorneys: Don C.A. Parker (Spilman, Thomas & Battle, PLLC) for Audrey Dianne Kenney. Robert Lawrence Massie (Nelson Mullins Riley & Scarborough LLP) for The Independent Order of Foresters.

Companies: The Independent Order of Foresters

Cases: StateUnfairTradePractices MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews