Millard Gutter Co. v. Shelter Mut. Ins. Co.

Citation: 312 Neb. 606Docket: S-20-907

Court: Nebraska Supreme Court; October 14, 2022; Nebraska; State Supreme Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Millard Gutter Company appealed a district court's dismissal of its case against Shelter Mutual Insurance Company. The Nebraska Supreme Court reviews such dismissals de novo, accepting factual allegations as true and favoring the nonmoving party. Standing, a jurisdictional issue regarding whether a party is the real party in interest, is determined independently by the appellate court when no factual dispute exists. The real party in interest statute aims to prevent actions from those lacking a right or interest in the cause. The inquiry into standing focuses on whether the party has a legitimate interest in the action rather than on the merit of the claim.

Assignments of rights are crucial; if valid, the assignee is the real party in interest, but if invalid, the assignor retains that status. An assignment transfers only the rights the assignor possessed, and the assignor must intend to transfer a present interest. An insured can assign postloss breach of contract claims for insurance proceeds under a homeowner’s policy, granting the assignee standing to sue. Challenges to standing at the pleadings stage are considered facial, relying solely on the pleadings to establish sufficient facts for standing. The concept of bad faith in insurance arises from the implied covenant of good faith and fair dealing inherent in the insurer-insured relationship.

To establish a first-party bad faith claim, a policyholder must demonstrate both the absence of a reasonable basis for the insurer's denial of benefits and the insurer's knowledge or reckless disregard of this absence. First-party bad faith qualifies as an intentional tort and is distinct from a breach of the insurance policy, though both may share similar factual elements. Damages for bad faith, grounded in tort law, can include compensation for mental distress and economic loss that result from the insurer’s wrongful conduct. Only an injured policyholder or a beneficiary may pursue tort claims against an insurer for failure to settle an insurance claim. Under common law, a right of action for strictly personal injuries is not assignable and does not survive the injured party's death. In Nebraska, assignments of personal injury litigation proceeds are valid unless prohibited by statute, but a policyholder cannot assign the right to pursue a tort action for first-party bad faith. A post-loss assignment of insurance proceeds does not alter the insurer's obligations. Courts have discretion in addressing motions to clarify pleadings, and a plaintiff's failure to amend pleadings as ordered can lead to dismissal without prejudice. Courts possess inherent authority to dismiss cases for violating court orders, with the option to dismiss with or without prejudice. In a case involving Millard Gutter Company and Shelter Mutual Insurance Company, the district court dismissed Millard Gutter's claims based on a lack of standing to assert first-party bad faith. The court affirmed this dismissal on appeal. Millard Gutter filed a complaint as the assignee of various insured property owners whose claims stemmed from a 2013 storm, but did not attach the assignments to the complaint.

Millard Gutter alleged that it provided Shelter with assignments and claims for storm damage to insured properties, asserting that all Shelter policies were active, covered the storm damage, and that all conditions precedent had been fulfilled. However, the complaint lacked specific details such as property addresses, dates of damage, and assignment dates. Millard Gutter claimed that Shelter breached the policies by not making direct payments or including it as a payee, accusing Shelter of bad faith and violating the covenant of good faith and fair dealing. Millard Gutter sought unspecified damages.

Shelter moved to dismiss the bad faith claims, arguing that Millard Gutter lacked standing, and requested a more definite statement due to insufficient details in the complaint. The district court agreed, finding the original complaint inadequate for identifying homeowners and claims, and ordered Millard Gutter to file an amended complaint with specific policy numbers and assignments. Millard Gutter failed to do so.

Subsequently, the court dismissed the bad faith claims for lack of standing, referencing the rule that only policyholders can assert first-party bad faith claims. The court rejected Millard Gutter’s argument that the assignments granted it standing, noting that the complaint did not show any existing bad faith claim at the time of the assignments and that allowing such claims in Millard Gutter's name would violate established legal principles. 

After about 17 months of inactivity, the court issued an order for the parties to explain why the case should not be dismissed for lack of progression.

The bill of exceptions does not document the show cause hearing, leaving unclear what evidence or arguments were presented by Millard Gutter. However, the record indicates that Millard Gutter informed the court it would not file an amended complaint despite prior rulings. Shelter then moved to dismiss the entire action with prejudice. The court granted this motion, citing the procedural history of dismissing the bad faith claims and requiring an amended complaint for the breach of contract claims. The dismissal order emphasized Millard Gutter's failure to file an amended complaint or any other documents as directed by the court, concluding that it was necessary to dismiss the action due to non-compliance with the court's orders. Additionally, the court found that Millard Gutter lacked standing to assert claims on behalf of homeowners without proper assignments and specific information, leading to a lack of subject matter jurisdiction. The court reaffirmed its dismissal of the bad faith claims, which were not included in the leave to amend. Millard Gutter subsequently sought to alter or amend the dismissal order, contending it should have been without prejudice per Nebraska law. After a hearing, the court issued a modified order, maintaining the dismissal with prejudice. Millard Gutter filed a timely notice of appeal, asserting that the district court erred in dismissing the bad faith claims for lack of standing, requiring a more definite complaint for the breach of contract claims, and dismissing the entire action with prejudice after opting to stand on its original complaint. The appellate court reviews the dismissal de novo, accepting the complaint's factual allegations as true, and jurisdictional issues regarding standing are determined as a matter of law. An order requiring a more definite complaint will be upheld unless there is a clear abuse of discretion by the trial court.

Millard Gutter's first assignment of error contends that the district court incorrectly determined it lacked standing to assert first-party bad faith claims against Shelter. Standing, a jurisdictional issue, hinges on whether the party initiating the action is the real party in interest, as mandated by Nebraska's real party in interest statute. This statute aims to prevent individuals without a legitimate interest in the case from pursuing it. The inquiry focuses on whether Millard Gutter possesses a real interest, legal or equitable, in the claim rather than the merits of the claim itself.

Generally, if a valid assignment of rights occurs, the assignee becomes the real party in interest; if the assignment is invalid, the assignor retains that status. An assignment involves the transfer of specific rights, with the principle that an assignee cannot obtain rights greater than those held by the assignor. Millard Gutter Co. v. Farm Bureau Prop. Cas. Ins. Co. established that insured parties can assign post-loss breach of contract claims for insurance proceeds, allowing assignees to sue in their name. The court limited this to post-loss assignments, asserting that such claims are vested and thus freely assignable.

In response to concerns about the impact of post-loss assignments, the Nebraska Legislature amended the Insured Homeowner’s Protection Act in 2018 to regulate the validity of these assignments, rendering non-compliant assignments void. However, the events in this case occurred before the amendment took effect, leaving further discussion of the act's provisions for future consideration.

Shelter's standing challenge was addressed at the pleadings stage, characterized as a facial challenge. In this context, the court evaluates solely the pleadings to ascertain if Millard Gutter sufficiently alleged facts to establish standing. The complaint asserts that Millard Gutter received valid assignments of rights under Shelter's policies, specifically regarding the right to insurance proceeds.

Millard Gutter contends that it has the standing as an assignee to assert breach of contract claims for insurance proceeds and tort claims for first-party bad faith against Shelter. It presents two theories for standing regarding first-party bad faith claims. First, Millard Gutter claims it can assert any pre-existing bad faith claims of Shelter’s policyholders at the time of assignment. Alternatively, it argues that the assignments allow it to pursue its own claims for first-party bad faith based on Shelter's conduct after the assignment. Millard Gutter points out that there is no Nebraska appellate decision prohibiting an assignee from asserting a bad faith claim following a casualty loss. The court acknowledges it has not previously ruled on the assignability of a first-party bad faith tort claim and begins to analyze relevant legal principles. 

The distinction between first-party and third-party bad faith torts is clarified: the former involves the insurer's bad faith refusal to settle with its own insured, while the latter pertains to the insurer's failure to settle a third-party claim. A first-party bad faith claim requires demonstrating a lack of reasonable basis for denying benefits and the insurer's knowledge or reckless disregard of that lack. The court classifies first-party bad faith as an intentional tort, independent of breach of contract claims, though they may share underlying facts. Damages for bad faith can include traditional tort damages, such as for mental distress and economic loss, reflecting the inadequacy of breach of contract damages to compensate for personal injuries resulting from bad faith. In Nebraska, standing to bring a first-party bad faith claim is limited to the injured policyholder or a beneficiary of the policy.

Millard Gutter does not claim to be a policyholder of Shelter but asserts standing to pursue claims for first-party bad faith through assignments from Shelter's policyholders. The key legal issue is whether a policyholder can assign a tort claim for first-party bad faith to someone who is not a policyholder, which is a matter of first impression. The court distinguishes this from prior case law, specifically Millard Gutter Co. v. Farm Bureau Prop. Cas. Ins. Co., which dealt only with the assignability of breach of contract claims, not tort claims.

Under Nebraska law, not all tort claims are assignable. For example, wrongful death actions cannot be assigned due to statutory restrictions, and legal malpractice claims are non-assignable based on public policy protecting the attorney-client relationship. In Kassebaum, it was established that while the proceeds from personal injury claims can be assigned, the right to control or prosecute those claims cannot be assigned, as personal injury torts are considered strictly personal and do not survive the death of the injured party.

The district court ruled that first-party bad faith tort actions follow the same assignability principles as personal injury actions, which the court affirms. It concludes that while the proceeds from first-party bad faith claims can be assigned, the right to prosecute or control such claims remains non-assignable under current Nebraska jurisprudence.

A policyholder in Nebraska cannot assign the right to prosecute or control a first-party bad faith action against an insurer, as upheld in this case. Millard Gutter's postloss assignments from Shelter’s policyholders do not grant it standing to pursue tort actions for first-party bad faith against Shelter. Millard Gutter's assertion that it stands in the shoes of the policyholders lacks merit because there is no legal basis for claiming that Shelter owes it a duty of good faith and fair dealing, given that such obligations arise from a contractual relationship between the policyholder and the insurer. The postloss assignments do not create a contractual relationship between Millard Gutter and Shelter, nor do they alter the insurer’s obligations under the policy. Nebraska law dictates that the implied covenant of good faith and fair dealing cannot extend to nonpolicyholders, which means Millard Gutter, as a nonpolicyholder, lacks standing to assert a claim for first-party bad faith. Consequently, both of Millard Gutter’s theories for standing fail legally. The district court correctly determined that Millard Gutter's complaint did not establish standing for first-party bad faith claims against Shelter. Additionally, Millard Gutter did not argue that the court erred in not allowing it to amend its complaint to join the policyholders, and no plain error was identified regarding this issue.

Millard Gutter contends that the court improperly granted Shelter’s motion for a more definite statement, arguing that the pleading was not vague or ambiguous. Under Rule 6-1112(e), a party may request a more definite statement if a pleading is unclear, requiring the movant to specify deficiencies. Shelter claimed it could not determine the nature of the claims, whether assignments were made pre- or post-loss, and specifics about the insured properties, which hindered its ability to respond. The court granted the motion, ordering Millard Gutter to amend the complaint within 14 days to include policy numbers and assignments, thus allowing Shelter to formulate a response. The court’s decision was upheld as it showed no abuse of discretion.

Additionally, Millard Gutter argued against the dismissal of the action with prejudice, asserting it should have been without prejudice as per Section 25-601, which allows dismissals without prejudice for various reasons, including failure to comply with court orders. The court's authority to dismiss for violation of court orders is also supported by established legal precedent. Thus, the dismissal with prejudice was deemed appropriate given Millard Gutter's failure to comply with the court’s amendment order.

Courts possess inherent authority to dismiss actions with or without prejudice, as outlined in pleading rules, which allow trial courts to strike pleadings if compliance with court orders is not met. Dismissal with prejudice is recognized as a valid sanction for failure to obey court orders, necessary to maintain court efficiency and prevent delays. In the case of Millard Gutter, the court found that the plaintiff intentionally disobeyed an order to clarify their complaint and exhibited a lack of activity for 17 months, failing to provide justification when prompted by the court. The trial court dismissed the action with prejudice due to these delays, concluding that the plaintiff’s actions had stalled the case significantly. The appellate court affirmed the trial court's decision, stating that the dismissal was not an abuse of discretion, given the record of deliberate noncompliance and failure to prosecute by Millard Gutter.