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 (appellant) contested a district court's dismissal of their case against Shelter Mutual Insurance Company (appellee) in the Nebraska Supreme Court. The court reviews motions to dismiss de novo, accepting the complaint's factual allegations as true and favoring the nonmoving party. Standing, a jurisdictional issue determining whether a party is the real party in interest, is assessed independently by the appellate court when no factual dispute exists.

The Nebraska statute regarding real parties in interest aims to prevent individuals without rights in the case from prosecuting actions. The inquiry focuses on whether the party possesses a legal or equitable interest in the matter. The standing analysis does not consider the merits of the claim but rather whether the plaintiff is the proper party to assert it.

In cases of assignment, if the assignment of rights is valid, the assignee becomes the real party in interest; if invalid, the assignor retains that status. An assignment involves transferring identifiable rights or claims, and the assignor cannot transfer more rights than they possess. The assignor must intend to transfer a present interest in the subject matter.

An insured can assign a post-loss breach of contract claim for insurance proceeds under a homeowner’s policy, granting the assignee standing to sue in their name. When standing is challenged at the pleadings stage, it constitutes a facial challenge, and the trial court relies solely on the pleadings to assess whether sufficient facts to establish standing are alleged. Additionally, the tort of bad faith implies a covenant of good faith and fair dealing in the insurer-insured relationship based on their contractual agreement.

To establish a first-party bad faith claim against an insurer, a policyholder must demonstrate the absence of a reasonable basis for denying benefits and the insurer’s awareness or reckless disregard of this lack. First-party bad faith is classified as an intentional tort. A claim for insurer bad faith is independent of a breach of contract claim, although they may share common facts. Damages for tortious bad faith, including mental distress and economic loss, are recoverable if proximately caused by the insurer's conduct. Only an injured policyholder or a beneficiary can pursue a tort claim against an insurer for failure to settle claims. Common law dictates that tort claims for strictly personal injuries are not assignable and do not survive the injured party's death. Assignments of personal injury tort litigation proceeds, without control over the litigation, are valid under Nebraska law unless prohibited by statute. Policyholders cannot assign the right to pursue a tort action for first-party bad faith, and post-loss assignments of insurance proceeds do not alter the insurer’s obligations. Courts have discretion in addressing motions for specificity in pleadings and can dismiss actions for failing to comply with court orders. In a case involving Millard Gutter Company, which attempted to sue Shelter Mutual Insurance Company as an assignee of policyholders, the district court dismissed the action, leading to Millard Gutter’s appeal questioning its standing to assert bad faith claims. The appellate court affirmed the district court's judgment.

The complaint alleged that Shelter's insurance policies were active, the storm damage was covered, and all conditions precedent had been satisfied. However, it did not provide specific details such as property addresses, dates of damage, or assignment dates. Millard Gutter claimed Shelter breached the policies by failing to make direct payments to it or include it as a payee on any payments for the loss. Additionally, Millard Gutter alleged that Shelter’s actions constituted bad faith and violated the implied covenant of good faith and fair dealing, seeking unspecified damages.

Shelter moved to dismiss the bad faith claims, arguing Millard Gutter lacked standing to bring a first-party bad faith claim and requested a more definite statement to clarify the insured properties and assignments. The district court granted this motion, identifying the original complaint as insufficient for identifying the homeowners and their claims, and ordered Millard Gutter to file an amended complaint with necessary details within 14 days. Millard Gutter failed to do so.

Subsequently, the court dismissed the bad faith claims for lack of standing, citing precedent that only policyholders or beneficiaries can assert such claims. The court dismissed Millard Gutter's argument that it had standing through the assignments, stating that the complaint lacked factual allegations of an existing bad faith claim at the time of assignment, and allowing such claims would violate established legal principles regarding the assignment of rights. 

Afterward, the case lay dormant for about 17 months until the court issued an order for the parties to show cause why the action should not be dismissed for lack of progression.

The bill of exceptions does not include the show cause hearing, leaving uncertainty regarding Millard Gutter's evidence or arguments presented. During the hearing, Gutter indicated it would not file an amended complaint despite previous court rulings. Shelter subsequently moved to dismiss the entire action with prejudice. The court’s dismissal order detailed the procedural history, highlighting Gutter's failure to file an amended complaint as directed and its choice to stand by its original, deemed insufficient complaint. The court ruled that Gutter's noncompliance warranted dismissal not only for lack of prosecution but also for failure to adhere to a specific court order. It further determined that Gutter lacked standing to assert claims on behalf of homeowners due to insufficient identification of the alleged insureds, leading to a lack of subject matter jurisdiction. The court reaffirmed the dismissal of bad faith claims not included in the leave to amend. Gutter’s timely motion to alter the dismissal order, arguing for a without prejudice dismissal under Nebraska law, was unsuccessful; the court modified the order slightly but maintained the dismissal with prejudice. Gutter filed a timely notice of appeal, consolidating assignments of error claiming the district court erred in dismissing bad faith claims for lack of standing, requiring a more definite complaint for breach of contract claims, and dismissing the entire action with prejudice. The appellate court reviews motions to dismiss de novo, accepting factual allegations as true, and assesses standing as a jurisdictional issue. It also notes that a requirement for a more definite complaint is upheld unless there is an abuse of discretion by the trial court.

Millard Gutter contests the district court's conclusion that it lacked standing to assert first-party bad faith claims against Shelter. The determination of standing is a jurisdictional issue, governed by Nebraska's real party in interest statute, which mandates that actions be prosecuted in the name of the real party in interest to prevent parties without rights in the cause from bringing actions. The inquiry focuses on whether the party has a legal or equitable interest in the controversy, rather than the merits of the claim itself.

The court recognizes that a valid assignment of rights makes the assignee the real party in interest, while an invalid assignment keeps the assignor as the real party. An assignment involves the transfer of identifiable rights, and an assignee cannot receive more rights than the assignor held. In a prior case, it was established that insured parties can validly assign post-loss breach of contract claims for insurance proceeds, granting assignees standing to pursue those claims. This ruling was limited to post-loss assignments, as such claims become vested and can be freely assigned.

In response to concerns raised by insurers about the impact of post-loss assignments, the Nebraska Legislature amended the Insured Homeowner’s Protection Act in 2018, establishing specific provisions for the validity of such assignments. However, since the events in this case occurred before these amendments, their implications were not addressed.

Shelter's challenge to Millard Gutter's standing was a facial challenge, resolved at the pleadings stage, where the court evaluates whether the plaintiff has alleged sufficient facts to establish standing without considering evidence beyond the pleadings. Millard Gutter's complaint asserted it had valid assignments of rights under Shelter's policies, including the right to insurance proceeds. On appeal, Millard Gutter contends these allegations suffice to establish its standing to pursue both breach of contract and tort claims for first-party bad faith against Shelter.

Millard Gutter presents two theories of standing regarding first-party bad faith claims against Shelter. First, it claims standing as an assignee of existing bad faith claims held by Shelter’s policyholders at the time of assignment. Second, Millard Gutter asserts it can bring its own first-party bad faith claims based on Shelter's conduct after the assignments were made. 

Millard Gutter argues that these existing claims are assignable, citing a lack of Nebraska appellate court decisions prohibiting such assignments. The court acknowledges it has not previously addressed the assignability of first-party bad faith claims and will do so now, referencing key principles from earlier cases. 

The court outlines the distinction between first-party and third-party bad faith claims. First-party bad faith arises when an insurer unjustly refuses to settle with its own policyholder, leading to direct losses for the insured, while third-party bad faith involves an insurer failing to settle claims made by third parties. The court emphasizes that first-party bad faith is an intentional tort, separate from breach of contract, allowing for damages that include mental distress and economic loss resulting from the insurer's conduct. 

In Nebraska, only policyholders or beneficiaries have standing to bring first-party bad faith claims. Millard Gutter, not being a Shelter policyholder, argues its standing is derived from the postloss assignments from those policyholders. This presents a novel legal question regarding the validity of assigning a cause of action for first-party bad faith.

Millard Gutter proposed using reasoning from a previous case, Millard Gutter Co. v. Farm Bureau Prop. Cas. Ins. Co., to address whether a policyholder can assign a tort claim for first-party bad faith. However, that case focused on different issues, specifically the assignability of postloss breach of contract claims. Under Nebraska law, not all tort claims are assignable. For instance, wrongful death claims are non-assignable as only the personal representative can bring them, and benefits are restricted to the widow, widower, or next of kin. Assignments related to personal trust, confidence, or legal services are also not permitted, as seen in legal malpractice claims, which are void due to public policy considerations regarding the confidentiality of the attorney-client relationship.

In Kassebaum, the court evaluated the assignability of unliquidated proceeds from personal injury actions and noted that generally, tort claims causing strictly personal injury are not assignable, especially if they do not survive the claimant's death. This prohibition aims to prevent champerty and maintenance. However, Kassebaum concluded that assigning only the proceeds, without control over the litigation, is enforceable under Nebraska law. Therefore, while proceeds from personal injury actions can be assigned, the right to prosecute or control such actions cannot.

The district court determined that first-party bad faith tort actions follow the same assignability rules as personal injury actions. Since these are considered intentional torts, plaintiffs can seek traditional personal injury damages. Consequently, while proceeds from first-party bad faith actions may be assignable, the right to prosecute or control these actions is not. Thus, even if postloss assignments from Shelter’s policyholders could be valid for other purposes, they do not confer standing to Millard Gutter to prosecute the policyholders’ tort actions for first-party bad faith. Millard Gutter’s contrary arguments were deemed meritless.

Millard Gutter claims a right to assert first-party bad faith against Shelter based on post-loss assignments from Shelter’s policyholders, arguing it stands in their shoes and is owed the same duty of good faith and fair dealing. However, this argument lacks merit as Nebraska law requires a contractual relationship between the insured and the insurer for such a duty to exist, which does not apply to Millard Gutter. The post-loss assignments do not create a contractual relationship or modify Shelter’s obligations under the insurance policy. Legal precedent confirms that non-policyholder beneficiaries cannot assert claims for first-party bad faith due to the absence of direct contractual ties with the insurer. Consequently, Millard Gutter lacks standing to pursue these claims. The district court's ruling that Millard Gutter's complaint did not establish standing for first-party bad faith claims is upheld. Furthermore, Millard Gutter did not argue that the district court erred by not allowing an opportunity to amend the complaint to include the policyholders as plaintiffs, and no errors were identified in this regard.

Millard Gutter contends that the court erred by granting Shelter's motion for a more definite statement, arguing that the court's discretion was abused. According to Rule 6-1112(e), a party may request a more definite statement when a responsive pleading is so vague that it cannot be reasonably addressed. Shelter claimed the complaint lacked clarity regarding the assignments, including whether they were made pre- or post-loss and whether all insured parties executed them, which hindered its ability to formulate a response. The district court granted the motion, requiring Millard Gutter to amend the complaint within 14 days to include policy numbers and attach relevant assignments, thereby enabling Shelter to identify the insured properties and parties involved. The court found no abuse of discretion in this decision.

Additionally, Millard Gutter challenged the dismissal of its action with prejudice, asserting that it should have been dismissed without prejudice under Section 25-601, which allows for such dismissals for reasons like the absence of necessary parties or disobedience of court orders. Although the court noted that a failure to amend within the specified time could justify a dismissal without prejudice, it emphasized that courts possess inherent authority to dismiss actions for violations of court orders.

Courts possess inherent authority to dismiss actions with or without prejudice, as supported by Neb. Rev. Stat. § 6-1112(e), which allows for striking pleadings or issuing orders for non-compliance. Dismissal with prejudice can be justified for disobedience of court orders, which is essential to maintain docket control and ensure timely justice. Relevant case law, such as Bert Cattle Co. v. Warren and Scudder v. Haug, illustrates that courts can dismiss claims when parties repeatedly fail to comply with procedural rules or court orders.

In this instance, Millard Gutter's intentional failure to adhere to an order for clarification, coupled with a prolonged inactivity period of nearly 17 months, led to the court issuing a show cause order. Millard Gutter's subsequent decision to stand by its original complaint, despite earlier directives, prompted the district court to dismiss the action with prejudice, citing that such delays hindered the case's progress.

The district court’s dismissal was upheld as it was not deemed an abuse of discretion, given the intentional nature of Millard Gutter's non-compliance and lack of justification for the failure to prosecute. The judgment by the district court is affirmed.