23 V.I. 278


Civil No. 1986/115

District Court of the Virgin Islands Div. of St. Croix

September 20, 1987

*279Jean-Robert Alfred, Esq. (Law Offices of Jean-Robert Alfred), St. Croix, V.I., for plaintiff

Michael A. Joseph, Esq. (Law Offices of Michael E. Joseph), St. Croix, V.I., and Frederick O. Ferrand, Esq. (Law Offices OF Wilfredo Geigel), St. Croix, V.I., for defendant

O’BRIEN, Judge


We write today to clarify Virgin Islands law on the tort of bad faith. In addition, we reject a constitutional challenge to that tort; but we will require a greater evidentiary standard for the proof of punitive damages.


The plaintiff, Octave Justin, procured liability and physical damage insurance on March 25, 1985, for his Ford taxi van through the defendant, Guardian Insurance Co., Inc. (“Guardian”). After the van suffered a fire of undetérmined origin on November 18, 1985, Justin filed a claim with Guardian. (Amended Complaint ¶¶4-10.)1

On November 21, 1985, Guardian adjuster Steven E. Jackson physically inspected Justin’s van. Nearly four months later, Guardian notified Justin that his claim was being rejected. (Am. Comp. Exh. B.) Jackson explained by letter dated April 4, 1986, to Justin’s attorney, that Justin’s claim was denied because the license number Justin supplied to Guardian was registered to another vehicle. Jackson noted that an additional reason was because he could not find serial number plates on the van. (Am. Comp. Exh. C.)

*280Justin filed this suit in response alleging that Guardian breached its duty of good faith to adequately investigate his claim. He adds that Guardian had no reasonable basis for denying his claim, and that the delay in deciding the claim and the subsequent improper investigation constituted bad faith. (Am. Comp. ¶¶14-24.)2

Guardian challenges this claim by way of two summary judgment motions. In its first motion Guardian alleges that these facts do not make out a claim for punitive damages. In a subsequent motion it challenges the constitutionality of the tort of bad faith. Specifically it argues that the elements of the tort of bad faith are unconstitutionally vague so as to violate the first amendment. Furthermore, Guardian argues that the tort conflicts with the contracts clause as well as the equal protection clause. Finally, it argues that in the alternative we should trifurcate the trial into three stages, coverage, bad faith and damages; and that we should require Justin to meet a burden of “beyond a reasonable doubt” in proving punitive damages.

Because we write to clarify the law of bad faith in the Virgin Islands and we find that material facts exist in this case, we will deny Guardian’s first motion for summary judgment. In addition, we categorically reject Guardian’s constitutional challenges, and find meritless its arguments for a trifurcated trial; therefore, the second motion for partial summary judgment will also be denied.


We have not had occasion prior to today to write concerning the tort of bad faith.3 The Third Circuit, however, has pointed out that “most states recognize two types of remedies when an insurer fails to settle claims made against it by the insured party.” The first is a breach of contract remedy, and the second is the recent development in tort law where “an insurer can also be sued in tort for failure to settle a claim in good faith.” Polito v. Continental Cas. Co., 689 F.2d 457, 461 (3d Cir. 1982) (citation omitted). See, e.g., *281McNally v. Nationwide Ins. Co., 815 F.2d 254 (3d Cir. 1987) (applying Delaware law). But see, e.g., Saltou v. Dependable Ins. Co., Inc., 394 N.W.2d 629, 633 (Minn. App. 1986); Riverside Ins. Co. v. Pedigo, 430 N.E.2d 796 (Ind. App. 1982) (punitive damages for failure to pay insured’s claim awardable only where conduct amounts to independent common law tort such as fraud).

Unfortunately, we have uncovered no Third Circuit case discussing the elements of the tort from one of our sister jurisdictions, even though there is ample case law from other courts on the subject.4 After reviewing these precedents we adhere to our decision in Ohl to recognize the existence of the tort in the Virgin Islands.5 We write to define its elements.

A) What is Bad Faith?

The tort of bad faith evolved in most jurisdictions from the duty of fair dealing and good faith insurers owe their insured by virtue of an insurance contract. See, e.g., Duir v. John Alden *282Life Ins. Co., 754 F.2d 245, 249 (7th Cir. 1985) (citations omitted) (applying Wisconsin law). When made out, it imposes tort liability for an insurer’s refusal to pay a direct claim where there exists no legitimate reason either based in law or fact to deny the insured’s claim. See, e.g., Dempsey v. Auto Ins. Co., 717 F.2d 556, 560 (11th Cir. 1983) (applying Alabama law) (citation omitted); Merchants National Bank v. South Eastern Ins. Co., 751 F.2d 771, 775 (5th Cir. 1985) (applying Mississippi law); Accord Frommoethelydo v. Fire Ins. Exchange, 42 Cal. 2d 208, 228 Cal. Rptr. 160, 721 P.2d 41, 43 (Cal. 1986). It does not arise out of the contract, but it is an obligation imposed by law. Bibeault v. Hanover Ins. Co., 417 A.2d 313, 316 (R.I. 1980); United States Fidelity & Guaranty Co. v. Peterson, 540 P.2d 1070, 1071 (Nev. 1975).

Different jurisdictions vary slightly with what is required by the plaintiff to make out a claim for bad faith. See, e.g., Duir, supra at 249. However, we have decided to adhere to the following standard because it definitively puts the parties on notice of their obligations and duties. Therefore, in the Virgin Islands, in order to make out a cause of action for the tort of bad faith a plaintiff will be required to show: 1) the existence of an insurance contract between the parties and a breach by the insurer; 2) intentional refusal to pay the claim; 3) the nonexistence of any reasonably legitimate or arguable reason for the refusal (debatable reason) either in law or fact; 4) the insurer’s knowledge of the absence of such a debatable reason or 5) when the plaintiff argues that the intentional failure results from the failure of the insurer to determine the existence of an arguable basis, the plaintiff must prove the insurer’s intentional failure to determine the existence of such a debatable reason. Dempsey, supra at 560 (quotation omitted). This will require in most normal cases, that a plaintiff obtain a directed verdict on the contract in order to even get to the jury and make out a successful bad faith claim.6 Dempsey, supra at 561 (quoting Safeco Insurance Co. of America v. Sims, 435 So. 2d 1219, 1223 (Ala. 1982).

Of course, in the Virgin Islands to get to a jury on the issue of punitive damages, the plaintiff is required to show that the *283acts complained of were outrageous, done with evil motive or reckless indifference to his rights. Berroyer v. Hertz, 672 F.2d 334 (3d Cir. 1982) (quoting Restatement (Second) of Torts § 908(2) (1979)); cf., Smith v. Wade, 461 U.S. 30 (1982). However, we will require the plaintiff in a bad faith action to prove the existence of these elements by clear and convincing evidence. Cf., Acosta v. Honda Motor Co., Ltd., 712 F.2d 828, 837 (3d Cir. 1983) (requiring clear and convincing evidence for an award of punitive damages in 402A actions); accord Linthium, supra at 681. See, also, David v. Pueblo Supermarket, 740 F.2d 230 (3d Cir. 1984) (a plaintiff must meet an extremely high burden of proof to establish entitlement to punitive damages).7

Since facts are clearly in dispute as to each of these elements, a trial is required. Guardian has not challenged this point. Moreover, sufficient facts exist as to Guardian’s recklessness to defeat its summary judgment motion on punitive damages. See Aff. of Trantham.

B) Guardian’s Constitutional Challenge

Guardian argues that the tort of bad faith is impermissibly vague since insurers such as itself have no idea what action visa-vis the insured is permissible. We believe that this opinion clarifies any vagueness which may heretofore have existed and, therefore, the fact that the plaintiff must '.plead and prove the elements as set out above, safeguard Guardian’s due process rights. Accord McCorkle v. Great Atlantic Ins. Co., 637 P.2d 583, 587 (Okla. 1981). The rest of Guardian’s constitutional arguments are without merit.8


Having clarified Justin’s burden, we note that material facts exist as to each of the elements we enumerated.9 For this reason Guardian’s motions for summary judgment will be denied.10


THESE MATTERS are before the Court on motions of the defendant for summary judgment and partial summary judgment, and on motion of the plaintiff in limine. Having filed an opinion of even date herewith and the premises considered, now therefore it is


THAT defendant’s motions for summary judgment and partial summary judgment be, and the same are hereby, DENIED.

It is further ORDERED:

THAT plaintiff’s motion in limine be, and the same, is hereby DENIED.

Justin v. Guardian Insurance
23 V.I. 278

Case Details

Justin v. Guardian Insurance
Decision Date
Sep 20, 1987

23 V.I. 278

Virgin Islands



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