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DENNIS K. YAMASE, Associate Justice:
This action arises out of a dispute over the coverage provided by a commercial automobile insurance policy issued by defendant Marianas Insurance Company (MIC) and purchased by the plaintiff, Naiten Phillip, from defendant FSM Insurance Group (FSMIG), MIC's authorized representative in Pohnpei. Phillip moves for a summary adjudication of liability on the Complaint's causes of action. The Complaint alleges breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and negligent misrepresentation by the defendants. Phillip also seeks summary judgment on the defendants' Counterclaim, which alleges that Phillip has not paid all of the premiums due under the insurance contract at issue, and a judicial determination of whether compensatory and punitive damages are available in this matter.
Summary judgment may be granted only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Tafunsak v. Kosrae, 7 FSM Intrm. 344, 347 (App. 1995). Once a prima facie case of entitlement to judgment has been presented, the burden shifts to the non-moving party to raise a question of material fact. Nanpei v. Kihara, 7 FSM Intrm. 319, 325 (App. 1995); FSM Civ. R. 56(c).
The following facts appear to be undisputed. In May 1999, Phillip purchased from MIC, through its general agent FSMIG, an insurance policy to cover nine pickup trucks that Phillip had purchased for his automobile rental business. Phillip executed a $7,976.99 promissory note for the premium. He made one $2,393 payment on the note.
On July 14, 1999, one of the pickups, rented by an individual named William Sohs, was involved in an accident while he was driving it. Sohs is not a party to this action. The police report describing the accident lists a charge of "Careless Driving." In August 1999, Phillip submitted a claim under the insurance policy. Phillip has since learned that as early as September 1999, MIC had internally concluded that his claim was not covered because the insurance contract excluded vehicles driven in an unsafe condition which, according to MIC, includes careless driving. That informal internal denial was communicated only to FSMIG. In December 1999, Phillip's claim was formally denied on the basis of exclusionary language in the contract regarding vehicles that are subject to a "bailment lease."1
Phillip contends that MIC's initial denial of his claim is prima facie evidence of a tortious breach
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of the implied covenant of good faith and fair dealing because an "unsafe condition" refers to the condition that a vehicle is in prior to an accident, not the manner in which it was driven, and the defendant knew that the vehicle was new. Furthermore, Phillip contends, given that careless driving is a common cause of collisions which result in vehicular damage, it is illogical to suggest that collision coverage does not apply to vehicles driven in a careless manner.
The "initial denial" that Phillip finds objectionable was, by Phillip's own account, an internal decision that was not communicated to Phillip and only came to light through the discovery process. It would be a gross overstepping of the judiciary's role if this court were to hold the defendants liable for initial decisions made and documents drafted but kept within the confines of their offices as they undertake the work related to processing a claim) work which ultimately results in a final decision and the issuance of a letter that formally expresses (a different) acceptance or denial of an insured's claim. Accordingly, the court will neither comment nor rule upon the September 1999 internal/initial decision's propriety regarding Phillip's claim. The document that is appropriately at issue is the formal denial letter which, as noted above, was based upon language in the insurance contract that excludes coverage for vehicles that are subject to a "bailment lease," i.e., a rental agreement.
Phillip argues that denial of his claim on the basis of the policy's bailment exclusion is evidence of the defendants' "intentional and malicious violation of its duty as an insurer to act in good faith and deal fairly with its insured," because the defendants at all times knew that Phillip needed insurance coverage for a fleet of trucks that were intended for use as rental vehicles. As evidence, Phillip points to an April 1999 letter in which FSMIG requested that MIC provide a "quotation/proposal for senator Naiten O. Phillip. He is going into the car rental business, purchased nine (9) vehicles already and would like us to insure them provided we give him a good deal. He wants full coverage . . . ."2
II. Breach of Contract Claim
Phillip is understandably frustrated to learn that the terms of the insurance contract he purchased exclude the very purpose for which he sought insurance) that is, the protection of his rental vehicle fleet. Nonetheless, the court is constrained to interpret not what Phillip believed he was purchasing, but what he actually did purchase: The contract language clearly states that the policy does not apply "while the automobile is subject to any bailment lease . . . not specifically declared and described in the policy." Bailment occurs when one person has lawfully acquired possession of another's personal property; the bailor retains ownership, but the bailee has lawful possession and exclusive control over the property for the duration of the term of the lease. Vehicle rental agreements are bailment leases. See 8 Am. Jur. 2d Bailments §§ 13-15 (1980). In light of the contract language, Phillip is not entitled to judgment as a matter of law on his claim that the defendants breached the insurance contract.
A. Intoxicated Driver Exclusion
However, that holding does not decide the question of whether the defendants should be estopped from relying on the contract's exclusionary language. The record does contain evidence that both defendants knew the insured vehicles would be rented, i.e., subject to bailment leases, and that Phillip wanted "full coverage." The defendants do not dispute this. Instead, in their opposition, they have submitted evidence that the vehicle's driver was intoxicated at the time of the accident, and they cite a provision in the insurance contract that excludes coverage for intoxicated drivers. The defendants
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argue that under this DWI Exclusion Clause, coverage in the present case is properly denied. The provision states:
DWI EXCLUSION CLAUSE
IT IS HEREBY UNDERSTOOD AND AGREED that [the defendants] shall not be liable with respect to any accident, loss, damage or liability caused, sustained or incurred while any motor vehicle, in respect of which indemnity is provided by this policy, is being driven by any person while committing a felony or who is under the influence of intoxicating liquor or any controlled drugs or substance with respect to such accident, loss, damage or liability. IT IS UNDERSTOOD that this Exclusion shall not apply in respect of any claim by innocent Third Parties or innocent Named Insured if not operating the insured vehicle under the conditions set out in the proceeding paragraph.
Automobile Policy, Endorsement 2 (emphasis supplied). Although the defendants acknowledge that Phillip (the Named Insured) was not committing a felony or operating the vehicle while under the influence of drugs or alcohol, they argue that "it does not matter who was driving the vehicle at the time of the accident; if the driver had [Phillip's] permission to drive," this provision excludes insurance coverage.
On page 2 of the parties' insurance contract, section III (entitled "Definition of Insured") provides that, when the word "insured" is utilized in an "unqualified" manner within the contract, the word shall be understood to include all individuals who operate an insured vehicle with the permission of the named insured. The DWI exclusion provision, however, does not utilize the word "insured" in an unqualified manner. It qualifies the word by specifying that the provision applies to the "Named Insured." The effect of that qualification is to narrow the definition of "insured" to those individuals who are actually named on the policy. Accordingly, the term "Named Insured," as utilized in the second paragraph of the contract's DWI exclusion, does not include permissive users such as the individual who rented the vehicle at issue in this case. Phillip is the only named insured.
In sum, the DWI exclusion allows the insurance company to deny coverage when the vehicle's driver is intoxicated, but exempts from its exclusion) that is, provides coverage for ) claims made by an innocent Named Insured.3 That language's net effect is to render the exclusion inapplicable in the present case, because the claim was filed by an innocent named insured ) that is, one who was neither committing a felony nor driving the vehicle while under the influence of drugs or alcohol. The DWI exclusionary clause is inapplicable here, and fails to justify the denial of Phillip's claim.
B. Bailment Lease Exclusion
Returning to a consideration of the "bailment lease" exclusion in the insurance contract, Phillip argues that the defendants should be estopped from asserting that exclusion as a justifiable basis for denying coverage, because the defendants knew or should have known that the policy they provided was not suited for its intended use, that is, vehicles that would be subject to bailment leases.
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Estoppel is an equitable remedy that "may be invoked only by parties who themselves have acted properly concerning the subject of the litigation." Carlos Etscheit Soap Co. v. Epina, 8 FSM Intrm. 155, 163 (Pon. 1997); Ponape Transfer & Storage v. Federated Shipping Co., 3 FSM Intrm. 174, 178 (Pon. 1987). The defendants have produced considerable evidence of Phillip's effort to induce Sohs to claim that he was not intoxicated at the time of the accident. In light of that evidence, it appears unlikely that Phillip will be successful in any attempt to rely upon equitable doctrines in this litigation.4 In any event, it cannot be said at this juncture that no genuine issue of material fact exists, and that on the basis of estoppel Phillip is entitled to judgment as a matter of law on the first cause of action.
III. Implied Covenant of Good Faith and Fair Dealing Claim
Phillip's second cause of action alleges that the defendants breached an implied covenant of good faith and fair dealing. This common law cause of action, which has not previously been acknowledged in the FSM, is a tort claim that arises out of a contractual relationship between the parties. The implied covenant of good faith and fair dealing rests on the premise that whenever the cooperation of a party is necessary for the performance of a contractual promise, there is a condition implied that the cooperation will be given.
Indeed, it may be said that contracts impose on the parties thereto a duty to do everything necessary to carry them out. . . . Moreover, there is an implied undertaking in every contract on the part of each party that he will not intentionally and purposely do anything to prevent the other party from carrying out his part of the agreement, or do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.
17A Am. Jur. 2d Contracts § 380, at 402 (rev. ed. 1991) (footnote omitted). The court will henceforth entertain such claims in the context of insurance contracts, where the insurer possesses greater sophistication, can be expected to assist local insureds in understanding the relevant legal terminology, and has a specialized role in processing claims.
The facts that Phillip alleges, in support of this cause of action, are that the defendants failed to "promptly and fairly" investigate Phillip's claim under the policy, they failed "to make reasonable efforts to settle" the claim within policy limits, failed to affirm or deny coverage within a reasonable time, failed to adopt and implement reasonable standards for prompt investigation and processing of claims, misrepresented pertinent facts and insurance policy provisions, failed to provide a prompt and reasonable explanation for the denial of the claim, misrepresented coverage terms and conditions, disregarded Phillip's reasonable expectations of coverage, interfered with Phillip's reasonable requests for non-privileged information "in an effort to deprive him of the assistance of counsel to protect his rights under the policy," and misled Phillip.
For purposes of analysis, the allegations relating to Phillip's breach of contract, negligence, and negligent misrepresentation claims will be considered separately, under those causes of action. The only remaining facts in support of Phillip's claim that the defendants breached the implied covenant of good faith and fair dealing are that the defendants took several months to issue a letter that formally denied coverage and they failed to produce documents requested by Phillip's attorney. The defendants point out that they speak different languages and that English, the language in which they all communicated with one another verbally and in writing, is no one's first language.
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Mindful of this case's procedural posture, the court is not prepared to say that a claims process which consumed between 3 and 4 months from the filing of the claim to the issuance of a denial is so lengthy, so egregious, as to constitute bad faith as a matter of law. As for the facts relating to the defendants' alleged lack of cooperation with Phillip's attorney, such matters are more appropriately addressed through motions to compel discovery. On the strength of this particular record, Phillip is not entitled to summary judgment on his second cause of action.
IV. Negligence Claim
Phillip's third cause of action alleges that the defendants were negligent. He argues that they failed to exercise reasonable diligence and care in placing and binding the coverage that was requested, which was to cover the risks of collision associated with his fleet of rental vehicles. The defendants have not responded to this allegation, except to the extent that defendant Lily Iriarte has acknowledged that she was unaware that the "bailment lease" language would have the effect of excluding coverage for Phillip's rental vehicles. As noted above, once a plaintiff has presented a prima facie case of entitlement to judgment on a cause of action, the burden shifts to the defendants to raise a question of material fact. Nanpei, 7 FSM Intrm. at 325; FSM Civ. R. 56(c). The defendants have raised no such question. Where there is a duty of care, a breach of that duty, damage caused by the breach, and the value of the damage can be determined, a prima facie case of negligence has been established. Jonah v. Kosrae, 9 FSM Intrm. 335, 341 (Kos. S. Ct. Tr. 2000); see also FSM Dev. Bank v. Bruton, 7 FSM Intrm. 246, 251 (Chk. 1995) (bank responsible for securing loan insurance is liable for negligent performance of that duty if insurance is not obtained). Liability as to the defendants' negligence has been established.
V. Breach of Fiduciary Duty Claim
Phillip's fourth cause of action alleges that FSMIG and the local agent, defendant Iriarte, owed and breached a fiduciary duty to Phillip. As evidence to support this cause of action, he re-alleges the facts regarding the defendants' failure to bind the requested coverage, and also alleges that specified defendants failed to comply with Phillip's requests for non-privileged documents, sought to induce Phillip to pay additional premiums for a policy that had been rendered meaningless, and "sided" with MIC rather than advancing Phillip's interests in seeking indemnification for the loss. Phillip does not cite, nor has the court found, any FSM case law that acknowledges the existence of this tort in the context of insurance or, for that matter, any context except banking. See, e.g., Wakuk v. Kosrae Island Credit Union, 7 FSM Intrm. 195, 197 (Kos. S. Ct. Tr. 1995) (a bank that holds money from depositors has an ongoing fiduciary duty to those depositors). The defendants' actions are not actionable as a breach of fiduciary duty.
VI. Negligent Misrepresentation Claim
Phillip's fifth and final cause of action alleges negligent misrepresentation by all defendants. Negligent misrepresentation is established where the defendant made a false representation of fact which was either known by the defendant to be false or the defendant had an insufficient basis of information to make the factual representation; the representation is made with the intent to induce the plaintiff to act or refrain from acting, in reliance upon the misrepresentation; plaintiff has justifiably relied thereupon; and damage to plaintiff has resulted from such reliance. William L. Prosser, Law of Torts § 105, at 685-86 (4th ed. 1971). With respect to this cause of action, the uncontroverted and dispositive fact is that the defendants misled Phillip to believe that his rental fleet would be covered by the insurance policy if the vehicles were damaged while driven by renters, but the defendants failed to bind the type of coverage that was both requested and promised. Again, the defendants have not attempted to meet their burden of showing that there is a genuine issue of fact as to this claim.
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Accordingly, the court finds that a prima facie case has been established for Phillip's fifth cause of action.
VII. Insurance Premium Counterclaim
The defendants have submitted a Counterclaim in this action, alleging that Phillip has failed to pay all of the premiums, or installments, that are due under the insurance contract. Phillip responds that he stopped paying premiums after the defendants informed him that the policy he had purchased did not apply to the vehicles when used as rentals. Phillip contends that on a theory of "implied equitable indemnity," the local defendants should be liable for paying any premium amount that is determined to be due and owing. Phillip argues that he should not be required to pay the defendants for coverage that was denied to exist at the time and which is ostensibly not available in the future. That may be so, however, the court has concluded that the defendants are liable for negligently failing to bind insurance that would have provided the promised coverage. Phillip is entitled to compensation for the damage that flowed from receiving an inadequate contract) specifically, he is entitled to receive the coverage that he believed he had purchased.
The defendants claim that he may not receive the benefits of the coverage that he believed he had purchased and at the same time avoid the premium payments thereon.
A review of the record, however, discloses that Phillip executed a promissory note to pay the annual premium. Insureds frequently pay premiums by means of a "premium note." 44 Am. Jur. 2d Insurance § 865, at 148 (rev. ed. 2003). It appears that, depending on the circumstances of its execution, Phillip may have paid the premium in full through his execution of a premium note. Id. at 149. In which case, the defendants' counterclaim becomes an action for the enforcement of the premium note. Certain defenses may be available to the enforcement of a premium note, id. § 868, which the parties have not addressed.
The court therefore orders the parties to file and serve, no later than March 15, 2004, memorandums on the enforceability of the promissory or premium note. The parties shall take note that, by this order, Phillip has prevailed on two of his tort claims, but not his contract claim. Does Phillip's success on his tort claims mean the insurance contract is void? or voidable? If the insurance contract is not void, what is the effect of its Endorsement 21 concerning cancellation and limiting the insured's liability for premiums to earned premiums calculated by the short rate procedure and table, which the policy face states is a $50 minimum? The parties shall also discuss the promissory note's provisions for 18% interest and attorney's fees and costs, particularly in light of the fact that Phillip is the prevailing party in the main body of this litigation. Any party may file and serve, no later than March 31, 2004, its response to another party's memorandum.
VIII. Punitive Damage Request
Finally, Phillip has asked the court to rule on the availability of punitive damages. It is well established that punitive damages are not recoverable for ordinary negligence. Elwise v. Bonneville Constr. Co., 6 FSM Intrm. 570, 572 (Pon. 1994). Such damages also will not be awarded unless it has been claimed and proved that the defendant acted with actual malice or deliberate violence. Davis v. Kutta, 7 FSM Intrm. 536, 546 (Chk. 1996).
Phillip's motion for summary judgment on his first, second and fourth causes of action is hereby denied. The court hereby grants summary judgment in Phillip's favor on his third and fifth causes of
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action. Phillip's request for punitive damages is denied. The parties are ordered to submit further memorandums on the defendants' counterclaim no later than March 15, 2004.
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1. The formal denial was also based upon the vehicle's absence of a registration/safety sticker, which was cited as evidence of the vehicle's "unsafe condition." Phillip points to considerable communication in which he has established that the vehicle could not have displayed a safety sticker at the time of the accident. Because of the conclusions reached in this order, however, it is not necessary to rule on the propriety of the defendants' denial of the claim on that basis.
2. Phillip also makes much of the fact that MIC did not obtain a foreign investment permit prior to offering insurance in the FSM. The court declines to rule on the question of whether it thereby violated national law, because that issue is tangential to the alleged misconduct which gave rise to the present litigation.
3. To the extent that there is a contradiction between the first and second sentences of the DWI exclusion, it must be construed against MIC who drafted the language and was in a superior bargaining position when the contract was entered into. FSM Dev. Bank v. Ifraim, 10 FSM Intrm. 107, 111 (Chk. 2001) (ambiguity in a contract provision is generally construed against the drafter); Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990) (rules of interpretation dictate that any ambiguities in a contract should be construed more strictly against the party who wrote it).
4. Estoppel was raised in Phillip's summary judgment motion, but was not pled in the Complaint.