This case involves an "excess claim"
The pivotal question is whether plaintiff's second claim is assertable as a tort claim. The Court of Appeals held that it is not and reversed. Georgetown Realty v. The Home Ins. Co., 102 Or.App. 611, 796 P.2d 651 (1990). We hold that it is and reverse the decision of the Court of Appeals.
A. PROCEDURAL BACKGROUND
Plaintiff had a liability insurance policy with defendant. A third person filed a tort action against plaintiff. Defendant assumed plaintiff's defense under its policy. The policy provided that the company "shall * * * defend any suit against Insured(s) * * * and the Company may make such investigation, negotiation and * * * settlement of any claim or suit as it deems expedient." In the action filed by the third person, a verdict was returned against plaintiff for compensatory and punitive damages. Defendant refused to pay the entire judgment. Plaintiff then brought this action against defendant. Plaintiff's amended complaint bore the heading "Action at Law Breach of Contract; Breach of Fiduciary Duty." The first claim asked for damages for the amount of the judgment in excess of the amount paid by defendant and for attorney fees. In a second claim, plaintiff alleged that defendant violated its duty to conduct the defense "with due care, skill and diligence" in eight respects.
On the first claim, the jury returned a verdict in favor of plaintiff for $32,500 for defendant's "breach of contract"; on the second claim, the jury awarded $35,000 for defendant's "breach of duty" and punitive damages of $1,500,000. Defendant appealed, asserting that defendant's duties "were purely contractual" and that the trial court erred in submitting plaintiff's second claim, including the punitive damages claim, to the jury. The Court of Appeals held that "[p]laintiff did not state a claim for negligence" and "[r]emanded for entry of an amended judgment that deletes awards of compensatory and punitive damages on breach of fiduciary duty claim." Georgetown Realty v. The Home Ins. Co., supra, 102 Or.App. at 618-19, 796 P.2d 651.
B. AN EXCESS CLAIM AGAINST A LIABILITY INSURER IS ASSERTABLE AS A TORT
Nearly a century ago, this court held that, where a duty arises from a contractual relationship between the parties, an action in tort may lie. In Currey v. Butcher, 37 Or. 380, 61 P. 631 (1900), the plaintiff employed the defendants, two lawyers practicing law as partners, to make a real property title search. They did so, but overlooked a judgment lien, which the plaintiff paid. The plaintiff then brought an action against the defendants. The opinion states that "the gist of the action is the negligence of the defendants in the performance of a duty which they owed to the plaintiff by reason of their employment." 37 Or. at 384, 61 P. 631. The defendants claimed that the complaint was duplicitous in that it alleged more than one basis for relief and assigned error to the trial court's denial of their motion to require the plaintiff to elect whether she would proceed in contract or in tort. The court held that the complaint stated but one cause of action, explaining:
The rule stated in Currey v. Butcher, supra, has been followed since 1900, in cases involving physicians, lawyers, real estate brokers, architects, engineers, and landlords. Most of the cases involve statutes of limitations, cases in which the defendant asserts that the longer contract statute of limitations is inapplicable and that the tort statute of limitations is applicable and has run. See Goodman v. Fernald, 154 Or. 654, 662, 61 P.2d 1253 (1936) (claim against landlord by tenant for personal injuries, asserting breach of an agreement to repair, held barred by two-year tort statute of limitations); Wilder v. Haworth, 187 Or. 688, 690, 213 P.2d 797 (1950) (in negligence claim against a physician for personal injuries, tort limitations statute applies; "[t]he action, being based upon alleged negligent performance by defendant of his contract with plaintiff, sounds in tort"); Dowell v. Mossberg, 226 Or. 173, 188-89, 355 P.2d 624, 359 P.2d 541 (1961) (failure of a physician to exercise due care in the treatment of a patient is a tort, not a breach of contract; therefore, tort statute of limitations applies); Bales for Food v. Poole, 246 Or. 253, 256, 424 P.2d 892 (1967) (claim against engineer for failure to use due care in preparing plans barred by two-year tort statute of limitations); Lindemeier v. Walker, 272 Or. 682, 684-85, 538 P.2d 1266 (1975) (claim against real estate broker for failure to obtain best price for real property barred by two-year tort statute of limitations); U.S. Nat'l Bank v. Davies, 274 Or. 663, 666, 548 P.2d 966 (1976) (claim against lawyer for giving bad advice governed by two-year tort statute of limitations); Ashley v. Fletcher, 275 Or. 405, 550 P.2d 1385 (1976) (claim against architect for failing to supervise construction and make inspections held barred by two-year tort statute of limitations).
In Ashmun v. Nichols, 92 Or. 223, 234-35, 178 P. 234, 180 P. 510 (1919), this court recognized the possibility of overlapping tort and contract claims for the negligent performance of a contractual promise. The Ashmun court upheld a verdict for the plaintiff on her tort claim against her landlord for damages for personal injuries resulting from a failure to repair the leased premises as promised. Id. at 231, 243, 180 P. 510. The jury was instructed concerning both negligence and contributory negligence, and the court held that the verdict for the plaintiff was supported by sufficient evidence. Id. at 228-29, 237-39, 180 P. 510.
In a different context, the court reached a similar result in Harper v. Interstate Brewery Co., 168 Or. 26, 120 P.2d 757 (1942). There, the plaintiffs were indebted to the defendant and executed an absolute deed as a mortgage. Upon the plaintiff's default, the defendant was authorized to record the deed and sell the property, with the surplus, if any, to be paid to the plaintiffs. The plaintiffs defaulted, and the defendant sold the property. Thereafter, the plaintiffs sought damages, claiming that the defendant failed to make a reasonable effort to sell the property for the best price obtainable. The defendant contended that the plaintiffs' claim, if any, was only for breach of contract and that an action in tort would not lie. The court stated that a mortgagee exercising a power of sale was a fiduciary and that the obligation of good faith and diligence was imposed on mortgagees. 168 Or. at 39-42, 120 P.2d 757. The court held that a claim in tort could be
This court's most recent discussion concerning imposition of tort liability on contracting parties is found in Securities-Intermountain v. Sunset Fuel, 289 Or. 243, 611 P.2d 1158 (1980). In that case, the plaintiff brought an action against an architect and a heating contractor seeking damages for the installation of a defective heating system. The defendant asserted that the claim was time-barred. The opinion states:
This court then concluded:
The court held that the six-year contract statute of limitations applied, because the complaint "specified breaches of written contracts," provisions that "spell[ ] out the architect's obligations in considerable detail. * * * This is * * * the kind of contract that is designed not to leave the scope of the expected professional services to tort standards of professional performance. * * * [The complaint] assert[ed] breaches of specific contractual commitments." 289 Or. at 261-62, 611 P.2d 1158.
Having examined some general principles, we turn to this court's past cases concerning excess claims against insurers. None of this court's decisions has held expressly that the insured may, or may not, bring a claim for negligence. The early decisions suggest that the nature of the action is for breach of the covenant of good faith that inheres in the express contractual promise to defend the insured, while later decisions suggest that a claim may be brought for negligence.
Radcliffe v. Franklin Nat'l Ins. Co., 208 Or. 1, 298 P.2d 1002 (1956), was this court's first discussion of an excess claim against a liability insurer. The plaintiffs in that case appealed from a directed verdict in favor of the defendant insurer. The defendant had assumed the defense of two actions against the plaintiffs, pursuant to the terms of the policy. The defendant did not respond to an offer to settle the two actions, and ultimately the plaintiffs paid $10,000 more on the judgments than their insurance policy covered. They sought to recover the $10,000 from the defendant insurer under theories of "negligence and bad faith." 208 Or. at 6, 298 P.2d 1002.
After discussing the facts of the case, this court considered numerous cases from other jurisdictions that analyzed the nature of the action against an insurer in this situation. This court noted that some jurisdictions apply contract law; others apply principles of agency; and still others turn to tort law. Id. at 22, 298 P.2d 1002. This court then surveyed the available precedents, id. at 23-38, 298 P.2d 1002, and stated: "The minimum which is expected of an insurer is that it employ good faith when it disposes of settlement matters." Id. at 38, 298 P.2d 1002.
Although this court did not plainly decide among the competing theories of liability for excess claims in Radcliffe v. Franklin Nat'l Ins. Co., supra, it did discuss "negligence and bad faith" as alternative bases for liability and appeared to opt for the latter, which is a contract theory. This court's later cases concerning an excess claim confirm that reading of Radcliffe. In Groce v. Fidelity General Insurance, 252 Or. 296, 302, 448 P.2d 554 (1968), this court wrote:
This court held that the insurer's breach of the obligation to perform under the policy in good faith is "as capable of assignment and survival as any other contract right." Id. at 302-03, 448 P.2d 554.
In Eastham v. Oregon Auto. Ins. Co., 273 Or. 600, 607, 540 P.2d 364 (1975), this court expanded the description of the duty of good faith in a contract of liability insurance:
"Before proceeding further it is necessary to set forth an insurer's duty to its insured where an action is filed for more than the policy limits. In Radcliffe v. Franklin Nat'l Ins. Co., 208 Or. 1, 38,
Under that standard, this court held that the evidence was insufficient to permit a jury to find bad faith. Id. at 607-09, 540 P.2d 364; see also Kuzmanich v. United Fire and Casualty, 242 Or. 529, 532, 410 P.2d 812 (1966) (restating Radcliffe's good faith test).
Farris v. U.S. Fidelity & Guaranty, 273 Or. 628, 542 P.2d 1031 (1975), also was a contract case in which the plaintiffs brought an action against their liability insurer because it had refused to defend a tort claim asserted against them. This court held that the insurer had a duty to defend, but that the plaintiffs could not recover damages for mental anguish. 273 Or. at 637-38, 542 P.2d 1031. The issue for decision in a second appeal, Farris v. U.S. Fid. and Guar. Co., 284 Or. 453, 587 P.2d 1015 (1978), was whether damages for mental anguish and punitive damages are recoverable in a contract action against the insurer. The court again noted "that the present action is not one in tort." 284 Or. at 460, 587 P.2d 1015. The court further asserted in dictum that this court had not decided whether an excess claim sounds in tort or in contract. Id. at 459, 587 P.2d 1015.
Maine Bonding v. Centennial Ins. Co., 298 Or. 514, 693 P.2d 1296 (1985), involved a claim by an excess carrier against a primary carrier for damages arising out of the defense of the claim. This court stated:
In other words, the primary insurer's conduct would be actionable "negligence" toward the excess insurer if it were actionable negligence toward the insured.
In Bollam v. Fireman's Fund Ins. Co., 302 Or. 343, 347, 353, 730 P.2d 542 (1986), this court held that a claim against a liability insurer for failure properly to defend a claim against the insured was barred by the two-year statute of limitations applicable to torts. It should be noted, however, that the plaintiff in that case made no claim that the six-year contract statute of limitations was applicable.
As discussed above, this court's prior cases have held that the pivotal question, in deciding whether one party to a contract may sue another party to the contract in tort for negligent performance of a term of the contract, is whether the allegedly negligent party is subject to a standard of care independent of the terms of the contract. This court has not previously answered that question in the present context. None of this court's prior cases concerning excess claims has expressly decided whether the liability insurer is subject to a standard of care that exists independent of the contract and without reference to the specific terms of the contract.
We now reach the same conclusion with regard to liability insurers that this court reached in the cases concerning physicians, lawyers, architects, and others. See ante at 9-11. As in those cases, the relationship here is between contracting parties. When a liability insurer undertakes to "defend," it agrees to provide legal representation and to stand in the shoes of the party that has been sued. The insured relinquishes control over the defense of the claim asserted. Its potential monetary liability is in the hands of the insurer.
In defendant's opening brief, defendant made eight assignments of error concerning plaintiff's second claim. The Court of Appeals never reached four of the eight assignments of error because of its dismissal of the second claim. Our decision may also revive two other assignments of error. Accordingly, we remand the case to the Court of Appeals for further proceedings.
The decision of the Court of Appeals is reversed. The case is remanded to the Court of Appeals for further consideration consistent with this opinion.
The form of action for a claim against a fiduciary for breaching a duty of care arising from the relationship is not materially different from a claim against a physician, a lawyer, or an engineer for breaching a duty of care arising from such a relationship. Notwithstanding repeated references by this and other courts to a "breach of a fiduciary duty," the form of action is the same, and the theory of recovery—breach of the duty of care that the law implies from the relationship—is the same.