Case Title: THOMPSON v ST FARM MUTUAL INS CO

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1973-01-17T00:00:00Z

Document:
No. 12041 I N T H E S U P R E M E C O U R T O F THE STATE O F M O N T A N A BRUCE THOMPSON, P l a i n t i f f and Respondent, STATE FARM M U T U A L AUTOMOBILE INSURANCE C O M P A N Y , Defendant and Appellant. Appeal from: D i s t r i c t Court of the Eighteenth J u d i c i a l D i s t r i c t , Honorable Jack D , Shanstrom, Judge presiding. Counsel of Record: For Appellant : McKeon, McKeon and Skakles, Anaconda, Montana. John L. McKeon and Gregory J. Skakles argued, Anaconda, Montana. For Respondent : Morrow, Nash and Sedivy, Bozeman, Montana. Edmund P. Sedivy argued and James H. Morrow appeared, Bozeman, Montana. Submitted: December 5, 1972 Filed: JfiPj 17' 1973 Mr. Justice Wesley Castles delivered the Opinion of the Court. This cause was heard on oral argument on April 24, 1972. A n opinion was rendered on August 23, 1972 and appears i n 29 St. Rep. 713. Subsequently a petition for rehearing was granted, and the matter was again argued on December 5, 1972. After rehearing the following opinion i s substituted for the opinion rendered on Agust 23, 1972. This is an appeal from a judgment for p l a i n t i f f i n the amount of $76,830,03 entered on a jury verdict i n Gallatin County, the Honorable Jack D, Shanstrom, presiding. Defendant moved for judgment notwithstanding the verdict and for a new t r i a l . Both motions were denied, This case, i n other facets, has been before t h i s Court previously. Welch v. Thompson, 145 Mont. 69, 399 P.2d 748; St, Paul Fire & Marine Ins. Co, v. Thompson, 150 Mont. 182, 433 P.2d 795; St, Paul Fire & Marine Ins. Co, v. Thompson, 152 Mont. 396, 451 P.2d 98, Plaintiff brought the instant s u i t against defendant alleging bad f a i t h i n defendant's handling of a t o r t action, O n September 27, 1961, plaintiff Bruce Thompson was the driver of an automobile owned by h i s father and insured by defendant State Farm Mutual Automobile Insurance Company. Plain- t i f f was then 20 years of age, single, and working a s a laborer for Haggerty-Messmer Co. i n Bozeman. While i n the course of h i s employment (an issue i n previous cases decided by t h i s Court), p l a i n t i f f traveling between jobs attempted t o pass a jeep pulling a loaded horse t r a i l e r , driven by one Welch. Welch was making a l e f t turn off a highway i n a construction zone when p l a i n t i f f Thompson collided with him while attempting t o pass. Welch employed attorneys Landoe and Gary of Bozeman, and f i l e d s u i t for damages i n the amount of $134,000 on August 2, 1962, alleging negligence on the part of Thompson. Thompson appeared by motion t o dismiss which motion was heard and denied on October 22, 1962. Subsequently'after certain discovery proceedings, Thompson's employer, Haggerty-Messmer, was joined as a de- fendant and the addendum in the amended complaint was increased to $160,000. Thompson answered separately and filed a counter- claim against Welch for $25,000 damages, At that time, Thompson was represented by two law firms, Morrow, Nash & Sedivy, and Lyman Bennett, Jr. M r . . Nash acted as attorney for Thompson on his counterclaim. Haggerty-Messmer was represented by still another law firm, Berg, OfConnell & Angel. Haggerty-Messmer appeared separately by a motion to dismiss which was denied and then by a separate answer, Meantime, Thompson's attorney, Donald A, Nash, withdrew as attorney for Thompson on his counterclaim and a praecipe for dismissal of the counterclaim resulted in dismissal of the counterclaim. Pretrial was had on April 6, 1963. Trial was had and a jury verdict was returned in favor of plaintiff with judgment in the amount of $61,500. This judgment was appealed to this Court and affirmed on March 3, 1965, State Farm paid $11,204.64 and St, Paul Fire & Marine, carrier for Haggerty-Messmer, paid the balance. In our opinion affirming that judgment, Welch v . Thompson, 145 Mont. 69, 72, 399 P,2d 748, one significant statement was made there that is pertinent here. After setting forth the details of the accident, this Court observed: 1 I It is true that some of the foregoing evidentiary matters are disputed, but as we will discuss later our review is to determine whether the evidence, if believed, was substantial. " ( 3 1 March 2, 1966, St. Paul, as subrogee of Haggerty-Messmer, sued Thompson for $57,240.61 far indemnity. Thompson notified State Farm and requested State Farm to defend him, State Farm did commence to defend Thompson by a motion to dismiss, which motion was subsequently overruled, Shortly thereafter, State Farm advised Thompson that it would not further defend him. Thompson then, through h i s own attorney, f i l e d a third party complaint against State Farm seeking damages for the insurer's breach of contract t o defend the s u i t and f o r $2,500 attorney fees. A summary judgment for $2,500 was entered against State Farm. State Farm appealed and numerous issues were stated but finally resolved t o one issue: Whether State Farm had a duty t o defend the action for indemnity between joint tortfeasors (the employer being l i a b l e under the doctrine of respondeat supe- r i o r ) ? W e held that State Farm had the duty t o defend and affirmed the judgment. St. Paul Fire & Marine Ins. Co. v. Thomp- son, 150 Mont. 182, 188, 433 P.2d 795. There we said: "We find then that the obligation t o defend does exist. But, State Farm argues that it should be allowed t o defend rather than paying counsel t o defend the action. There can be no question of the good f a i t h and sincere defense by counsel for State Farm i n the Welch s u i t nor here. However, the incon- s i s t e n t and yes, antagonistic positions that have de- veloped make it clear that Thompson was required t o h i r e h i s own counsel. N o issue a s t o the amount of damages i s involved. " ~ u t one more matter needs discussion. Subsequent t o the o r a l argument and predicated upon the fact that State Farm, a s appellant, abandoned several of the issues on appeal, leaving i n effect Thompson a s the sole respondent, St. Paul has f i l e d a motion for damages for appeal without m e r i t . W e believe our discussion previously indicates that St, Paul might have litigated the issue of indemnity i n the previous action, but chose not t o because of an inconsistent position. Even though St. Paul now has the favorable position of being 'let-out' on issues on appeal, nonethe- less it is very much a part of the issue. W e have no doubt, for that matter, that it likely would have ap- peared as amicus curiae. Additionally, we have obsenred previously that the parties were and a r e i n good f a i t h , we hold that assessment of damages for a e a l without merit are not proper. It is so ordered. RP W e note, too, that i n Justice asw well's concurring opinion he observes "tactical" reasons why State Farm did not l i t i g a t e the rights and l i a b i l i t i e s between the two defendants, Thompson ( i t s insured) and Haggerty-Messmer (insured by St. Paul). In the meantime and before our opinion cited above was f i l e d on October 27, 1967, Thompson on April 18, 1967, f i l e d the instant s u i t against State Farm alleging bad f a i t h i n handling the original t o r t s u i t . Trial was had by jury. Verdict was returned for p l a i n t i f f i n the amount of $76,830.03 and judgment was entered. O n e other factor giving rise t o a curious and complicated s t a t e of facts is that State Farm carried collision insurance on Welch's vehicle, So, State Farm insured Thompson through h i s father and also Welch, thus covering t o some extent both vehicles involved. St. Paul, another insurance company, with the judgment against Thompson came i n t o the act because of its insurance coverage of Haggerty-Messmer, Thompson's employer. In the f i r s t action, Haggerty-Messmer strenuously insisted that Thompson was not acting i n the scope of h i s employment when the accident occurred, Yet, during the time of the lawsuit, Thompson received industrial accident benefit payments a s a covered employee. While some of these background facts appear extraneous and irrelevant, they a l l a r e a part of a complicated picture where bad f a i t h i n a t o r t action was alleged. The various a c t i v i t i e s of the l i t i g a n t s , claims adjusters, investigators, examining doctors and lawyers involved are gone i n t o i n the evidence. The p r e t r i a l order upon which the matter was f i n a l l y sub- mitted t o the jury came with the following contentions of plain- t i f f : "1. That State Farm Insurance Company did not exercise good faith, and was negligent and was- guilty of bad f a i t h toward Bruce Thompson, t h e i r insured, i n f a i l i n g t o s e t t l e the law s u i t by M r . Welch against Bruce Thompson within the $10,000.00 l i m i t s of the insurance policy because : "a) It failed t o accept a reasonable offer t o settle the s u i t against Bruce Thompson which offer or offers were within the $10,000.00 l i m i t s of the policy, "b) It knew, o r should have known, that there was a likelihood that any verdict rendered for Welch would' greatly exceed $2,000,00 or even $10,000.00 because of the severity of the injuries sustained by M r . Welch. "c) It knew, or should have known, that the evi- dence t o be presented i n the case would indicate that a defendant's verdict on the issue of l i a b i l i t y was doubtful, and t h e i r claim of contributory negligence was a question of f a c t t o be decided by the jury. "d) It did n l o t give proper regard or considera- tion to the recommendations of its trial counsel, Mr. Bennett, who recommended that no offer be made in excess of $2,000.00 for the reason that Mr. Bennett had failed to provide John T . Anderson of State Farm as requested, with the requisite medical information on Welch and on his current activities, And, that Mr, Bennett failed to in- form Mr, Anderson as requested, of the position of co- defendant, Haggerty-Messmer Co. as to their willingness to contribute to any joint offer of settlement and as to their demand that State Farm accept tender of the defense of Haggerty-Messmer Co. And, failed to provide Mr. Ander- son with comprehensive evaluation and written reports concerning all phases of this matter, though often requested. " e ) Bruce Thompson demanded that State Farm, as insurer, settle within the policy limits of $10,000.00, "f) It failed to inform Bruce Thompson of any of the offers of settlement tendered by Mr. Welch and failed to inform Bruce Thompson of any offers of settlement made by it to Mr. Welch. " I t is further guilty bad faith that: "a) That it failed to properly investigate the accident and failed to adequately prepare for trial, "b) It failed to make any reasonable offer or counter offer of settlement of the suit against Bruce Thompson, and failed to carry on negotiations for the settlement of the claim of Mr, Welch. "c) It failed to give equal consideration to the interests of Bruce Thompson, as compared to its own and their respective hazards, and it failed to consider fairly Bruce Thompson's liability for any excess judg- ment in evaluating the offers of settlement within the policy limits, or in negotiating for a settlement. "d) That it failed to give due consideration to the applicable law. "e) That it failed to reasonably appraise and evaluate the case from a settlement standpoint. I I To these allegations basically, defendant entered a denial and a defense that it had not received an offer to settle within policy limits, nor an unequivocal demand to settle within policy limits. It is to be generally noted that under the policy of in- surance issued by State Farm to Art Thompson, father of plaintiff, State Farm obligated itself to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of: " ( A ) bodily injury sustained by other persons * * * " ( a ) to defend any suit against the insured al- leging such bodily injury * * but the company may make such investigation, negotiation and s e t t l e - ment of any claim o r s u i t a s it deems expedient. 11 In addition t o the foregoing, an amended complaint was f i l e d wherein plaintiff sought damages for mental pain and suffering caused by the imposition of the excess judgment against him. This matter was allowed t o go t o the jury and the jury returned a verdict awarding him $750 for mental pain and suffering. Appeal i s also taken t o t h i s portion of the judgment. But, i n view of our disposition hereinafter, we need not discuss this. Appellant State Farm presents ten issues for review, How- ever, the determinative issues a r e but two, and they a r e inter- woven. These issues are: Were the findings of bad f a i t h and negligence supported by the evidence? 2. Was there a settlement offer within the l i m i t s of State Farm's policy, which State Farm failed and refused t o accept ? F i r s t , the basic c r i t e r i a for recovery i n Montana i n t h i s type of action was discussed by t h i s Court i n Fowler v. State Farm Mutual Automobile Ins. Co., 153 Mont. 74, 78, 454 P.2d 76. There we said: " W e think that excellent discussions of the applicable law appear i n three reported cases arising i n Montana: Fetter Livestock Co. v. National Farmers U.P.& C.Co., 257 F,Supp. 4; Jessen v. ~ ' ~ a n i e l , 210 F.Supp. 317; and National Farmers Union Property & Casualty Co. v, 0 ' Daniel, 329 F.2d 60. "In Fetter Livestock Co. v. National Farmers U.P.& C.Co., supra, 257 F.Supp. a t p, 10, Judge Jameson discussed the applicable rules a s follows: * * * "'It i s well settled that "Error i n judgment i n not s e t t l i n g a case within the policy l i m i t s i s not i n i t s e l f sufficient t o impose l i a b i l i t y upon the insurer for any recovery i n excess of the E m i t s ; nor i s the mere fact that the insurer was unsuccessful i n the t r i a l of the case sufficient to show that the defense was not made i n good faith." Jessen v. OIDaniel, supra (210 F. Supp. a t 325). O n the other hand, "It has been held that a policy of t h i s type places a fiduciary duty on the insurance company t o look a f t e r the interests of the insured as well a s i t s own, thus requiring it t o consider f a i r l y the insured's l i a b i l i t y for the excess when evalu- ating an offer of settlement within the policy l i m i t s . Failure to do so is bad faith and renders the company liable for its breach of fiduciary duty in the amount of any judgment over the policy limits." National Farmers Union Property & Casualty Co. v . O'Daniel, supra. (329 F.2d at 64-65.) " ' 1 n Jessen v O'Daniel this Court set forth relevant factors for determining whether an insurer acts in "bad faith" as follows: "'Factors to be considered include ( 1 ) whether, by reason of the severity of the plaintiff's injuries any verdict is likely to be greatly in excess of the policy limits; ( 2 ) Whether the facts in the case indicate that a defendant's verdict on the issue of liability is doubtful; ( 3 ) Whether the company has given due regard to the recommendations of its trial counsel; ( 4 ) Whether the insured has been informed of all settlement demands and offers; ( 5 ) Whether the insured has demanded that the insurer settle within the policy limits; ( 6 ) Whether the company has given due consideration to any offer of contribution made by the insured, As a rule no one factor is decisive. All must be considered in determining whether the insurer acted in goad faith.' (210 F,Supp. at 326- 3 2 7 , ) " The briefs of each party exhaustively analyze the evidence within the six criteria set forth above, Respondent Thompson reminds us of the rules on sufficiency of the evidence on review by quoting from Campeau v, Lewis, 144 Mont. 543, 398 P . 2 d 960, and Bernhard v. Lincoln County, 150 Mont. 557, 437 P,2d 377, We shall likewise analyze the evidence to determine whether or not there was substantial credible evidence, sufficient to be submitted to the jury on the issue, Thompson at all times insisted on his own lack of negligence in the original accident. Thompson through his own lawyer, Mr. Nash, filed a counterclaim alleging negligence on the part of Welch. This counterclaim was dismissed before trial. The in- vestigating highway patrol officer issued traffic citations to both drivers, Thompson for reckless driving and Welch for making an improper turn. Mr. Nash testified that he felt his client Thompson had a poor defense. After M r . Nash's withdrawal as attorney for Bruce Thompson and after dismissal of the counter- claim, Thompson continued to assert in sworn testimony his lack of negligence and negligence on the part of Welch. Counsel representing Thompson's employer Haggerty-Messmer also felt, as indicated by testimony and letters as exhibits, that Thompson had a valid defense; and that Welch did not have a "cinch" case against Thompson on either the l i a b i l i t y issue o r the damage issue, Heretofore we called attention t o the observation of t h i s Court i n Welch v. Thompson, supra, to the effect that the evidence was disputed. There we recognized that the verdict might have gone either way depending upon which evidence was believed. The jury verdict was 9 t o 3. Opposed t o t h i s i s Thompson's e f f o r t s to highlight the apprehension, doubts, questions, and concern of various investi- gators and agents of State Farm i n investigations and t r i a l preparation on behalf of State Farm. Referring back t o the c r i t e r i a set forth by t h i s Court i n Fowler and cases cited therein, i t is clear that a policy of insurance of the type i n question places a "fiduciary dutyf1 on the insurance company "ta look a f t e r the interests of the insured as well a s i t s own." Thus when it came t o evaluating settlement, the insurer was required t o consider f a i r l y the insured's l i a b i l i t y for possible o r probable excess judgment, W e emphasize here the word "fairly", because, a s pointed out i n Fowler, a mere error i n judgment o r poor result a t t r i a l is not suffi- cient t o establish a claim for damages because of bad faith. W e s h a l l f i r s t assume that there was a valid offer of settlement within policy l i m i t s , The policy l i m i t s were $10,000 and there was a demand and an offer t o s e t t l e for $9,500 on a covenant not t o sue. It was obvious that Welch intended t o keep the employer i n the case and that State p arm's possible obliga- tion i n indemnity would remain. But assuming an offer, was there bad f a i t h i n refusing it under the s i x c r i t e r i a of Fowler? No. I. Was a verdict likely t o be greatly i n excess of policy limits? I n view of Welch's admitted previous disability, none of the attorneys before t r i a l , with one notable exception, evaluated the case very highly. Except for testimony of M r . Gary, one of Welch's counsel, no one seemed to anticipate a large verdict on damages, i f l i a b i l i t y was proven. M r . ~ a r y ' s testimony i s a subject of another issue on t h i s appeal and w i l l not be discussed, However, i n our analysis criterion No, 1 is not satisfied. No. 2, Under the facts, defendant Thompson insisted that plaintiff Welch was negligent. There was evidence of failure t o signal properly, changing t r a f f i c lanes and receiving a t r a f f i c citation from the highway patrol. Under the instructions given i n the Welch v. Thompson, supra, t r i a l , there might w e l l have been a defense verdict, The facts there were disputed. Thompson's counsel now argues that factors, such a s Thompson's receiving a t r a f f i c summons, h i s speed, the cancellation of h i s insurance coverage, h i s failure t o observe other cars following Welch, and other factors so clearly indicate l i a b i l i t y that h i s l i a b i l i t y was clear. To make such an assertion now is an example of 20-20 hindsight vision. During the highly contested t r i a l , a motion for directed verdict on l i a b i l i t y was made, but denied by the t r i a l judge. The instructions, as commented before, would have allowed a verdict for defendant. W e find that criterion No. 2 was not satisfied. No, 3 . Did the insurance company give due regard t o the recommendations of i t s counsel? It is clear that attorney Bennett never evaluated the case i n excess of $2,000, never asked for more authority, and never suggested more. The company a t a l l times followed h i s recommendations. Thompson's brief on t h i s point suggests a "historyf' on the part of attorney Bennett of taking law s u i t s t o t r i a l rather than seeking t o s e t t l e them, From t h i s , Thompson develops an argument to the effect that the company should not have r e l i e d on its counsel's advice. Perhaps insurance companies should question their counsel's advice, but t o put a connotation of bad f a i t h on following counsel's advice does not impress us. W e find that criterion No, 3 was not met. No. 4, Was the insured informed of all demands and offers? Obviously he was informed of the $9,500 offer for a covenant not to sue. As to another offer of a $15,000 settlement by both defendants during trial, there is a dispute in the evidence and thus an issue of fact. Viewing the facts favorably to the plain- tiff, criterion No. 4 would be satisfied. No. 5 . Did the insured demand that the insurer settle within policy limits? While there is some dispute in the testimony concerning whether Thompson made any meaningful demand, we need not go into details. It was disputed but there was evidence sufficient, if other matters were proven, to raise a fact issue. Thus, criterion No. 5 would be satisfied, No. 6. Did the company give due consideration to offers of contribution by Thompson? Thompson made no offer of contri- bution. He would rely on his employer's offer of contribution through its insurer St. Paul. Attorney ~'~onnell apparently suggested a split on contribution to an offer of settlement during trial of $15,000 made by Welch's attorney Landoe. The split would have been $8,500 due from the employer Haggerty- Messmer and $6,500 due from ~hompson's insurer State Farm. But, even here, attorney O'Connell never agreed to release Thompson under the theory of indemnity. Criterion No. 6 was not met. In our foregoing discussion of the six criteria, we found that only two, Nos. 4 and 5, raised fact questions. These two, concerning whether Thompson was informed of all demands and offers and whether Thompson, in fact, made any meaningful demand are not enough, standing by themselves, to establish bad faith. They are but two elements which standing by themselves are not bad faith. Thus, of the six criteria set out in Fowler, Nos. 1,2,3 and 5 were simply not met. There is no question really on the adequacy of the investigation by State Farm. That mistakes, omissions, or misjudgment may have been made is apparent; but these do not make bad faith. Bad faith was instructed by the trial judge as meaning "a willful failure to respond to plain and well-understood obligation. I' Just as in Fowler, after reviewing all of the evidence, even that which is otherwise questioned as issues on this appeal and to which we have not directed our attention, and taking it as a whale, there was a lack of proof of bad faith or negligence amounting to bad faith and the issue should not have been submitted the jury. Hereinbefore, we assumed that a valid offer of settlement within policy limits was made. The offer of settlement was for a covenant not to sue, It would not and was not intended to exonerate Thompson because Thompson's employer, Haggerty- Messmer was still a defendant. Haggerty-Messmer's right of indemnity against Thompson remained so Thompson's possible liability remained almost the same. Mad State Farm accepted that offer, it would not have been protecting Thompson under the circumstances. Even during the trial, when contribution by St. Paul Fire and Marine Ins, Co, was offered, there was never an agreement to release Thompson fully; although it is true the counsel testified that he assumed he might have. Counsel did not com- municate this to State Farm. Thus, no offer or demand for settlement within policy limits was made, Accordingly, the judgment is reversed and the case dis- missed, each party to pay its own costs. A Concur: Assaciate Justices.