Title: GAINSCO INSURANCE CO. v. AMOCO PRODUCTION CO.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

GAINSCO INSURANCE CO. v. AMOCO PRODUCTION CO.2002 WY 12253 P.3d 1051Case Number: 00-302Decided: 08/19/2002
APRIL TERM, A.D. 2002

 

 

GAINSCO 
INSURANCE COMPANY,

 

Appellant(Defendant/Garnishee),

 

v.

 

AMOCO 
PRODUCTION COMPANY,

 

Appellee(Plaintiff/Garnishor).

 

 

 

Representing 
Appellant:

 

            
Donn 
J. McCall and Hampton K. O'Neill of Brown, Drew & Massey, LLP, Casper, 
Wyoming.

 

Representing 
Appellee:

 

            
Mark 
W. Gifford, Casper, Wyoming.

 

Before 
HILL, C.J., and GOLDEN, LEHMAN,* KITE, and VOIGT, 
JJ.

 

*  Chief Justice at time of oral 
argument.

 

 

            
VOIGT, Justice.

 

[¶1]      The appellant, 
Gainsco Insurance Company (Gainsco), appeals from an order granting summary 
judgment to the appellee, Amoco Production Company (Amoco), in an insurance 
coverage dispute.  The district 
court determined that Gainsco was guilty of both first-party and third-party bad 
faith in denying coverage and refusing to settle the underlying claim.  We reverse and remand to the district 
court for entry of a judgment in favor of Gainsco.

 

NATURE 
OF THE CASE

 

[¶2]      Amoco entered 
into a Well and Lease Service Master Contract (the Contract) with Andrews 
Trucking Company (Andrews).  Under 
the Contract, Andrews agreed to indemnify Amoco against liability for injury to 
or death of Andrews' employees and Andrews' subcontractors' employees, even if 
caused by Amoco's negligence, and agreed to insure this assumption of 
liability.  Andrews then obtained 
insurance from Gainsco.

 

[¶3]      Andrews 
subsequently subcontracted the work covered by the Contract to Kobbe 
Construction Company (Kobbe).  On 
November 15, 1991, Brent Abraham (Abraham), a Kobbe employee, was overcome by 
and died from poisonous hydrogen sulfide gas while emptying a vacuum truck in 
the Elk Basin Oil Field, an oil field operated by Amoco.  The Abraham Estate filed a wrongful 
death action against Amoco, Andrews, and Kobbe.  The claim against Kobbe was dismissed 
because of worker's compensation immunity.  
Summary judgment in favor of Andrews was affirmed on appeal to this Court 
because Andrews "never assumed any affirmative duties regarding job site safety 
and, therefore, did not owe the deceased a legal duty."  Abraham v. Andrews Trucking Co., 
893 P.2d 1156, 1157-58 (Wyo. 1995).  Amoco settled for 
$650,000.00.

 

[¶4]      Amoco then 
initiated the current controversy by suing Andrews under the Contract's 
indemnity provision.  Gainsco 
provided Andrews a defense and filed a third-party complaint against Kobbe based 
on equitable implied indemnity.  
However, Gainsco defended Andrews under a reservation of rights, denying 
coverage based on two policy exclusions:  
a "total pollution" exclusion and an "insured contract" exclusion.  In late 1994 and again in early 1995, 
Amoco informed Gainsco that it would settle for $297,000.00, within policy 
limits, to avoid exposing Andrews to an excess judgment.  Gainsco refused the offer.  Through separate counsel, Andrews then 
settled with Amoco on the following terms:  
(1) Andrews would confess judgment in the amount of $716,490.80 plus 
interest and attorneys' fees; (2) Amoco would not execute against Andrews, but 
would look only to Gainsco; (3) Andrews would assign to Amoco any bad faith 
claims against Gainsco; and (4) Andrews would dismiss its indemnity claim 
against Kobbe.

 

[¶5]      The instant case 
started when Amoco sued Gainsco as garnishee of the confessed judgment.  The parties agreed to treat the case as 
a declaratory judgment action and both sides filed motions for summary 
judgment.  The district court 
granted Amoco's motion for summary judgment, and this appeal 
followed.

 

ISSUES

 

[¶6]      We will restate 
the separate issues presented by the parties as follows:

 

            
1.         
Did the district court err as a matter of law when it held that Gainsco's 
rejection of Amoco's settlement offers amounted to third-party bad faith, 
because Andrews, who negotiated a unilateral settlement agreement, suffered no 
damages and thus failed to prove an element of the tort of insurance bad 
faith?

 

            
2.         
Did the district court err as a matter of law when it held that Gainsco's 
rejection of Amoco's settlement offers amounted to third-party bad faith, 
because, under Western Cas. & Sur. Co. v. Fowler, 390 P.2d 602 (Wyo. 
1964), 
there could be no bad faith because Amoco's recovery against Andrews could not, 
as a matter of law, exceed the limits of Andrews' policy with 
Gainsco?

 

            
3.         
Did the district court err as a matter of law when it held that Gainsco's 
denial of coverage to Andrews amounted to first-party bad faith, because the 
total pollution exclusion made the question of coverage fairly 
debatable?

 

            
4.         
Did the district court err as a matter of law when it held that Gainsco's 
denial of coverage to Andrews amounted to first-party bad faith, because the 
insured contract exclusion made the question of coverage fairly 
debatable?

 

            
5.         
Did the district court err as a matter of law when it held that Amoco's 
indemnity claim was covered under Andrews' policy with Gainsco, when the total 
pollution exclusion showed no coverage existed?

 

            
6.         
Did the district court err as a matter of law when it held that Amoco's 
indemnity claim was covered under Andrews' policy with Gainsco, when the insured 
contract exclusion showed no coverage existed?

 

            
7.         
Did the district court err as a matter of law when it ignored Gainsco's 
argument that it was prejudiced when Amoco and Andrews failed to notify it that 
one term of the settlement agreement was Andrews' dismissal of its third-party 
complaint against Kobbe?

 

            
8.         
Did the district court err as a matter of law when it held that the 
stipulated judgment amount of $795,901.00 was a reasonable 
amount?

 

            
9.         
Did the district court err as a matter of law when it held that the total 
stipulated judgment amount was enforceable by Amoco against 
Gainsco?

 

            
10.       
Does the law of the case doctrine prevent Gainsco from raising the 
argument in this appeal that the express $300,000.00 limit of Andrews' liability 
contained in the Contract is a complete defense to any bad faith claim asserted 
by Amoco?

 

            
11.       
Does the indemnity provision of the Contract between Amoco and Andrews 
violate Wyo. Stat. Ann. § 30-1-131 (LexisNexis 2001)?

 

STANDARD 
OF REVIEW

 

[¶7]      Procedurally, we 
are reviewing a summary judgment granted in a declaratory judgment action.  Declaratory judgments are sought under 
Wyo. Stat. Ann. §§ 1-37-101 through 1-37-115 (LexisNexis 2001) and summary 
judgments are governed by W.R.C.P. 56.  
Declaratory judgment actions are commonly used to contest insurance 
policy coverage issues.  See, 
e.g., Pribble v. State Farm Mut. Auto. Ins. Co., 933 P.2d 1108 (Wyo. 
1997); 
Doctors' Co. v. Insurance Corp. of America, 864 P.2d 1018 (Wyo. 
1993); 
and Mountain West Farm Bureau Mut. Ins. Co. v. Hallmark Ins. Co., 561 P.2d 706 (Wyo. 1977).

 

            
When this court reviews a grant of summary judgment entered in response 
to a petition for declaratory judgment, we invoke our usual standard for review 
of summary judgments.  
. . .  The summary 
judgment can be sustained only when no genuine issues of material fact are 
present and the moving party is entitled to judgment as a matter of law.  . . .  In this instance, there is no contention 
that any genuine issue of material fact exists, and our concern is strictly with 
the application of the law.  
. . .  We accord no 
deference to the district court on issues of law and may affirm the summary 
judgment on any legal grounds appearing in the record.

 

Wyoming 
Community College Com'n v. Casper Community College Dist., 
2001 WY 86, ¶ 11, 31 P.3d 1242, 1247 (Wyo. 2001).

 

            
Our established rules of contract interpretation apply to insurance 
policies.  . . .  Interpretation is the process of 
ascertaining the meaning of the words used to express the intent of the 
parties.  . . .  The intent of the parties is determined 
by considering the instrument which memorializes the agreement of the parties as 
a whole.  . . .  This court utilizes a standard of 
interpretation for insurance policies which declares that the words used are 
given the plain meaning that a reasonable person, in the position of the 
insured, understands them to mean.  
. . .

 

            
If the language is unambiguous, our examination is confined to the "four 
corners" of an integrated contract and extrinsic evidence is not admitted to 
contradict the plain meaning.  . . 
.  The language of an insurance 
policy is ambiguous if it is capable of more than one reasonable 
interpretation.  . . .  Because insurance policies represent 
contracts of adhesion where the insured has little or no bargaining power to 
vary the terms, if the language is ambiguous, the policy is strictly construed 
against the insurer.  
. . .  However, the 
language will not be "tortured" to create an ambiguity.

 

Doctors' 
Co., 
864 P.2d  at 1023-24.

 

THE 
CONTRACT

 

[¶8]      Andrews' duty to 
indemnify Amoco is contained in paragraphs 10 and 11(b) of the parties' 
Contract:

 

            
10.       
In order to eliminate controversies between [Andrews], its Subcontractors 
and Amoco and its joint owners, if any, and their respective insurers, [Andrews] 
assumes all liability for and hereby agrees to defend, indemnify and hold Amoco, 
its joint owner or owners, if any, and their insurers, harmless from and against 
any and all losses, costs, expenses and causes of action, including attorney's 
fees and court costs, for injuries to and death of [Andrews'] and its 
Subcontractor's employees, arising out of, incident to, or in connection with 
any and all operations under this contract and whether or not such losses, 
costs, expenses and causes of action are occasioned by or incident to or the 
result of the negligence of Amoco, its joint owner or owners, if any, and its 
agents, representatives and employees.  
[Andrews] agrees to insure this assumption of liability.  The liability assumed by [Andrews] 
pursuant to this clause shall be limited to the amounts carried by [Andrews'] 
current liability insurance, but in no event shall it be less than the minimum 
limits set out in Paragraph 11(b), below.

 

            
11.       
. . .

 

            
. . .

 

            
(b).  Comprehensive General 
Liability Insurance, including Contractual Liability coverage, with minimum 
limits of $100,000 each person, and $300,000 each occurrence for Bodily Injury 
and 100,000 each occurrence for Property Damage.

 

THE 
INSURANCE POLICY

 

[¶9]      To cover its 
assumed obligations under the Contract, Andrews purchased from Gainsco a 
$300,000.00 commercial general liability policy.1  At issue are two coverage exclusions, 
"total pollution" and "insured contract."  
The pollution exclusion is covered in two places in the policy.  A separate notice following the 
declarations page reads as follows:

 

IMPORTANT 
NOTICE TO POLICY HOLDER

TOTAL 
POLLUTION EXCLUSION

 

This 
policy contains restrictive language limiting the coverage provided under your 
policy, including a TOTAL POLLUTION EXCLUSION.  This policy does not provide any 
coverage for pollution.  The policy 
exclusion reads as follows:

 

POLLUTION 
EXCLUSION

 

This 
insurance does not apply to and no duty to defend is provided 
for:

 

1.         
"Bodily injury" or "property damage" which would not have occurred in 
whole or in part but for the actual, alleged or threatened discharge, dispersal, 
seepage, migration, release or escape of pollutants at any time; 
or

 

* 
* *

 

Pollutants 
mean any solid, liquid, gaseous, bacterial or thermal irritant or contaminant 
including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste.  Waste includes material to be recycled, 
reconditioned or reclaimed.

 

Nearly 
identical language is then repeated in an endorsement attached to the 
policy.

 

[¶10]   The second coverage restriction 
takes the form of an exclusion from the definition of "insured contract."  The route to the exclusion is somewhat 
tortuous in that it is the equivalent of at least two double negatives.  First, the policy states that it does 
not apply to bodily injury or property damage for which the insured's liability 
arises out of its contractual assumption of liability.  Then, the policy excludes from that 
exclusion liability that is assumed under an "insured contract."  Next, the policy defines "insured 
contract" to include those contracts under which the insured assumes the tort 
liability of another.  Finally, in a 
separate endorsement, the policy contains the exclusion that is at issue in this 
case:

 

6.         
"Insured contract" means any written:

 

            
* * *

 

f.          
That part of any other written contract or agreement pertaining to your 
business under which you assume the tort liability of another to pay damages 
because of "bodily injury" or "property damage" to a third person or 
organization, if the contract or agreement is made prior to the "bodily injury" 
or "property damage."  
However, this insurance does not apply to that part of any contract 
or agreement that indemnifies any person or organization for the indemnitee's 
sole tort liability.  Tort 
liability means a liability that would be imposed by law in the absence of any 
contract or agreement.

 

(Emphasis 
in original.)

 

[¶11]   One additional issue is raised by 
the language of the first paragraph of the "coverages" section of the policy, in 
which the "insuring agreement" is defined:

 

We 
will pay those sums that the insured becomes legally obligated to pay as 
damages because of "bodily injury" or "property damage" to which this 
insurance applies.

 

(Emphasis 
added.)

 

DISCUSSION

 

[¶12]   Before discussing the individual 
issues, it may be helpful first to review the separate concepts of first-party 
bad faith and third-party bad faith:

 

            
The duty of good faith and fair dealing which is implied by law to inhere 
in every insurance policy runs from the insurer to the insured.  . . .  Breach of this duty may give rise to a 
cause of action for "third party" bad faith or for "first party" bad faith.  A cause of action for "third party" bad 
faith will lie when a liability insurer fails in bad faith to settle a 
third-party claim within policy limits against its insured.  . . .  Bad faith in this context would occur if 
an excess judgment were obtained under circumstances when the insurer failed "to 
exercise intelligence, good faith, and honest and conscientious fidelity to the 
common interest of the [insured] as well as of the [insurer] and [to] give at 
least equal consideration to the interest of the insured."  . . .  A cause of action for "first party" bad 
faith will lie when an insurer in bad faith refuses to pay its insured's direct 
claim for policy benefits.  . . 
.  Bad faith in this context would 
occur if an insurer knowingly or recklessly denied a first-party claim for 
insurance benefits without having a reasonable basis for doing 
so.

 

Herrig 
v. Herrig, 
844 P.2d 487, 490 (Wyo. 1992) (quoting Fowler, 390 P.2d at 
606).

 

[¶13]   Third-party bad faith, or 
conversely good faith, "must be determined as of the time the offer was made and 
rejected and that good faith [means] a bona fide belief that the insurer had a 
good possibility of winning the lawsuit or that the claimant's recovery in the 
lawsuit would not exceed the limits of the insurance policy."  Fowler, 390 P.2d  at 
606.  "The governing standard is whether a 
prudent insurer would have accepted the settlement offer if it alone were to be 
liable for the entire judgment."  
Betts v. Allstate Ins. Co., 154 Cal. App. 3d 688, 201 Cal. Rptr. 528, 
538 (1984).  This is an objective, rather than a 
subjective, standard.  State Farm 
Fire and Cas. Co. v. Winsor, 5 F. Supp. 2d 1258, 1266 (D.Wyo. 
1998).

 

[¶14]   An objective standard is also used 
to determine whether an insurer has committed first-party bad faith.  Kirkwood v. CUNA Mut. Ins. Soc., 
937 P.2d 206, 211 (Wyo. 1997).  The question is whether the validity of 
the denied claim is fairly debatable.  
First Wyoming Bank, N.A., Jackson Hole v. Continental Ins. Co., 
860 P.2d 1094, 1101 (Wyo. 1993).  The validity of a claim is fairly 
debatable if a reasonable insurer would have denied or delayed payment of 
benefits under the facts and circumstances.  Ahrenholtz v. Time Ins. Co., 968 P.2d 946, 950 (Wyo. 1998).  To establish a claim for first-party bad 
faith, a plaintiff must establish (1) the absence of any reasonable basis for 
denying the claim, and (2) the insurer's knowledge or reckless disregard of the 
lack of a reasonable basis for denying the claim.  Id. at 
950-51.

 

Issue 
No. 1:  Did the district court err 
as a matter of law when it

held 
that Gainsco's rejection of Amoco's settlement offers 
amounted

to 
third-party bad faith, because Andrews, who negotiated 
a

unilateral 
settlement agreement, suffered no damages and thus

failed 
to prove an element of the tort of insurance bad faith?

 

[¶15]   Gainsco's position on this issue is 
straightforward:  Third-party bad 
faith is a tort.  State Farm Mut. 
Auto. Ins. Co. v. Shrader, 882 P.2d 813, 825-26 (Wyo. 1994).  "[A] tort is not complete and actionable 
until all the elements, duty, breach, proximate cause, and damage, 
are present."  Davis v. City of 
Casper, 710 P.2d 827, 829 (Wyo. 1985) (emphasis added).  Because, the argument then goes, Andrews 
never suffered any damages, Andrews' assignee Amoco has no tort to pursue.  Gainsco premises its theory that Andrews 
was not damaged on two facts.  
First, the Amoco-Andrews settlement agreement included Amoco's covenant 
not to execute against Andrews and Amoco's further promise to provide whatever 
release of lien Andrews might require in the future to transfer property.  Second, the Amoco-Andrews settlement 
agreement limited Amoco's recovery on any indemnity claim to the insurance 
proceeds.  Gainsco then contends 
that, inasmuch as the Gainsco-Andrews insurance policy requires Gainsco to pay 
only "those sums that the insured becomes legally obligated to pay as damages," 
and inasmuch as the settlement agreement leaves Andrews legally obligated to pay 
nothing as damages, there is nothing for Gainsco to pay.

 

[¶16]   Wyoming has recognized as a basic 
premise that no third-party bad faith cause of action for failure to settle will 
accrue against an insurer until entry of a judgment against the insured in 
excess of policy limits.  Jarvis 
v. Farmers Ins. Exchange, 948 P.2d 898, 901-02 (Wyo. 1997); 
Sabins v. Commercial Union Ins. Companies, 82 F. Supp. 2d 1270, 1278 
(D.Wyo. 2000).  The next question is, where a judgment 
in excess of policy limits has resulted from a settlement between the insured 
and the claimant rather than from a trial, and as part of that settlement the 
insured is insulated by a covenant not to execute or similar device, may the 
claimant, as the insured's assignee, pursue a third-party bad faith claim 
against the insurer?

 

[¶17]   In Romstadt v. Allstate Ins. 
Co., 59 F.3d 608 (6th Cir. 1995), 
the insured and the claimant settled a personal injury lawsuit that was being 
defended by the insurer.  The 
settlement, which occurred without the insurer's participation, included a 
confessed judgment in excess of policy limits and an agreement by the claimant 
to enter a release and satisfaction of judgment as to the insured.  The insured's payment of its policy 
limits to the claimant did not thwart the claimant's subsequent third-party bad 
faith suit.  In granting summary 
judgment to the insurer, the United States Court of Appeals for the Sixth 
Circuit concluded that, under Ohio law, a non-adjudicated confessed judgment 
coupled with no risk to the insured under that judgment does not create a viable 
cause of action for third-party bad faith.  
Id. at 611-15.

 

[¶18]   A similar situation occurred in 
Willcox v. American Home Assur. Co., 900 F. Supp. 850 (S.D.Tex. 
1995), 
with the main difference being a covenant not to execute against the insured 
rather than a release and satisfaction of judgment.  Applying Texas law, the district court 
held that the claimant's covenant not to execute against the insured precluded 
the claimant, as assignee of the insured's third-party bad faith claim, from 
recovering amounts in excess of the policy limits.  Id. at 856-57.  The court's rationale was as 
follows:

 

"To 
recover more than the policy limits from the insurer, the judgment creditor must 
assert the insured's injury.  If the 
judgment cannot be enforced against the insured, no such injury exists.  The insured may assign to his judgment 
creditor any claim he has against his insurer for payment of the excess award, 
but such assigned claim is actionable only as long as the insured remains liable 
for the excess damages.  To allow 
the creditor to release the insured from liability for such excess damages 
without effecting the release of the insurer would give the creditor and insured 
the power unilaterally to extend the insurer's liability.  This would defeat, not serve, public 
policy."

 

Id. 
at 857 (quoting Whatley v. City of Dallas, 758 S.W.2d 301, 310 (Tex.App. 
1988)).  The court went on to hold, however, that 
neither a covenant not to execute nor a covenant not to enforce a settlement 
agreement will excuse the insurer from its obligation to pay covered claims up 
to the policy limits.  
Willcox, 900 F. Supp.  at 857.

 

[¶19]   In its appellate reply brief, 
Gainsco contends that a newly published case is dispositive of this issue.  Marathon Ashland Pipe Line LLC v. 
Maryland Cas. Co., 243 F.3d 1232 (10th Cir. 2001), 
arose in Wyoming and was decided under Wyoming law.  In a factual situation quite similar to 
the one now before this Court, the United States Court of Appeals for the Tenth 
Circuit noted that a third-party bad faith cause of action is based upon an 
insurer's refusal to settle a third-party claim against the insured within 
policy limits.  Id. at 
1250.  The court then went on to 
say:

 

The 
Wyoming Supreme Court has held that such a claim will not accrue until after a 
judgment has been entered against the insured in excess of the policy 
limits.  See [Jarvis, 948 
P.2d] at 902.  Because it is 
undisputed that the judgment against [the insured] has not been enforced against 
it, we agree with the district court that [the insurer] was entitled to summary 
judgment on this claim . . ..

 

Marathon 
Ashland Pipe Line LLC, 
243 F.3d  at 1250.

 

[¶20]   In response to Gainsco's argument 
on this first issue, Amoco concedes that some courts have, indeed, held that the 
existence of a covenant not to execute in this situation means that the insured 
has suffered no damage and, therefore, has no third-party bad faith cause of 
action to assign to the claimant.  
Amoco contends, however, that the majority of courts do not take that 
position.

 

[¶21]   Amoco refers us first to 
Insurance Co. of North America v. Spangler, 881 F. Supp. 539 (D.Wyo. 
1995).  In Spangler, the insurer defended 
a wrongful death action under a reservation of rights as to coverage, and also 
brought a separate declaratory judgment action to test coverage.  The claimant and the insured then 
settled the wrongful death action for an amount within policy limits, and the 
claimant covenanted not to execute against the insured.  The insurer then amended its complaint 
in the declaratory judgment action to raise the issue of the enforceability 
against it of the stipulated judgment.  
Id. at 541-42.  The 
specific issue addressed in Spangler is similar to the issue now before 
this Court:

 

Is 
the assignee of the insured barred from recovery from the insurer for a 
stipulated liability to which the insurer did not consent and the insured is not 
personally liable?

 

Id. 
at 543.  Because this question had 
not previously been answered by this Court, the federal court made its "best 
estimate" as to how this Court would rule on the question.  Id. at 544.  In answering the question in the 
negative, the federal court emphasized two facts:  (1) an insurer defending under a 
reservation of rights "loses the right to control the litigation;" and (2) a 
covenant not to execute is not a complete release of all liability.  Id.2

 

[¶22]   Other courts have also concluded 
that a covenant not to execute is not the equivalent of a release in that it 
does not totally extinguish the effects of the judgment.  For example, the judgment may affect the 
insured's credit in the future.  For 
that reason, these courts find that, despite the existence in the settlement of 
a covenant not to execute, the insured retains a cause of action for third-party 
bad faith that may be assigned to the claimant.  See Consolidated American Ins. Co. v. 
Mike Soper Marine Services, 951 F.2d 186, 191 (9th Cir. 
1991); 
McLaughlin v. National Union Fire Ins. Co., 23 Cal. App. 4th 1132, 29 Cal. Rptr. 2d 559, 572 (1994); 
McLellan v. Atchison Ins. Agency, Inc., 81 Hawaii 62, 912 P.2d 559, 
563-65 (1996); 
Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 532-33 (Iowa 
1995); 
and Glenn E. Smith, Understanding the Tort of Third-Party Bad Faith in 
Wyoming:  Western Casualty & 
Surety Company v. Fowler Revisited, XXVI Land and Water L. Rev. 635, 688-90 
(1991).  See also Lopez v. Arryo, 489 P.2d 626, 627-29 (Wyo. 1971).

 

[¶23]   In support of its argument on this 
issue, Gainsco points to the specific policy language that limits its obligation 
to pay only "those sums that the insured becomes legally obligated to pay as 
damages . . .."  The contention is 
that the covenant not to execute, combined with the agreement to look only to 
Gainsco for recovery, leads to the inescapable conclusion that Andrews was not 
"legally obligated to pay" anything.

 

[¶24]   The phrase "legally obligated to 
pay" is not defined in the policy.  
Some courts have concluded that the term is ambiguous and have, 
therefore, construed it in favor of the insured.  Red Giant Oil Co., 528 N.W.2d  at 
533.  This strict construction, coupled with 
the holding that a covenant not to execute is merely an agreement and not a 
release from liability, means that the insured should still be considered 
legally obligated to pay the stipulated judgment.  Id.  The rationale of this approach is that 
an insurer who has abandoned the insured by refusing to defend a claim should 
not be allowed to "hide behind" the policy language.  Coblentz v. American Sur. Co. of New 
York, 416 F.2d 1059, 1062-63 (5th Cir. 1969); 
Losser v. Atlanta Intern. Ins. Co., 615 F. Supp. 58, 61 (D.Utah 
1985); 
American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805, 813 (Ind.App. 
1980); 
Metcalf v. Hartford Acc. & Indem. Co., 176 Neb. 468, 126 N.W.2d 471, 
475-76 (1964).

 

[¶25]   Not all courts agree with this 
view.  Some courts hold that an 
insured protected by a covenant not to execute "has no compelling obligation to 
pay any sum to the injured party," so neither does the insurer.  Freeman v. Schmidt Real Estate & 
Ins., Inc., 755 F.2d 135, 138 (8th Cir. 1985); 
Roach v. Estate of Ravenstein's Estate, 326 F. Supp. 830, 836 (S.D.Iowa 
1971).  The courts that follow this line of 
reasoning do so out of fear of collusion between the insured and the claimant or 
by simple reliance on the policy language.  
Freeman, 755 F.2d at 138-39; 
Bendall v. White, 511 F. Supp. 793, 795 (N.D.Ala. 1981); 
Steil v. Florida Physicians' Ins. Reciprocal, 448 So. 2d 589, 592 
(Fla.App. 1984); 
American Cas. Co. of Reading, Pa. v. Griffith, 107 Ga.App. 224, 227, 129 S.E.2d 549, 551-52 (1963); 
Huffman v. Peerless Ins. Co., 17 N.C.App. 292, 293, 193 S.E.2d 773, 774, 
cert. denied, 283 N.C. 257, 195 S.E.2d 689 (1973); 
Stubblefield v. St. Paul Fire & Marine Ins. Co., 267 Or. 397, 400, 
517 P.2d 262, 264 (1973).

 

[¶26]   We agree with the rationale of 
Spangler and those cases that find that the inclusion of a covenant not 
to execute in the settlement agreement between an insured and a claimant, under 
the circumstances of the case now before us, does not act to negate the fact 
that a judgment has been entered against the insured and, therefore, does not 
bar the claimant, as assignee of the insured, from pursuing a claim against the 
insurer for third-party bad faith.  
The existence of the judgment, with or without a covenant not to execute, 
is a detriment to the insured sufficient to support an assignable tort 
claim.  Public policy favors this 
result in that it allows an insured to reach a reasonable settlement of a case 
being defended under a reservation of rights and it discourages an insurer from 
rejecting a reasonable settlement offer.  
The insurer is adequately protected by the requirement that such 
settlements be reasonable and by its ability to raise the issues of fraud and 
collusion.

 

Issue 
No. 2:  Did the district court err 
as a matter of law when it held

that 
Gainsco's rejection of Amoco's settlement offers amounted 
to

third-party 
bad faith, because, under Western Cas. & 
Sur.

Co. 
v. Fowler, 
390 P.2d 602 (Wyo. 1964), there could be no bad

faith 
because Amoco's recovery against Andrews could not, as 
a

matter 
of law, exceed the limits of Andrews' policy with Gainsco?

 

[¶27]   Gainsco's second argument is 
similar to its first in that it is premised on the contention that Andrews' 
third-party bad faith claim, as assigned to Amoco, must fail for a lack of 
damages.  The argument here is that 
Amoco could never have recovered from Andrews more than the policy limits, so 
there was no risk to Andrews of an excess judgment.

 

[¶28]   An insurer's rejection of a 
settlement offer within policy limits does not constitute third-party bad faith 
when the insurer has a bona fide belief that the claimant's recovery will not 
exceed policy limits.  
Fowler, 390 P.2d  at 606.3  Gainsco argues that, under the contract, 
Amoco's indemnity claim was expressly limited to the amount of insurance 
coverage:

 

10.       . . .  The liability assumed by [Andrews] 
pursuant to this clause shall be limited to the amounts carried by [Andrews'] 
current liability insurance . . ..

 

[¶29]   We must keep in mind that we "do 
not look to an insurance company's subjective belief about the claim . . . [but] 
at its actions objectively at the time it decided to reject the offer of 
settlement within policy limits."  
Winsor, 5 F. Supp. 2d  at 1266.  In that light, the question is whether 
Gainsco acted in objective good faith when, with a policy limit of $300,000.00, 
and with its insurer exposed to a maximum risk of $300,000.00, it rejected a 
settlement offer of $297,000.00.

 

[¶30]   Amoco's response to Gainsco's 
argument on this issue is not convincing.  
Amoco contends that Gainsco did not have a bona fide belief that Amoco's 
recovery would not exceed policy limits because (1) the judgment did, in fact, 
exceed policy limits; (2) Gainsco warned Andrews early on that Andrews might 
have some personal liability; (3) Gainsco did not raise the indemnity limitation 
argument in a pleading or motion; and (4) Gainsco did not appeal the 
judgment.  Even if some or all of 
these allegations are true, however, they miss the point.  To begin with, third-party bad faith 
occurs, if at all, when the offer of settlement is rejected.  The central element of a tort of 
third-party bad faith is the objectively unreasonable rejection of a settlement 
offer within policy limits.  
Application of that standard in the instant 
case leads to the inescapable conclusion that rejection of the $297,000.00 
settlement offer was not objectively unreasonable because, with Andrews' 
contractual obligation limited to $300,000.00, there was no reasonable risk of 
an excess judgment.

 

[¶31]   The Contract's provisions were before 
the district court when summary judgment was granted to Amoco in an amount 
grossly in excess of the contractual obligation.  Both the indemnity obligation and the 
limitation on that obligation were unambiguous.  Had they been ambiguous, the rules of 
construction require the court to construe contracts so as to give meaning to 
all terms.  Moncrief v. Louisiana Land and Exploration Co., 861 P.2d 516, 524 (Wyo. 1993).  Here, it was error for the district court to 
give meaning to the indemnity obligation of paragraph 10 without also giving 
meaning to the limitation thereon contained in the same paragraph.  Thus, it was also 
error for the district court to grant summary judgment to Amoco on its 
third-party bad faith claim because Gainsco had a bona fide belief, under an 
objective standard, that there could be no excess judgment.

 

Issue No. 3:  Did the district court err as a matter of 
law

when it held that Gainsco's denial of coverage to 
Andrews

amounted to first-party bad faith, because the total 
pollution

exclusion made the question of coverage 
debatable?

 

[¶32]   To reiterate, first-party bad faith 
occurs when an insurer, in bad faith, refuses to pay an insured's direct claim 
for policy benefits.  
First-party bad faith is the knowing or reckless denial of a claim 
without a reasonable basis for such denial.  Under an objective standard, the question is 
whether the validity of the claim is fairly debatable.  Such validity is 
fairly debatable if a reasonable insurer would have denied or delayed payment of 
benefits under the existing circumstances.

 

[¶33]   "The logical premise of the debatable . 
. . standard is that if a realistic question of liability does exist, the 
insurance carrier is entitled to reasonably pursue that debate without exposure 
to a claim of violation of its duty of good faith and fair dealing."  McCullough v. Golden Rule Ins. Co., 789 P.2d 855, 860 
(Wyo. 1990).  Also implicated is the question of "whether 
the facts necessary to evaluate the claim are properly investigated and 
developed or recklessly ignored and disregarded.'"  Id. (quoting Anderson v. 
Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368, 376-77 
(1978)).

 

[¶34]   In the instant case, the precise issue 
is if it was fairly debatable whether the pollution exclusion in the insurance 
policy meant Gainsco had not provided coverage for Abraham's death from exposure 
to hydrogen sulfide gas.  Neither of Wyoming's two published opinions 
dealing with the pollution exclusion are helpful in answering this 
question.  See Sinclair Oil Corp. v. Republic Ins. Co., 929 P.2d 535, 540-43 (Wyo. 1996) (meaning of "sudden and accidental" in 
exception to pollution exclusion) and Compass Ins. Co. 
v. Cravens, Dargan and Co., 748 P.2d 724, 727-28 (Wyo. 1988) (meaning of "property damage" and 
"occurrence").  
Nationwide, however, there appear to be dozens of cases that have 
addressed this issue.

 

[¶35]   The pollution exclusion has been 
around, in one form or another, since the early 1970's.  American States Ins. Co. v. Koloms, 177 Ill. 2d 473, 227 
Ill.Dec. 149, 687 N.E.2d 72, 77 (1997).  The present version of the exclusion, known 
as the "total" or "absolute" pollution exclusion, was drafted in 1985.  Id.  As might be expected, both Amoco and Gainsco 
have cited cases from other jurisdictions supporting their respective 
interpretations of the exclusion and its applicability to the facts of this 
case.  We will 
not attempt to review all those cases, but we will mention two that are 
representative of the contrasting positions.

 

[¶36]   In Bernhardt v. 
Hartford Fire Ins. Co., 102 Md.App. 45, 648 A.2d 1047, 1049-52 (1994), cert. granted, 337 Md. 641, 655 A.2d 400, cert. dismissed, 338 Md. 415, 659 A.2d 296 
(1995), the Maryland Court of Special Appeals found that (1) the 
total pollution exclusion was not ambiguous; (2) it was not limited solely to 
incidents of industrial pollution; and (3) it applied to preclude coverage for 
injuries resulting from the accumulation of carbon monoxide gas due to 
obstructions in an apartment building's chimney flue.  To the contrary, in 
Koloms, 687 N.E.2d  at 75-82, the Supreme Court of Illinois pointedly rejected the 
reasoning of Bernhardt and concluded that the total 
pollution exclusion was intended to apply only to "those injuries caused by 
traditional environmental pollution."  Id. at 82.

 

[¶37]   In the context of this split in 
authority, it is probably not surprising that the parties' experts in the 
present case disagreed as to whether the question of coverage was fairly 
debatable.  We 
must remember that, for purposes of the issue at hand, asking that question is 
not the same as asking whether there actually was coverage under the policy.4  Undoubtedly, the language of the exclusion 
could, on its face, be applied to the accidental release of a poisonous gas.5  For that reason, and given the disparity of 
authority nationwide on this question, we conclude that Gainsco had a reasonable 
basis for its original denial of coverage.  Stated differently, it is not necessarily an 
act of bad faith for an insurer to deny or delay payment of benefits where the 
underlying incident objectively may be seen as being covered by a policy 
exclusion, particularly where there is no controlling authority within the 
jurisdiction.

 

Issue No. 4:  Did the district court err as a matter of law 
when

it held that Gainsco's denial of coverage to Andrews 
amounted

to first-party bad faith, because the insured contract

exclusion made the question of coverage fairly 
debatable?

 

[¶38]   Gainsco's policy insured Andrews 
against contractually assumed tort liability.  The present issue arises out of Gainsco's 
inclusion in the policy of the following language, drafted by Gainsco's product 
manager and included in no other insurer's policy:

 

However, this insurance does not apply to that part of any 
contract or agreement that indemnifies any person or organization for the 
indemnitee's sole tort liability.

 

(Emphasis in original.)  It is Gainsco's position that the phrase, 
"the indemnitee's sole tort liability," excludes from coverage those contracts 
wherein its insured agrees to indemnify the other contracting party in 
situations where the insured, himself, is not liable.  In other words, 
Gainsco contends that the word "sole" does not mean the other party is the sole 
tortfeasor; rather, it means that, as between the other party and the insured, 
the other party is the only tortfeasor.

 

[¶39]   Amoco characterizes Gainsco's logic on 
this issue as a "jump[] off the coverage analysis cliff into the netherworld of 
absurd contract interpretation."  The deposition testimony of Dudley Watts, a 
Gainsco claims examiner, as to the meaning of the quoted policy language, 
illustrates the Gainsco policy interpretation that Amoco finds offensive:

 

            
Q.        My 
question is:  
What is the language in that bold sentence that tells you that this is 
not an insured contract?

 

            
A.        There was 
no negligence on the part of my insured.

 

            
Q.        Is that 
the only thing in that bold sentence that would suggest to you that there is no 
coverage here, there's no insured contract here?

 

            
A.        That's 
what it says.

 

            
. . .

 

            
Q.        Have you 
made either determination?

 

            
A.        I made a 
determination that the insured was not negligent in the death of Abraham.

 

            
Q.        Have you 
made any other factual determinations like that, as to whether anybody else in 
the whole world was negligent, as relates to this death of Mr. Abraham?

 

            
A.        I found 
no negligence on the part of Andrews.  That's all that was required.

 

            
. . .

 

            
Q.        The 
question is:  
If you were the one making the coverage call or decision in this case, 
looking at that bold sentence, would you focus on whether Mr. Andrews was 
negligent or would you focus on whether Amoco was negligent, or would you focus 
on whether both of them were negligent?

 

            
A.        I would 
focus on whether or not my insured was negligent.

 

            
Q.        And that 
is all?

 

            
A.        Ifyeah. 
 And if my 
insured is not negligent, then the sole negligence, then the sole 
indemniteesole negligence lies elsewhere.

 

[¶40]   Amoco argues that Gainsco was 
unreasonable when interpreting "sole tort liability," in focusing on Andrews' 
liability, and that it was unreasonable because the liability of the insured is 
not even mentioned in the sentence.  While that conclusion may be easy to draw, 
Gainsco did provide some rationale for its position.  Amoco also deposed 
Glenda Bruton, Gainsco's product manager and the person who drafted the 
questioned language.  
She gave the following testimony:

 

            
Q.        What are 
your memories of how you came up with that particular language in the bolded 
sentence?

 

            
A.        The 
intent was to provide intermediate contractual liability coverage for written 
contracts.

 

            
. . .

 

            
Q.        Tell me 
what intermediate contractual liability coverage is to you?

 

            
A.        That 
means theyou have a sole or joint negligence of the insured in connection with 
the contract that they have with the indemnity [sic].  It's between the 
indemnity [sic] and the insured.  It has to be either sole or joint negligence 
on the part of the insured.

 

[¶41]   Clearly, Gainsco's intent was that its 
policy would not cover its insured's contractual indemnity obligations unless 
the insured was himself also separately liable.  When this subjective intent is considered, it 
may be said that Gainsco acted in subjective good faith in declining 
coverage.  The 
problem is that the standard for first-party bad faith is objective, not 
subjective.

 

[¶42]   We conclude that a reasonable insurer 
would not have denied coverage based on the insured contract exclusion.  The issue of 
coverage was not fairly debatable because the exclusion simply does not limit 
coverage to those situations where the insured is separately liable.  Consequently, 
Gainsco's reliance on its subjective interpretation of the policy was not 
reasonable.

 

Issue No. 5:  Did the district court err as a matter of law 
when it held

that Amoco's indemnity claim was covered under Andrews' 
policy with

Gainsco, when the total pollution exclusion showed no 
coverage existed?

 

[¶43]   This issue, of course, follows closely 
on the heels of the third issue discussed above.  In that discussion, we concluded that Gainsco 
had not acted in bad faith by denying coverage pursuant to the total pollution 
exclusion in its policy.  We now must address whether Gainsco was 
right.  The 
question, as it has been defined by the parties and in numerous cases across the 
country, is whether the pollution exclusion is narrowly limited to the concept 
of environmental pollution or whether it also excludes coverage for personal 
injuries caused by irritants and contaminants under circumstances such as exist 
in the instant case.

 

[¶44]   In arguing that the pollution exclusion 
forecloses coverage in situations such as the one in the instant case, Gainsco 
points out that the exclusion does not in direct language limit itself to 
environmental pollution.  A close reading of the exclusion reveals that 
Gainsco is correct.  
Gainsco also directs us to numerous cases wherein the pollution exclusion 
has been found to bar coverage for losses similar to Abraham's death from 
hydrogen sulfide gas.  
See, e.g., Reliance 
Ins. Co. v. Moessner, 121 F.3d 895, 901 (3rd 
Cir. 1997) (exclusion does not require release of 
pollutant to the atmosphere and does not limit itself to environmental 
catastrophes); American States Ins. Co. v. Nethery, 
79 F.3d 473, 475-78 (5th Cir. 1996) (pollution exclusion encompasses more than 
traditional conceptions of pollution); Toledo v. Van 
Waters & Rogers, Inc., 92 F. Supp. 2d 44, 51-52 (D.R.I. 2000) (plain and ordinary meaning of language of 
pollution exclusion precludes coverage even for non-environmental pollution); American States Ins. Co. v. Technical Surfacing, Inc., 
50 F. Supp. 2d 888, 889-90 (D.Minn. 1999) (pollution exclusion not limited to 
environmental or outdoor pollution); Brown v. American 
Motorists Ins. Co., 930 F. Supp. 207, 208-09 (E.D.Pa. 1996), aff'd, 111 F.3d 125 (3rd Cir.), cert. denied, 
522 U.S. 950 (1997) (clear and unambiguous policy language shows 
no intent to limit pollution exclusion to environmental pollution); TerraMatrix, Inc. v. United States Fire Ins. Co., 939 P.2d 483, 488 (Colo.App. 1997) (plain language of pollution exclusion not 
limited to environmental or industrial pollution); Lititz Mut. Ins. Co. v. Steely, 746 A.2d 607, 612-13 
(Pa.Super. 1999), rev'd on other grounds, 785 A.2d 975 (Pa. 2001) (pollution exclusion not limited to 
environmental pollution); Madison Const. Co. v. 
Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 105 
(1999) (no language in pollution exclusion limits its 
application to environmental pollution); and Cook v. 
Evanson, 83 Wash. App. 149, 920 P.2d 1223, 1226-27 (1996) (pollution exclusion not limited to classic 
environmental pollution).

 

[¶45]   Many courts have come to a conclusion 
on this issue directly contrary to the holdings of the above-cited cases.  See, e.g., Nautilus Ins. Co. v. 
Jabar, 188 F.3d 27, 31 (1st Cir. 
1999) (reasonable interpretation of exclusion is 
that it applies only to environmental pollution); Enron 
Oil Trading & Transp. Co. v. Walbrook Ins. Co., Ltd., 132 F.3d 526, 530 
(9th Cir. 1997) (exclusion's reference to "seepage, pollution 
and contamination" indicates environmental-type harm); Pipefitters Welfare Educational Fund v. Westchester Fire 
Ins. Co., 976 F.2d 1037, 1043 (7th Cir. 
1992) (literal interpretation of pollution 
exclusion's terms would be overbroad and would render judicial limitations on 
insurance policies meaningless); Keggi v. Northbrook 
Property and Cas. Ins. Co., 199 Ariz. 43, 13 P.3d 785, 791 
(2000) (exclusion intended only to exclude coverage 
for traditional environmental pollution); Koloms, 
687 N.E.2d at 81 (pollution exclusion does not apply to "toxic 
torts" but is restricted to instances of classic pollution such as groundwater 
or soil contamination from industrial operations); Motorists Mut. Ins. Co. v. RSJ, Inc., 926 S.W.2d 679, 
680-82 (Ky.App. 1996) (total pollution exclusion uses terminology 
from environmental law and the historical objective of the exclusion was to 
avoid coverage for environmental catastrophes); Doerr v. 
Mobil Oil Corp., 774 So. 2d 119, 135 (La. 2000), corrected, 782 So. 2d 573 (La. 2001) (absolute pollution exclusion not intended to 
exclude coverage for all interactions with irritants or contaminants and should 
be construed to exclude coverage only for environmental pollution); Atlantic Mut. Ins. Co. v. McFadden, 413 Mass. 90, 595 N.E.2d 762, 764 (1992) (pollution exclusion's terms are terms of art 
in environmental law); Weaver v. Royal Ins. Co. of 
America, 140 N.H. 780, 674 A.2d 975, 977 (1996) (where phrase "discharge, dispersal, release 
or escape" was not defined, it should be construed against the insurer); Karroll v. Atomergic Chemetals Corp., 194 A.D.2d 715, 
600 N.Y.S.2d 101, 102 (1993) (exclusion reasonably interpreted to apply 
only to environmental pollution); West American Ins. Co. 
v. Tufco Flooring East, Inc., 104 N.C.App. 312, 409 S.E.2d 692, 699 (1991), 
overruled on other grounds by Gaston County Dyeing Mach. 
Co. v. Northfield Ins. Co., 351 N.C. 293, 524 S.E.2d 558 (2000) (terms such as "discharge, dispersal, release, 
or escape" are environmental terms of art meant to apply to environmental 
pollution); and Kent Farms, Inc. v. Zurich Ins. Co., 
93 Wash. App. 414, 969 P.2d 109, 111-12 (1998), aff'd, 140 Wash. 2d 396, 998 P.2d 292 (2000) (reasonable reading of the exclusion limits it 
to traditional environmental damages).

 

[¶46]   In light of this conflict in authority 
as to the intent and scope of the total pollution exclusion, it is helpful to 
consider its original purpose.  The pollution exclusion had its inception in 
the 1970's in response to federal and state legislation mandating responsibility 
for the cleanup costs of environmental pollution.  9 Couch on 
Insurance 3d § 127:3 (1997).  The purpose of the current version of the 
exclusion remains to exclude these governmentally mandated cleanup costs.  Koloms, 687 N.E.2d  at 81-82.  To read the exclusion more broadly ignores 
the insurers' objective in creating the exclusion and ignores the general 
coverage provisions of the policy.  Kent Farms, Inc. v. 
Zurich Ins. Co., 140 Wash. 2d 396, 998 P.2d 292, 295 (2000).

 

[¶47]   We interpret insurance policies just as 
we interpret other contracts, except that words used in an insurance policy are 
given the plain meaning that a person in the position of the insured would 
understand them to mean.  Doctors' Co., 864 P.2d  at 1023.  We cannot believe that any person in the 
position of the insured would understand the word "pollution" in this exclusion 
to mean anything other than environmental pollution.  In a footnote in 
its decision letter, the district court concisely pinpointed what is wrong with 
Gainsco's argument:

 

            
In other words, the [Koloms] Court invites us 
to consider the ordinary meaning [of] the term, "pollution."  We might simply ask 
in this context, "Was the incident in this case an instance of pollution?"  Or, to get into the 
context of the total pollution exclusion clause, "Was Abraham's death caused by 
pollution?"  
Ordinary usage of the term tells us this was not an instance of 
pollution, and Abraham's death was not caused by pollution.

 

[¶48]   We do not know if it is the majority 
position, but we will join with those courts that have held the total pollution 
exclusion to be limited to the concept of environmental pollution.  The district court 
did not err as a matter of law when it held that Amoco's indemnity claim was 
covered under Andrews' policy.

 

Issue No. 6:  Did the district court err as a matter of 
law

when it held that Amoco's indemnity claim was covered 
under

Andrews' policy with Gainsco, when the insured contract

exclusion showed no coverage existed?

 

[¶49]   We have already answered this question 
in the negative with our above analysis of the fourth issue.  Nothing in the 
language of the insured contract exclusion justified Gainsco's denial of 
coverage.  The 
phrase "indemnitee's sole tort liability" is ambiguous and must be construed 
against Gainsco, who drafted the policy.  Shoshone First Bank 
v. Pacific Employers Ins. Co., 2 P.3d 510, 513 (Wyo. 2000).  It may be conceivable that the phrase was 
meant to say what Gainsco says it meansthat "sole" means there is no coverage 
if the insured is not also liablebut the more likely meaning, given that the 
insured is not even mentioned, and the meaning more favorable to the insured, is 
that insured contracts do not include those where the proposed indemnitee is 
100% at fault.  
In the instant case, no one contended that Amoco was 100% at fault, so 
the contract indemnifying Amoco was an insured contract.

 

Issue No. 7:  Did the district court err as a matter of law 
when it ignored

Gainsco's argument that it was prejudiced when Amoco and 
Andrews

failed to notify it that one term of the settlement 
agreement was Andrews'

dismissal of its third-party complaint against 
Kobbe?

 

[¶50]   A brief review of the factual and 
procedural history of this case will help set the stage for a discussion of this 
issue.  At the 
time of the incident that resulted in his death, Abraham was employed by 
Andrews' subcontractor, Kobbe, at Amoco's Elk Basin Oil Field.  The Abraham Estate 
sued Amoco, Andrews, and Kobbe for wrongful death.  Andrews obtained 
summary judgment based on a finding of no duty, and the claim against Kobbe was 
dismissed due to worker's compensation immunity.  Amoco settled for $650,000.00.  Amoco then sued 
Andrews for contractual indemnity.  Andrews, defended by Gainsco, brought a 
third-party complaint against Kobbe alleging equitable implied indemnity.

 

[¶51]   Because Gainsco defended Andrews under 
a reservation of rights, Andrews obtained separate counsel.  After considerable 
negotiation, Amoco and Andrews reached a settlement.  On May 10, 1995, 
Andrews' counsel sent a letter to Gainsco outlining the proposed settlement and 
offering Gainsco a final opportunity to settle the matter itself.  The May 10th letter indicated only three settlement terms:  a judgment against 
Andrews, a covenant not to execute against Andrews personally, and an assignment 
to Amoco of Andrews' rights against Gainsco.  Gainsco declined to participate in the 
settlement.

 

[¶52]   The present issue arose because the 
final settlement reached between Amoco and Andrews contained a fourth term, that 
being Andrews' agreement to dismiss with prejudice its third-party complaint 
against Kobbe.  
Gainsco now claims it was prejudiced because it had no notice that the 
settlement would extinguish its ability to proceed against Kobbe.6

 

[¶53]   Gainsco concedes that an insured does 
not violate the cooperation clause of an insurance policy by settling a claim 
being defended under a reservation of rights, so long as such settlement is 
preceded by adequate notice to the insurer.  Spangler, 881 F. Supp.  at 545.  Notice is not a separate procedural 
requirement imposed by the courts, but is part of the factual question of 
whether the settlement was reasonable, in good faith, and without 
collusion.  Id.  Gainsco further contends that such a 
settlement must not prejudice the rights of the insurer.  Ideal Mut. Ins. Co. v. Myers, 789 F.2d 1196, 1203 
(5th Cir. 1986).  An insurer is prejudiced when it is deprived 
of a valid defense.  
Id.  If such prejudice does occur, the insurer is 
discharged from its obligations under the policy.  Id.  There is a 
rebuttable presumption of prejudice where the insured has failed to show 
substantial compliance with a condition precedent to coverage.  Simpson v. United States Fidelity & Guar. Co., 562 N.W.2d 627, 631 (Iowa 1997).

 

[¶54]   Gainsco's third-party complaint against 
Kobbe sought indemnification.  The general rule of indemnity, taken from the 
Restatement of Restitution § 76 (1937), has been stated by this Court as 
follows:

 

            
"A person who, in whole or in part, has discharged a duty which is owed 
by him but which as between himself and another should have been discharged by 
the other, is entitled to indemnity from the other, unless the payor is barred 
by the wrongful nature of his conduct."

 

Schneider Nat., Inc. v. Holland Hitch Co., 843 P.2d 561, 572 (Wyo. 1992).

 

[¶55]   There are three classifications of 
indemnity:  (1) 
express indemnity resulting from the specific language of a contract; (2) 
implied contractual indemnity, also known as implied in fact indemnity, that 
arises from the contractual or legal relationship implied between the parties; 
and (3) equitable implied indemnity, also known as implied in law indemnity or 
common law indemnity, that is created by a relationship implied in law.  Id. at 573.  In its third-party complaint, Gainsco alleged 
equitable implied indemnity, but both equitable implied indemnity and implied 
contractual indemnity have been argued in this appeal.

 

[¶56]   Gainsco begins its argument by pointing 
out that, in Abraham, 893 P.2d  at 1157, this Court determined that Andrews and Kobbe had entered 
into an oral contract whereby Kobbe was to perform Andrews' obligations under 
its contract with Amoco.  Therefore, the parties had the necessary 
relationship to create an indemnity duty.  Further, since Andrews had no duty to 
Abraham, any liability imposed upon Andrews could only be vicarious liability 
for the conduct of Kobbe.  Therefore, Gainsco argues, any payment by 
Andrews would be the discharge of a duty ultimately owed by Kobbe.7

 

[¶57]   Amoco sees a fatal flaw in Gainsco's 
reasoning:  
because its implied indemnity argument was never viable, Gainsco was not 
prejudiced by its dismissal.  As Abraham's employer, Kobbe was immune from 
liability in the wrongful death suit under the worker's compensation act.  Wyo. Stat. Ann. § 
27-14-104 (LexisNexis 2001) (formerly Wyo. Stat. Ann. § 27-12-103 (1977 Republ. 
Ed.)).  Kobbe's 
tort liability to Abraham, if any, had been replaced by its statutory 
obligations under the worker's compensation scheme:

 

"The great majority of jurisdictions have held that the 
employer whose concurring negligence contributed to the employee's injury cannot 
be sued or be joined by the third party as a joint tortfeasor, whether under 
contribution statutes or at common law.  The ground is a simple one:  the employer is not 
jointly liable to the employee in tort."

 

Cities Service Co. v. Northern Production Co., 
Inc., 705 P.2d 321, 325 (Wyo. 1985) (quoting 2A 
Larson, The Law of Workmen's Compensation § 
76.20).  Amoco contends next that only by an express 
contract providing for indemnity may an employer be seen to have contracted away 
this protection.  
Cities Service Co., 705 P.2d  at 
325-26.  Amoco concludes that, because no such express 
contract between Andrews and Kobbe existed in this case, Andrews may not sue 
Kobbe.

 

[¶58]   In Pan American 
Petroleum Corp. v. Maddux Well Service, 586 P.2d 1220, 1224 (Wyo. 
1978), this Court held that the Worker's Compensation Act does 
not bar third-party claims based upon express contractual indemnity, but we 
declined to say whether that principle also applies to implied indemnity:

 

            
We hold that the Worker's Compensation provisions do not bar third-party 
claims for indemnity.  
The trial court, therefore, erred with respect to the general legal 
principles to be applied to Maddux's motion for summary judgment.

 

            
As noted previously, the courts of some jurisdictions have based their 
decisions on the exclusivity issue on the type of indemnity sought.  In this case, the 
parties appear to concede that if Worker's Compensation is not a bar to 
indemnity based on an express contract, then it is not a bar to claims based on 
an implied indemnity or on common-law indemnity.  As is the case with the issue of 
contribution, we have, therefore, no occasion in this opinion to decide whether 
or not causes of action had on implied indemnity or common-law indemnity would 
be precluded by the Worker's Compensation Act.  That inquiry must await a case that squarely 
presents these last-mentioned issues.

 

[¶59]   In 1982, the United States District 
Court for the District of Colorado, applying Wyoming law, did answer this 
specific question.  
See Forward v. Cotton Petroleum Corp., 540 F. Supp. 122 (D.Colo. 1982).  Relying on Maddux 
Well Service's broad statement that the worker's compensation statutes "do 
not bar third-party claims for indemnity,'" and upon its own conclusion that Maddux Well Service, despite the above-quoted 
disclaimer, had actually "held that implied indemnity actions are not precluded 
by workmen's compensation," the court in Forward 
held that third-party implied indemnity actions are not barred by worker's 
compensation immunity.  Forward, 540 F. Supp.  at 124-25.

 

[¶60]   It is important in this discussion to 
keep in mind the distinction between liability in tort and liability for 
indemnity.  In 
Cities Service Co., 705 P.2d  at 325, we pointed out that an action for contribution from a 
joint tortfeasor is not like an indemnity action.  The former is based on the injury to the 
employee while the latter is based on the independent relationship between the 
employer and the third party.  Maddux Well 
Service, 586 P.2d  at 1224.  Worker's compensation immunity is part of the 
trade-off of rights and liabilities between employer and employee and it does 
not involve third parties who have not benefited from the arrangement.  Id.; Cities Service Co., 
705 P.2d  at 324.  That is why worker's compensation immunity 
does not protect employers from indemnity actions brought by those third 
parties.

 

[¶61]   The oral contract between Andrews and 
Kobbe did not contain an express indemnity provision.  However, we have 
been shown nothing that convinces us to distinguish between express contractual 
indemnity and implied indemnity in this situation.  In previous 
opinions, we have concluded that indemnity, in all its forms, survived repeal of 
joint and several liability and the contribution statutes, and adoption of 
comparative negligence.  Diamond Surface, Inc. 
v. Cleveland, 963 P.2d 996, 1002 (Wyo. 1998); Schneider Nat., Inc., 843 P.2d  at 565-80.  In consonance with the comparative fault 
concept, we have also limited the indemnitee's recovery from the indemnitor to 
that portion of the damages caused by the indemnitor's breach of his separate 
duty to the indemnitee.  Diamond Surface, 
Inc., 963 P.2d at 1002-03; Schneider Nat., Inc., 843 P.2d  at 578.  Indemnity does, after all, have its roots in 
the equitable principles of restitution and unjust enrichment.  Schneider Nat., Inc., 843 P.2d  at 578.  The underlying public policy is simple 
fairness:

 

            
Indemnity actions are merely part of "a rich expositional refinement of 
the principle of fairness" in which "we each promise all others that we will be 
liable for the damage which our own negligence in the undertaking has 
caused."  Missouri Pac. R. Co. [v. Whitehead & Kales Co.], 
566 S.W.2d [466] at 468-69, 469 n. 4 [(Mo. 1978)].

 

Schneider Nat., Inc., 843 P.2d  at 577.  Surely, that public policy is realized as 
much by allowing an implied indemnity claim in the face of the worker's 
compensation bar as it is by allowing an express indemnity claim in the same 
situation.

 

[¶62]   In the instant case, Kobbe's 
independent duty to Andrews, arising out of the oral contract, was to perform 
work under the contract in a workmanlike fashion.  If Kobbe violated that duty to Andrews 
through some act of negligence, which act resulted in Abraham's death, and 
Andrews became liable for those damages, Kobbe should indemnify Andrews for 
Kobbe's share of the fault.  As a question of fairness, it makes no 
difference that Kobbe's obligation arose impliedly out of the contractual 
relationship rather than by express agreement.  We hold that worker's compensation immunity 
does not bar third-party claims based upon implied indemnity.

 

[¶63]   The next question is whether Gainsco 
was prejudiced by dismissal of the third-party complaint against Kobbe.  Gainsco, 
representing Andrews, sought indemnity from Kobbe for whatever portion of the 
eventual damages that might be attributed to Kobbe's  negligence.  The settlement 
between Amoco and Andrews stated that "in the face of a likelihood of being 
exposed to a large verdict," Amoco had settled with the Abraham Estate.  There is no 
explanation why Amoco required dismissal of Andrews' claim against Kobbe, and 
the settlement agreement does not express an intention that the payment was 
partially to cover Kobbe's share of the fault.8  Yet, the settlement 
between Amoco and Andrews clearly extinguished Gainsco's ability not only to 
pursue Kobbe for indemnity, but even to determine what percentage of fault, if 
any, might be Kobbe's.

 

[¶64]   This issue was raised directly by 
Gainsco in its motion for summary judgment, but it was ignored in the district 
court's decision letter.  In fact, the district court made the 
erroneous assertion that "GAINSCO was fully informed at every step of the 
actions that followed."  The district court noted specifically that 
Amoco would not likely have been apportioned 100% of the fault in this case, and 
that Kobbe, through Abraham's conduct, probably would also be found at 
fault.  But the 
district court never went on to recognize that the Abraham/Kobbe fault was the 
cornerstone of Gainsco's implied indemnity argument.  Gainsco is 
certainly correct in its assertion that, had the third-party complaint not been 
dismissed, Gainsco could have pursued Kobbe for indemnity.  Gainsco was 
prejudiced by the settlement between Amoco and Andrews.

 

Issue No. 8:  Did the district court err as a matter of law 
when it held

that the stipulated judgment amount of $795,901.00 was a 
reasonable amount?

 

[¶65]   Amoco settled the Abraham Estate's 
wrongful death action for $650,000.00.  Interest, costs and attorneys' fees brought 
the amount up to $795,901.00 in Amoco's stipulated judgment against 
Andrews.  By 
the time the district court granted Amoco judgment against Gainsco, the figure 
was $1,299,501.00.  
At issue here is the reasonableness of the second figurethe amount of 
the settlement between Amoco and Andrews.

 

[¶66]   In their settlement agreement, Amoco 
and Andrews recited numerous facts that suggested the possibility of a large 
judgment in the wrongful death action.9  Gainsco does not 
contest the reasonableness of the $650,000.00 Amoco paid to settle that 
action.  The 
issue, instead, is the reasonableness of Andrews agreeing to entry of a 
$795,901.00 judgment against it in favor of Amoco when the limit of its 
indemnity agreement was $300,000.00.10  Amoco has not 
contended that Andrews was insured for more than the required $300,000.00 
minimum.

 

[¶67]   Amoco concedes that an insurer who has 
rejected an offer to settle within policy limits is liable for a later 
stipulated judgment only if the amount of that judgment is reasonable.  See Spangler, 881 F. Supp.  at 545-46.  Amoco then goes on to defend the 
reasonableness of its settlement with the Abraham Estate.  That, of course, is 
not the question.  
The question is the reasonableness of the settlement in the later suit by 
Amoco against Andrews, in which Andrews not only agreed to a judgment over twice 
the amount of the risk, but also agreed to dismissal of its cause of action 
against Kobbe.

 

[¶68]   There are many views as to who has the 
burden of proving that a settlement was reasonable, and what proof is 
required.  In 
Arizona, the test as to whether a settlement was reasonable is what a reasonably 
prudent person in the insured's position would have settled for on the merits of 
the claimant's case.  
United Services Auto. Ass'n v. Morris, 154 
Ariz. 113, 741 P.2d 246, 254 (1987).  A similar statement of the insured's 
obligation is that "[t]he insured must demonstrate only that, in settling, his 
conduct conformed to the standard of a prudent uninsured."  Myers, 789 F.2d  at 1200.  In deciding whether a settlement was 
reasonable, the reviewing court may determine whether it is "on its face 
unconscionable . . .."  Losser, 615 F. Supp.  at 61.  Another factor is whether the insured made 
any effort to minimize his liability.  Taylor v. Safeco Ins. 
Co., 361 So. 2d 743, 746 (Fla.App. 1978).

 

[¶69]   Where the insurer has both denied 
coverage and wrongfully refused to defend, some courts find that a presumption 
of validity has been created as to the settlement agreement.  "The settlement 
agreement is presumptive evidence' of the insured's liability.  . . .  [The insurer is 
obligated to] come forward with evidence that the settlement was not a good 
faith resolution of the claims . . . but [was] the product of collusion or bad 
faith."  Shawnee Auto Service Center, Ltd. v. Continental Cas. 
Co., 782 F. Supp. 1503, 1506 (D.Kan. 1992).  Even where this presumption arises, however, 
the claimant may bear some of the burden of proof:

 

            
When the insurer has wrongfully refused to defend and the insured reaches 
a settlement with the injured party, most courts have held that a settlement is 
presumptive evidence of the liability of the insured and the amount of 
damages.  In 
addition, the insurer has the burden of rebutting this presumption by showing 
the settlement was procured as a result of fraud or collusion.  . . .

 

            
. . .

 

            
We hold therefore that in settlements like the one here, an insurer, 
relying on fraud or collusion, must plead and prove these defenses.  If either defense 
is proven, the settlement is invalid and unenforceable against the insurer.  The injured party, 
however, has the burden to prove by a preponderance of the evidence that (1) the 
underlying claim was covered by the policy, and (2) the settlement which 
resulted in the judgment was reasonable and prudent.  The test the fact 
finder must apply on this issue is what a reasonable and prudent person in the 
position of the defendant (Coyle) would have paid to settle the plaintiff's (Red 
Giant's) claim.  
In applying this test, the fact finder must consider facts bearing on the 
liability and damage aspects of the claim as well as the risks of going to 
trial.

 

            
The fraud and collusion issues are fact questions and so are the issues 
of reasonableness and prudence.  Here none of these issues were established as 
a matter of law.  
They are material issues of fact and therefore not subject to summary 
judgment determination.

 

Red Giant Oil Co., 528 N.W.2d  at 534-35.  The holding in Red 
Giant Oil Co. was based on an earlier Minnesota case, Miller v. Shugart, 316 N.W.2d 729 (Minn. 
1982).  In Miller, the 
court considered the circumstances under which the claimant should bear the 
burden of proving the reasonableness of a stipulated judgment:

 

            
In these circumstances, while the judgment is binding and valid as 
between the stipulating parties, it is not conclusive on the insurer.  The burden of proof 
is on the claimant, the plaintiff judgment creditor, to show that the settlement 
is reasonable and prudent.  . . .

 

            
It may be instructive to point out how this case differs from Butler Brothers v. American Fidelity Co., 120 Minn. 
157, 139 N.W. 355 (1913).  In Butler we held 
that a stipulated judgment, while not conclusive on the insurer, was 
presumptively so, and that the burden was on the insurer to show the settlement 
was unreasonable.  
In Butler, however, the insured entered into 
a settlement with the plaintiff in the course of a "real trial" while defending 
itself after being abandoned by its insurer.  Thus the Butler 
settlement had quite different bona fides than the 
settlement made here.  
Here we think it appropriate, and so hold, that the burden of proving 
reasonableness is on the plaintiff claimant.

 

Miller, 316 N.W.2d  at 735-36.  In other words, when the insured and the 
claimant settle a case that is being defended by the insurer, even under a 
reservation of rights, the insured and the claimant should bear the burden of 
proving that the settlement was reasonable.  See Morris, 741 P.2d  at 253.  But see also 
Kivela, 408 N.E.2d  at 812-13, where a stipulated judgment was held conclusive against 
an insurer who refused to defend the insured.11

 

[¶70]   We conclude that, as between Amoco and 
Gainsco, Amoco had the burden of proving that its settlement with Andrews was 
reasonable.  
Further, we hold that a settlement in such circumstances is reasonable if 
a reasonably prudent person in the position of the insured, under all of the 
relevant circumstances, would have settled on those terms.  With that standard 
in mind, we cannot find that the settlement was reasonable.  While the question 
of the reasonableness of a settlement is a question of fact, there are no 
genuine issues of material fact in regard to this issue.  Despite a 
contractual limit of $300,000.00, Andrews agreed to a judgment for 
$795,901.00.  
Despite a potentially valid claim against Kobbe for implied indemnity, 
Andrews agreed to dismiss that claim with prejudice.  Amoco has attempted 
to justify the dollar amount by emphasizing the validity of the underlying 
stipulated judgment in favor of the Abraham Estate.  However, Amoco's 
evaluation of the "worth" of the wrongful death claim has little to do with 
Andrews' failure to evaluate the "worth" of the indemnity claim.  Similarly, Amoco 
has produced no evidence to justify Andrews' agreement to dismiss its claim 
against Kobbe, an action that undeniably prejudiced Gainsco.

 

Issue No. 9:  Did the district court err as a matter of law 
when it held that

the total stipulated judgment amount was enforceable by 
Amoco against Gainsco?

 

[¶71]   Toward the end of its decision letter, 
the district court stated its agreement with several "propositions advanced by 
AMOCO," including the following:

 

e.  GAINSCO's repeated offers of $20,000 to 
settle a likely liability exposure of well over $700,000 to its insured, when 
there was applicable coverage, constituted insurance bad faith.

 

. . .

 

g.  GAINSCO is guilty of bad faith, and thus is 
liable to AMOCO for its $300,000 policy limit and further for all amounts in 
excess thereof necessary to satisfy the judgment of $795,901 and post-judgment 
interest.

 

[¶72]   These conclusions were preceded by the 
district court's analysis that formed the basis for the conclusions:

 

            
Having determined that GAINSCO has contractual liability, the final 
question for consideration by this Court is whether GAINSCO is further guilty of 
bad faith, such that it is liable for the full amount of the judgment entered 
against ANDREWS.  
GAINSCO not only failed to recognize and honor its contractual obligation 
to ANDREWS, but also issued a reservation of rights letter to ANDREWS.  Consequently, 
ANDREWS faced virtually certain liability to AMOCO far in excess of its coverage 
provided by GAINSCO.  
GAINSCO had numerous opportunities to settle, which it persistently 
rejected.  
GAINSCO was fully notified of ANDREWS' intentions.  Nothing ANDREWS did 
in the course of negotiations with AMOCO, culminating in the settlement and 
assignment of [its] cause of action against GAINSCO to AMOCO could possibly be 
surprising to GAINSCO.  GAINSCO was repeatedly notified.  GAINSCO chose to 
reject every opportunity to accept its responsibility, with full knowledge of 
the resulting exposure to ANDREWS and the obvious resultant necessity for 
ANDREWS to negotiate a settlement with AMOCO and assign his rights as against 
GAINSCO to AMOCO, leading to this bad faith action.

 

            
The third party bad faith concept is straightforward enough.  It is based on the 
simple proposition that an insurance company, knowing that it has a liability 
limit in its policy, should not be permitted simply to permit its insured to be 
exposed to liability far in excess of the coverage limit, when the insurance 
company had every opportunity to settle for the limit.  The temptation must 
be obvious, if the insurance company can assume that no matter what happens, its 
liability is limited to the coverage in the policy.  This is especially 
true when a reservation of rights letter is issued.  ANDREWS had very 
few optionseither fight it out in Court, facing certain liability far in excess 
of the policy limit, or negotiate a reasonable settlement and assign the bad 
faith claim against GAINSCO to AMOCO in return for a covenant not to 
execute.  As a 
practical matter, ANDREWS had only one viable option, that being the 
latter.  It 
matters not in this analysis that AMOCO is a huge corporation and not an 
individual person, nor that ANDREWS is an individual person as opposed to a vast 
conglomerate.

 

            
GAINSCO had a duty to exercise intelligence, good faith, and honest and 
conscientious fidelity to the common interest of the plaintiff (AMOCO) as well 
as of the defendant/insured (ANDREWS) and give at least equal consideration to 
the interest of ANDREWS.  Jarvis v. Farmers Ins. Exchange, 948 P.2d 898 (Wyo. 
1997).

 

            
To put this analysis back in to the summary judgment context, AMOCO has 
offered substantial admissible evidence that the stipulated judgment was for a 
reasonable amount.  
GAINSCO has offered no evidence at all to the contrary.

 

[¶73]   There are several things wrong with 
this analysis.  
First, the Contract between Amoco and Andrews, together with the Gainsco 
policy, clearly limited Andrews' indemnity liability to Amoco to a maximum of 
$300,000.00.  
Consequently, Gainsco's rejection of the $297,000.00 settlement offer did 
not expose Andrews to "liability far in excess of the policy limit . . .."  Second, Amoco's 
evidence of the reasonableness of the settlement went to its settlement with the 
Abraham Estate, not its settlement with Andrews.  In truth, the record is devoid of any 
reasonable explanation for two of the four primary terms of the settlement:  the judgment amount 
greatly beyond the risk and dismissal of the third-party complaint against 
Kobbe.  And 
third, Gainsco was not notified prior to settlement that the third-party 
complaint would be dismissed.  Thus, the settlement prejudiced Gainsco's 
ability to continue to defend Andrews.

 

[¶74]   There can be no cause of action for 
third-party bad faith until a judgment has been entered against the insured in 
excess of policy limits.  Jarvis, 948 P.2d 
at 901-02; Marathon Ashland Pipe Line 
LLC, 243 F.3d  at 1250; Sabins, 82 F. Supp. 2d  at 
1278.  Where the judgment amount has been determined 
not by trial, but by a settlement between the insured and the claimant, without 
participation by the defending insurer, the insured or the claimant, as 
assignee, has the burden of proving the reasonableness of the settlement.  Morris, 741 P.2d  at 253.  One factor in the consideration of 
reasonableness is the adequacy of any pre-settlement notice to the insurer.  Spangler, 881 F. Supp.  at 545.  Unless the insured or the claimant proves 
that the settlement was reasonable, "neither the fact nor amount of liability to 
the claimant is binding on the insurer . . .."  Morris, 741 P.2d  
at 253.

 

[¶75]   The Amoco-Andrews settlement is not 
binding on Gainsco.  
Absent the unreasonable settlement amount, there could have been no 
judgment in excess of policy limits.  Beyond that, the settlement compromised 
Gainsco's right to recoup an appropriate percentage of the judgment from Kobbe 
because the third-party complaint against Kobbe was dismissed with 
prejudice.

 

Issue No. 10:  Does the law of the case doctrine prevent 
Gainsco

from raising the argument in this appeal that the 
express

$300,000.00 limit of Andrews' liability contained in the 
Contract

is a complete defense to any bad faith claim asserted by 
Amoco?

 

[¶76]   On March 17, 1994, Amoco filed its 
complaint against Andrews seeking indemnity for its settlement with the Abraham 
Estate.  
Despite the contractual limitation of $300,000.00, the prayer for relief 
in that complaint sought from Andrews $716,490.80, which amount equaled the 
$650,000.00 settlement plus $66,490.80 in attorneys' fees and costs.  The answer filed a 
little more than a month later by the attorney hired by Gainsco to represent 
Andrews admitted the existence of the Contract, but did not mention or raise as 
an affirmative defense the Contract limitation.  Further, when Andrews stipulated to entry of 
the judgment against it for $795,901.00, Gainsco did not appeal that judgment on 
the ground that it exceeded Andrews' contractual obligation.  It is Amoco's 
contention now that, once that judgment became final without appeal, it became 
the "law of the case."

 

[¶77]   Citing Lyden By 
and Through Lyden v. Winer, 913 P.2d 451 (Wyo. 1996), Amoco contends that Gainsco should be barred from raising 
this defense because it was not raised in the district court before judgment was 
entered.  Lyden says that the "law of the case" doctrine requires 
that a court's decisions on issues of law be followed in later stages of the 
proceedings.  
Id. at 454.  We discussed the law of the case doctrine in 
more detail in Triton Coal Co. v. Husman, Inc., 846 P.2d 664, 667-68 (Wyo. 1993):

 

            
Under the "law of the case" doctrine, a court's decision on an issue of 
law made at one stage of a case becomes a binding precedent to be followed in 
successive stages of the same litigation.  . . .  The "law of the case" is a doctrine designed 
to avoid repetitious litigation and to promote consistent decision making.  As such, it is in 
the same family as res judicata, collateral estoppel, and stare decisis.  . . .  Most commonly, the 
"law of the case" requires a trial court to adhere to its own prior rulings, 
adhere to the rulings of an appellate court, or adhere to another judge's 
rulings in the same case or a closely related case.  . . .  Triton, however, 
relies upon a fourth and much less utilized aspect of the rule in which a 
court's ruling on an issue that could have been appealed, but was not, will be 
given preclusive effect.  . . .  Although some 
courts label this fourth category as the "law of the case," it is something of a 
misfit.  
Generally, the "law of the case" arises because a court has ruled on a 
matter and that ruling is to be applied to subsequent proceedings in the 
litigation.  
However, in the fourth category relied upon by Triton, it is the 
litigant's failure to raise an issue on appeal which gives rise to the 
preclusive effect of the lower court's ruling, not a court ruling.

 

[¶78]   We do not find Lyden or Triton Coal Co. to 
be on point.  
The present situation is not one where Gainsco failed to raise on appeal 
the district court's ruling on the issue of the contractual limitation.  Rather, this 
situation involves Gainsco raising an issue on appeal that allegedly was not 
raised below.  
In that regard, as we explained previously, the copy of the Amoco/Andrews 
Contract attached to Gainsco's summary judgment motion contained not only the 
indemnity provision, but also the limitation thereon, and so the matter was 
before the district court.  Furthermore, Gainsco contended in its motion 
that Andrews had settled without determining its available defenses, which is at 
least arguably a reference to the implied indemnity obligation of Kobbe.

 

[¶79]   Even if we were to accept Amoco's 
assertion that Gainsco did not directly address this point in a separate motion 
or in argument, we would consider the issue under the particular facts of this 
case.  While we 
generally are reluctant to consider matters not presented to the district court, 
we will do so when a matter is so fundamental in nature that the ends of justice 
require its consideration.  Simek v. Rocky 
Mountain, Inc., 977 P.2d 687, 689 (Wyo. 1999); Allen v. Allen, 550 P.2d 1137, 1142 (Wyo. 1976).  In the instant case, the fact that Andrews' 
indemnity exposure was contractually limited to the $300,000.00 insurance 
coverage is so central to the issue of third-party bad faith that it cannot be 
ignored.12  In particular, it is impossible to evaluate 
the reasonableness of the settlement reached between Amoco and Andrews without 
considering the indemnity limitation in the contract.

 

Issue No. 11:  Does the indemnity provision of the contract 
between Amoco

and Andrews violate Wyo. Stat. Ann. § 30-1-131 (LexisNexis 
2001)?

 

[¶80]   The Wyoming State Legislature has 
codified a policy, limited to contracts "pertaining to any well for oil, gas or 
water, or mine for any mineral," that prohibits agreements indemnifying an 
indemnitee against liability for its own negligence:

 

            
(a)       All agreements, 
covenants or promises contained in, collateral to or affecting any agreement 
pertaining to any well for oil, gas or water, or mine for any mineral, which 
purport to indemnify the indemnitee against loss or liability for damages 
for:

 

            
(i)         
Death or bodily injury to persons;

 

            
(ii)        Injury to 
property; or

 

            
(iii)       Any other loss, 
damage, or expense arising under either (i) or (ii) from:

 

            
(A)       The sole or 
concurrent negligence of the indemnitee or the agents or employees of the 
indemnitee or any independent contractor who is directly responsible to such 
indemnitee; or

 

            
(B)       From any 
accident which occurs in operations carried on at the direction or under the 
supervision of the indemnitee or an employee or representative of the indemnitee 
or in accordance with methods and means specified by the indemnitee or employees 
or representatives of the indemnitee, are against public policy and are void and 
unenforceable to the extent that such contract of indemnity by its terms 
purports to relieve the indemnitee from loss or liability for his own 
negligence.  
This provision shall not affect the validity of any insurance contract or 
any benefit conferred by the Worker's Compensation Law [§§ 27-14-101 through 
27-14-805] of this state.

 

Wyo. Stat. Ann. § 30-1-131.  The agreements meant to be covered by the 
statute are defined in Wyo. Stat. Ann. § 30-1-132 (LexisNexis 2001):

 

            
The term "agreement pertaining to any well for oil, gas, or water, or 
mine for any mineral" as used in section 1 hereof [§ 30-1-131], means any 
agreement or understanding, written or oral, concerning any operations related 
to drilling, deepening, reworking, repairing, improving, testing, treating, 
perforating, acidizing, logging, conditioning, altering, plugging, or otherwise 
rendering services in or in connection with any well drilled for the purpose of 
producing or disposing of oil, gas or other minerals, or water, and designing, 
excavating, constructing, improving, or otherwise rendering services in or in 
connection with any mine shaft, drift, or other structure intended for use in 
the exploration for or production of any mineral, or an agreement to perform any 
portion of any such work or services or any act collateral thereto, including 
the furnishing or rental of equipment, incidental transportation, and other 
goods and services furnished in connection with any such service or 
operation.

 

[¶81]   This Court has found these statutes do 
not violate equal protection or freedom to contract precepts, and has found 
their unambiguous intent is to "void[] and make[] unenforceable any agreement to 
the extent that it seeks to indemnify an indemnitee for his own 
negligenceregardless of the character of the negligence sought to be 
protected."  Mountain Fuel Supply Co. v. Emerson, 578 P.2d 1351, 
1357 (Wyo. 1978).  In interpreting "[t]he catchall phrase, 
"rendering services . . . in connection with any well," [meaning] activities . . 
. closely related to well drilling,'" we have held that the statute rendered 
void a unit operating agreement to the extent that it required non-negligent 
interest owners to indemnify the operator for the operator's own 
negligence.  Bolack v. Chevron U.S.A., Inc., 963 P.2d 237, 241 (Wyo. 
1998) (quoting Reliance Ins. Co. v. Chevron U.S.A., 
Inc., 713 P.2d 766, 770 (Wyo. 1986)).  Similarly, we have found that a written 
contract to perform work on oil field pumping units was covered by Wyo. Stat. 
Ann. § 30-1-131, so the portion of the contract providing indemnity for a 
party's own negligence was void.  Cities Service 
Co., 705 P.2d  at 329.  On the other hand, we have concluded that the 
digging of pits to collect waste fluids from a fire at a separation plant is not 
"rendering services in or in connection with an [oil] well 
. . .."  
Reliance Ins. Co., 713 P.2d  at 
769.  "[S]ervices or activities having a remote or 
indirect connection to the kinds of services enumerated" in the statute are not 
covered.  Id. at 770.

 

[¶82]   An agreement containing a provision 
violative of the anti-indemnity statute is not void and unenforceable in total, 
but only to the extent that it violates the statute.  Cities Service Co., 705 P.2d  at 329.  Further, indemnification is not prohibited 
except for the indemnitee's own negligence.  Hull v. Chevron 
U.S.A., Inc., 812 F.2d 590, 592 (10th Cir. 
1987); Heckart v. Viking Exploration, 
Inc., 673 F.2d 309, 312 (10th Cir. 1982).  Consequently, the statute is not applicable 
when the indemnitee is not negligent but is liable only under the respondeat 
superior theory.  
Heckart, 673 F.2d  at 312.  The statute is consonant with the public 
policy of workplace safety that underlies the concept of implied indemnity 
discussed above.

 

            
The result of this case furthers two important public policies.  The first and most 
important is the freedom of persons to contract for legitimate and proper 
purposes.  The 
second is a policy which encourages safety in the work place.  Both Cities Service 
and Northern Production have potential liability for injuries to or death of 
workmen.  
Having this potential liability, each party will have a considerable 
incentive to avoid industrial accidents and injuries.  The holding of this 
court results in each party being responsible for its own activities and liable 
for loss and damage caused by its own failure to exercise reasonable care in its 
operations and furthers this beneficial public policy.  Guitard v. Gulf Oil Co., 100 N.M. 358, 670 P.2d 969 
(1983).

 

Cities Service Co., 705 P.2d  at 329-30.  See also Bolack, 
963 P.2d at 241 and Schneider Nat., 
Inc., 843 P.2d  at 577.

 

[¶83]   The Contract was entered into by Amoco 
and Andrews on May 13, 1986.  It is not an agreement for Andrews to do any 
particular identified project.  Rather, it provides that its terms will 
govern all work performed by Andrews for Amoco "under verbal or written 
workorders . . .."  
In addition to its title, the Contract contains several provisions that 
do specifically mention the word "well:"

 

            
2.         In 
the performance of any operations hereunder [Andrews] shall furnish at its own 
expense and cost any and all necessary labor, machinery, equipment, tools, 
transportation and whatever else is necessary in the performance and completion 
of the work herein provided other than such items thereof as Amoco specifically 
agrees to furnish.  
. . .  
If, in order to gain access to or return from the well to be serviced, it 
is necessary to repair roadbeds, or, to provide tractors, vessels, or other 
special means of transportation for the trucks, equipment, or personnel of 
[Andrews], such shall be arranged and paid for by Amoco.  . . .

 

            
. . .

 

            
7.         
Notwithstanding other provisions of this contract, Amoco shall be 
responsible for and shall secure [Andrews] against any liability for reservoir 
loss or damage, or property damage arising from a well blowout, unless such 
damage is caused by the willful negligence of [Andrews].

 

            
. . .

 

            
14.       If equipment or 
instruments of [Andrews] are lost in the well, Amoco shall either recover same 
without cost to [Andrews] or pay for such equipment or instruments, unless, 
however, such loss is caused by the negligence of [Andrews].

 

[¶84]   In his answer to Amoco's complaint, the 
attorney hired by Gainsco to defend Andrews raised Wyo. Stat. Ann. § 30-1-131 as 
an affirmative defense to Andrews' indemnity liability.  Of course, given 
the settlement between Amoco and Andrews, that issue was never litigated.  Gainsco's motion 
for summary judgment in the present controversy contains the following 
description of the work Andrews, and its subcontractor, Kobbe, were doing for 
Amoco under the Contract, including the work being performed by Abraham at the 
time of his death:

 

            
There exists an oil [field] in the Cody/Powell area, known as the Elk 
Basin Oil Field, in which Plaintiff Amoco Production Company had a significant 
stake.  Amoco 
contracted with various businesses to perform services in and about the Elk 
Basin Oil Field.

 

            
. . .

 

            
Andrews Trucking Company, essentially a one man company owned by Ervin 
Andrews, worked transporting equipment to various locations in the oil 
field.  Andrews 
signed a Well and Lease Service Master Contract in May 1986.  Andrews made a 
modest living for a number of years transporting equipment for Amoco and doing a 
small amount of dirt work.

 

            
Prior to 1991, Andrews was approached by the owner of Kobbe Construction 
Company with a proposition.  Kobbe wanted to perform well servicing work 
for Amoco but perceived a slight problem.  The owner of Kobbe Construction was a brother 
of one of the local supervisors for Amoco.  In order to avoid Amoco's rules concerning 
nepotism, Kobbe Construction proposed working under Andrews' Well and Lease 
Service Contract as a "subcontractor" to Andrews.  . . .  Kobbe would pay Andrews 5% of the gross it 
received from such work . . ..  The work Kobbe would perform would not 
compete with Andrews since servicing wells was work Andrews did not have the 
equipment, knowledge or manpower to perform.

 

            
The Elk Basin Oil Field was the subject of secondary recovery operations 
involving the injection of fluids into the ground in order to produce additional 
oil from the geological formations.  The oil produced was co-mingled with the 
fluids injected in settling ponds.  Amoco owned a facility [where] there existed 
tanks into which oil skimmed from these ponds was pumped.  One such tank was 
referred to as a "bad oil tank" because it contained deadly H2S gas.  In this particular field, the poisonous gas, 
H2S, is produced with the oil and must be 
handled with great care.  Kobbe proposed to conduct this and other well 
servicing work under Andrews['] contract with Amoco.  Andrews had never 
performed servicing work in connection with oil tanks.  Andrews had neither 
the knowledge nor the equipment to perform such work.

 

            
Initially, the agreement between Kobbe Construction and Amoco proceeded 
smoothly.  
Andrews made considerably more money from his percentage of Kobbe's work 
than he did with his own trucking operations.  Then, in the Fall of 1991, an employee of 
Kobbe Construction, Brent Abraham, operating a Kobbe Construction truck 
containing oil which had been skimmed from a pond, was killed when he was 
overcome by H2S gas while delivering oil to a 
bad oil tank . . ..

 

            
The facts indicated that Mr. Abraham decided to check a screen leading to 
the tank before dumping the oil in his truck and opened a "pod" to check the 
screen while the valve to the tank was in an open position and without bleeding 
pressure from the screen pod.  As a result poisonous gas spewed onto his 
clothing and near his breathing zone resulting in his death.

 

Gainsco then contended in its motion that the indemnity 
provision of the Contract between Amoco and Andrews that purported to indemnify 
Amoco for its own negligence violated the anti-indemnity statute because the 
work being performed under the contract clearly fit the statute's definition of 
"rendering services in or in connection with any well . . .."

 

[¶85]   In its brief supporting its own motion 
for summary judgment, Amoco argued that the Contract's indemnity provision did 
not violate Wyo. Stat. Ann. § 30-1-131 because, just as the work described in Reliance Ins. Co., 713 P.2d  at 768, the work being performed by Abraham at the time of his 
death did not "involve" a well, but occurred at an above-ground separation 
facility far removed from any well.  Amoco then relied on Brittain v. Booth, 601 P.2d 532, 535 (Wyo. 
1979), for the proposition that an agreement to indemnify a 
party for his own negligence may be enforced if it is not otherwise contrary to 
public policy.

 

[¶86]   The district court's decision letter 
makes no mention of the anti-indemnity statute.  Gainsco now argues to this Court that the 
district court "absolutely ignored these arguments and failed to address them . 
. .."  We see 
nothing in the record to contradict this assertion.  Were this the only 
issue on appeal, and were there questions of fact remaining in regard to it, we 
would be compelled to reverse the summary judgment and remand this case for 
trial.  As it 
is, however, there is no genuine issue of material fact pertaining to this 
question.  
Although, by its title, the Contract is a "well and lease service" 
agreement, the work performed under the contract was not limited to work 
"closely related to well drilling."  See Reliance Ins. 
Co., 713 P.2d  at 770.  For instance, as admitted in Gainsco's motion 
for summary judgment, Andrews worked for years under the contract transporting 
equipment and doing dirt work.

 

[¶87]   The question, then, is whether the work 
being performed under the Contract at the time of Abraham's death was more akin 
to the service of pumping units, as in Cities Service 
Co., and therefore covered by the statute, or to the digging of fluid waste 
pits after a fire at a separation plant, as in Reliance 
Ins. Co., and therefore not covered by the statute.  We conclude that 
delivering oil by truck to a tank battery is not an activity closely related to 
well drilling.  
Consequently, Wyo. Stat. Ann. § 30-1-131 does not serve to invalidate the 
contract provision whereby Amoco was indemnified against its own negligence.

 

[¶88]   In reaching this conclusion, we have 
continued to give effect to the rule of statutory construction, ejusdem generis, whereby a general term following a 
list of specifically enumerated terms should be construed as limited to the same 
genus as the things enumerated.  See Reliance Ins. 
Co., 713 P.2d  at 770.  As applied to this statute, this rule means 
that "or otherwise rendering services in or in connection with any well" is 
limited to those services similar to "drilling, deepening, reworking, repairing, 
improving, testing, treating, perforating, acidizing, logging, conditioning, 
altering, [or] plugging . . .."  Wyo. Stat. Ann. § 30-1-132.  Without doubt, 
those terms are directly related to the well, itself, and not to general oil 
field work.  We 
have also recognized that Wyo. Stat. Ann. §§ 30-1-131 and 30-1-132 restrict 
freedom to contract, a common law right, and, therefore, must be strictly 
construed.13

 

CONCLUSIONS

 

[¶89]   Our conclusions, numbered to coincide 
with the issues presented, may be summarized as follows:

 

            
1.         The 
damage element of the tort of third-party bad faith against an insurer for 
failing to settle a claim may be satisfied despite the inclusion in a settlement 
between the insured and the claimant of the claimant's covenant not to execute 
against the insured.  
This is true even with language in the policy that limits coverage to 
sums that the insured becomes legally obligated to pay.  The district 
court's ruling was correct.

 

            
2.         The 
tort of third-party bad faith requires a judgment in excess of policy limits, 
and where there is no risk of such judgment, an insurer who declines an offer to 
settle within policy limits has not acted in bad faith.  In the instant 
case, the contract between Amoco and Andrews specifically limited Andrews' 
indemnity liability to the amount of the insurance coverage.  Therefore, there 
could be no excess judgment and Gainsco did not act in bad faith in declining 
the settlement offers.  The ruling of the district court to the 
contrary was in error.

 

            
3.         
There has been no controlling precedent in Wyoming as to the extent of 
the total pollution exclusion in a commercial general liability policy.  Further, authority 
nationwide has been split as to whether the exclusion is limited to 
environmental pollution.  Consequently, the question of such coverage 
was fairly debatable and Gainsco did not commit first-party bad faith in its 
initial denial of coverage under the exclusion.  The ruling of the district court to the 
contrary was in error.

 

            
4.         
Under an objective standard, Gainsco's denial of coverage based upon its 
subjective interpretation of the insured contract exclusion in its policy was 
not reasonable.  
The language at issue"the indemnitee's sole tort liability"simply 
cannot be twisted to mean "no liability on the part of the indemnitor," as 
contended by Gainsco.  
Gainsco's denial of coverage under its unreasonable interpretation of its 
own policy constituted first-party bad faith.  The ruling of the district court was 
correct.

 

            
5.         The 
plain meaning of the language of the total pollution exclusion, as understood by 
a person in the position of the insured, is that it applies only to the concept 
of environmental pollution.  In the instant case, the exclusion did not 
negate coverage for the Abraham wrongful death action.  Gainsco's denial of 
coverage based on the total pollution exclusion was, therefore, wrongful.  The ruling of the 
district court was correct.

 

            
6.         The 
wording of the insured contract exclusion in Gainsco's policywording that 
originated with Gainsco and exists in no other insurance policyis ambiguous and 
must be construed against Gainsco.  Since there was no dispute that both Amoco 
and Abraham/Kobbe would be found at fault, Amoco was not solely liable, and the 
exclusion did not preclude coverage for Amoco's indemnity claim against 
Andrews.  The 
ruling of the district court was correct.

 

            
7.         An 
insurer who is providing a defense to its insured, but who has declined an offer 
to settle within policy limits, is not bound by a settlement between the insured 
and the claimant where the insurer was not given prior notice of the terms of 
the settlement and was not given an opportunity to participate.  In the present 
case, Amoco and Andrews settled without informing Gainsco of a key settlement 
term, that being the mandatory dismissal with prejudice of the third-party 
implied indemnity complaint Gainsco had filed against Kobbe on behalf of 
Andrews.  
Gainsco was prejudiced by this lack of notice because it lost the ability 
to pursue Kobbe, or even to determine Kobbe's share of the fault for Abraham's 
death.  Kobbe's 
immunity from tort liability under the worker's compensation statutes did not 
bar the implied indemnity claim.  The district court failed even to rule on 
this issue; it should have ruled in Gainsco's favor.

 

            
8.         An 
insurer who is providing a defense under a reservation of rights, and who 
declines an offer to settle within policy limits, may be held liable for the 
full amount of a reasonable settlement between the insured and the 
claimant.  In 
the instant case, however, the settlement between Amoco and Andrews was 
objectively unreasonable because the settlement amount greatly exceeded the 
amount of Andrews' risk.  The ruling of the district court that Gainsco 
was liable for the full settlement amount was in error.

 

            
9.         As 
stated above, an insurer who is providing a defense under a reservation of 
rights, and who declines an offer to settle within policy limits, may be held 
liable for the full amount of a reasonable settlement between the insured and 
the claimant.  
In the instant case, however, for two reasons, the settlement is not 
enforceable against Gainsco.  First, as also stated above, the amount of 
the settlement was objectively unreasonable.  And second, the record reveals no 
justification for the required dismissal with prejudice of the implied indemnity 
claim against Kobbe.  
Gainsco was prejudiced by this unreasonable settlement.  Were the amount, 
alone, unreasonable, Gainsco could be held liable just for its policy 
limits.  But 
here, dismissal of the implied indemnity action completely foreclosed Gainsco 
from pursuing Kobbe for its share of the damages.  Consequently, Gainsco's obligations under the 
policy have been voided.

 

            
10.       Under the "law 
of the case" doctrine, a court's decision on an issue of law made at one stage 
of a case must be followed in later stages of the same case.  This doctrine does 
not apply when the question involves raising an issue on appeal that was not 
raised below.  
While we generally will not consider issues not raised below, we will do 
so when the issue is so fundamental in nature that justice requires its 
consideration.  
In the instant case, Amoco contends that this Court should not consider 
the argument that Andrews' indemnity obligation to Amoco was limited to its 
insurance coverage because Gainsco did not raise this fact as a defense below 
nor did it appeal the judgment amount that was in excess of that 
limitation.  
The "law of the case" doctrine is not applicable in this situation, and 
we find the matter of the indemnity limitation to be fundamental to the major 
issues presented in this appeal.  In particular, the reasonableness of the 
settlement simply cannot be judged without reference to this limitation.  Further, the 
limitation was before the district court because it was included in the very 
contract paragraph upon which the indemnity obligation, itself, was 
contained.

 

            
11.       Wyo. Stat. Ann. 
§ 30-1-131 prohibits agreements indemnifying an indemnitee against his own 
negligence where the agreement pertains to "any well for oil, gas or water, or 
mine for any mineral . . .."  We have interpreted this prohibition narrowly 
because it is in derogation of the freedom to contract.  Specifically, we 
have limited application of the statute to agreements covering "activities 
closely related to well drilling."  In the instant case, the activities of 
Kobbe's employee Abraham, as Andrews' subcontractor under its agreement with 
Amoco, were only remotely or indirectly related to well drilling, and therefore, 
the statute did not serve to render unenforceable Andrews' obligation to 
indemnify Amoco for its own negligence.  The district court failed to rule on this 
issue; it should have held for Amoco.

 

[¶90]   Gainsco should have defended Andrews 
without a reservation of rights because Amoco's claims were within the coverage 
of Gainsco's policy.  
Gainsco is, however, excused from paying even its policy limits because 
Andrews' unreasonable settlement with Amoco breached the insurance 
contract.  
Gainsco is not bound by the settlement because the settlement amount was 
unreasonable and because Gainsco was prejudiced by its lack of notice of a key 
settlement term.  
In addition, Gainsco's refusal to settle within policy limits did not 
constitute third party bad faith because, absent the unreasonable settlement, 
there was no risk of a judgment in excess of policy limits.

 

[¶91]   We reverse the summary judgment in 
favor of Amoco and remand to the district court for entry of a summary judgment 
in favor of Gainsco.

 

 

FOOTNOTES

  
1Sometimes also known as a comprehensive general 
liability policy a "CGL" is an insurance policy usually "obtained by a business, 
that covers damages that the insured becomes legally obligated to pay to a third 
party because of bodily injury or property damage."  Black's Law Dictionary 809 (7th ed. 
1999).

  
2The policy limit in Spangler was $500,000.00 and the settlement was for 
$450,000.00.  
Spangler, 881 F. Supp.  at 541.  Consequently, Spangler does not address the issue of the insurer's 
liability for amounts in excess of policy limits.

  
3Indeed, the existence of an excess judgment is a 
required element of the tort of third-party bad faith.  In Jarvis, 948 P.2d  at 900-01, we resisted an invitation to extend third-party bad faith 
to situations in which an excess judgment does not exist.

  
4The latter question is the subject of the fifth 
issue in this appeal.

  
5"This insurance does not apply to . . . bodily 
injury' . . . which would not have occurred . . . but for the . . . release . . 
. of . . . any . . . gaseous . . . irritant or contaminant . . .."

  
6The May 10th letter from Andrews' counsel to 
Amoco certainly was not the only communication from Andrews and Amoco asking 
Gainsco to participate in the settlement.  It was, however, the final such 
communication, and it spelled out the supposed terms upon which the settlement 
was to be reached.  
While the May 10th letter is, therefore, the most material in determining 
whether Gainsco was given reasonable notice of the settlement terms, it should 
also be noted that the record does not reveal any other communication to Gainsco 
in which dismissal of the third-party action against Kobbe was proposed.

  
7While this theory may be true as far as it goes, 
it applies only to whatever liability may have been imposed upon Kobbe.  It does not 
consider any of Amoco's liability that Andrews may have assumed under the 
contract's indemnity provision.

  
8One possible explanation is the fact that Ray 
Kobbe, who operated Kobbe Construction, was the brother of Randy Kobbe, who was 
a supervisor for Amoco in the Elk Basin Oil Field.  Amoco had 
contracted with Andrews as a straw man to avoid its anti-nepotism policy.  Abraham, 893 P.2d  at 1157.

  
9Abraham had been married for five years.  At the time of his 
death, his wife was expecting their first child.  Abraham also had a large close-knit extended 
family, with many claimants.

  
10See paragraphs 10 and 11(b) of the Contract.

  
11

In the case of alleged bad-faith failure to settle 
third-party claims, the insured has, in fact, made its own settlement by the 
time a bad-faith action comes to fruition.  In such a case, the reasonableness of the 
insured's settlement becomes an element of the claim, and the insured ordinarily 
bears the burden of establishing this reasonableness, although, by some 
authority, the reasonableness is presumed from the insurer's breach of the duty 
to defend, and the insurer must then rebut the presumption.

 

14 Couch on Insurance 3d § 
204:39 (1999) (footnote omitted).

  
12It is somewhat ironic that Amoco faults Gainsco 
for not raising the contractual defense.  Apparently, neither Amoco nor Andrews 
considered or raised the issue when they reached a settlement well in excess of 
the contractual obligation.

  
13We are not free to legislate.  While the public 
policy of worker safety might be enhanced if the anti-indemnity statute applied 
to all work done in the oil field, or elsewhere, for that matter, the 
legislature has not chosen to take that step.  We certainly cannot do so in its stead.