United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 00-3053

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Vincent Soybean & Grain Co., Inc., *

*

Plaintiff - Appellant, *

* Appeal from the United States

v. * District Court for the

* Eastern District of Arkansas.

Lloyd’s Underwriters of London, *

* [TO BE PUBLISHED]

Defendant - Appellee. *

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Submitted: April 13, 2001

Filed: April 19, 2001 

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Before McMILLIAN, LOKEN, and HANSEN, Circuit Judges.

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PER CURIAM.

Vincent Soybean & Grain Co., Inc. (“Vincent”), operates a grain and seed

storage facility in Arkansas. It obtained a seedsmen’s errors and omissions insurance

policy from Lloyd’s Underwriters of London (“Lloyd’s”). The policy term was one

year commencing August 4, 1998. On October 14, 1998, Vincent sought coverage

under the policy for a claim by Parker Eubanks that Vincent had negligently stored and

processed wheat seeds, rendering them unsuitable for planting. Lloyd’s assigned the

claim to Keith Parr, its North American counsel for claims arising under seedsmen’s

E & O policies. 
1The HONORABLE HENRY WOODS, United States District Judge for the

Eastern District of Arkansas.

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After an initial investigation, Parr informed Vincent that the claim may not be

covered, but that Lloyd’s would defend Vincent under a reservation of rights if

Eubanks filed suit. Parr also warned Vincent not to settle with Eubanks without

Lloyd’s consent. Nonetheless, Vincent settled the claim with Eubanks for $54,666.42

without Lloyd’s consent. Lloyd’s refused to reimburse Vincent for the settlement

amount, and Vincent filed this suit seeking damages for breach of contract and for the

tort of bad faith. The district court1 granted summary judgment in favor of Lloyd’s.

Vincent appeals. We affirm. 

When Vincent settled with Eubanks without Lloyd’s consent, Vincent violated

Condition 3(b) of the policy: 

The Assured shall not, without [Lloyd’s] written consent, admit liability

for or settle any such claim for an amount in excess of the deductible.

[Lloyd’s] shall be entitled to direct the defense of any such claim, but the

Assured shall render all reasonable co-operation and assistance.

The purpose of such a provision “is to prevent collusion and to invest the insurer with

the complete control and direction of the defense or compromise of suits or claims.”

14 RUSS & SEGALLA, COUCH ON INSURANCE § 203.3, at 203-8 (3d ed. 1999).

Vincent’s breach of this cooperation clause absolved Lloyd’s of coverage liability

unless “[Lloyd’s] itself, in bad faith, breache[d] the contract by arbitrarily refusing to

settle.” Home Indem. Co. v. Snowden, 264 S.W.2d 642, 645 (Ark. 1954). In this

context, an insurer acts in bad faith “where it unreasonably delays to take any action,

after notice of the claim, or where it breaches its contract, by refusing to defend or

settle and denying liability, or by withdrawing from the case.” Id. at 646. 
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Lloyd’s was not guilty of bad faith as defined in Snowden. It did not

unreasonably delay or refuse to take action after notice of the claim -- Parr promptly

investigated the claim by requesting documents and exchanging letters with Vincent,

by speaking with Vincent’s owner and insurance agent, and by seeking independent

advice regarding the reasonableness of Eubanks’s damage claim. Nor did Lloyd’s

refuse to defend. It accepted defense of the claim and never withdrew from the case.

Some three months after notifying Lloyd’s of the claim, Vincent wrote Parr, asserting

that if Lloyd’s did not take “all reasonable efforts” to settle the Eubanks claim within

thirty days, Vincent “will no longer consider itself bound by Condition 3(b).” Vincent

argues that Lloyd’s acted in bad faith when it failed to comply with this demand. We

disagree. Lloyd’s never refused to settle. It simply refused to relinquish control of the

settlement process. That was not bad faith; it was part of Lloyd’s right to control

defense of a claim it had agreed to defend. 

Vincent further argues that Lloyd’s was guilty of bad faith when it did not

conduct additional investigation by hiring an independent adjuster, visiting Vincent’s

facilities, interviewing Eubanks, and hiring separate counsel to represent Vincent’s

interests. Assuming for summary judgment purposes that Lloyd’s investigation had

been inadequate at the time Vincent settled with Eubanks, this did not excuse Vincent's

breach of its duty of cooperation. “Without any evidence of malice or ill will on the

part of the insurer, the failure to investigate a claim resulting from a reasonable belief

that the damages reported are not covered under the policy does not amount to the tort

of bad faith.” Reynolds v. Shelter Mut. Ins. Co., 852 S.W.2d 799, 801 (Ark. 1993).

To be sure, Reynolds involved an insured’s claim for first-party coverage, but the

principle applies as well to a third-party coverage claim where the liability insurer has

accepted tender of the defense and the third party has not yet filed a lawsuit or engaged

in settlement negotiations controlled by the insurer. 

Finally, Vincent argues that Lloyd’s committed bad faith when it accepted

defense of the claim under a reservation of rights, lacking a reasonable basis to demy
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coverage. Under Snowden, this contention fails as a matter of law because insurer bad

faith that excuses a breach of the insured's duty to cooperate is defined as “refusing to

defend . . . and denying liability.” Here, Lloyd’s accepted the defense and only

reserved its right to deny liability when all relevant facts were known. Moreover, we

agree with the district court that Lloyd’s reasonably believed it might have one or more

coverage defenses. Condition 5 of the policy provided, “this insurance shall not be

applicable to claims presented which may arise . . . from any . . . processing of seed

prior to the effective date of this insurance.” Eubanks delivered seed with an

unreasonably high moisture content to Vincent on June 10, 1998, well before the

policy’s August 4 effective date. Vincent argues that Lloyd’s may not rely on

Condition 5 because it was not disclosed on the policy binder and Vincent did not

receive a copy of the policy until after Eubanks made his claim. However, the binder

included “retroactive date-inception” in its list of conditions and identified the policy’s

effective date as August 4, 1998, providing sufficient notice of this coverage condition,

which in any event is a usual term of a seedsmen’s E & O policy and therefore deemed

to be included in a policy binder. See ARK. STAT. ANN. § 23-79-120(a). 

Vincent ignored Lloyd’s acceptance of the defense and seized control of the

claim process by settling without Lloyd’s consent. No bad faith excused this violation

of Condition 3(b). In these circumstances, the judgment of the district court must be

affirmed.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.