Opinion ID: 1793652
Heading Depth: 1
Heading Rank: 1

Heading: Insurer's Duty

Text: What duty does the insurer owe the insured when the insurer is considering a settlement offer within policy limits? Under Foster's standard motorist liability policy, Hartford contracted to furnish a defense against any claim for liability against Foster. Hartford's duties were established by the terms of its contract, judicial interpretations of those contractual provisions, the statutes, and principles rationally derived therefrom. Georgia Casualty Co. v. Cotton Mills Products Co., 159 Miss. 396, 132 So. 73 (1931). Put more abstractly, an insured may recover against his insurer only to the extent that the insured holds a right in that regard. Such rights emanate from primary rules which, upon investigation, may be found valid. Such rules will be general to one extent or another. The rights they generate are hardly susceptible of mechanical enforcement. As we expect the insurer to use those rules as best it can as guides and reasons for conduct, this Court should do likewise. At least four clusters of valid rules relevant here may be found. First are the primary rules privately made by the insurance contract and flavored by valid rules of interpretation. Hartford contractually assumed the duty to defend Foster in any suit under the motorist liability policy with the contractual right to control the defense. Policies prepared by insurers will be construed favorably to the insured and strictly against the insurer to the extent reasonably necessary and without violence to plain language. New Amsterdam Casualty Co. v. Perryman, 162 Miss. 864, 140 So. 342 (1932); Boyd v. Mississippi Home Insurance Co., 75 Miss. 47, 21 So. 708 (1897). Second, there are rules requiring that an insurer act in objective good faith towards its insured, i.e., that the insurer's dealings with its insured within the ambit of insurance contract pass an objective test of fair dealings. Every contract contains an implied covenant of good faith and fair dealings. See, e.g., UHS-Qualicare, Inc. v. Gulf Coast Community Hospital, Inc., 525 So.2d 746 (Miss. 1987); Ohashi v. Verit Industries, 536 F.2d 849, 853 (9th Cir.1976); Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981); Corwin Chrysler-Plymouth v. Westchester Fire, 279 N.W.2d 638 (N.D. 1979); Christian v. American Home Assurance Co., 577 P.2d 899, 904 (Okla. 1977); See also, Restatement (Second) of Contracts § 205 (1979) (Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement); cf. Miss. Code Ann. § 75-1-203 (1972) (imposing general duty of good faith); but see Griffin v. Ware, 457 So.2d 936, 940 (Miss. 1984). Implicit in every contract of insurance is a covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefit of the agreement, and this includes a duty to settle claims without litigation in appropriate cases. Appleman, Insurance Law and Practice (Berdal ed.) § 4712, p. 446 (1979); See also, Holtzclaw v. Falco, Inc., 355 So.2d 1279 (La. 1977). This Court, along with other jurisdictions, recognizes the liability of an insurer to its insured, not only on the contractual agreement, but also for an insurer's fraudulent actions. Thus, there evolves a third rule that the insurer shall not act fraudulently or engage in fraudulent conduct toward its insured. Mississippi caselaw holds that an insurer may be found liable in excess of its policy limits for failing to settle an action when its refusal to settle is so arbitrary and unreasonable as to constitute fraud. Farmers Gin Co. v. St Paul Mercury Indemnity Co., 186 Miss. 747, 191 So. 415 (1939); Martin v. Travelers Indemnity Co., 450 F.2d at 551. Proof of fraud must be by clear and convincing evidence. Cotton v. McConnell, 435 So.2d 683 (Miss. 1983). The performance by the insurer of its contractual obligations may also give rise to a suit for the negligent per forming of its contractual duty to defend the suit. Waters v. American Cas. Co. of Reading, Pa., 261 Ala. 252, 73 So.2d 524 (1954). In Farmers Gin Co. and Martin, recovery was sought based upon fraud and negligence. As in the case at bar, the Farmers Gin case was defended by competent counsel with full investigation of the facts and exercise of due diligence. However, one fact distinguishes the Farmers Gin case from the case sub judice  the insured was represented by independent counsel. Fourth and finally, entering the subjective realm, insurers are prohibited from acting with gross disregard of the rights of their insureds or with malice toward their insureds. Our law allows recovery by an insured from its insurer may be had upon proof of bad faith, a remedy independent of fraud, and requiring only a preponderance of the evidence standard of proof. See e.g., American Fidelity & Casualty Co. v. Greyhound Corp., 258 F.2d 709 (5th Cir.1958). Waters v. American Cas. Co. of Reading, Pa., 261 Ala. 252, 73 So.2d 524 (1954). Southern Farm Bureau Cas. Ins. v. Holland, 469 So.2d 55 (Miss. 1984), Luckett v. Mississippi Wood Inc., 481 So.2d 288 (Miss. 1985); Scott v. Transport Indemnity Co., 513 So.2d 889 (Miss. 1987); Aetna Casualty & Surety Co. v. Day, 487 So.2d 830, 832 (Miss. 1986); Reserve Life Insurance Co. v. Magee, 444 So.2d 803 (Miss. 1983).
Our primary source of the privately made duties is the insurance contract. Of relevance here is the language stating that Hartford has the right and duty to defend any suit against the insured ... and [to] make such investigation and settlement of any claim or suit as it deem[ed] expedient... . Consistent with its words, this language is subject to the rule of construction that doubtful or ambiguous questions of meaning be resolved against the insurer. To this end settlement is a form of defense. Moreover, defend is further broadened beyond defense at trial to include defense of the suit pretrial and certainly pre-verdict. The rule should be read, moreover, together with the insurer's duty of objective good faith and fair dealings. Today's case presents a special context: the insured was sued for an amount in excess of the policy limits. This was followed by Plaintiff Sims' pre-trial and midtrial offers to settle within the policy limits, coupled with the insured's (Foster's) demand that Hartford so settle. The offers were in descending amounts, from $45,000 to $30,000. In this context, the general rules imposing duties to defend and settle in good faith yield sensibly more specific duties, all being subject to a general requirement of timely performance. At the very least, Hartford was validly obligated to Foster to perform these duties: (a) Hartford had the duty to move promptly to engage on Foster's behalf the services of an attorney who would have the same legal and ethical duties to Foster as if Foster employed that attorney himself. By paying insurance premiums, Foster participated in what might be termed a private prepaid automobile liability legal services plan. Foster made periodic premium payments into a fund managed by Hartford (at a profit) and subject to Hartford's obligation to use a reasonable portion of that money to secure one of the eventualities insured against: the engagement of counsel to defend the suit. (b) As soon after notice of suit as was reasonably practicable, Hartford had a duty to notify Foster  the defendant in the civil action  that a judgment in excess of the policy limits was sought, but that Hartford would discharge its duty above described to defend. In addition, Hartford had a duty to notify Foster that Foster had the privilege of obtaining independent counsel and that Hartford would cooperate with such counsel to the extent that its interests and Foster's coincided. (c) Hartford had a duty to communicate to Foster in a reasonable and timely fashion all settlement proposals submitted by the Plaintiff Sims or his attorney and all reasonable opportunities to settle. (d) Hartford had a duty to take all reasonable steps to protect Foster's interests, specifically, Foster's obvious interest in not receiving an excess judgment. This duty, which is a part of Hartford's duty to defend, is separate and independent of and from the duty to defend at trial. (e) Hartford had a duty to Foster to settle the Sims' claim within the policy limits on objectively reasonable terms. Of course, an insurance company has no absolute duty to accept any settlement within the policy limits. On the other hand, absent the insured's unequivocal assent to the contrary, the insurance company does have the duty to settle on objectively reasonable terms. Put otherwise, in the context of possible excess exposure, and the insured's demand that the case be settled within the policy limits, the insurer has a duty to accept an objectively reasonable settlement demand received from plaintiff. Although many times it would be in the insured's best interest to have the suit settled within the policy limits, the obligation of the insurer to settle within the policy limits is not absolute. Georgia Casualty Co. v. Cotton Mills Products Co., 132 So. at 77. It follows then that insurers are not strictly liable for excess judgments returned against their insureds. Appelman, supra at 432. See also Cochran, The Obligation to Settle Within Policy Limits, 41 Miss.L.J. 398, 400 (1970). A contract of insurance gives the insurer the exclusive right to settle the insured's claim with a corresponding implied duty to exercise good faith and fair dealing with its insured. Waters, 73 So.2d at 531. This duty to have the insured's interest in mind when settlement demands are being considered is a function of the insurer's duty to defend, which is a contractually undertaken duty independent of all others the insurer shoulders. When an insurer undertakes the responsibility of an insured's defense, one of the most crucial of the insurer's obligations is its implied duty to evaluate settlement offers from the joint perspective of its own interests as well as the interests of the insured. The proper execution of this implied duty is one example of good faith. Martin v. Travelers Indemnity Co., 450 F.2d 542, 551 (5th Cir.1971). Appleman, supra, § 4711 (Supp. 1971). The insurer's implied duty is especially important when the insured is potentially exposed to liability beyond his policy limits, but the plaintiff is willing to settle within the policy limits. The right to control litigation, which the insurance contract gives to the insurer, is subject to an obligation to give the insured's interests equal consideration if the potential recovery in a suit exceeds policy limits. Failure to consider its insured's interests equally with its own when contemplating settlement of a claim subjects the insurer to liability for any judgment in excess of policy limits. (Citation omitted) Sanders v. Standard Mut. Ins. Co., 142 Ill. App.3d 1082, 97 Ill.Dec. 258, 492 N.E.2d 917 (4 Dist. 1986). In the end the question of what terms of settlement offers are reasonable is a judgment call, based on the totality of the circumstances, ranging from the facts of the case, including testimony of different witnesses, exhibits, etc. as well as such intangibles as the likely credibility or believability of various witnesses, propensities of juries in the community and other such pragmatic factors. Insurers hold themselves out to their insureds as being able to make such judgment calls with reasonable competence. Because of that holding out to the public, [t]he insurer, as a professional defender of lawsuits, is held to a higher standard than that of an unskilled practitioner. Appleman, § 4712, p. 425. [1] The likely economic impact of settlement upon the insurer may be viewed in the context of Hartford's opinion that, before the case went to the jury, Sims' claim was worth approximately $25,000.00 in settlement. In the case of each succeeding (and declining) offer by the plaintiff  $45,000.00  $35,000.00  $30,000.00, the insurer had a duty to settle if the offer was objectively reasonable. Objective reasonableness in this context is a question committed by law to the trier of fact, here a jury. The jury implicitly found the $30,000.00 offer objectively reasonable and, implicitly further, that Hartford's agents had it in hand in sufficient time to effect the settlement. Our scope of review of such jury determinations is familiar. See, e.g., regarding sufficiency of the evidence to sustain a verdict at all, Stubble-field v. Jesco, Inc., 464 So.2d 47, 54 (Miss. 1984); City of Jackson v. Locklar, 431 So.2d 475, 478 (Miss. 1983); and Paymaster Oil Mill Co. v. Mitchell, 319 So.2d 652, 657 (Miss. 1975); and, regarding whether the verdict is so against the weight of the evidence that a new trial ought be ordered, Anchor Coatings, Inc. v. Marine Industrial Residential Insulation, Inc., 490 So.2d 1210, 1215 (Miss. 1986); Clark v. Columbus & Greenville Railway Co., 473 So.2d 947, 950 (Miss. 1985). This Court regards the jury finding as beyond our authority to disturb. Construing the evidence favorably to Foster (as we must in light of the verdict), Hartford breached its duty to defend and settle in good faith. Hartford breached each of the five sub-duties identified as a part of that general duty. How much of Foster's damages of $30,000.00 ($80,000.00 verdict minus $50,000.00 policy limits) was caused by which breach of duty I need not decide. As to the judgment of $30,000.00 against Hartford, I would affirm for the reasons above outlined.