Opinion ID: 2023387
Heading Depth: 1
Heading Rank: 6

Heading: fiduciary duty to secure release

Text: Alternatively, Carman Cartage argues that [a]n insurer owes its insured a fiduciary duty to secure a release of claims when it pays a claim, in full, on behalf of their [sic] insured. Brief for appellant at 9. It contends that the district court erred in granting summary judgment because there is a genuine issue of material fact regarding whether Ohio Casualty breached this fiduciary duty when it failed to secure a release from APL. Generally, Carman Cartage argues that by failing to fulfill this fiduciary duty, Ohio Casualty became obligated to defend Carman in the suit brought by APL. In support of this argument, Carman Cartage relies extensively upon Aetna Cas. & Sur. Co. v. Sullivan, 33 Mass.App. 154, 597 N.E.2d 62 (1992). In that case, a liability insurance carrier tendered the full amount of its coverage to a party asserting a personal injury claim against its insured but did not obtain a release. The carrier then sought a declaratory judgment determining that by virtue of such tender, it was discharged from its duty to defend its insured in a suit brought by the third party. In addressing the issue, the court specifically reasoned that [s]ince the source of the duty to defend is the contractual agreement, ... we consider, first, the applicable provision of the insurance policy in effect at the time of the accident. (Citation omitted.) Id. at 155, 597 N.E.2d at 63. The language of the paragraph of the policy entitled `Our Duty to Defend You and Our Right to Settle' provided that the insurer had `the right and duty to defend any lawsuit' and that the `duty to settle or defend ends when we have paid the maximum limits of coverage under this policy.' Id. The court held that the policy thus made it absolutely clear that the insurer had a duty to defend, noting that the right of an insured motorist to have his insurer provide a defense is a great benefit to the insured. Id. at 157, 597 N.E.2d at 64. The court reasoned that a fair reading of the language was that the insurer was discharged from its contractual duty to defend only if it should make a payment equal to the maximum policy limits either to settle a claim against the insured or in total or partial satisfaction of a judgment against the insured upon conclusion of the litigation. Id. It then proceeded to the analysis upon which Carman Cartage relies in this case: The situation is different, however, when an insurer seeks to pay the full amount of coverage without a judgment and without obtaining a release of the insured from at least one personal injury claimant. Were we to interpret the policy language in that situation as Aetna does, an insurer would be free, regardless of the merits of a personal injury claim, to tender the coverage limits to the claimant and decline to defend further whenever the insurer anticipates that the cost of providing a defense would exceed the amount of coverage. The duty to defend generally relied upon by insured motorists would, thus, be significantly nullified in a large number of cases. Id. at 158, 597 N.E.2d at 65. Employing a similar rationale, the court in Emcasco Ins. Co. v. Davis, 753 F.Supp. 1458 (W.D.Ark.1990), held that a liability insurer could not relieve itself of an express contractual duty to defend by interpleading its policy limits. See, also, Stanley v. Cobb, 624 F.Supp. 536 (E.D.Tenn.1986); Samply v. Integrity Ins. Co., 476 So.2d 79 (Ala.1985). Contrary to the contention of Carman Cartage, none of these cases recognize a common-law fiduciary duty on the part of an insurance carrier to obtain a release of the insured in conjunction with a settlement of claims. In each case, the payment of policy limits without obtaining a release or otherwise effecting a settlement with the claimant was held insufficient to extinguish the insurer's contractual duty to defend its insured. Here, for the reasons we have stated, the policy at issue created no such contractual duty. Accordingly, the reasoning of these cases is inapposite to the issues before us. Carman Cartage also argues that a duty on the part of an insurer to secure a release of claims against its insured as a part of a settlement can be implied from our holdings in Hadenfeldt v. State Farm Mut. Auto. Ins. Co., 195 Neb. 578, 239 N.W.2d 499 (1976), and Olson v. Union Fire Ins. Co., 174 Neb. 375, 118 N.W.2d 318 (1962). Both of these cases involved causes of action for a bad faith failure of an insurance company to settle a claim within policy limits. We stated in Olson: The liability of an insurer to pay in excess of the face of the policy accrues when the insurer, having exclusive control of settlement, in bad faith refuses to compromise a claim for an amount within the policy limit. The weight of authority is to the effect that when the insurer has the exclusive right to settle a claim within the limits of its liability, it has an option to compromise but no obligation to do so. In the event the insurer elects to resist a claim of liability, or to effect a settlement thereof of such terms as it can get, there arises an implied agreement that it will exercise due care and good faith where the rights of an insured are concerned. 174 Neb. at 379, 118 N.W.2d at 320-21. Based upon this language, Carman Cartage argues that an insurer has a fiduciary duty to use good faith when it settles claims and that settle by definition includes securing a release when a claim is paid. This argument ignores the undisputed fact that Ohio Casualty did not settle APL's cargo loss claim. It attempted to do so, but was unsuccessful in that effort. Ohio Casualty then paid the full amount of its insurance limit to APL, thus satisfying its contractual obligation under the policy to pay covered losses. Also, as we have noted, Ohio Casualty had no duty to defend Carman Cartage with respect to the APL claim and therefore could not have an exclusive right to settle in the same sense as a liability insurer under the reasoning of Hadenfeldt and Olson. We conclude that these cases furnish no logical support for the argument that Ohio Casualty had a duty to obtain a release of Carman Cartage when it paid its policy limits to APL.