Opinion ID: 2610844
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Heading Rank: 2

Heading: Is a Claim of Bad Faith or Negligence Based on a Wrongful Failure to Settle Assignable?

Text: Prior to Heinson, we had not previously considered whether bad faith and negligent defense claims are assignable. We have held that a breach of contract claim is assignable. Alldritt v. Kansas Centennial Global Exposition, 189 Kan. 649, 657, 371 P.2d 181 (1962). In Life Insurance Co. v. Kelso, 16 Kan. 481, 485 (1874), we held that a first-party claim for damages against a life insurance company for breach of an insurance contract was assignable. The weight of authority favors the assignment of an insured's right of recovery against the insurer for the wrongful refusal to settle a claim within the policy limits. DiMarzo v. American Mutual Ins. Co., 389 Mass. 85, 93 n. 8, 449 N.E.2d 1189 (1983) (overwhelming weight of authority, according to the Massachusetts Supreme Court); and Kagele v. Aetna Life, 40 Wash. App. 194, 197, 698 P.2d 90 (1985). See Annot., 12 A.L.R.3d 1158; Jerry, Understanding Insurance Law § 25G[d], p. 125 (1987); Shernoff, Gage & Levine, Insurance Bad Faith Litigation § 3.06[1] p. 3-33 (Matthew Bender 1990); and Wall, Litigation and Prevention of Insurer Bad Faith § 7.02, pp. 245-46 (1985). The arguments against permitting such assignments are: (1) Bad faith and negligent defense actions are tort actions which are unassignable because they are personal to the insured; (2) bad faith actions are mere contingencies or possibilities and are not assignable (particularly when the assignment occurs before the injured party obtains a judgment on his personal injury claim); (3) such assignments will foster fraud and collusion between the insured and the injured plaintiff; and (4) upholding assignments arms the injured party with a disproportionate unfair advantage which will pressure the insurer into making unwarranted settlements at the policy limits. See 12 A.L.R.3d at 1159-60. The first argument is not applicable to our discussion. As we have previously noted, bad faith and negligent defense actions are contract actions, not tort actions. The remaining objections to assignment were considered and rejected in Critz v. Farmers Ins. Group, 230 Cal. App.2d 788, 41 Cal. Rptr. 401 (1964), and Gray v. Nationwide Mut. Ins. Co., 422 Pa. 500, 223 A.2d 8 (1966). We agree with the resolutions of Critz and Gray that the remaining objections are not persuasive. The arguments for permitting assignments of bad faith and negligent defense actions are: (1) Breach of contract actions are not personal to the insured; (2) the insured is prevented from filing bankruptcy when faced with an excess judgment; (3) the injured plaintiff is compensated; (4) settlements between the injured plaintiff and the insured are fostered; (5) the injured plaintiff is allowed to sue the insurer directly, thus simplifying the process; and (6) the possibility of collusion between the injured plaintiff and the insured is not increased. 12 A.L.R.3d at 1161-63. For a discussion endorsing assignment, see Flannagan, Assignability of Insured's Cause of Action for Bad Faith or Negligent Refusal to Settle, 38 J.K.B.A. 297 (1969). We hold that an insured's breach of contract claim for bad faith or negligent refusal to settle may be assigned.