Opinion ID: 307785
Heading Depth: 1
Heading Rank: 3

Heading: direction of a verdict for appellant

Text: 6 The principal emphasis of the appellant in this court is that under New York law an insurer is under no legal obligation to settle the primary tort action by offering the entire limit of coverage and therefore it was error not to direct judgment in favor of the appellant and to submit the issue to the jury for determination. This in our view is not a proper statement of the law of New York and is not at all supported by the cases in the New York Court of Appeals upon which appellant places reliance. The test, of course, is whether or not the insurer acts in good faith in refusing to settle within the policy limits. The mere fact that a verdict may exceed the policy limits does not mandate an offer of the policy. However, under circumstances indicating bad faith, the insurer may in fact be subject to excess liability if he fails to settle. Normally where the issues are contested as they were bitterly here, the trier of the fact under proper instructions of the court, is charged with this determination. Brochstein v. Nationwide Mut. Ins. Co., 448 F.2d 987, 990 (2d Cir. 1971), cert. denied, 405 U.S.921, 92 S.Ct. 957, 30 L.Ed.2d 791 (1972); Brown v. United States Fidelity & Guar. Co., 314 F.2d 675, 680 (2d Cir. 1963). 7 Appellant relies on four New York Court of Appeals cases for the bald proposition that there is no obligation for an insurer to settle the primary tort liability by offering its entire coverage. 5 The first two cases, Auerbach v. Maryland Cas. Co., 236 N.Y. 247, 140 N.E. 577 (1923) and Best Bldg. Co. v. Employers' Liab. Assur. Corp., 247 N.Y. 451, 160 N.E. 911 (1928), were thoroughly discussed in Judge Kaufman's exhaustive opinion for this court in Brown v. United States Fidelity & Guar. Co., 314 F.2d 675 (2d Cir. 1963). While many of the early New York cases contained language that the company's power over settlement amounted to an almost unlimited discretion, short of fraud or collusion (which appellant would also except), Judge Kaufman concluded, relying on Best, that the good faith settlement standard prevailed: 8 Despite the absence of a clear, recent pronouncement on the subject, we are convinced that the good-faith settlement standard controls in New York in cases of an assured's personal liability resulting from the insurer's failure to settle within policy limits. 314 F.2d at 678. 9 The two later Court of Appeals decisions upon which appellant relies are not only not helpful to its position but establish quite definitely that Judge Kaufman's determination of New York law was correct. Parisi v. Maryland Cas. Co., 27 N.Y.2d 505, 312 N.Y.S.2d 678, 260 N.E.2d 871 (1970), is a memorandum opinion affirming a decision of the Appellate Division, 32 A.D.2d 1030, 303 N.Y.S.2d 496 (2d Dep't 1969), which without opinion affirmed an order of Justice Miles McDonald, Supreme Court of New York, Kings Co., granting summary judgment for defendant insurance company. An examination of his opinion (160 N.Y.L.J., Nov. 26, 1968, at 18, col. 7) reveals that the insurer not only failed to settle within the policy limits but defaulted in the tort action brought against the insured. Its reason was that the policy holder had provided the carrier with a written statement that he had never been served with process in the pending action. The case does not at all stand for the proposition that the company had no legal obligation to settle within policy limits but rather held that the company was in good faith in relying on the written statement of its insured and therefore was not liable for any excess verdict. Justice McDonald, in his opinion (160 N.Y.L.J., Nov. 26, 1968 at 18, col. 8 to 19, col. 1) stated: 10 The principle involved is clearly set forth in Cappano v. Phoenix Assur. Co. (28 A.D.2d 639 [280 N.Y.S.2d 695]) as follows: As was stated in Harris v. Standard Acc. & Ins. Co. ([D.C.N.Y.] 191 F.Supp. 538, 540 [Kaufman, J.]), cited with approval in Brown v. United States Fid. & Guar. Co. ([2 Cir.] 314 F.2d 675): Since the company, therefore, has power, through the control of settlement, to adversely affect the insured's interests, it must necessarily bear a legal responsibility for the proper exercise of that power. Thus, the law imposes upon the insurer the obligation of good faith-basically, the duty to consider, in good faith, the insured's interests as well as its own when making decisions as to settlement. Bad faith-the failure to comply with this obligation-is generally proven by evidence largely circumstantial in nature. 11 Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427, 334 N.Y.S.2d 601, 285 N.E.2d 849 (1972), is equally devastating to appellant's position. All of the opinions in that case proceed upon the recognition that the law in New York requires that the insurer has the obligation of acting in good faith toward its insured, in considering whether or not it should settle within policy limits. 6 In Gordon the insurer was advised by its counsel that the insured had defaulted on his premium payment contract and that the policy had been cancelled. Relying on this advice, the carrier advised the insured that it would not defend the tort action or be responsible for resulting damage. A majority of the court considered that the company had the right to rely on the advice of counsel, was in good faith in taking this position and ordered the complaint dismissed. 12 It seems clear therefore that there is no law in New York which gives the insurer the right to cavalierly refuse to settle within policy limits but rather that it must exercise good faith. There was no error in refusing to direct judgment in favor of the appellant.