Opinion ID: 3158049
Heading Depth: 3
Heading Rank: 2

Heading: Good Faith and Reasonable Care

Text: The district court concluded after a bench trial that GEICO did not act in bad faith in handling the case. After reading the voluminous record, we conclude that sufficient evidence supports the district court’s conclusion, even though there is some evidence that points to GEICO’s negligence or bad faith in handling the claims. The district court reached its conclusion after weighing certain Bollinger factors more heavily than others and considering other factors that negated bad faith, which was appropriate for it to do as the fact-finder. Because the evidence does not leave us with the definite and firm conviction that a mistake has been made, see Curtis v. Okla. City Pub. Sch. Bd. of Educ., 147 F.3d at 1217, we will affirm the district court’s judgment for GEICO. Some factors admittedly weigh in Kannaday’s favor. Importantly, Kannaday’s case for liability and damages was strong. GEICO knew early in the case that all 12 three passengers were seriously injured and policy limits would not adequately compensate them for their claims. It learned on August 5, 2005, that Hoyt was primarily at fault for the accident. The high damages and strong case of liability against Hoyt should have caused GEICO to attempt to settle within policy limits if possible. Additionally, GEICO failed to inform Hoyt’s father or the other injured claimants about Gold’s proposal to split the policy proceeds equally among the passengers. GEICO ignored the suggestion and instead based its settlement offer on an incorrect assumption about Kansas UIM law, and thus offered Gold more than she requested. It failed to inform Hoyt’s father about Kannaday’s two offers to settle for $25,000. And it interpleaded the remaining funds after Gold accepted its offer, even though the interpleader did not protect Hoyt’s estate from a judgment against it. The district court noted that GEICO was not error free in how it handled the claims against Hoyt’s estate, but it concluded overall the errors were relatively minor, largely identifiable through hindsight, and did not have a real or tangible impact on the insured. For example, the district court dismissed GEICO’s failure to respond to Gold’s offer to split the proceeds equally by noting that no evidence suggested Kannaday would have accepted a third of the proceeds. Twice, she made a demand for half the policy limits. While the interpleader was ongoing, she failed to respond to Wesley Medical Center’s offer to accept $6,000 in full and complete satisfaction for her hospital bills over $150,000, which would have left $19,000 in the interpleader for her since only she and Wesley Medical Center had filed answers. 13 Regarding GEICO’s misunderstanding of UIM coverage in Kansas and incorrect conclusion that only Gold lacked UIM coverage, the district court concluded the mistake was honest and not unreasonable. GEICO’s offer attempting to maximize each injured passenger’s recovery was not in itself bad faith; although GEICO’s duty runs to its insured rather than the claimants, GEICO presented evidence at the bench trial that an insurance company’s attempts to maximize a claimant’s recovery is a strategy to satisfy the claimants, which decreases the risk for lawsuits against the insured. Although GEICO interpleaded the remaining funds rather than settle with Kannaday for half the policy limit, the Kansas Supreme Court has indicated that an insurance company has wide discretion in settling multiple claims. In Farmers Insurance Exchange v. Schropp, the Kansas Supreme Court described several of an insurer’s potential alternatives: Farmers could well have notified all of the potential claimants involved that the value of the claims would doubtless exceed policy limits, and invite them or their attorneys to participate jointly in efforts to reach agreement as to the disposition of the available funds. Alternatively, Farmers could have attempted to settle claims within the policy limits as they were presented. Or, as a third alternative, Farmers could have promptly and in good faith commenced an interpleader action, and paid its policy limits into court. Farmers Ins. Exchange v. Schropp, 567 P.2d 1359, 1367 (Kan. 1977). Kannaday is also correct that GEICO could have exhausted its policy proceeds by accepting Kannaday’s offer of $25,000. See Castoreno v. W. Indem. Co., 515 P.2d 789, 795 (Kan. 1973) (“[A] liability insurer may in good faith settle part of multiple claims arising from the negligence of its insured even though such settlements deplete or 14 exhaust the policy limits of liability so that the remaining claimants have little or no recourse against the insurer.”). We could not, however, identify any time where the Kansas Supreme Court has required an insurance company to settle with claimants on a first-come, first-serve basis, or to follow any set distribution method. Kannaday further argues that Roarick and Brantley were inexperienced, they failed to follow GEICO policy, and GEICO failed to properly supervise them to correct their mistakes. Again, the record contains evidence to support the district court’s conclusion that overall these errors were minor and did not have a tangible effect on the insured. For example, Roarick’s failure to record Gold’s initial offer in the GEICO claim activity log technically violated GEICO policy, but even had he recorded it and made the offer, evidence supports the district court’s finding that Kannaday would not have accepted it. Brantley did not understand that the interpleader action would not release the insured from liability, but her misunderstanding of a method that the Kansas Supreme Court has suggested as a potential alternative for insurance companies to fulfill their obligation to act in good faith does not demonstrate bad faith. The remaining factors on which the district court relied further negate a finding of bad faith. GEICO promptly and thoroughly investigated the accident and, after discovering Hoyt was primarily at fault and the passengers were seriously injured, never sought to pay less than the policy limits to the three passengers collectively. GEICO followed its attorney’s advice and sought to distribute the full policy proceeds through an interpleader action. 15 One factor that the district court apparently relied on heavily was the financial risk to both parties. Kannaday first demanded $25,000 on January 19, 2006, after the nonclaim statute barred recovery from the estate’s assets as of January 14, 2006. Although Kannaday contends that the district court’s reliance on the nonclaim statute’s protection after the bench trial ignored the initial district court judge’s summary judgment conclusion and the Kansas Court of Appeals’ determination, we disagree. The Kansas Court of Appeals held that neither the nonclaim statute nor the injunction from the interpleader barred Kannaday from pursuing her negligence claim, but confirmed she could not collect from Hoyt’s estate. The only money at risk was GEICO’s in a subsequent bad-faith case if she prevailed. Although we do not have to directly review the initial district court judge’s application of the judgment rule in summary judgment, we can assume the Kansas Supreme Court would apply the judgment rule in this case and find that Hoyt’s estate was damaged when there was an excess judgment against it. But again, the question of whether the estate was damaged is different than the question of whether it faced any financial risk. We do not see any support for requiring a court to ignore the effect of the nonclaim statute during a bad-faith action. Indeed, the Bollinger factor asks about the financial risk to the parties, not the risk of a judgment alone. This does not run afoul of the judgment rule, even assuming it applies. We think the district court after the bench trial correctly considered the nonclaim statute’s effect on the financial risk Hoyt’s estate and GEICO faced during the settlement negotiation period with Kannaday. The district court concluded, and we agree, that the nonclaim statute 16 protected the estate assets after January 14, 2006, and thus any financial risk for failing to settle after that time would affect GEICO, not Hoyt. Before January 14, 2006, the estate did face financial risk if GEICO failed to settle, but the evidence does not require a finding of bad faith during that time. The only party to make a demand prior to January 14, 2006, was Gold. While the estate was at risk, GEICO investigated the accident and the injured passengers’ damages and attempted to settle with them to protect the estate. Kannaday did not respond to the offer to settle until after the nonclaim statute passed. GEICO actively sought to settle the claims before January 14, 2006, and the failure to settle was not because of its lack of effort, but Kannaday’s.