Opinion ID: 1794820
Heading Depth: 1
Heading Rank: 3

Heading: The Craft Suit

Text: Aetna argues that it had no duty to act under an enhanced obligation of good faith when it undertook to defend the Craft suit under reservation of rights. However, our review of the record indicates that Aetna maintained control of the defense sufficient to cause the enhanced duty to arise. Aetna also argues that the trial court erred in concluding that it breached any enhanced duties. We hold that the trial court incorrectly applied the law to the facts of the Craft defense and, therefore, we reverse and render judgment for Aetna with regard to the Craft suit. The Craft suit was filed on December 7, 1995. On December 19, 1995, Aetna extended a defense to MBI and Mitchell under reservation of rights. Aetna hired Peter Sintz to represent its insureds. Crum and Forster, another liability insurer, hired separate defense counsel, Carroll Sullivan. Sintz and Sullivan worked together in defending the Craft suit. The Craft suit was settled on December 2, 1996, for $900,000, again under Mitchell's authority. Mitchell paid $500,000, and each insurer contributed $200,000, their full settlement authorities. The trial court did not find that Aetna provided an inadequate defense of the Craft suit. It is undisputed that Aetna hired competent defense counsel who understood that only the insureds were his clients. The trial court found that Aetna breached its enhanced obligation of good faith in only two ways, neither of which directly involved the defense of the Craft suit under reservation of rights.
The trial court found that Aetna breached its duty in the following way: 1. Aetna obtained coverage opinions (adverse to Plaintiffs) from Harry Cole, who at the time was MBI's appointed counsel and, after having actual knowledge of Cole's obvious conflict of interests, Aetna did not advise Plaintiffs of what had occurred and continued to consult with Cole on matters adverse to Plaintiffs. However, the undisputed facts compel us to conclude that the trial court's legal conclusion was erroneous. Aetna extended its defense under reservation of rights on December 19, 1995. It requested a coverage opinion from Cole, and received an opinion letter from Cole on January 12, 1996. Cole had concluded that there was no coverage for the allegations of the complaint and, therefore, Aetna withdrew its defense on January 24, 1996. On February 5, 1996, MBI's privately retained counsel wrote Aetna, asking that it reconsider its denial of coverage. On February 6, Aetna sent the letter from MBI's counsel to Cole, asking for Cole's further advice. In a February 9 letter, Cole advise Aetna that its denial of coverage was justified. At this point, Aetna ignored the advice of its coverage attorney, and again extended a defense under reservation of rights. We conclude that Aetna's dealings with Cole, insofar as they dealt with the defense of the Craft suit, in no way demonstrated a greater concern for the insurer's monetary interest than for the insured's financial risk. Instead, Aetna resolved its doubts in favor of the duty to defend, and instructed competent defense counsel to resume his efforts on behalf of its insureds. The trial court erred in concluding that Aetna breached its enhanced duty.
The trial court concluded that Aetna breached its duty in another way: 2. Consistent with Plaintiffs' duties (to Aetna) under the cooperation clause of the policy, Plaintiffs kept Aetna apprised of the status of the confidential settlement negotiations in the Lowman case, and Aetna purposefully divulged this confidential information to persons then adverse to Plaintiffs (principally Craft and her attorneys) through extraneous inclusion of such negotiations in the filing of a declaratory judgment action in the United States District Court. Again, the undisputed facts compel us to conclude that the trial court's legal conclusion was erroneous. This Court has long recognized the usefulness of declaratory judgments in insurance-policy disputes. See, e.g., Morton v. Allstate Ins. Co., 486 So.2d 1263 (Ala. 1986); Federated Guaranty Life Ins. Co. v. Bragg, 393 So.2d 1386 (Ala.1981). It is well settled that a declaratory judgment action may be brought by a liability insurer to have a court declare whether or not it is liable to defend a suit. Thompson v. Hartford Acc. & Indem. Co., 460 So.2d 1264, 1266 (Ala.1984). This Court has also recognized that parties should be able to litigate freely, without having to worry about being sued for what is said during the course of litigation. Therefore, in defamation actions, relevant communications made during judicial proceedings are absolutely privileged. See Walker v. Majors, 496 So.2d 726, 730 (Ala.1986), and the cases cited therein. The issue of the relevancy of a communication is a matter for the court to determine, and the adjudicated cases have established a liberal view in the interpretation of the language used, and all doubts are resolved in favor of its relevancy or pertinence. Id. at 730. Aetna filed a declaratory judgment action on May 14, 1996, in an attempt to resolve the coverage questions presented by the Lowman and Craft suits. Aetna acted within its legal rights in filing that action. The consent-to-settle issues with regard to the Lowman case (where Aetna had no enhanced duty) were among the issues addressed in the petition. Therefore, as a matter of law, settlement negotiations undertaken and settlement commitments made under Mitchell's authority and control were relevant to that proceeding. Mitchell and MBI cite no authority to support the trial court's conclusion that such information was extraneous, and our research has revealed no such authority. [8]