Opinion ID: 1133601
Heading Depth: 1
Heading Rank: 3

Heading: bad faith claim against st. paul

Text: On June 7, 1996, the district court here granted summary judgment to St. Paul. The district court noted that the contract between Miller and St. Paul provided that St. Paul could settle any suit or claim against its insured if St. Paul considered settlement appropriate. The court determined because St. Paul had exercised its contractual right to settle the claim within the monetary limits of Miller's policy, Miller had no claim for breach of good faith. As to the failure of St. Paul to notify Miller of the settlement hearing, the district court found that St. Paul's duties to Miller terminated when St. Paul tendered payment equal to policy limits to the Fund pursuant to K.S.A. 40-3410. After that point the Fund, not St. Paul, had a duty to notify Miller of a future settlement hearing. In addition, the court held that pursuant to K.S.A. 60-260(b), a motion to set aside the judgment was a prerequisite for a separate action claiming relief for wrongful settlement. Because Miller had failed to set aside the judgment, his claims for wrongful settlement against St. Paul were barred. Miller contends that the trial court erred as a matter of law in finding that he cannot sustain a cause of action for bad faith against St. Paul. Miller asserts that notwithstanding the terms of its policy, St. Paul was aware that he opposed settlement, and it nevertheless settled the case. Miller contends that St. Paul's action in settling the case was bad faith, and St. Paul is responsible for the damages resulting from the settlement. Case law in Kansas concerning the duty of an insurer to settle actions against the insured focus on the failure of the insurer to accept or initiate a settlement offer. See, e.g., Farmers Ins. Exchange v, Schropp, 222 Kan. 612, 567 P.2d 1359 (1977); Snodgrass v. State Farm Mut. Auto Ins. Co., 15 Kan. App.2d 153, 804 P.2d 1012, rev. denied 248 Kan. 997 (1991). The Kansas Court of Appeals held in Saucedo v. Winger, 22 Kan. App.2d 259, Syl. ¶ 3, 915 P.2d 129 (1996), that where an insurance policy explicitly reserves the right to settle to the insurer, an insured cannot complain that the insurer settles or refuses to settle within policy limits absent a showing of bad faith or negligence on the part of the insurer. The implication is a bad faith settlement can be the basis of a complaint even where the insurer settles a claim within policy limits. The issue of bad faith of the insurer in settlement negotiations has been addressed in other jurisdictions. In Shuster v. South Broward Hosp. Dist., 591 So.2d 174 (Fla. 1992), the court considered whether an insurer could be sued for bad faith where it had settled a case within the policy limits and the settlement caused other incidental damages to the insured. In Shuster, a physician sued his insurance company for settling a malpractice action against him well within the policy limits. The physician claimed that the insurance company should not have settled the case because of questionable liability. The settlement had caused the physician to be investigated by the Division of Professional Regulation. The physician claimed that the resulting investigation damaged him. The court ruled that the policy of insurance gave the insurer the right to defend and settle claims as it deems expedient. 591 So.2d at 177. The court determined that the insurer had broad discretion as to when and how to settle a case. The court recognized that the language of the contract would control, and the deems expedient language of the contract allowed the insurer to be guided by its own self-interest when settling claims within the policy limits. 591 So.2d at 177. In Bleday v. OUM Group, 435 Pa. Super. 395, 645 A.2d 1358 (1994), appeal denied 540 Pa. 591 (1995), the Superior Court of Pennsylvania considered a claim by a physician that his liability insurance carrier had settled a malpractice claim against him in bad faith. Over the physician's objections, the insurance company had settled the claim to avoid the cost of litigation and the uncertainties of a jury trial. After a review of case law from other jurisdictions, the Pennsylvania court concluded that although judicial deference must be given to the decision of an insurance company to settle a claim within the policy limits, a claim for bad faith may, in limited circumstances, be asserted against the insurance company notwithstanding an expediency provision. 435 Pa. Super. at 399. The limited circumstances contemplated by the Pennsylvania court included situations where there are multiple parties to a lawsuit and the insurer indiscriminately settles with one or more of the parties for the full amount of the policy, exposing the insured to an excess judgment from the remaining parties in the suit or where the insurer settles a claim without regard to the fact that it may be barring a counterclaim of the insured. Based on the facts of the case and the speculative nature of the damages pled by the plaintiff, the Pennsylvania court held that the plaintiff had failed to sufficiently plead a cause of action in bad faith. 435 Pa. Super. at 402-03. K.S.A. 40-3410 provides that when the insurer has agreed to settle liability on a claim and the claim is an amount in excess of policy limits, the Fund assumes control of the case, continuing negotiations and bringing the settlement before the district court for approval of the settlement. Pursuant to the terms of its insurance contract, St. Paul chose not to defend the malpractice claim against Miller. Pursuant to the Act, it agreed to settle Miller's liability to the claimant within its policy limits and notified the Fund of its intention. Under the Act, the insurance commissioner was then entitled to negotiate an amount to be paid from the Fund as a settlement or continue to defend the action against Miller. Similar to Miller's contract with his liability carrier, the Act requires no waiver or consent of the health care provider for the Fund to settle the action with the claimant without the consent of the health care provider. After St. Paul tendered its policy limits to the Fund, the Fund, pursuant to statute, retained the attorneys who had been initially employed by St. Paul, to continue representing Miller and the Fund's interest during negotiations of the claim. Therefore, the Fund, not St. Paul, employed the attorneys to represent Miller prior to the settlement hearing. St. Paul did not breach its duties of loyalty and allegiance by not notifying Miller of the settlement hearing or retaining attorneys on his behalf who failed to provide him with notice of the settlement hearing. The district court's grant of summary judgment in favor of St. Paul was not error.