Opinion ID: 169059
Heading Depth: 2
Heading Rank: 3

Heading: EMCASCO's Conduct After August 20, 2001

Text: 55 In many respects, the situation remained the same after August 20. Plaintiff's counsel continued to make it difficult for the defense to obtain the relevant medical records. Mr. Nguyen's lawyer, Mr. Patterson, obtained and reviewed the records of Mr. Nguyen's two-week stay at Wesley Medical Center on June 28, but despite his promise—and his written assurance in a letter dated May 21 that he had already provided all medical records— he waited four months, until all settlement offers had expired, to provide these records to the defense. Nor did he provide any records pertaining to the ambulance service. The medical and ambulance records were relevant because, as Mr. Cooper explained, without them he didn't know what information there was that causally connected the accident to the paraplegia [and] whether or not there could have been any claim for negligence or malpractice by either the emergency care providers, either in the ambulance or at the hospital or in the course of the stay at the hospital. Cooper Dep. 67, App. 695. 56 Mr. Cooper then asked Mr. Patterson for medical releases so that he could obtain the records directly from the institutions. App. 817. He sent a letter to Mr. Patterson explaining why he needed to examine the records, and reminding Mr. Patterson of his agreement to withhold service on Mr. Wade until the records had been examined. Id. at 818. Mr. Patterson sent Mr. Cooper a release, but it was signed by Patterson himself rather than the patient, and was therefore not accepted by Wesley Hospital. Id. at 801. Mr. Cooper contacted Mr. Patterson again, and this time—on October 30—Mr. Patterson sent the records he had promised four months before. Mr. Cooper immediately contacted EMCASCO, EMCASCO authorized a policy-limits settlement, and Mr. Cooper conveyed the offer to Mr. Patterson on November 1. Id. at 822. He testified that he believed the offer would be accepted. He also wrote to an EMCASCO supervisor that if Mr. Patterson had only sent the records in the first place, this file would be closed by now. Id. at 819. 57 In some other respects, however, the circumstances changed after August 20. The possibility of a successful defense based on who ran the red light diminished when the disinterested eyewitness stated unequivocally, on tape, that she had seen Mr. Wade enter the intersection against a red light. The focus shifted from the cause of the accident to the medical cause of the injuries—whether they were a result of the accident itself, a preexisting condition, or negligence by medical professionals or the ambulance service. Moreover, as the extent of Mr. Nguyen's injuries became apparent, the defense had reason to believe that even if Mr. Wade were held responsible for only a small portion of the injury, the damages would still exceed the policy limit. The EMCASCO agent expressed concern to Mr. Cooper that [t]his is one of those situations that may not allow us to wait for all of the facts [because] the threat of excess judgment and `bad faith' may force us to proceed more hastily than we would prefer. App. 767. 58 Most significantly, Appellant argues that it ceased to be reasonable for the insurer to rely on plaintiff's counsel's promise to provide the medical records. See Covill, 452 F.Supp. at 238 ([I]f State Farm had more aggressively investigated [the plaintiff's] claim instead of relying past the point of all reason on [plaintiff's counsel] to voluntarily furnish all of the information allegedly necessary for adequate evaluation of the claim it would have known much earlier . . . that the risk of an excessive judgment was great.). Kansas law requires insurers to promptly conduct reasonable, good-faith investigations of claims arising under their policies. Kan. Stat. Ann. § 40-2404(9)(b)-(c). Indeed, a factor in deciding whether an insurer acted in bad faith in rejecting a settlement offer is whether the insurer failed `to properly investigate the circumstances so as to ascertain the evidence against the insured.' Levier v. Koppenheffer, 19 Kan.App.2d 971, 879 P.2d 40, 46 (1994) (quoting Bollinger, 449 P.2d at 502 (other quotation marks omitted)). 59 We are not necessarily persuaded that the evidence supports a conclusion that EMCASCO violated its duty to Mr. Wade with regard to efforts to obtain the medical records. It is not clear to us that the Kansas Supreme Court would wish to reward plaintiffs for inducing insurers to rely on promises that plaintiffs never keep; such a holding could create perverse incentives for gamesmanship. See Peckham, 895 F.2d at 835. And once Mr. Cooper became involved in the case, he ceased to rely on Plaintiff's counsel to supply the records; he attempted to obtain the records directly from the hospital. But in order to do so, he had to obtain medical releases, and Plaintiff's counsel supplied legally defective releases. We hesitate to conclude that EMCASCO could be held responsible under those circumstances. 60 Nevertheless, Appellant maintains that these circumstances after August 20, interpreted in the light most favorable to the party opposing summary judgment, were sufficient to go to the jury on a claim of negligence. We disagree and conclude that, in light of the Plaintiff's manipulation of the settlement offer deadline, the Kansas Supreme Court would hold that no reasonable jury could find EMCASCO's delay was responsible for the parties' failure to reach a policy-limits settlement. 61 First, EMCASCO, through Mr. Cooper, had no reason to believe that Plaintiff's counsel would refuse to accept a settlement offer on account of the additional delay between August 20 and November 1. The Plaintiffs had extended their offer before, and circumstances had not changed in any relevant respect. To be sure, Mr. Patterson stated in his deposition that he would not have accepted a policy-limits offer after August 20. Patterson Dep. 97, App. 741. But in his letter of August 20 to Mr. Cooper, he expressly agreed not to serve process against Mr. Wade to give [EMCASCO] time to make a settlement offer on this case should [the company] desire to do so. App. 765. Mr. Cooper testified that he interpreted this letter as soliciting a policy-limits offer and that he believed Mr. Patterson would accept such an offer when it was made. Cooper Dep. 153-55, App. 714. Appellant has tendered no evidence that this belief was insincere, unfounded, or unreasonable. 62 More importantly, the undisputed evidence in the record shows that Plaintiff's counsel's sole reason for rejecting EMCASCO's November 1 offer was his hope to pursue a bad faith claim against the insurer. Mr. Patterson candidly admitted that he managed the Nguyen affair, from its inception, with a bad faith claim in mind. As he expressed it in his deposition: Pursuit of a bad faith claim is kind of a process that starts on the first day of the accident, and then winds up at some point later. Patterson Dep. 115, App. 744. He explained that by August 20—a date when we have concluded no reasonable juror could find that EMCASCO had acted in bad faith—he was fairly certain that they had been acting in bad faith and that for this reason a policy limit [settlement offer] would not have done it. Id. at 95, App. 741. Cf. Miel, 912 P.2d at 1339-40 (reversing a bad faith judgment because the trial court failed to allow evidence that the plaintiff's reason for imposing a deadline was to set up a bad faith claim). Mr. Patterson admitted that he could not recall having done any additional work or uncovering any additional information relevant to Mr. Nguyen's claim against Mr. Wade between August and November. Patterson Dep. 115, App. 744. Cf. Haugh, 322 F.3d at 232-33 (reversing judgment in favor of insurer where plaintiff's refusal of a belated offer resulted from the substantial litigation costs attendant to the insurance company's delay); Associated Wholesale Grocers, 934 P.2d at 92 (recognizing that the risk and expense of a trial is relevant to plaintiff's willingness to negotiate). Nor has Appellant suggested any other legitimate reason why the policy-limits offer, which was good on August 20, was no longer good on November 1. Cf. Adduci, 53 Ill.Dec. 854, 424 N.E.2d at 649 (upholding dismissal of bad-faith claim where the evidence revealed no legitimate reason for the plaintiff to refuse a settlement offer forty days after the deadline). 63 Indeed, in his letter to EMCASCO rejecting its settlement offer, Mr. Graybill (a specialist in bad faith claims whom Mr. Patterson engaged as co-counsel in August, 2001) explained that Mr. Nguyen could not accept the policy-limit offer because it appears a prima facie case can be made that [EMCASCO] is guilty of negligence or bad faith based on its delay in offering to settle the claim, and that Mr. Nguyen hoped to enforce Mr. Wade's rights in a lawsuit. App. 833-34. It is therefore an admitted fact that Plaintiff's motive in refusing EMCASCO's settlement offer on November 1 was to set up a bad faith claim against the insurer. 64 Because the duty of good faith is an obligation arising from the contract itself, general principles of contract law apply, including the required elements of causation and damages. Sours v. Russell, 25 Kan.App.2d 620, 967 P.2d 348, 351-52 (1998). Of particular relevance here is the Kansas Supreme Court's approval in Hawkins v. Dennis of the Kansas Court of Appeals' holding that there must be a causal link between the insurer's conduct and the excess judgment against the insured. 258 Kan. 329, 905 P.2d 678, 690 (1995) (citing Snodgrass v. State Farm Mut. Auto. Ins. Co., 15, Kan.App.2d 153, 804 P.2d 1012, 1021-22 (1991)). Thus, an insured may recover under a bad-faith claim only for those excess judgment losses directly and naturally resulting from the breach. Sours, 967 P.2d at 351. See also Peckham, 895 F.2d at 836 ([W]e think it settled beyond serious question that, in order to warrant recovery for an insurer's bad faith anent settlement negotiations, it must be shown that the insurer's conduct caused the ensuing excess judgment.). There are a number of reasons why an insurer's delay in attempting to settle a claim might set up a natural and continuous sequence of events that causes a claimant to reject a policy-limits settlement offer that he would have accepted earlier. For example, a claimant who has invested time and resources preparing for trial might want the settlement agreement to reflect those added expenses. See Haugh, 322 F.3d at 232-33. But if a claimant arbitrarily withdraws an initial settlement offer and later rejects an identical proposal from the insurer, the claimant's conduct is the legal cause of the failure to settle. See Adduci, 53 Ill.Dec. 854, 424 N.E.2d at 649 (holding that the court could not fairly place the blame for failure of settlement upon Insurer when the plaintiff did not show why the offer would have been good on May 7, 1976, but was not acceptable on June 18, 1976); see also Snodgrass, 804 P.2d at 1024 (rejecting a bad-faith claim against State Farm where the only purpose of the plaintiff's settlement offer was as evidence to show the jury that State Farm rejected an offer). 65 The undisputed evidence shows that Mr. Nguyen's legal team rejected EMCASCO's November 1, 2001, settlement offer as part of a strategy to establish a bad faith claim against EMCASCO for its failure to settle the case earlier. Holding an insurance company liable for the excess judgment against the insured under these circumstances would be inconsistent with the cause of action for bad-faith or negligent refusal to settle. The cause of action for failure to settle is meant to protect the interests of the insured by requiring the insurer to conduct the litigation, including settlement negotiations, as if the insurance contract had no policy limits. Bollinger, 449 P.2d at 511. It is not meant to create an artificial incentive for third-party claimants to reject otherwise reasonable settlement offers that are within the policy limits. We would be turning the cause of action on its head by holding an insurance company liable where it eventually offered to settle the claim for the policy limits, but a claimant rejected the offer precisely in order to manufacture a lawsuit against the insurer for bad-faith refusal to settle.