Opinion ID: 1106238
Heading Depth: 1
Heading Rank: 3

Heading: st paul's counterclaim

Text: St. Paul has also asserted a counterclaim against Holy Name, the material facts of which are not in dispute. St. Paul and Holy Name have both filed motions for summary judgment with respect to this counterclaim. On October 8, 1986, Claudia Childs went to visit her daughter, a patient at Holy Name hospital. After visiting with her daughter, Claudia Childs left the hospital, and began walking toward her car down a dirt pathway adjacent to the hospital. The dirt pathway had been used as an alternative walkway from the hospital to the parking lot. Before Claudia Childs arrived at her car, she slipped on some gravel in the pathway and fell to the ground, injuring her right leg. Claudia Childs was subsequently admitted to Holy Name and treated by Dr. Rivard for the fracture of her right tibia and fibula. The medical expenses which she incurred for the treatment of the injuries sustained in the fall totalled approximately $7,000.00. On October 14, 1986, Ginger Woodard, Administrative Coordinator for Medical Affairs at Holy Name, sent a copy of Claudia Childs' patient incident report to St. Paul's Claim Representative, Dale Nellums. On November 21, 1986, Ginger Woodard received a letter from Mac Downs, an attorney representing Claudia Childs. In the letter, Mac Downs stated, `I wish to make a claim on ... behalf [of Claudia Childs] with your insurance carrier and if you wish to discuss this matter prior to litigation, please have your carrier contact me within fifteen days.' On the same day, Ginger Woodard forwarded a copy of Mac Downs's letter to Dale Nellums at St. Paul. On November 9, 1987, Dale Nellums of St. Paul submitted a request for payment of $10,000.00 to Holy Name. The request stated that the Claudia Childs case had been settled, and Holy Name was required to reimburse St. Paul in the amount of $10,000.00, representing the deductible amount under the terms of the insurance policy. On December 8, 1987, by letter, and on December 10, 1987, by telephone, Ginger Woodard of Holy Name contacted Dale Nellums of St. Paul objecting to the manner in which St. Paul handled the Claudia Childs matter. Ginger Woodard requested an explanation why no attorney was appointed to represent Holy Name, and why Holy Name was not contacted prior to settlement of the Claudia Childs case. On December 14, 1987, in response to these objections, Dale Nellums of St. Paul sent the following letter to Holy Name: `This will confirm our telephone conversation of December 19, 1987 regarding the above referenced matter. `This claim was first reported to our Birmingham office on October 15, 1986 by a letter from you enclosing the incident report and the emergency room sheet. We then spoke on October 16, 1986 and I requested that you inform me of the claimant's condition following surgery. You called on October 17, 1987 with information on Mrs. Childs and on October 21, 1987 you sent me a copy of her chart. `On December 2, 1986 I received from you a letter from attorney Mac Downs which stated that he was now representing Mrs. Childs. I was able to speak with attorney Downs on December 8, 1986 and he confirmed, as did the incident report, that there were no witnesses to Mrs. Childs' fall other than her daughter. `On January 13, 1987 I sent a letter to you stating that the area of the fall would be inspected and photographed. At that time I also asked if you had been able to determine if there were any witnesses. You called on January 29, 1987 and confirmed the location of the fall. On February 2, 1987 Greg Wood from our office inspected the area and took photographs. `On April 1, 1987 I wrote attorney Downs and again requested that I be able to meet with Mrs. Childs and her daughter. A meeting was scheduled for June 30, 1987. At that time recorded statements were taken of Mrs. Childs and her daughter, Carolyn Childs. `On October 16, 1987 attorney Downs called me and stated that Mrs. Childs had $7,000.00 in medical specials and would be willing to settle for $12,000.00. On October 23, 1987 I called Dr. Rivard's office to confirm the outstanding balance on Mrs. Childs' account. Dr. Rivard treated Mrs. Childs while she was a patient at Holy Name of Jesus Hospital and also continued to treat her following her discharge. I also called Holy Name of Jesus Hospital and asked for you. When I was told you were not available I asked for the bookkeeping department and confirmed that Mrs. Childs did not have an outstanding balance with the hospital. I then called Mac Downs and made an offer of $10,000.00. On October 27, 1987 attorney Mac Downs accepted my offer. `St. Paul's policies and procedures require that statements be taken from the claimant and any witnesses. Statements were obtained from Mrs. Childs and the only known witness to the fall, Carolyn Childs. Photographs were also taken of the location of the fall and it was determined that since the area in question was obviously being used as an alternative walkway, the hospital had notice of its use and possible dangers. Therefore, since there was possible exposure in this matter the decision was made to settle the case. Based on my evaluation of liability and damages I offered $10,000.00 to settle the claim. `As a general rule, the St. Paul Fire and Marine Insurance Company does not refer claims to attorneys when suit has not been filed. With the above referenced matter, Mrs. Childs was represented by an attorney but suit had not been filed. `I apologize if I did not keep you adequately informed during the investigation and settlement of this claim and I hope that this letter has clarified the action that was taken in this matter.' Holy Name has not remitted the deductible in the Claudia Childs case to St. Paul. The failure of Holy Name to remit the deductible to St. Paul is the basis for St. Paul's counterclaim against Holy Name in this action. The `Health Care Facility Comprehensive General Liability Protection' portion of the St. Paul insurance policy applies to the insurance coverage of Holy Name in the Claudia Childs matter. That portion of the policy includes a provision for what is covered. It reads in pertinent part: `Liability coverage. We'll pay amounts you ... are legally required to pay as damages for covered bodily injury,... or personal injury claims.' (emphasis added) (p. 1.) It also contains the following provision for defending lawsuits: `DEFENDING LAWSUITS: We'll defend any suit brought against you or any other protected person for covered claims, even if the suit is groundless or fraudulent. We have the right to investigate, negotiate and settle any suit or claim if we believe that is proper. We'll pay all costs of defending the suit, including interest on that part of any judgment that doesn't exceed the limit of coverage. But we won't defend a suit or pay a claim after the limit has been used up in paying judgments or settlements.' (p. 1.) (Emphasis added.) The insurance policy also contains a `Hospital Liability Protection Deductible Endorsement.' This endorsement provides for a $50,000.00 deductible for each accidental event involving bodily injury or personal injury, and a total deductible of $250,000.00. The endorsement further provides: `You'll be responsible up to the deductible amount for all bodily injury or personal injury claims resulting from an accidental event. We'll pay covered claims over this amount, up to the limits of coverage that apply. If a total deductible amount is shown, you won't have to pay more than this amount for all claims that take place in a policy year. By policy year, we mean each consecutive annual period of your policy. `The deductible won't apply to defense costs. We can pay the deductible to settle a claim. If we do you agree to repay us as soon as we notify you of the settlement.' (Emphasis added.) St. Paul says that under the terms of the insurance policy it had the legal right to settle the Claudia Childs case, and it is entitled to reimbursement of the applicable deductible amount from Holy Name. St. Paul says it is owed $9,000.00 of the amount of the applicable deductible. The original amount requested ($10,000.00) has been reduced by $1,000.00 under `Med Pay' provisions of the insurance policy which are not at issue here. Holy Name says that it is not liable to St. Paul for reimbursement of the deductible ($9,000.00) because (1) it was never `legally required' to pay Claudia Childs any amount; (2) it was not informed of the settlement offer prior to settlement; (3) it never consented to settlement; and (4) no attorney was provided to defend Holy Name against Claudia Childs' claim. Where there is a provision in an insurance policy which authorizes the insurer to settle any claim against the insured in its discretion, such a provision `vests the insurer with absolute authority to settle claims within the limits of the policy with the insured's having no power to compel the insurer to make settlements or to prevent it from so doing.' (Emphasis added.) Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So.2d 561, 564 (La.1978); Mitchum v. Hudgens, 533 So.2d 194, 197 (Ala.1988). However, where the insured has a direct financial stake in the litigation, the law generally requires that the insured have control over acceptance or rejection of settlement offers. Mitchum v. Hudgens, 533 So.2d 194, 202 (Ala.1988) (for instance, where the insurer reserves the right to contest the existence of coverage); Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So.2d 561, 564-565 (La. 1978) (where settlement prior to judgment requires the insured to pay a deductible). See also, L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So.2d 1298, 1303 (Ala.1987). The insured must make the ultimate choice regarding settlement since it is the insured who must eventually pay the settlement amount. See, L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So.2d 1298, 1303 (Ala.1987). In the present case, St. Paul did not inform Holy Name of its intent to settle the Claudia Childs matter. Holy Name had no opportunity to consent to or reject the option to settle. Under the insurance policy, Holy Name was required to reimburse St. Paul for any settlement up to $50,000.00. Holy Name, therefore, had a direct financial stake in any settlement under this portion of the insurance policy. Therefore, St. Paul breached its legal duty to Holy Name by failing to obtain Holy Name's consent before settling the Claudia Childs matter for $10,000.00. In addition, even in cases where the insured has no direct financial stake in the outcome, an attorney appointed by the insurer to handle a claim against the insured is under an ethical duty to make full disclosure of the progress of the litigation to the insured. Mitchum v. Hudgens, 533 So.2d 194, 202 (Ala.1988). `[A]ppointed counsel should keep [the] client, the insured, apprised of all developments in the case, including settlement negotiations.' Mitchum, supra, at 202. Where, as in the present case, the insured has a direct financial stake in the outcome, the attorney's duty to keep the insured informed is greater, since the attorney may not settle the claim at the direction of the insurers over the objection of the insured. Cf., Mitchum, supra, at 202. In the present case, Dale Nellums, the St. Paul Claim Representative is also a licensed attorney. However, it does not appear that she, nor anyone else, was appointed to conduct a defense on behalf of the insured. And no attorney appointed by St. Paul advised Holy Name of the settlement negotiations. The provision of the insurance policy authorizing St. Paul the right to settle claims is included under the subheading: `Defending lawsuits.' St. Paul was required under the insurance policy to defend any suit against the insured even if the suit is `groundless.' Where the insured must ultimately pay the amount of a settlement as part of the deductible amount, a reasonable construction of the applicable provision of the insurance contract where it is also considered that the insured must itself pay the amount of the deductible is that the insurer cannot agree to pay money in a settlement which must be repaid by the insured without first obtaining the consent of the insured. See, Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So.2d 561, 565 (La. 1978). It is undisputed that Holy Name did not consent to the settlement of this matter, though it had a direct financial stake in the outcome. Accordingly, summary judgment is due to be granted in favor of Holy Name with respect to this issue. The judgment of the trial court that St. Paul is obligated to defend Edge Memorial and Holy Name against liability arising from the claims asserted against them [1] and to indemnify them against any judgment rendered against them with respect to such claims is due to be affirmed. The judgment of the trial court that, in failing to obtain Holy Name's consent before settling the Claudia Childs matter, St. Paul breached its legal duty to Holy Name and is thus not entitled to collect the deductible from Holy name is also due to be affirmed. AFFIRMED. HORNSBY, C.J., and MADDOX, ALMON, ADAMS, HOUSTON, STEAGALL, KENNEDY and INGRAM, JJ., concur.