Court Opinion

ID: 9447294
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:31:06.576633+00
Date Added: 2024-06-11T17:30:58.655120
License: Public Domain

WEICK, Circuit Judge
(dissenting).
I regret that I cannot agree with the conclusion reached by the majority. To my thinking, the most important factor in this case is what information concerning the accident in question appellant was possessed of in determining if a settlement should be made. The degree of variance between the statements which it had and the actual testimony at the trial of the injury actions, which the majority has considered to be of primary importance, I consider to be secondary.
In this Court, the only error assigned by the insurance company is that the District Court erred in not directing a verdict in its favor. The question whether the insurance company exercised bad faith in the handling of the claims and conducting the settlement negotiations was for the jury to decide only “if the proof, in the light of all the relevant circumstances, and inferences to be drawn, is such as to leave a reasonable basis for disagreement among reasonable minds.” Southern Fire & Casualty Co. v. Norris, 1952, 35 Tenn.App. 657, 670, 671, 250 S.W.2d 785, 791.
Prior to the accident Wood lived in Alamo, Tennessee. He was acquainted with Sewell Avery’s brothers Frank and James Avery and in November, 1957 he was in partnership with them in a garage business. A week or two prior to the accident Wood talked with Sewell Avery about getting a job in Memphis, and as a result of that conversation drove there on May 10, 1957 in his 1953 Ford automobile (which was “souped up” for drag racing). Wood stayed at the Avery home in Memphis while he was in that city. During his stay he was offered a job by a man who employed Mrs. A very, and accompanied Mr. Avery and his wife’s employer to the stock car races on Saturday night. He departed for his home in Alamo in his automobile sometime after midnight Sunday. Mrs. Avery drove her car, accompanied by Mr. Avery, to direct Wood through the city to Route 70, as Wood was not acquainted with the streets in Memphis.
They were proceeding west on Park Avenue, a four lane highway, in Memphis. The Avery car was in the curb lane. Wood occupied the lane next to the center line of the road and was along side of the Avery car. Both cars were being operated at about 20 to 30 miles per hour. Suddenly Wood cut his car to the right and collided with the left front side of the Avery car, which crashed into a light pole on the side of the road.
Police Officers Owen and Crawford arrived at the scene of the accident shortly thereafter. The police report, prepared by Officer Owen, recites:
“Vehicle No. 2 [Avery car] west on Park in curb lane, No. 1 [Wood car] west in the center lane. Vehicle X — according to drivers in Vehicles 1 and 2 also passenger in No. *392, was east on Park and came across center line to wrong side of street heading head on at No. 1. Vehicle No. 1 hit brakes and was forced to pull to his right to avoid X vehicle, and in doing so his right side struck the left side of Vehicle No. 2. No. 2 was forced to the right and went up a private drive and with the front of Vehicle No. 2 struck a telephone pole.”
The first account of the accident given by Therion Wood to anyone connected with this litigation was on May 16, 1957. At that time Theo Leathers, an adjuster for appellant, took a statement from Wood, in which he stated:
“We were driving north on East Parkway1 at 20-25 miles per hour. Mr. and Mrs. Avery were even with me in the right lane. We were meeting only one southbound car. It was in the lane next to the center line. He was 50-60 feet away when he started crossing the center line into my lane. It was dark and head lights were burning on all cars. I thought the car meeting us would pull back in his lane but he kept in my lane. I was forced to pull to my right or collide head on with the car meeting me.
******
“I think the accident was caused by the car crossing the center line and forcing me over. There wasn’t anything I could do. If I hadn’t swerved I would have struck the car headon.”
On November 13, 1957 Mr. Don G. Owens, attorney for the insurance company who defended Wood in the Avery suits, took a statement from him. The statement was re-read and signed by Wood on February 12, 1958, the day the trial of the Avery eases in the Circuit Court of Tennessee commenced. That statement recites:
“We met a car going the other way which came over on my side suddenly and blinded me. I had to pull to my right to keep from being hit head-on by the car meeting us. * * * After I turned to my right suddenly to miss the other car and hit the Avery car, I pulled away from it and there was room for Mrs. Avery to straighten out her car and miss the post. When the car we were meeting pulled over in front of me we were going 25 to 30 miles per hour. The car meeting us was going from 50 to 70 miles per hour. * * * The accident was not my fault and Mrs. Avery and Vinson Avery and myself told the police it was not. I was not given a ticket.”
On May 17, 1957 Mrs. Avery gave a statement to an insurance company representative. In it she said that “I seen this car meeting us about 200 yards away, driving east pull across the center line and was meeting Therion head-on”, and “Therion did not have any place to go to keep from getting hit”, “but Therion could not help hitting us.”
A statement was taken by the insurance company from Sewell Avery on May 14, 1957. In it he stated:
“I saw a car meeting us and was over the center line of the street meeting the car that was to my left [Wood’s car] headon. Instead of the car to my left slowing up and trying to get in behind my car, he tried to pull in front of my car and pulled into the right front fender of my car. * * *
“P. S. The Wood’s boy stated that he could have avoided the wreck by backing up instead of speeding up.”
The question of Sewell Avery’s sobriety on the night of the accident was considered to be of importance by attorney Owens. He felt that if Mr. Avery was intoxicated at the time of the accident he might be considered contributorily negligent. This was predicated on a theory that Mr. Avery’s injuries resulted *40from his being seated with his head and left arm in the window on the passenger’s side of the car; that he was seated in that abnormal manner because he was drunk; that his drunkenness was contributory negligence.
In this regard, in his statement of May 16, 1957 Wood said “Vinson had been drinking.” He amplified on this in his statement to attorney Owens, wherein he claimed:
“Vinson Avery and his wife’s boss were drinking and Vinson got pretty well drunk. After Mrs. Avery’s boss left, the Averys and I sat around until about midnight and Vinson had two or three more shots of whiskey * * * Mrs. Avery was driving because Avery was drunk. He was sitting with his head in the window because he was probably sick. * -* *»
The police report contained no mention ■of Mr. Avery having been intoxicated. However, in investigating the accident attorney Owens was told by Officer Owen that Avery was in fact intoxicated.
Wood was cautioned by the insurance company against giving any statements regarding the accident. Notwithstanding this, on May 23, 1957 Wood was visited by Mr. Avery and his attorney, accompanied by a stenographer, and voluntarily gave a statement. He said that he first saw the oncoming car 150-200 feet away, but delayed his actions until it got closer to him in order to see what he was going to do. In answer to various questions he stated:
“I pulled over and I tried to come ahead and I didn’t make it.”
“If I had fell behind I could have made it.”
“If I had given it a second, I might have made it.”
His final words on the accident were as follows:
“Q. You think if you had got behind, you would have avoided the accident? A. Yes.
“Q. At that time, where was the front of your car, even with the front of the Avery car? A. When I saw the other car.
“Q. Yes. A. I would be afraid to say, but it seemed to me like I was a little behind. I was picking up speed when I hit him.”
The insurance company was aware of the existence, and content, of this statement at the time the cases against Wood went to trial.
At the trial of the injury cases in the Circuit Court of Tennessee, Therion Omer Wood was called upon to testify in his own behalf. The sum and substance of his testimony in that case can be derived from his testimony in the present action.
“Q. Now, when you testified in the Circuit Court, you told the jury down there you could have avoided the accident either by pulling up or by dropping back, didn’t you? A. I said by dropping back I could have avoided it.”
On the matter of Sewell Avery’s intoxication, Wood partially retreated from the assertions he made to the insurance company. He testified that he did not know whether Avery was drinking whiskey or beer, and that he didn’t see Avery drinking anything after 7:30 p. m. The general import of his entire questioning on the matter of Sewell Avery’s intoxication is reflected in the following question and answer given during this trial.
“Q. Now, you also told them [the jury], did you not, that you did not know whether Avery was drunk or not, didn’t you? A. I said it then, didn’t know whether Avery was drunk or not.”
To this picture of the facts in the possession of the parties prior to the trial of the injury claims, and the actual testimony at the trial, the Tennessee law on bad faith is to be applied.
The following general propositions are derived from a synthesis of the Tennessee decisions on this question.
An insurer is not required, at its peril, to settle any and all claims which may be asserted against its insured irrespec*41tive of their merit. It may choose to litigate the claims and to contend that its insured was not negligent and in no way liable therefor. In exercising such right, it must do so in good faith and upon its honest belief that there is no liability. Stated conversely, bad faith implies the idea of a willingness to gamble with the insured’s money, or an intentional disregard of the financial interest of its insured, and in the mere hope of escaping full liability.
Good faith also requires the insurer to investigate a claim to such an extent that it would be in a position to exercise an honest judgment as to its merits and determine whether or not it should be settled. The vital question is not what the actual facts were, but what facts were known to the insurer, as a result of such an investigation, which it should have taken into account in determining whether or not a settlement should be made.
If the insurer dealt fairly with the insured and acted honestly and according to its best judgment it would not be liable. Errors or mistakes of judgment do not constitute bad faith. The insured likewise has a correlative duty to the insurer to exercise good faith and to act fairly towards it.
While the insurer may consider and protect its own interest it has no right to sacrifice or abandon the interest of its insured. But the insurer is under no duty to settle within the policy limits simply because such a settlement could be made if to continue to resist or fight offers a fair and reasonable prospect of escaping liability under its policy or of getting off for less than the policy limit.
The only decision of the Tennessee Supreme Court cited by either side is Ay-cock Hosiery Mills v. Maryland Casualty Co., 1928, 157 Tenn. 559, 11 S.W.2d 889, 892. It arose from an extremely tangled web of facts concerning a claim for Workmen’s Compensation. In that case the court said:
“An insurer assuming under its policy to control litigation against the insured must act in good faith and with reasonable diligence and caution. Douglas v. [United States] F. & G. Co., 81 N.H. 371, 127 A. 708, 37 A.L.R. 1477. That obligation attended the contract, and liability for breach of the obligation arises out of the injurious conduct of the insurer who assumed to act under the contract.”
Two decisions of the Tennessee Court of Appeals and three decisions of federal courts applying Tennessee law have been cited on the specific problem involved in the present case. There is one prevailing thread running throughout. In each the insured’s liability for the personal injuries was so clear as to raise no reasonable probability of his escaping liability.
In Tennessee Farmers Mutual Ins. Co. v. Hammond, Tenn.App., 1957, 306 S.W.2d 13, the insured’s automobile ran up the steps of a building injuring persons ascending the steps. The majority opinion therein was based on the premise that the insured’s liability was clear cut, on either of two allegations of negligence. On this basis it was held that the case was properly submitted to the jury on the issue of bad faith. A lengthy dissent was entered though, on the theory that the insured’s liability had not been free from doubt. To the dissenter a serious question of the obviousness of the insured’s inescapable negligence existed at the time the injury actions were tried. This being true, he said, no Tennessee authority warranted submission of the bad faith case to the jury.
A similar division of opinion existed in Southern Fire and Casualty Co. v. Norris, 1952, 35 Tenn.App. 657, 250 S.W. 2d 785. The majority found that the insurance company had before it evidence that the plaintiff in the injury action could show a condition of permanent disability, and that a great preponderance of the evidence would show a case of liability. The injured person had several eye-witnesses to the accident whose testimony corroborated his version, while the defendant had only a *42rather far-fetched story to tell in the hope of avoiding liability. On facts as strong as those one judge dissented, on the theory that the insured’s liability was still not so clearly established as to stigmatize the actions of the insurance company in failing to settle as being done in bad faith.
The decisions of the federal courts before-mentioned on this question are Noshey v. American Auto Insurance Co., 6 Cir., 1934, 68 F.2d 808; Vanderbilt University v. Hartford Accident & Indemnity Co., D.C.Tenn., 109 F.Supp. 565 affirmed 6 Cir., 1954, 218 F.2d 818 and Roberts v. American Fire and Casualty Co., D.C.Tenn., 89 F.Supp. 827 affirmed 6 Cir., 1950, 186 F.2d 921. In each of the cases the facts established, and the Court found, that the insured had no reasonable probability of escaping liability in the original negligence action. Accordingly, the bad faith questions were properly considered in the later actions.
On the basis of the foregoing decisions it appears that the law of Tennessee is that bad faith cannot exist when there is a reasonable probability that the insured will not be found negligent, or that recovery against him may be held below the policy limits. This rule may now be applied to the instant factual background.
The principal defenses upon which counsel intended to rely in the actions against Wood were sudden emergency and contributory negligence as to Sewell Avery.
On the matter of sudden emergency, counsel had the two statements of Wood himself in which he absolved himself from liability and stated the accident was unavoidable. The police report of the accident was in accord with Wood’s statements. Mrs. Avery in her statement also said that Wood had no place to go and could not avoid hitting her.
The physical facts supported the conclusions contained in the statements. Wood stated that the unknown vehicle was travelling at about 50-70 miles per hour and that he was travelling about 25-30 miles per hour. Taking the minimum speeds, the vehicles were approaching each other at 108 feet per second, and at the máximums at 144 feet per second. For the sake of argument an average figure of 126 feet per second will be adopted. Wood told the insurance company he first saw the oncoming vehicle 50-60 feet away. This would mean he had less than one-half second to react in order to avoid a headon collision. In his statement to the Avery’s attorney Wood fixed the distance at about 200 feet. Even at that distance he would have had under two seconds to get out of the path of the oncoming vehicle. It is true that in her statement Mrs. Avery fixed the distance at 200 yards, but she said that she was not a good judge of distance, and thereafter denied having stated any definite distance in feet.
With this information at hand attorney Owens stated that “I thought he [Wood] was a typical and classical example of the defense of sudden emergency.” 2 It is true that he was aware of the somewhat contradictory statement given by Wood to the Averys’ attorney, and the hearsay declaration in the statement taken from Sewell Avery that Wood *43had said he could have avoided the accident by dropping back. However, the conclusion that the accident could have been avoided was conjectural and difficult to reconcile with the physical facts, and Wood had affirmed his statement absolving himself of liability on the day the trial of the injury actions began in the State Court. Here, it may be noted that at no time did Owens recommend to appellant that it settle the cases.3
The defense predicated on Sewell Avery’s intoxication rested on a weaker factual foundation. There was only Wood’s statement and that of Officer Owen that Avery was intoxicated. No police or hospital records reflected that fact.
This was the status of the appellant’s knowledge prior to trial. It is my opinion that on these facts it must be said that there existed, under the emergency doctrine, a reasonable probability of absolving Wood from liability for negligence.
As it turned out, both of the defenses collapsed in the Circuit Court. The insurance company argues that this was due in no small part to the fact that Wood did not testify in accord with his previous statements to it. Whereas Wood had always maintained to the insurance company that he could not have avoided the accident, he admitted to the jury that he could have.
The Court quotes testimony of attorney Owens on cross-examination to the effect that there were no material discrepancies in Wood’s testimony and that he “went down the line” with his story. This should be supplemented by the following question and answer of attorney Owens:
“Q. And you just said that it wasn’t a material variance. A. It was enough to lose his case, and of course that is confirmed. It was not only my opinion.”
Attorney Owens statements, in his letter to the Claims Supervisor that Wood’s testimony “was not what we hoped it would be” and that Wood was “reluctant to * * * indicate that it actually forced him into the Avery vehicle” strike me as not being an overstatement in view of the fact that Wood, in his testimony in the trial of the injury actions virtually admitted his own negligence.
Mrs. Avery claimed that her statement was inaccurately taken, and that she signed it without reading it. Her testimony in the Circuit Court on the material facts was likewise at a variance with the recitals contained in her statement. The Court considers her statement to be of no evidential value whatever, due to her repudiation of it at this trial. There is no evidence in the record that the “Home Office” of the insurance company or attorney Owens were cognizant of the falsity of the statement and of Mrs. Avery’s ignorance of its contents, as she claimed. In evaluating the advisability of settlement those persons charged with making the decision could only consider a signed statement of said plaintiff absolving the insured from liability. Bad faith cannot be attributed to their failure to take into account that Mrs. Avery at the trial might change her signed statement.
On the issue of intoxication, Wood’s testimony in the Circuit Court was equivocal, whereas to the insurance company he had taken a firm stand. He failed to back up his original version of the extent and nature of Sewell Avery’s drinking on the night of the accident. Officer Owen did testify that in his opinion Avery was drunk at the time of the accident. However, Police Lt. Murphy M. McCrary testified on behalf of the Averys, and it developed that he was in fact the first officer at the scene of the accident, although his name did not appear on the police report. Wood never *44told the insurance company or counsel of having seen or spoken with Lt. McCrary. The lieutenant testified that in his opinion Sewell Avery was not intoxicated when he saw him. Both Mr. and Mrs. Avery testified that he was completely sober.
It was on this evidence that the verdicts against Wood were returned in the injury cases. It is an inescapable conclusion that the reasonable probability of Wood escaping liability that existed at the outset of the trial dissolved in the acid bath of the testimony actually given therein which was inconsistent with the prior statements in the possession of the insurance company.
Based on the inconsistency of Wood’s testimony to his statements, and the testimony of attorney Owens to the effect that Wood failed to cooperate in the defense of the actions in the Circuit Court, the trial judge in this action submitted to the jury the question of whether Wood had fulfilled his duty of cooperating with the insurance company.4
Before going on, an interesting paradox is presented here. Wood claimed that he did not know he was in fact making a statement at the time he was visited by the Averys’ attorney. The record shows that he was introduced to the stenographer and that it was explained to him that she was going to record his answers. The explanation for this was that Mr. Wood had only an eighth grade education, carrying with it the inference that he was of limited intelligence. For one with such an intellectual background he showed a remarkable presence of mind in attempting to protect himself from an excess judgment. Not only did he personally maintain the position that the appellant should settle the Averys’ claims, but he went so far as to have Mr. Robert G. McLean, an attorney in Alamo, Tennessee, write attorney Owens six days before the trial of the injury actions began making demand on Wood’s behalf that the cases be settled within the policy limits and stating that in the event they were not settled Wood would look to appellant for any judgment in excess of his policy limits.5 It is interesting to note that while Wood was familiar with the legal concept of excess of liability for a bad faith failure to settle he apparently didn’t know the correct name of his insurance carrier, having advised attorney McLean that it was “Farm Bureau.” However, I must consider the matter on the basis that the idea originated with Wood, although it may also be noted that some three months earlier the Averys’ attorney had cited the Hammond decision to attorney Owens in a letter setting forth their demands for settlement.
In the cases of Hall v. Preferred Accident Ins. Co., 5 Cir., 1953, 204 F.2d 844, and State Auto Mutual v. York, 4 Cir., 1939, 104 F.2d 730, it was held that where the insured gave inconsistent statements to his insurance company a claim of bad faith failure to settle would not lie. The principle of the York case is applicable here. In that case suit was *45brought both to compel payment of the stated policy limit and also to recover the amount of excess judgment for a bad faith failure to settle. As to the action on the policy itself the insurance company set up the defense of collusion. The insured’s original statement was to the effect that the accident was unavoidable, but as the personal injury trial grew near, and at the trial, he changed his story so as to indicate probable negligence on his part. The court held, in the action against the insurance company for excess liability, that as the evidence in that action was sufficient to frame a jury issue on the question of collusion “it cannot be said that the defendant was acting either in bad faith or negligently in refusing to accept the offer of settlement made by plaintiff.” id. at page 734. By analogy, where there was sufficient evidence on the question of lack of cooperation, in part based on the variance between Wood’s statements and testimony, to take the matter to the jury, it cannot be said that the insurance company was acting in bad faith in failing to settle.
Taken in this frame of reference the action of the insurance company in rejecting the offers of settlement, and the statements by its representatives made in conjunction therewith, cannot operate to make this case one of liability for a bad faith failure to settle.
Without going into any extended recital of what was said and done by appellant’s representatives, suffice it to say that in the context of this entire controversy, for the most part, they manifested the position that the insurance company was not going to settle for its full policy limits in a case which they felt presented a doubtful question of liability. This is more a reflection of sound business judgment than of bad faith.
Reference was made to a letter sent to Wood concerning the possibility of a verdict in excess of the policy limits. This was explained quite simply. In every case in which one of appellant’s insureds is sued for an amount in excess of his policy limits he is advised of that fact and informed that he may retain counsel of his own choosing to represent him as to any uninsured liability.
Appellee also relies on testimony of Wood as to a conversation with adjuster Leathers in September 1957, in which Leathers “told me he was afraid Mr. Avery and them was going to get more than the policy covered” and as to anything over the policy “you are going to be held responsible for it.”
This must be considered in the light of the letter written by attorney Owens to the insured with respect to the right of the latter to engage his own attorney to represent him as to his uninsured liability. There was nothing in the statement adjuster Leathers had originally taken from Wood to indicate any liability, much less a probability as distinguished from a mere possibility, which would result in a substantial judgment against Wood. And it must be remembered that attorney Owens had never recommended settlement in these cases to the insurance company, although it had been his practice to make such recommendations when the case warranted, which he testified were usually adopted by his client.
The Court’s attention is also drawn to a statement made by attorney Owens to Wood, following the rendition of the jury verdicts in the Avery suits, which is characterized as “callous” and reflective of appellant’s general bad faith. While the statement is susceptible of several interpretations, one could hardly expect attorney Owens to greet Wood with open arms feeling, as he did, that Wood had “thrown” a case that should have been won.
In the final analysis, it is my opinion that the Court has extended the possibility of finding bad faith on the part of an insurance company into an area where no such dereliction of duty properly exists. The day the trial of the per*46sonal injury actions commenced the insurer was possessed of statements by its insured, a statement by a plaintiff and a police report indicating a no liability case. The police report stated that the two claimants had confirmed the fact that a vehicle came across the center line of Park Avenue and was coming headon at Wood’s car. It was also aware of another statement by its insured which indicated possible negligence and a hearsay statement by another claimant (the one who recovered the verdict in excess of the policy limits) to the same effect. The physical facts supported a conclusion of unavoidable accident. To hold that under those circumstances a jury may speculate on whether the insurance company was guilty of bad faith leaves me with the fear that the door is being opened to assertions of bad faith in almost every case involving excess claims, except where the proofs in the hands of the insurance company establish an iron-clad defense to an action against its insured. It would operate to extend the policy limits beyond the protection which the insured paid for. It is, in my judgment, a retreat from the “reasonable probability” test adopted by the Tennessee courts.
In my opinion, Wood should be bound by the two signed statements he gave to the insurance company, the latest being on the very day of the commencement of the trial of the injury cases in the Circuit Court of Tennessee. In both of these statements Wood asserted that he could not have avoided the accident and completely absolved himself from all blame. I am not in favor of compensating him since he either misled the insurance company (if his statements were inaccurate or incomplete) or the court and jury (if his statements were true).
In pointing out the duty owing by the insurer to the insured, I do not think we should overlook the correlative duty owing by the insured to the insurer to cooperate with the insurer instead of the claimant and above all to be truthful.
I would reverse the judgment below.

. He later corrected this, stating he was in error in saying East Parkway, as the accident in fact did occur on Park Ave.

. The record shows that in the trial of the present action in the District Court attorney Owens was cross-examined with reference to his knowledge of and participation in the Hammond case in the Tennessee courts. In the course of his cross-examination, questions were asked which brought out that the defense in the Hammond case was also sudden emergency, that they failed to prevail upon it in the injury action and that the insurance company was thereafter held liable for an excess verdict. This examination was objected to, but has not been assigned as error in this Court and accordingly cannot be considered as a ground for reversal. The success or failure of appellant with respect to defenses raised by it in unrelated cases with different parties in other courts had no bearing on any factual issue in the present case. The injection of such irrelevant matter in the present case could operate only to inflame or prejudice the jury against appellant.

. Two reputable and experienced trial lawyers of the Tennessee bar testified in behalf of appellant as expert witnesses. Each gave his opinion in answer to a hypothetical question that there was no negligence or bad faith on the part of the appellant in the handling of the case. One of them testified that he would not have recommended that the settlement demand be paid.

. It would appear from Ms charge that the District Judge submitted this issue as an affirmative defense to an action on the insurance contract. He also stated at the beginning of Ms charge that “this * * * is a breach of contract suit against the defendant.” In my judgment, an action of this nature is one sounding in tort. The insurance company had no contractual obligation to settle the claims and could only be held liable on a finding of bad faith, a tortious course of conduct. However, no exception was taken to these portions of the charge. Properly, the matter of cooperation should have been submitted to the jury as an element to consider in determining whether the insurance company acted in bad faith.

. At the time attorney McLean wrote attorney Owens, McLean had no knowledge of the facts of the accident. He did not see Mr. Wood at all, only speaking with Mm over the phone, and never saw or spoke to him again after writing the letter. In response to the letter from attorney Owens inquiring if he had any knowledge of the facts of the accident attorney McLean replied, “If Wood states that he is or was not negligent, of course I can understand why you could not recommend a settlement.”