Court Opinion

ID: 9459378
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:19:03.428322+00
Date Added: 2024-06-11T17:36:08.636153
License: Public Domain

STEPHENSON, Circuit Judge, with whom GIBSON and BRIGHT, Circuit Judges, join,
concurring and dissenting.
We concur with the majority in affirming the trial court’s finding of coverage. We dissent on the excess liability issue.
We specifically reject the contention that South Dakota would apply the rule of Comunale1 which it is claimed holds that an insurer who denies coverage does so at its own risk, and, that a good-faith-but-mistaken declination of coverage followed by a refusal to consider a settlement offer within the policy limits makes the insurer strictly liable for the amount of any judgment rendered against the insured including the excess over the policy limits.
It is our view that the ultimate test to be applied under South Dakota law in determining whether an insurer is liable for damages in excess of the policy limits is, “was the insurer guilty of bad faith in refusing to settle within the policy *1027limits?” Kunkel v. United Security Ins. Co. of New Jersey, 84 S.D. 116, 168 N.W.2d 723 (S.D.1969). This is a fact question to be determined from all the circumstances and elements involved in a particular case. Kunkel, supra,, at pp. 726, 730; see also, Dairyland Insurance Company v. Hawkins, 292 F.Supp. 947 (S.D.Iowa 1968); Landie v. Century Indemnity Company, 390 S.W.2d 558 (Mo.App.1965). In determining the issue of bad faith in refusing to settle within the policy limits the trier of fact is entitled to consider, among other factors, the good faith of the insurer in refusing to defend because of the circumstances indicating lack of coverage. “Obviously, in considering its own interest the insurer may, in good faith, determine whether, under the circumstances, it would be held liable at all, i. e., whether there is coverage” Beck v. Pennsylvania National Mutual Cas. Ins. Co., 429 F.2d 813, 819 (CA5 1970). The refusal to defend and refusal to settle within the policy limits are often interrelated. See, Gordon v. Nationwide Mutual Ins. Co., 30 N.Y.2d 427, 334 N.Y.S.2d 601, 285 N.E.2d 849 (1972); National Service Fire Ins. Co. v. Williams, 454 S.W.2d 362 (Tenn.App. 1970). In the latter case the Tennessee Court of Appeals in reversing the trial court held that the insurer did not act in bad faith in refusing to defend and settle within the policy limits where the insured named in the policy unequivocally stated that the defendant driver did not have permission to drive the insured’s automobile at the time of the accident. The trial court found from other evidence that the driver in question did have permission to drive and that the insurance company acted in bad faith in refusing to defend and in refusing to consider or make settlement. In reversing the appeals court observed:
“We think an insurer, under circumstances such as depicted in this case, is justified in accepting as true the information given it by its named insured which has a bearing on the liability of the insurer under its policy, and that the insurer can act reasonably on the basis of the information without being guilty of bad faith.”
The above case demonstrates the fundamental unfairness of a “refusal to defend at your own risk” doctrine.
In the matter at hand the trial court held as a matter of law that the defendant was not guilty of bad faith in its denial of coverage and refusal to defend, and therefore, denied the claim for damages in excess of the policy limits. 325 F.Supp. at 1334. It is our view that the controlling issue is whether the insurer’s refusal to settle was in bad faith and that the good faith refusal to defend must be considered along with all other circumstances in making a finding with respect thereto. We would remand for a determination of that issue by the trier of fact.

. Commuale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198, 68 A.L.R.2d 883 (Cal.1958).