Court Opinion

ID: 9524111
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:50:02.166515+00
Date Added: 2024-06-11T13:08:52.511859
License: Public Domain

Lanphier, J.,
concurring.
Although I concur in the result, I believe that the majority incorrectly applies both insurance law and garnishment procedures.
As the majority states, the Torrisons sued Overman for negligent sexual assault of their two minor children. Overman’s insurance company, State Farm, refused to defend Overman. Overman entered into a stipulation with the Torrisons and consented to the entry of judgments against him which were subsequently entered by the district court. The Torrisons filed garnishment proceedings against State Farm to collect the amount of the judgments. The majority holds that the Torrisons had the burden to establish in their garnishment action that State Farm had property belonging to Overman and that the Torrisons should prevail unless the doctrine of collateral estoppel prevents State Farm from attacking the consent judgment. The majority then holds that the Torrisons failed to meet their burden, since they failed to raise the issue of collateral estoppel and failed to establish that State Farm was in privity with Overman.
*178I would apply the legal analysis found in Sims v. Illinois Nat. Cas. Co. of Springfield, 43 Ill. App. 2d 184, 193 N.E.2d 123 (1963). The facts are strikingly similar. The injured party, Ruark, was hurt while riding in a truck owned by his employer, Sims. Ruark sued Sims. Sims’ insurance company refused to defend because employees were excluded from coverage. A jury verdict was entered against Sims in favor of Ruark. Ruark then commenced a garnishment action against the insurance company to collect the amount of the judgment.
The Sims court stated that as a general rule, the duty of a liability insurer under a policy provision requiring it to defend an action brought against its insured by a third party is to be determined by the allegations of the complaint in such action. This is the rule in Nebraska. See, Allied Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 243 Neb. 779, 502 N.W.2d 484 (1993); Millard Warehouse, Inc. v. Hartford Fire Ins. Co., 204 Neb. 518, 283 N.W.2d 56 (1979).
Ruark’s petition stated a cause of action. Nothing in the petition’s allegations suggested an exclusion from the policy. “[I]n such a situation the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy.” (Emphasis in original.) Sims, 43 Ill. App. 2d at 192-93, 193 N.E.2d at 127. The insurance company had a duty to defend Sims, and by refusing to do so, it breached its insurance contract.
We have previously held that there is no cause of action for negligent assault and battery and that an insurance company has no duty to defend an action where such a claim is made. State Farm Fire and Cas. Co. v. van Gorder, 235 Neb. 355, 455 N.W.2d 543 (1990). Here, the Torrisons’ petition did not state a cause of action and was not within the policy’s coverage. State Farm had no duty to defend. See, Allied Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., supra; Millard Warehouse, Inc. v. Hartford Fire Ins. Co., supra.
Assuming, arguendo, that the Torrisons’ complaint had stated a case that was potentially within the policy’s coverage, State Farm would have had a duty to defend. See Allstate Ins. Co. v. Novak, 210 Neb. 184, 313 N.W.2d 636 (1981).
*179The Sims court examined the procedural aspects using a garnishment proceeding to recover a judgment from an insurer after a wrongful refusal to defend. The Sims court relied upon a previous case, Kinnan v. Hurst Co., 317 Ill. 251, 148 N.E. 12 (1925), involving an action on a creditor’s bill. The Sims court stated that the same rules applied to a garnishment proceeding, since it was designed to accomplish the same basic purpose.
In Kinnan, the insurer had wrongfully refused to defend its insured. Upon wrongful refusal to defend, a cause of action arose in favor of the insured against its insurer. At that point, the liability of the insurer became fixed and was liquidated when the injured party obtained a judgment against the insured. The injured party
had a right to have the indebtedness which gave rise to this cause of action applied to the payment of his judgment, not because of any privity between [the injured party and the insurer], but because of the right of any judgment creditor, under such circumstances, to have the property of his judgment debtor applied to the payment of his debts.
Kinnan, 317 Ill. at 261, 148 N.E. at 16. This concept clarifies the majority’s reference in this case to the lack of privity between Overman and State Farm. State Farm had no property belonging to Overman because its refusal to defend was not wrongful. Privity therefore is not an issue.
The Sims court addressed the garnishment pleadings to determine if the issues were properly raised. In its answers to the interrogatories, the insurer denied that it had property of the insured and raised an affirmative defense that its policy excluded coverage for employees. The court held such allegations to be immaterial. Pursuant to the Illinois rule, wrongful refusal to defend estops the insurer from later attacking the judgment.
Apparently, there is a split among jurisdictions as to whether an insurer in breach of its duty to defend is precluded from taking the position that the judgment or settlement did not involve a covered risk. 7C John A. Appleman, Insurance Law and Practice § 4689 (1979 & Supp. 1995); Sentinel Ins. *180v. First Ins. of Hawai'i, 76 Haw. 277, 875 P.2d 894 (1994). The Hawaii Supreme Court characterized the Sims approach as utilizing a form of estoppel as a punitive measure against insurers for wrongful breach of a contractual duty to defend and rejected its blanket application to all cases.
Implicitly, the majority follows the Illinois rule, but does so using a collateral estoppel analysis. Although the underlying principles are related, collateral estoppel is improperly applied by the majority.
White, C.J., joins in this concurrence.