Court Opinion

ID: 9741046
Source: CourtListenerOpinion
Date Created: 2023-08-26 20:48:37.949852+00
Date Added: 2024-06-11T07:24:21.865317
License: Public Domain

Todd, Justice
(dissenting).
I dissent from that part of the majority opinion reducing defendant’s liability to the policy limits. The majority sustains the trial court’s findings that the defendant acted improperly in re*213fusing to undertake the tendered defense of its insured. I would, based upon the factual distinctions of record here, hold defendant responsible for the full amount of the damages by virtue of its refusal to defend and the resulting exposure of the insured to possible legal proceedings to recover the excess of the judgment over the policy limits.
At the outset, it is noteworthy that the amount of the settlement has never been challenged by the insurer. The burden of raising this issue is on defendant insurer and since it failed to do so we should conclude as a matter of law that the settlement is reasonable. Butler Bros. v. American Fidelity Co. 120 Minn. 157, 139 N. W. 355 (1913).
The majority opinion is premised on our holding in Mann-heimer Bros. v. Kansas Cas. & Surety Co. 149 Minn. 482, 184 N. W. 189 (1921). The California court in Comunale v. Traders & Gen. Ins. Co. 50 Cal. 2d 654, 659, 328 P. 2d 198, 201 (1958), in commenting on our Mannheimer case, said:
“The decisive factor in fixing the extent of Traders’ liability is not the refusal to defend; it is the refusal to accept an offer of settlement within the policy limits. Where there is no opportunity to compromise the claim and the only wrongful act of the insurer is the refusal to defend, the liability of the insurer is ordinarily limited to the amount of the policy plus attorneys’ fees and costs. (Mannheimer Bros. v. Kansas Casualty & Surety Co. 149 Minn. 482 [184 N. W. 189, 191].) In such a case it is reasoned that, if the insured has employed competent counsel to represent him, there is no ground for concluding that the judgment would have been for a lesser sum had the defense been conducted by insurer’s counsel, and therefore it cannot be said that the detriment suffered by the insured as the result of a judgment in excess of the policy limits was proximately caused by the insurer’s refusal to defend. (Cf. Lane v. Storke, 10 Cal. App. 347, 350 [101 P. 937].) This reasoning, however, does not apply where *214the insurer wrongfully refuses to accept a reasonable settlement within the policy limits.” (Italics supplied.)
I am in accord with the last sentence quoted above and would so limit our holding in Mannheimer.
The California court also said (50 Cal. 2d 660, 328 P. 2d 201):
“Most of the cases dealing with the insurer’s failure to settle involve an insurer who had assumed the defense of the action against the insured. It is generally held that since the insurer has reserved control over the litigation and settlement it is liable for the entire amount of a judgment against the insured, including any portion in excess of the policy limits, if in the exercise of such control it is guilty of bad faith in refusing a settlement. (Brown v. Guarantee Ins. Co., 155 Cal. App. 2d 679, 682 [319 P. 2d 69]; Ivy v. Pacific Automobile Ins. Co., 156 Cal. App. 2d 652, 659 [320 P. 2d 140]; see anno., Duty of Liability Insurer to Settle or Compromise, 40 A. L. R. 2d 168, 178; Roos, A Note on the Excess Problem, 26 Cal. State Bar J. 355, 356.) Those cases are, of course, factually distinguishable from the present one since Traders never assumed control over the defense. However, the reason Traders was not in control of the litigation is that it wrongfully refused to defend Sloan, and the breach of its express obligation to defend did not release it from its implied duty to consider Sloan’s interest in the settlement.”
In the case of Seward v. State Farm Mutual Auto. Ins. Co. 392 F. 2d 723, 727 (5 Cir. 1968), the court said:
“* * * There is certainly a greater likelihood of a settlement if an insurance company is in a case than if the company is out of it. Moreover, there are alternatives to an insurer’s abandonment of an insured: a declaratory judgment action or defense of the suit with reservation of its right to deny coverage. In a sense, a judgment for the face amount of the policy rewards the insurer for its misconduct: such a judgment definitely limits its liability to the face of the policy and, at the least, saves attorney’s fees.”
*215Our court in Crum v. Anchor Cas. Co. 264 Minn. 378, 392, 119 N. W. 2d 703, 712 (1963), stated the rule to be applied in this situation, there saying:
“It must be kept in mind that in situations of this kind the insured who is sued has no control over the allegations of the complaint. We think the better rule is that, if the insurer is advised by the insured what he claims the facts to be or the insurer by an independent investigation ascertains that the facts are in conflict with the complaint and, if established, will present a potential liability on the part of the insured covered by the insurance contract, the insurer is obligated to undertake the defense. That rule does not prevent the insurer from seeking an independent determination of its liability to defend in an appropriate proceeding between the insurer and the insured.”
The majority opinion holds that defendant was obligated to defend in this case. In evaluating whether its determination not to defend was made in bad faith, I would add to the matters being considered the obvious value of having the insurer in the case from the beginning. The presence of a funded source is of enormous impact in any litigation and the denial of this leverage works to the substantial detriment of the insured.
Further, I fail to see any distinction where an insured undertakes a defense and wrongfully refuses an offer of settlement within the policy limits and the situation we have here. Plaintiff is proceeding under a statutory right, Minn. St. 60A.08, subd. 6, quoted in the majority opinion. There has been no assignment of rights by the insured. Consequently, there has not been the usual delivery of a covenant not to levy in exchange for the assignment of the insured’s rights to plaintiff. The effect of the majority decision is a partial satisfaction of the judgment, leaving the insured exposed to claims for the balance. Following judgment, defendant decided to appeal without advising the insured. In addition, plaintiff offered to settle within policy limits, *216together with interest, after the judgment was entered, but this offer was never communicated to the insured.
The fact that there exists an unsatisfied levy against the insured is immaterial. In Lange v. Fidelity & Cas. Co. 290 Minn. 61, 66, 185 N. W. 2d 881, 885 (1971), we said:
“* * * A judgment-proof insured suffers injury from a judgment against him in excess of policy limits because such a judgment will potentially impair his credit, place a cloud on the title to his exempt estate, impair his ability to successfully apply for loans, and may eventually require him to go through bankruptcy. Further, if the rule were that a judgment-proof insured suffers no injury from an excess judgment, an insurer’s responsiveness to its well-established duty to give equal consideration to an insolvent insured’s interests would tend to become meaningless.”
We further said (290 Minn. 68, 185 N. W. 2d 886):
“This obligation of counsel retained by the insurer is not fulfilled merely by an explanation which amounts to no more than assurances to the insured that his interests are being zealously and faithfully protected by experienced counsel, but rather by laying bare the truth — not only of the potential consequences of a deficiency judgment but of the potential conflict between the interests of the carrier and the insured — in the manner in which the insured would be advised if he consulted private counsel.”
Considering defendant’s refusal to defend initially, the insured’s lack of financial leverage during the initial trial, the failure of the insurer to seek declaratory relief, the questionable validity of its original denial, the offer of settlement within the policy limits, the failure to communicate the offer of settlement to the insured, the exposure of the insured to an excess judgment, and the failure to settle in a situation where the insurer placed its own interest above that of the insured, I would find bad faith as a matter of law and hold defendant responsible for the full *217amount of the judgment, which is reasonable in amount as a matter of law.