Court Opinion

ID: 9699877
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:54:37.253603+00
Date Added: 2024-06-11T18:20:03.208244
License: Public Domain

On Rehearing
PER CURIAM.
We have been urged to extend the opinion in this cause as to the application of the rules of negligence and bad faith and as to the effect of the opinion upon the liability of attorneys representing the insured upon appointment by the insurer. We first consider negligence and bad faith in cases of this nature.
There is a field of operation for both aspects of liability: that is, negligence in one, and bad faith in the other. We cannot set aside the principle of liability for negligently performing a contract as set forth in the opinion supra. It may arise when an insurer is engaged in performing his contractual duty owing to the insured to defend the suit. The law raises a duty not contractual, but by reason of the contract, to exercise ordinary diligence in doing so. A failure to exercise ordinary diligence proximately causing damage to the insured is actionable in tort. The contract of insurance gives the insurer the exclusive right to make a settlement of the claim against insured. That right imposes a corresponding duty raised by law to observe ordinary diligence in performing that power, when in the exercise of it. So that, when an opportunity is presented to the insurer to make a settlement of the claim *261in an amount not more than the limit of liability, the law raises a duty on his part to use ordinary care to ascertain the facts on which its performance depends if he has not already done so. If the insurer neglects to exercise ordinary diligence in ascertaining these facts, if he has not already done so, and as a proximate result of such neglect he fails to make such a settlement, which is available, and when such knowledge would have caused a reasonably prudent person to do so, and a verdict and judgment are rendered against insured in an amount more than the limit of liability in the policy, the insurer should be held liable to the insured for the full amount of the judgment.
If the insurer has already made the investigation and ascertained the facts, to which we have referred supra, and refuses to make such proffered settlement, if such refusal is due to the honest judgment of insurer that the facts do not warrant such a settlement, and the insurer was not negligent in the manner of defending the suit, he would not be liable to insured for an amount in excess of the limit of liability provided in the policy, although the verdict and judgment were in excess of it. But if such refusal to settle under those circumstances is the proximate result of bad faith on the part of the insurer, he would be liable for the full amount of the judgment,, notwithstanding it is in excess of the limit fixed in the policy.
We have been speaking of the duty and liability of the insurer and not of his attorney. Of course the attorney must exercise ordinary diligence and skill throughout. That imposes a duty on him to inform the insurer of a proposal of the plaintiff to settle within the limit of the liability. Whether or not he does so in fact, the insurer is charged with the notice to him which he received in the course of his employment the same as if he had in fact so notified the insurer. Silvey & Co. v. Cook, 191 Ala. 228 (6), 68 So. 37; Wiggins v. Stewart Bros., 215 Ala. 9, 109 So. 101; Dumas v. Hartford Accident & Indem. Co., 94 N.H. 484, 56 A.2d 57. The attorney owes no duty to the insured in that connection. If he fails to notify the insurer as his employer, the issue is between them alone, for as to the insured the status is as though the attorney had so notified the insurer.
The question is whether there was a failure of the insurer to perform his duty to the insured, having the information which his attorney had. That question has been discussed above.
In the instant case the evidence is without dispute that—
(1) The offer of settlement was handed to Mr. Yancey during the second day of the trial.
(2) He did not have authority to settle nor did anyone in Birmingham have such authority.
(3) He and his partner discussed the offer of settlement after court had adjourned on the second day of the trial and concluded that the case was one that ought to be tried and should not be settled.
(4) Having reached this conclusion he did not notify the insurer of the offer because he was not willing to recommend its acceptance.
As stated above, the action of Mr. Yancey, acting within the line and scope of his employment, was the action of his client, the insurer; therefore, the question of good faith was properly left to the jury.
Nothing in this opinion is to be construed as holding or inferring that a mere mistake in judgment on the part of an attorney in recommending the acceptance or rejection of a settlement would constitute negligence or bad faith.
Opinion extended and application for rehearing overruled.
All the Justices concur except CLAYTON, J., not sitting.