Court Opinion

ID: 3192249
Source: CourtListenerOpinion
Date Created: 2016-04-07 17:03:40.63149+00
Date Added: 2024-06-11T14:28:48.595760
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

PAMELA I. MONTGOMERY,
Individually and as Adrninistrator
of the Estate of

THOMAS J. MONTGOMERY,
THOMAS K. MONTGOMERY,
JEREMY MONTGOMERY, and
HARRY I. MONTGOMERY,

Plaintiffs__,, C.A. No. N11C-11-047 AML

V¢

WILLIAM MOORE AGENCY, INC.,
LYNN M. HITCHENS, and
MID-STATE INSURANCE, INC.,

\/\/\/\/\y\J\/\J§/\_/§/\./\/\J\J\J§/

Defendants.

Date Submitted: March 7, 2016
Date Decided: March 31, 2016

MEMORANDUM OPINION

Upon Defendants’ M0ti0n for Summary Judgment
DENIED

Tirnothy E. Lengkeek, Esq., Young ConaWay Stargatt & Taylor, LLP, Wilrnington,
DelaWare, Attorney for Plaintiffs.

Thornas P. Leff, Esq., Casarino Christrnan Shalk RanSom & Doss, P.A.,
Wilmington, Delaware, Attorney for Defendant William Moore Agency

Krista R. Sarnis, Esq., Eckert Seamans Cherin & Me1lott, LLC., Attomey for
Defendant Mid-State Insurance, Inc.

LEGROW, J.

In their motion for summary judgment presently before the Court,
Defendants contend that a stipulation assigning to Plaintiffs certain claims for
negligence is either (l) unenforceable because the stipulation released the
assignors from liability for damages, thereby extinguishing any negligence claim,
or (2) void as the product of collusion. For the reasons set forth below, I conclude
Defendants are incorrect on both counts. Plaintiffs are entitled to pursue the
assigned claims in a jury trial scheduled to begin in a matter of weeks.
Back_ground_

The following facts are drawn from the record currently before the Court,
viewed in the light most favorable to the non-moving party. Mr. and Mrs. Poynter
(the "Poynters") own two businesses: Poynter’s Tree Farm ("PTF") and Christmas
Shop, Inc. ("CSI" and collectively with PTF, "PTF/CSI"). Their daughter, Robin
Achenbach, and her husband, Mark Achenbach ("Achenbach" and collectively
with Robin, the "Achenbachs") own property leased by the Poynters from which
the Poynters grow Christmas trees to supply their business. The Achenbachs also
worked at CSI during the holiday season..

On June 28, 2004, Achenbach used his personal vehicle to drive an
exterminator to and from the leased property in order to obtain an estimate for
spraying bug-infested trees with insecticides. On the way back to the

exterminator’s office, Achenbach drove directly in the path of a motorcycle driven

for a covenant not to execute in instances of failure to procure requested
insurance."” The Supreme Court of South Dakota concluded: "We fail to see why
legally it should make any difference who sues the insurer-the insured or the
insured’s assignee."”

Here, although the Montgomerys agreed not to execute or collect on the

judgment, the fact of the judgment itself has consequences. For example, potential
creditors will be able to discover the existence of the judgment. The Poynters will
not be released from the judgment until all efforts are exhausted to collect from the
various insurers or agencies. The fact that the Montgomerys will not execute on
that judgment does not alter those consequences. Under Starr, and similar cases, I
find that the Stipulation created a conditional release or a covenant not to execute,
not a present, operative release,

B. The Defendants have not demonstrated by a preponderance of the
evidence that the Stipulation was unreasonable or the product of bad
faith.

As a preliminary matter, it first is necessary to resolve the burden of proof

underlying the question of whether the agreement is unreasonable or collusive¢_

Although it was not raised in the briefs, the parties agreed on the standard during

oral argument: Plaintiff bears the burden of producing evidence that the agreement

52 1a
33 1a ar 637 (ciring Red Gzam 011 Co. v. Lawlor, 528 N.w.zd 524 (Iowa 1995)).
10

is "prima facie reasonable."34 The burden then shifts to the insurer to show, by a
preponderance of the evidence, that the agreement was "neither reasonable nor
reached in good faith."35 Several other courts have adopted that standard and,
since it was agreed upon by the parties, l will apply it here. In my view, Plaintiffs
have established that the Stipulation is "prima facie reasonable." Defendants have
not produced evidence of unreasonableness.

lt is evident, as Defendants reluctantly acknowledge, that the Poynters
continued to face the prospect of liability even after the 2009 Summary Judgment
Decision due to the possibility that decision would be reversed on appeal.% Given
the Montgomerys’ efforts to pursue an interlocutory appeal, it is reasonable to
conclude an appeal of the 2009 decision would have been filed after a final order
was entered in that litigation. lt also is reasonable to conclude there was at least a
fair prospect that appeal would have succeeded. As this Court explained in its
February 27, 2015 decision denying Defendants’ motion for summary judgment,
"there is substantial evidence from which a jury could conclude that Achenbach

was the Christmas Shop’s employee or agent."” This prospect of liability renders

34 Ayers v, C & D Gen. Comracr@rs, 269 F. Supp. 2d 911 (W.D. Ky. 2003) wiring Grzggs v_
Bertram, 443 A.2d 163, 173-74 (1082)).

35 .it_z_-_:;.i@,»,;; ass F.s~t;;z_;;_._zd ar 916.

361:[}13°.1*&='::&§ oral azi§;_zv_;§ij*a°ent, Defendants’ counsel acknowledged that the Poynters’ surrendered
defense"- the summary judgment decision - was not "absolutely winning;" see Mz`a'western
Ina'em. C0. v. Laikin, 119 F. Supp. 2d 831, 845 (S.D. Ind. 2000) (fmding an "absolute defense"
was not surrendered but agreeing that where an insured surrenders "an obviously winning
defense to all liability, that surrender would be evidence of bad faith or collusion").

37 Montgomery v. William Moore Agency, 2015 WL 1056326 (Del. Super. Feb. 2'7, 2015).

ll

reasonable the Poynters’ and PTF/CSI’s decision`to enter into the Stipulation. The
burden thus shifts to Defendants, who have failed to establish by a preponderance
of the evidence that the Poynters’ and PTF/CSI’S concession of liability and
assignment of their claims in exchange for the conditional release was either
unreasonable or the product of bad faith. Defendants’ evidence of collusion is: (1)
the fact that summary judgment was granted to the Poynters and PTF/CSI; (2) the
familial relationship between the Poynters and Achenbachs; and (3) the two-year
window between the 2009 Summary Judgment Decision and the Stipulation,

The Poynters may well have wanted to shield their daughter and son-in-law
from liability, but little discovery was taken on the issue and the Defendants
adduced no evidence of collusion from the discovery they did take. For example,
Defendants deposed the Poynters’ personal counsel, who negotiated the
Stipulation, but Defendants point to no evidence of collusion from that deposition..
lt appears the two-year delay between 2009 and 20ll was attributable to the
Montgomerys’ change in counsel, rather than any collusive intent by the parties to
the Stipulation. lt also is significant that the concession of agency by the
Achenbachs, Poynters, and PTF/CSI is not binding on Defendants and will not be

offered into evidence at trial by the Montgomerys. Thus, Defendants remain free

12

to contest agency at trial, an issue this Court already has determined is a disputed
fact that must be submitted to the jury.38

Contrary to Defendants’ argument, my conclusion that the Stipulation and
assignment are valid and enforceable does not contravene public policy. Public
policy favors allowing insured parties to act in their best interest.39 An insured
"must be allowed to consider all available options-particularly if the possibility

1340

exists that the insurer will be absolved from providing coverage. Facing the

possibility that the 2009 Summary Judgment Decision would be overturned on
appeal and they would be left with a substantial judgment against them, the
Poynters behaved rationally. Defendants are in no worse position by the Poynters’
decision than Defendants would have faced if the summary judgment decision had

been overturned on appeal.

38 ld.

39 See Mz`ller v. Shugart, 316 N.W.Zd 729, 733-34 (Minn. 1982) ("If as here, the insurers are
offered a settlement that effectively relieves them of any personal liability, at a time when their
insurance coverage is in doubt, surely it cannot be said that it is not in their best interests to
accept the offer. Nor, do we think,_ can the insurer who is disputing coverage compel the
insureds tf;€~i~--§I"»?§re go a settl§tti:¢if’tz£=_"»_>i_»".’§:ii£~‘}l:` i-z'-z  their best iz°'§x*);i.*lz"t.->_-Sts.").

"° Ayers,  F.supp.zd at :~"§11z-c2009 WL 4068l0 (Del. Super. Jan. 23, 2009).
: Montgomery v. Achenbach, 966 A.2d 348 (Del. 2009) (TABLE).
Ia’.
4 A copy of the Stipulation is attached to Defs.’ Mot. Summ. J. as Ex. E. ("Stip.").
2

In the Stipulation, the parties agreed there was no dispute as to liability,
causation, or agency. The only issue before the arbitrator, therefore, was a
determination and award of damages to the Montgomerys. The Montgomerys,
however, agreed not to "execute, garnish, or otherwise collect on the Judgment
from [the Achenbachs, Poynters, or PTF/CSI] beyond available insurance
coverage, to include coverage under assigned claims."§ The Stipulation further
provided that, regardless of the arbitrator’s decision, the Achenbachs, Poynters,
and PTF/CSI would face no personal exposure to damages. The parties also
agreed to assign to the Montgomerys "any and all of [the Poynters’, the
Achenbachs’, and PTF/CSI’S] rights to pursue collection of the Judgment from any
and all sources other than [the assignors], and agree to cooperate in [the
Montgomerys’] collection efforts."6 Additionally, the parties agreed to seek
vacatur of the 2009 Summary Judgment Decision.

On February 14, 2011, this Court signed the Stipulation and vacated the
2009 Summary Judgment Decision. Meanwhile, the parties engaged in arbitration
on January 11, 20ll, which resulted in a damages award to the Montgomerys

against the Achenbachs, Poynters, and PTF/CSI.7

5 srip. 11 3.
6 1¢1. ar 11 5.
7 A copy of the arbitration decision, dated February 3, 2011, is attached as Ex. C to Pls.’ Resp.i
l\/Iot. Summ. J.
3

In the action presently pending before me, based on the assignment of rights
in the Stipulation, the Montgomerys ("Plaintiffs") have brought a negligence claim
against the William Moore Agency, Lynn Hitchens, and Mid-State Insurance, Inc.
("Defendants"). In their complaint, Plaintiffs allege Defendants breached the
standard of care by failing to provide the correct insurance coverage for CSl. After
discovery, Defendants now have moved for summary judgment on the basis that
the assignment in the Stipulation is not enforceable.g

The Stipulation contains a concession of liability and agency coupled with
an agreement not to execute and an assignment. Defendants do not contend that
this type of agreement is void per se under Delaware law. The vast majority of
states permit agreements such as this one, absent specific evidence of collusion
between the parties.9 Moreover, Defendants do not argue that the language of this
agreement is invalid. Rather, Defendants contend that the facts surrounding this
agreement make it unreasonable and collusive.

Speciflcally, Defendants argue that the Stipulation released the PoynterS and

PTF/CSI from liability and, as a result, no negligence action can lie against

8 On December 27, 2013, Defendants previously moved for summary judgment on a different
basis. On February 27, 201 5, this Court granted Lynn Hitchens’ unopposed motion for summary
judgment and denied William Moore Agency’s motion for summary judgment. Montgomery v.
William Moore Agency, 20l5 WL 1056326 (Del. Super. Feb. 27, 2015) (reargument denied April
l4, 20l5).

9 Associated Ins. Serv., Inc. v. Garcia, 307 S.W.3d 58, 64-65 (Ky. 2010); Staleline Steel
Erectors, Inc., 837 A.2d 285, 288 (N. H. 2003) ("The majority of jurisdictions have found such
assignments valid."); Kobbeman v. Oleson, 574 N.W.2d 633, 637 (S.D. 1998); Red Giant Ol`l Co.

v. Lawlor, 528 N.W.2d 524 (Iowa 1995).
4

Defendants because no damages were suffered. Defendants argue in the
alternative that the agreement was collusive. Defendants contend that because
PTF/CSI had been dismissed from the action two years before stipulating to
agency, PTF/CSI voluntarily incurred damages those entities would not have
suffered without the Stipulation. In other words, Defendants argue that, by
stipulating to agency and asking this Court to vacate the 2009 Summary Judgment
Decision, the parties created a cause of action that did not exist. This conduct,
Defendants insist, amounted to collusion.

Plaintiffs respond that the Stipulation was not a release, but rather a
covenant not to execute, and the assignment, coupled with the damages award,
therefore was sufficient to give rise to a cause of action against Defendants. As to
the issue of collusion, Plaintiffs contend that the evidence of agency presented a
strong likelihood that the 2009 Summary Judgment Decision would have been
reversed on appeal. Plaintiffs further argue that both the language and the
circumstances surrounding the Stipulation show it is valid and reasonable,

Plaintiffs explain away the two-year gap by a change of counsel, which occurred in

August 20l0.

_Analysis

Summary judgment may be granted when there is no genuine issue of fact

0

and the moving party is entitled to judgment as a matter of law.l If the moving

party sustains the initial burden, the burden then shifts to the non-moving party to
demonstrate there are material issues of fact for resolution by the ultimate fact-
finder."

The Court must view the evidence in the light most favorable to the non-
moving party.'z lt will accept "as established all undisputed factual assertions . . .
and accept the non-movant’s version of any disputed facts. From those accepted

facts[,] the court will draw all rational inferences which favor the non-moving

party&vl:i

There are two questions presented by Defendants’ motion. The first such
question is whether the Stipulation was a "release," which would have the effect of
extinguishing any damages claim against the Poynters and PTF/CSI, such that no
negligence claim could be asserted against Defendants. The second question the

motion raises is whether ~ even if the Stipulation is not a release ~ it is void

because of collusion.

10 E. 1. du Pont de Nemours & C0. v, Stonewall Ins. Co., 2009 WL 1915212 (Del. Super. June

30,2009y
" Brz@ska v. 01sen,66s A.zd 1355, 1363 (D@l. 1995).

‘2 1d.ar1364.

'3 Mam) v. G@pez, 1994 wL 45338 (Del. Super. Jan. 18, 1998) (ciring Mem'l, 606 A.zd ar 99-
100).

6

A. The Stipulation is not a release that extinguished liability at the time
it was executed.

Although Defendants argue there is no Delaware case on point regarding
whether the Stipulation was a release, the Court of Chancery’s decision in Starr v.
Nationwicz’e Mutual Insurance C0. indicates the Stipulation was a covenant not to
execute or a "conditional release."m In Starr, the passenger in an auto accident
obtained a judgment against the driver of a van that collided with the car in which

5 Attempting to collect the entire judgment, the

the passenger was riding.'
passenger sued the van driver’s insurance carrier.'é To do that, the passenger
entered into an "assignment agreement" under which the van driver "assigned her
claims against [her] [i]nsurance [carrier] to [the passenger] in exchange for
[passenger’s] promise to accept the assignment as full payment and satisfaction of
any claims against [the driver]."w

In Starr, Vice Chancellor Hartnett concluded the assignment agreement was
not a present release, explaining that a valid release may be drafted so that it
becomes operative in the future, which is known as a "conditional release."'g The

Court reasoned the release at issue in Starr was conditional because it was subject

to a condition precedent: termination of the passenger’s litigation against the

"‘ 548 A.zd 22 (1)@1. ch. 1983)-.
‘5 1a ar 24.

"" ld.

" ld.

"‘ 1¢1. 3125-26.

insurance carrier.lg Vice Chancellor Hartnett therefore concluded the release
would not become effective until that condition was met, and the driver remained
legally obligated on the judgment until that time.zo

Defendants attempt to distinguish Starr on the basis of factual differences -
Starr involved statutorily required insurance and a jury verdict - and also pointed
out that the Supreme Court did not affirm Starr on "those grounds" (the
conditional release) specifically.zl These differences are not material distinctions,
however, and Defendants concede that the pertinent language in the agreement in
Starr is "very similar" to the assignment in this case.zz

The weight of authority in other jurisdictions also supports the conclusion
that the Stipulation was not a presently operative release.” For example, in
Stateline Steel Erectors, Inc. v. Shz`ela’s, the Supreme Court of New Hampshire
analyzed an agreement where Stateline Steel Erectors, Inc. stipulated to liability for
a substantial judgment upon contractors’ indemnification claims and assigned to

the contractors "any claims it had for liability arising from the employee’s

accident, including any claims regarding the provision of insurance coverage to

"9 1¢1.3126,

20 1a ar 26_

21 Montgomery v. Achenbach, C.A. No.: Nl lC-11-047 Al\/IL, at 17 (Mar. 7, 2016)
(TRANSCRIPT) ("Tr."); see Nationwz`de Mut. Ins. Co. v. Starr, 575 A.Zd 1083 (Del. 199())
(holding: (l) insurance policy did not give insurer a right of subrogation with respect to
uninsured motorist coverage, and (2) action for reformation of policy to include underinsured
coverage was not barred by laches).

22 Tr. 17.

23 Stateline Steel Erectors, Inc., 837 A.2d 285 at 287; Kobbeman, 574 N.W.Zd at 637.

8

»24

Stateline, "In exchange, the contractors agreed ‘not to attempt to satisfy the

remainder of the stipulated judgment in any way against Stateline’ or its insurer"z$

and to satisfy the judgment "only through payment from Stateline’s insurer and the

,26

prosecution of the assigned claims.’ Stateline agreed to a payment "by its

insurance carrier in full satisfaction of the judgment."”

The court found that Stateline was damaged "because of the settlement
agreement," concluding Stateline "must still endure the adversity of litigation and
might suffer diminishment of its credit rating, among other intangible harms."zg
The Supreme Court of New Hampshire further found that "[a]ccording to the plain
meaning of its terms, the agreement was a covenant not to sue or execute the

judgment against Stateline, not a release" and that the assignment of the claims
therefore was valid.29

Similarly, the Supreme Court of South Dakota examined an assignment in
which a plaintiff agreed not to execute on a judgment.30 In Kobbeman v. Oleson,
the Kobbemans "agree[d] and covenant[ed] not to execute on any judgment
obtained against the Daniels" in exchange for an assignment of claims.3l The court

agreed "with those courts upholding assignments of a cause of action in exchange

24 Stateline Steel Erectors, Inc., 837 A.Zd at 287.
25 1¢1.

26 1¢1.

27 1¢1.

28 1a @1¢290.

29 ld. ar 291.

30 see Kobbeman, 574 N.w.zd 633.

3‘ ld. ar 636.