Court Opinion

ID: 9448300
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:30:42.177289+00
Date Added: 2024-06-11T17:31:22.071166
License: Public Domain

*637J. JOSEPH SMITH, Circuit Judge
(dissenting).
I respectfully dissent.
We are in the difficult position of attempting to predict how far the New York courts would go in setting the limits of recovery on a type of claim which they have indicated will be held good, but which they have not as yet actually enforced. If, as I feel, the New York courts would enforce the duty of an insurer in good faith to live up to his contract in the settlement of claims against the insured, I would expect them to do so with a view to the actualities of personal injury and death losses in our present society, and the interest of the injured in the proper functioning of our system of liability insurance of those from whose faults injuries may arise. I would not expect them to require that the insured establish payment or ability to make payment by him of a judgment against him in order to show a compensable loss in the situation here disclosed. The insurer has for a price agreed to insure him against liability to injured plaintiffs. This includes, as New York has stated, the duty to use good faith toward the insured in settlement negotiations. The finding of bad faith in the case at bar is amply supported by the record here.
New York has demonstrated an interest in preventing insurance companies from avoiding payment to injured parties to whom the insured is liable solely because of the insolvency of the insured. New York Insurance Law, § 167(1) (a) and (b).1 It is true that the statute provision is keyed to the policy limits. When this legislation was originally enacted in 1917, however, the problem of bad faith refusal to settle had not become the live issue it is today. I can see no sound reason for allowing the insurer to invoke the defense to an action for breach of its duty to use good faith in settlement when it is denied the defense for actions for breach of the duty to pay within the policy limits. If the insured had remained solvent through the years between the injury in 1952 and the final bad faith refusal to settle and judgment for an amount in excess of the policy limits in 1957, the majority’s requirement for showing of damage presumably could have been met. But suppose his net worth was 25 or 50% of the amount of the judgment? I am not clear whether actual payment would be required by the majority, or solely ability to pay, to establish damage. If we grant that the insured may have indemnity to some degree arising out of the policy because of bad faith refusal to settle within the stated limits, the “coverage of the policy or contract” within the meaning of the *638statute may well in such a ease be held to extend to the full amount of the judgment. In this situation the courts should not require an insured to show that he could meet the full amount of a judgment to establish damage from the insurer’s tort. Here the insurer’s contract, entered into for a consideration not only binds it to pay the face amount of the policy but also to use good faith in settlement efforts. If we say that there can be no damage to an insolvent from a tortious breach of the latter duty we not •only depart from the spirit of New York’s concern for the injured victim of an insured driver, but leave the insured himself with an illusory protection. The Massellos were in business during a good part of the period between the making of the insurance contract and its breach by defendant. Although there is evidence that they became insolvent by August 1956, the insurer had already refused to settle within the policy limits in April 1956. We do not know whether the pendency of the action affected their credit. The majority assumes that they were doomed to bankruptcy in any event. This is not certain. Bankruptcy followed •only after entry of the judgment. If this judgment had not been entered against them bankruptcy might not have been necessary and its effect on their future business prospects might have been avoided. The damage may not be precisely measurable, but that circumstance should not allow the tortfeasor to go free. The insurer deliberately exposed its insured to the danger. It should not be heard to say that the great increase in the insured’s debts caused by its action caused no damage because he might have had to go into bankruptcy in any event. Moreover, this view of the nature of damage from the breach of duty opens the distinct probability that the shaky financial condition of an insured will be used as an improper device for driving down settlements in serious injury and death cases below policy limits on threats of prolonged litigation at no risk to the insurer.
I would affirm the judgment.

. “1. No policy or contract insuring against liability for injury to person, except as stated in subsection three, or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:
“(a) A provision that the insolvency or bankruptcy of the person insured, or the insolvency of his estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract.
“(b) A provision that in case judgment against the insured or his personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract, shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer, under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.”