179 F.2d 7 (10th Cir. 1949), 3894, American Fidelity & Cas. Co. v. All Am. Bus Lines, Inc.

Docket Nº:3894.
Citation:179 F.2d 7
Case Date:December 28, 1949
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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179 F.2d 7 (10th Cir. 1949)




No. 3894.

United States Court of Appeals, Tenth Circuit.

December 28, 1949

Rehearing Denied Jan. 24, 1950.

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Welcome D. Pierson, Oklahoma City, Okla. (Howard Hentz, Oklahoma City, Okl., was with him on the brief), for appellant.

Gus Rinehart, Oklahoma City, Okl., for appellee.

BEFORE PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

The question presented by this appeal is whether the appellee Bus Company may maintain a tort action against its insurer, appellant, for negligence and bad faith in failing to settle a damage suit within the coverage limits of its policy of insurance, where the full amount of the Bus Company's liability in excess of such policy was paid to the Bus Company by another

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insurer under the terms of an excess insurance policy issued by it.

On June 1, 1945, the appellant, American Fidelity and Casualty Company, hereinafter called the primary insurer, issued a public liability policy to the Bus Company with a maximum coverage of $10,000 for injury to any one person. On the same day, the Security Mutual Casualty Company, hereinafter called the excess insurer, issued to the Bus Company an excess loss policy which referred to the primary policy and provided coverage for only that part of any loss in excess of $10,000, but not in excess of $100,000 for injury to any one person. By the terms of these policies, the insurers were required to defend all litigation against the Bus Company involving matters covered by the policies.

On July 5, 1945, while the above policies were in full force, a bus operated by the Bus Company was involved in an accident in which a passenger, Miss Lorena Lairson, was injured. On August 23, 1945, Miss Lairson filed suit against the Bus Company and the primary insurer, seeking $30,500 damages for personal injuries. When that case was called for trial, Miss Lairson's attorneys offered to settle for $5000, but this offer was refused by the defendant's attorney at the direction of the primary insurer who was in fact conducting this litigation. The case proceeded to trial, and verdict and judgment of $25,000 was rendered in favor of Miss Lairson. The excess insurer took no part whatever in the case. While an appeal from this judgment was pending, the parties compromised the case for $17,500. The Bus Company paid $7,500 of the above settlement, and was reimbursed in like amount by the excess insurer pursuant to the terms of the excess policy. The excess insurer then demanded that the Bus Company assert a claim against the primary insurer and this suit was apparently brought in response to that demand. The primary insurer moved to dismiss inter alia on the grounds that the Bus Company was not the real party in interest, having been fully reimbursed for all sums of money it had been required to expend in the settlement of the claim.

The trial court overruled the motion, finding that the primary insurer had been grossly negligent in the investigation and defense of the claim, and that it had been guilty of bad faith in not accepting the original offer of settlement. Judgment was rendered in favor of the Bus Company for $7,500, and this appeal followed.

When an insurance company acts on behalf of the insured in the conduct of litigation and the settlement of claims, it assumes a fiduciary relationship and is obliged to act in good faith in representing the interests of the insured. American Casualty Co. v. G. A. Nichols Co., 10 Cir., 173 F.2d 830; Traders & General Ins. Co. v. Rudco Oil & Gas Co., 10 Cir., 129 F.2d 621, 142 A.L.R. 799; National Casualty Co. v. Britt, Okl., 200 P.2d 407. In the view we take of the case however, we may assume without deciding that the evidence was sufficient to support the trial court's finding of bad faith and gross negligence on the part of the primary insurer, and that a cause of action sounding in tort accrued to the Bus Company against the primary insurer. Be that as it may, Section 17(a), Federal Rules of Civil Procedure, 28 U.S.C.A., provides that 'every action shall be prosecuted in the name of the real party in interest * * * ', and we think the decisive question is whether the Bus Company having been fully reimbursed for the amount of its loss by the excess insurer, it is now the real party in interest to prosecute the cause of action.

Ordinarily when a public liability insurance company fully reimburses its insured for losses within the coverage of the policy, it becomes subrogated to the rights of the insured against third parties whose tortious conduct caused the loss. Travelers Ins. Co. v. Great Lakes Engineering Works Co., 6 Cir., 184 F. 426, 36 L.R.A.,N.S., 60; Home Ins. Co. v. Lack, 196 Ark. 888, 120 S.W.2d 355; Otis Elevator Co. v. Maryland Casualty Co., 95 Colo. 99, 33 P.2d 974; Ocean Accident & Guarantee Corp. v. Hooker Electro-Chemical Co., 240 N.Y. 37, 147 N.E. 351; Globe Indemnity Co. v. Schmitt,142 Ohio St. 595, 53 N.E.2d 790; U.S. Fidelity & Guaranty Co. v. Thomlinson-Arkwright Co., 172 Or. 307, 141 P.2d 817.

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Where such total subrogation occurred at common law, the action to enforce the insurer's rights had to be brought in the name of the insured, since the common law courts did not recognize the equitable interest of the insurer. Montello Shoe Co. v. Suncook Industries, 92 N.H. 161, 26 A.2d 676; Annotation 157 A.L.R. 1242, 96 A.L.R. 864. On the other hand, in suits in equity or admiralty, the fully subrogated insurer sued in his own name. St. Louis Iron Mt. & So. Ry. Co. v. Commercial Union Ins. Co., 139 U.S. 223, 235, 11 S.Ct. 554, 35 L.Ed. 154. See also City of New York Ins. Co. v. Tice, 159 Kan. 176, 152 P.2d 836, 157 A.L.R. 1242, Harrington v. Central States F. Ins. Co., 169 Okl. 255, 36 P.2d 738, 96 A.L.R. 864. Under modern statutes abolishing the distinction...

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