Southern Farm Bureau Casualty Insurance Co. v. Mitchell

• Decision Date: 22 January 1963
• Docket Number: No. 17057.,17057.
• Citation: 312 F.2d 485
• Parties: SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. J. D. MITCHELL, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

312 F.2d 485 (1963)

SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. J. D. MITCHELL, Appellee.

No. 17057.

United States Court of Appeals Eighth Circuit.

January 22, 1963.

COPYRIGHT MATERIAL OMITTED

P. H. Hardin, of Hardin, Barton & Hardin, Fort Smith, Ark., for appellant.

Thomas Harper, Fort Smith, Ark., J. W. Durden, of Harper, Harper, Young & Durden, Fort Smith, Ark., on the brief, for appellee.

Before SANBORN and BLACKMUN, Circuit Judges, and REGISTER, District Judge.

REGISTER, District Judge.

This is an appeal from a judgment in favor of appellee J. D. Mitchell and against the appellant insurance company in a suit based upon appellant's alleged negligence and bad faith in failing and refusing to settle an action for wrongful death brought against the insured, J. D. Mitchell by Mrs. William A. Stanton, on behalf of herself and three minor children, and as administratrix of the estate of her deceased husband, which judgment required said appellant to satisfy in full the judgment entered in said original action for an amount in excess of the limits of the policy.

Appellant, Southern Farm Bureau Casualty Insurance Company, on July 14, 1959, issued to the appellee, J. D. Mitchell, a policy of automobile liability insurance, No. A-268,195, insuring the appellee against loss up to $10,000 for bodily injury and up to $5,000 for property damages which the appellee might become liable to pay by reason of the operation of his automobile. Said policy of insurance was in full force and effect on December 30, 1959. On that date appellee was involved in an intersection collision with William A. Stanton, who subsequently died as a result of injuries sustained in said collision. Colonel Stanton's widow, on behalf of herself, three minor children, and as the Administratrix of his estate, made a claim against the appellee and his insurance carrier (appellant here) for damages sustained as a result of the collision. Such claim was denied, and in January, 1960, suit was commenced in Sebastian County Circuit Court, Fort Smith District, Arkansas, by the Administratrix, seeking to recover damages on behalf of the estate, herself, and her three minor children.

Said action proceeded to trial and on June 1, 1960, the jury rendered a verdict in the amount of $37,500 in favor of the Administratrix and against the appellee, J. D. Mitchell. Judgment in accordance with the jury verdict was entered by the Sebastian County Circuit Court. Subsequently, the appellant here paid the sum of $11,500 plus interest ($10,000, the policy limit, for personal injuries, and $1,500 property damage), to be credited on said judgment. The sum of $26,000, plus interest, remains unpaid.

On February 13, 1961, the appellee, J. D. Mitchell, filed an action for declaratory judgment in Sebastian County Chancery Court against appellant Southern Farm Bureau Casualty Insurance Company and Mary Imelda Stanton, Administratrix of the Estate of William A. Stanton, Deceased, (the plaintiff in the original action) seeking a judgment requiring appellant to satisfy the full amount of the judgment theretofore rendered in Circuit Court. This action was timely removed to the federal district court and thereafter (but prior to trial) the Court on its own motion realigned said Mary Imelda Stanton, Administratrix, as a party plaintiff, and subsequently (also prior to trial) dismissed her, without prejudice. This action proceeded to trial and on January 16, 1962, pursuant to jury verdict, judgment was entered directing the appellant, Southern Farm Bureau Casualty Insurance Company, "to satisfy in full the said judgment entered June 1, 1960, against J. D. Mitchell by the said Sebastian Circuit Court in Civil Action No. 2717, Fort Smith District".

Following a denial of its motion for judgment notwithstanding verdict, the appellant timely appealed to this Court from the order and judgment of the district court entered on January 16, 1962.

Appellee's action is predicated upon appellant's alleged failure to exercise good faith and the requisite degree of care, in refusing to settle and compromise within the policy limits the claims then pending against appellee.

Many of the facts alleged in appellee's complaint are admitted in appellant's answer. It is admitted that the policy of insurance involved was in full force and effect on the date of the accident; that the accident described occurred; that offers to settle and compromise the claim against appellee within the policy limits were made by claimant; that appellee made demands upon appellant to settle within the limits of the policy; that appellant refused to do so; that as a result of the trial in Sebastian Circuit Court a judgment was rendered against appellee in the sum of $37,500; that appellee demanded that appellant pay the full amount of the judgment rendered in Circuit Court ($37,500); that appellant paid the amount of $11,500, plus interest, to be credited on said judgment; and that there remains to be paid on said judgment the sum of $26,000. The appellant further admits that appellee Mitchell is indebted to the Administratrix, Mary Imelda Stanton, in the amount of $26,000.

In the policy of insurance issued by the appellant to appellee, appellant agreed:

"To defend any suit against the insured for such damages even if groundless, false, or fraudulent; but the company may make such settlement of any claim or suit as it deems expedient."

Pursuant to such terms, appellant assumed the duty of defendant appellee (defendant in said action) and of controlling the investigation, negotiation and settlement of the action, which arose out of the ownership, maintenance and use of the insured automobile.

Appellee contended that, in refusing to settle the suit in state court within the policy limits, appellant acted in bad faith and negligently and solely for its own interest and in complete disregard of appellee's rights and interest — which contentions were specifically denied by appellant.

Appellant assigns as error the action of the trial court in denying and overruling appellant's motions for directed verdict and for judgment notwithstanding the verdict, on the following grounds:

1. "The evidence was insufficient to warrant submission of the case to the jury", and

2. "Until appellee has paid the excess judgment he has no accrued cause of action".

This case having come to the federal district court by reason of diversity of citizenship and the requisite amount in controversy, said court was required to determine the same in accordance with the laws of Arkansas. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188.

"* * * in some jurisdictions liability of an insurer for refusal to settle within the policy limits is based on bad faith, and * * * in some other jurisdictions liability is based upon negligence." Milbank Mutual Insurance Company v. Schmidt (8 Cir.), 304 F.2d 640, 644. Also see: Frank B. Connet Lumber Co. v. New Amsterdam Casualty Company (8 Cir.), 236 F.2d 117, 125. Under the law of Arkansas (which is here controlling), in a situation such as here exists, the insurance company owes its insured "the duty to act in good faith, and also the duty to act without negligence". Southern Farm Bureau Casualty Insurance Co. v. Parker, 232 Ark. 841, 341 S.W.2d 36, 40. Arkansas law is now established that where an insurer, either through negligence or bad faith, fails to settle a claim against its insured within the limits of the policy, when it is possible to do so, the insurer is liable to the insured for any judgment recovered against him in excess of such policy limits, and that whether the insurer was negligent or acted in bad faith in such refusal is a question of fact for jury determination. Parker, supra, and Southern Farm Bureau Casualty Insurance Co. v. Hardin, Ark., 351 S.W.2d 153.

In harmony with such law, the trial court herein instructed the jury, as to the question to be decided by it, in the following language:

"Was the failure of the defendant insurance company to settle the lawsuit in the Sebastian County Circuit Court and claim of the Administratrix of the Estate of William A. Stanton, deceased, against J. D. Mitchell due to bad faith or negligence on the part of said insurance company?"

In considering whether the verdict is sustained by substantial evidence, we have carefully examined and analyzed the entire record. "In considering the question here the evidence must be viewed in a light most favorable to the plaintiff. The jury having found the issues in his favor, we must accept as true all facts which the evidence reasonably tended to prove and plaintiff is entitled to all favorable inferences which may reasonably be drawn from the evidence and circumstances proven." Railway Express Agency v. Mackay (8 Cir.), 181 F.2d 257, 259, 19 A.L.R.2d 1248; Carter Carburetor Corp. v. Riley (8 Cir.), 186 F.2d 148, 150; Black v. United States of America (8 Cir.), 309 F.2d 331; and Kelly v. Layton (8 Cir.), 309 F.2d 611.

A review of some of the facts pertaining to the accident and the actions taken by the respective parties herein subsequent thereto are essential to an understanding of the contentions of the parties.

At approximately 7:50 A.M., on December 30, 1959, appellee Mitchell was driving his Ford station wagon east on South Boston Street in Fort Smith, Arkansas, and at the intersection of that street with South 32nd Street in said City, his vehicle collided with a Volkswagen automobile owned and then being operated by Col. William A. Stanton, who was driving north on South 32nd Street. Mitchell and Stanton were residents of said city. Stanton was alone. Mitchell had one passenger, Charles Nichols. The right front fender of the Mitchell vehicle struck the left door area of the Volkswagen, resulting in the caving in of the Volkswagen's left door at the location of the driver's seat. Immediately after the impact, the Mitchell vehicle whirled around, made a...