755 F.2d 135 (8th Cir. 1985), 84-1227, Freeman v. Schmidt Real Estate & Ins., Inc.

Docket Nº:84-1227.
Citation:755 F.2d 135
Party Name:Charlie G. FREEMAN, Appellant, v. SCHMIDT REAL ESTATE & INSURANCE, INC., Niels R. Schmidt, and AID Insurance Company, Appellees.
Case Date:February 20, 1985
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 135

755 F.2d 135 (8th Cir. 1985)

Charlie G. FREEMAN, Appellant,



AID Insurance Company, Appellees.

No. 84-1227.

United States Court of Appeals, Eighth Circuit

February 20, 1985

Submitted Oct. 9, 1984.

Rehearing Denied March 25, 1985.

Page 136

Simmons, Perrine, Albright & Ellwood, James R. Snyder, Gregory M. Lederer, Cedar Rapids, Iowa, for appellees Schmidt Real Estate & Ins., Inc.

Crawford, Sullivan, Read & Roemerman, James W. Crawford, Thomas B. Read, Cedar Rapids, Iowa, for appellee AID Ins. Co.

Max E. Kirk, Ball, Kirk, Holm & Mardini, P.C., Waterloo, Iowa, for appellant.

Before HEANEY, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

JOHN R. GIBSON, Circuit Judge.

Charlie G. Freeman appeals from a summary judgment entered against him in his action against Schmidt Real Estate & Insurance, Inc., Niels R. Schmidt, and AID Insurance Company for their negligent failure to procure liability insurance for Russell K. Catron. Freeman and Catron were involved in an automobile collision, and in settlement of the resulting litigation, Catron confessed judgment and assigned his rights against the agent, agency and insurance company to Freeman in exchange for Freeman's promise not to execute on the judgment. Freeman then brought this suit alleging both the assigned claim that the agent and insurer had breached their duty to Catron to procure insurance and a direct claim that those same parties had breached an independent duty to him in failing to meet Catron's request. The magistrate 1 rejected the existence of such an independent cause of action and also concluded that Freeman, because of the agreement not to execute and the "indemnity nature" of insurance generally, gained no enforceable rights through the assignment from Catron. We affirm.

Catron in the fall of 1978 had had a conversation with Niels Schmidt in which Schmidt allegedly agreed on behalf of his agency and AID Insurance Company to procure a $300,000 automobile liability policy protecting Catron from losses resulting from the use of his vehicles. On November 16, 1978, a vehicle owned by Catron and operated by Mrs. Catron was involved in a collision in which Charlie Freeman was injured. Freeman brought suit against the Catrons, invoking federal diversity jurisdiction. AID defended the action under a previously issued, undisputed $50,000 liability policy, with a reservation of rights denying coverage in excess of that amount.

Page 137

The case was settled on the following terms:

1. The Catrons confessed judgment for $350,000.00 and costs,

2. Freeman agreed not to execute against the Catrons on any amount of the judgment in excess of $50,000.00,

3. [AID paid its $50,000.00 liability limits to Freeman], and

4. [T]he Catrons assigned to Freeman their cause of action against the Schmidt agency and any other necessary person or entity for the agency's failure to obtain a $300,000.00 policy that would have covered the liability asserted against them by Freeman.

Freeman v. Schmidt Real Estate & Insurance, Inc., No. C 82-78, slip op. at 3 (N.D.Iowa Feb. 2, 1984).

Thereafter, Freeman brought this action alleging as the Catrons' assignee that Schmidt, the agency, and AID (hereafter "the insurers") were negligent and breached an oral contract in failing to obtain the additional liability insurance policy in the amount of $300,000. Freeman further alleged that the insurers' failure constituted a negligent breach of a duty owed directly to him as the victim of an automobile collision who would foreseeably be harmed by the Catrons' lack of coverage.

The magistrate granted summary judgment for the insurers. While observing that no Iowa case (the parties agree Iowa law controls) was directly on point, he went on to state:

It is equally clear that an insurance contract is basically a contract of indemnity. Hence, since the Catrons never became legally obligated to make any payments to plaintiff by virtue of the covenant not to execute they would have been entitled to nothing under the policy and hence have suffered no damage. Accordingly, plaintiff received no enforceable rights from them and the fact that the underlying obligation was not extinguished is irrelevant.

Freeman, slip op. at 6. The magistrate also ruled that under Iowa law potential future victims of possible automobile accidents do not constitute a discernible class as to whom a tortfeasor whose duty is created by contract may be liable despite the lack of privity.

In diversity cases we ordinarily accord substantial weight to the decisions of experienced district judges on questions of local law which have not yet been treated by state courts. Keltner v. Ford Motor Co., 748 F.2d 1265, 1267 (8th Cir.1984); Kansas State Bank v. Citizens Bank, 737 F.2d 1490, 1496 (8th Cir.1984). We have earlier stated that bankruptcy judges' conclusions are entitled to some deference as to questions of purely local law, Grenz Super Valu v. Fix, 566 F.2d 614, 615 (8th Cir.1977) (per curiam), and we feel no hesitation in considering similarly that weight also should be given to comparable decisions of magistrates. The magistrate's...

To continue reading