922 F.2d 1476 (10th Cir. 1991), 89-8059, Hocker v. New Hampshire Ins. Co.

Docket Nº:89-8059.
Citation:922 F.2d 1476
Party Name:Robert Ross HOCKER and Waylon Cummins, Plaintiffs, v. NEW HAMPSHIRE INSURANCE COMPANY, a New Hampshire Corporation, Defendant/Cross-Claim Defendant/Appellee, v. FIRST STATE INSURANCE COMPANY, a Massachusetts Corporation, Defendant/Cross-Claim Plaintiff/Appellant, American International Adjustment Company, a Delaware Corporation, Defendant.
Case Date:January 07, 1991
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
FREE EXCERPT

Page 1476

922 F.2d 1476 (10th Cir. 1991)

Robert Ross HOCKER and Waylon Cummins, Plaintiffs,

v.

NEW HAMPSHIRE INSURANCE COMPANY, a New Hampshire

Corporation, Defendant/Cross-Claim Defendant/Appellee,

v.

FIRST STATE INSURANCE COMPANY, a Massachusetts Corporation,

Defendant/Cross-Claim Plaintiff/Appellant,

American International Adjustment

Company, a Delaware

Corporation, Defendant.

No. 89-8059.

United States Court of Appeals, Tenth Circuit

January 7, 1991

Page 1477

[Copyrighted Material Omitted]

Page 1478

Dirk W. de Roos of Kutak Rock & Campbell, Denver, Colo. (Tana K. Simard of Kutak Rock & Campbell, G.G. Greenlee and James R. Bell of Murane & Bostwick, Casper, Wyo., with him on the briefs), for defendant/cross-claim plaintiff/appellant.

Gregory R. Piche of Holland & Hart, Denver, Colo. (Harry F. Buck of Buck & Lewis, Cheyenne, Wyo., with him on the brief), for defendant/cross-claim defendant/appellee.

Before McKAY and ANDERSON, Circuit Judges, and BROWN, District Judge. 1

McKAY, Circuit Judge.

This diversity action is an appeal by defendant First State Insurance Company, the excess insurance carrier for plaintiffs Robert Hocker and Wayne Cummins, from an order dismissing First State's crossclaim against defendant New Hampshire Insurance Company, plaintiffs' primary insurer. First State appeals the district court's interpretation of its contractual obligation to drop down and defend the plaintiffs, the court's ruling that First State's "unclean hands" bars its equitable subrogation crossclaim, and the court's refusal to recognize a direct cause of action against New Hampshire independent of equitable principles.

I.

Plaintiffs Robert Hocker and Wayne Cummins were employees of the John E. Burns Drilling Company. Mr. Hocker worked as a tool pusher and Mr. Cummins worked as a drilling superintendent on a drilling rig in Wyoming in February 1980. On February 27, 1980, Larry Julian, a roughneck employed with Burns Drilling, was injured when a chain on the drilling rig broke and struck him in the face.

At the time of the accident, Burns Drilling and its employees were insured by New Hampshire Insurance Company under a general liability policy that provided primary coverage in the amount of $500,000.00. Burns Drilling and its employees were also insured under an umbrella liability policy issued by First State Insurance Company for up to $10,000,000.00.

Four years after the accident Mr. Julian filed Julian v. Energy Reserves Group, Inc., Civil No. 56620, in Wyoming State District Court. The complaint alleged that defendants Robert Hocker, Wayne Cummins and John Burns, president and general manager of Burns Drilling, had caused his injuries through their negligence.

Burns Drilling had been discharged in bankruptcy at the time Mr. Julian filed suit. John Burns forwarded the complaint to John Burk, the attorney representing Burns Drilling in bankruptcy proceedings, and assured Messrs. Hocker and Cummins that a defense would be provided for them. Unfortunately, as the ensuing events unfolded, no defense was ever provided.

Through a circuitous route, Mr. Burk tendered the defense of the Julian suit to New Hampshire and First State. He sent the complaint to the Ralph Hamm Insurance Agency which sold the New Hampshire policy to Burns Drilling. The Hamm Agency, in turn, gave the documents to New Hampshire's claims adjuster, American International Adjustment Company. The Hamm Agency also sent the documents to the Wetzel Company, Inc., the surplus lines broker which sold the First State policy to Burns Drilling. Wetzel forwarded the materials to First State and informed them that New Hampshire was the primary carrier.

On March 20, 1984, First State opened a file for the Julian claim. T.W. Ross, the First State employee handling the file, acknowledged to Wetzel receipt of the complaint but did not contact New Hampshire to inform them that First State was the excess insurer. In May 1984, Mr. Ross determined that the excess policy was in effect and set up a $5000.00 reserve on the file. However, on May 25, 1984, he closed

Page 1479

the Julian claim file. He did not notify the state court defendants, Messrs. Hocker and Cummins, that First State was not providing a defense as the excess carrier.

New Hampshire, acting through its claims adjuster, American International, opened a claim file for the Julian case on March 30, 1984. American International's branch manager, Theodore C. Freuh, mailed two letters to John Burk (attorney for the bankrupt drilling company) informing him that neither Mr. Hocker nor Mr. Cummins were covered under the New Hampshire policy and that New Hampshire would not provide either with a defense. Mr. Burk did not believe he represented Messrs. Hocker and Cummins in the Julian suit. Consequently, he did not inform them that they were not being defended by New Hampshire. Nor did Mr. Freuh contact Messrs. Hocker or Cummins directly or First State to inform them that New Hampshire would not supply a defense. Although New Hampshire retained counsel to represent John Burns personally, neither First State nor New Hampshire arranged for the co-employees' defense.

Larry Julian made a motion for entry of default against Messrs. Hocker and Cummins on August 18, 1986. On May 29, 1987, while the entry of default judgment was still pending, Robert Hocker and Wayne Cummins filed the present lawsuit, Hocker v. New Hampshire Insurance Co., Civil No. 3872, in Wyoming State District Court. The complaint alleged that New Hampshire and First State had breached their contracts of insurance by refusing to defend and indemnify them. Plaintiffs contended that New Hampshire and First State had breached the covenants of good faith implied in their insurance contracts by failing to properly investigate, interpret and evaluate Larry Julian's claim and the New Hampshire policy. They also alleged that both carriers breached their implied covenants of good faith by failing to notify them of the decision not to defend them in the Julian lawsuit. The suit was removed to the United States District Court for the District of Wyoming on June 25, 1987.

First State filed a crossclaim against New Hampshire in the present lawsuit on August 21, 1987. First State contended that its right to defend was prejudiced by New Hampshire's failure to notify First State of its decision not to defend Messrs. Hocker and Cummins in the Julian suit. The crossclaim sought indemnification alleging that New Hampshire's failure to notify First State constituted a breach of the implied covenant of good faith and fair dealing owed to First State. It further alleged that New Hampshire's actions constituted a failure to exercise reasonable care to protect the relationship existing between the two insurers. New Hampshire also asserted a crossclaim against First State for implied indemnity.

On October 27, 1987, Larry Julian moved to dismiss John Burns as a defendant in the Julian case, and on November 3, 1987, a default judgment was entered against Messrs. Hocker and Cummins in the amount of $2,865,568.13 with interest.

The district court entered an order granting partial summary judgment to the plaintiffs in the present lawsuit on April 1, 1988, finding that New Hampshire and First State had a duty to provide a defense in the Julian action. The court held that "New Hampshire's duty to defend was triggered by the potential for coverage for plaintiffs under the policy issued to Burns Drilling for the claims asserted in the Julian complaint." Hocker v. New Hampshire Ins. Co., No. C87-239-B, at 18 (D.Wyo. Apr. 1, 1988) (Order Granting Plaintiffs' Motion for Partial Summary Judgment and Denying Defendants' Motions for Summary Judgment). The district court also held that First State's "duty to defend and investigate was triggered when New Hampshire refused to defend, inasmuch as the Julian complaint potentially stated a claim with [sic] the coverage of the First State policy." Id. at 25 (emphasis in original).

The jury trial commenced on April 4, 1988. New Hampshire and First State moved for a directed verdict on April 8, 1988. The district court granted these motions in part as to plaintiffs' claims for

Page 1480

negligence and punitive damages. However, the district court adhered to its earlier decision that New Hampshire and First State had each breached their contractual duty to defend.

The case was submitted to the jury on April 13, 1988, but the crossclaims of New Hampshire and First State were reserved for the district court's determination. The jury returned a verdict against the two insurers. It assessed $500,000.00 in damages against New Hampshire for breach of its contractual duty to defend Messrs. Hocker and Cummins. The jury assessed another $875,000.00 for breach of its implied covenant of good faith and fair dealing. First State was assessed damages in the amount of $2,580,485.00 for breach of its contractual duty to defend under the excess liability policy and $875,000.00 for breach of the covenant of good faith and fair dealing.

These judgments were compromised and settled after trial. Robert Hocker, Wayne Cummins and First State agreed to dismissal with prejudice of all claims for relief with no admission of liability.

The district court denied the crossclaims of both insurers. It found that First State lacked the "clean hands" necessary to assert its equitable subrogation claim because First State had breached its implied covenant of good faith and fair dealing. "First State had an independent duty to investigate the Julian claim, to defend in the event the primary carrier declined, and to undertake settlement negotiations on behalf of Hocker and Cummins. It failed to do so and cannot now be subrogated to the rights of...

To continue reading

FREE SIGN UP