Aetna Cas. & Sur. Co. v. Kornbluth, 23378

CourtCourt of Appeals of Colorado
Citation471 P.2d 609,28 Colo.App. 194
Docket NumberNo. 23378,23378
PartiesAETNA CASUALTY AND SURETY COMPANY, Plaintiff in Error, v. Morton KORNBLUTH and Sydney Kornbluth, Defendants in Error. . II
Decision Date28 April 1970

Tilly & Graves, James L. Tilly, Denver, for plaintiff in error.

Irving Oxman, Sheldon Emeson, Denver, for defendants in error.


This case was originally filed in the Supreme Court of the State of Colorado and was subsequently transferred to the Court of Appeals under the authority vested in the Supreme Court.

The defendants in error, Sydney Kornbluth and Morton Kornbluth, were plaintiffs in the trial court. They shall be referred to in this opinion either by name or as 'the insured.' Their action was brought against Aetna Casualty & Surety Company, the plaintiff in error here and the defendant below. Such company shall be referred to as 'Aetna' or as 'the insurer.' The action brought by the Kornbluths against Aetna was to collect for a judgment sum entered against the Kornbluths in excess of the policy limits contained within an automobile liability and physical damage policy issued by Aetna to the Kornbluths.

Aetna provided liability coverage of $10,000.00 per person, $20,000.00 per accident, and $5,000.00 property damage. In a civil action brought by Algie Steen and Leola Steen against the Kornbluths, the Steens sought damages for $57,530.00 for injuries incurred by them as the result of an automobile accident involving them and an automobile driven by Morton Kornbluth and owned by his father, Sydney Kornbluth. In such civil proceedings the Kornbluths were represented by Aetna's attorney. All investigations and pretrial conferences pertaining to any possible settlement of such civil action were conducted either by employees of Aetna or by the attorney employed by Aetna to defend against the Steens' lawsuit. The trial of the damage action by the Steens against the Kornbluths resulted in the jury awarding $23,862.02 in damages to Mr. Steen and $2,362.95 to Mrs. Steen. Aetna paid the entire judgment in favor of Mrs. Steen and paid $10,000.00 plus interest and costs on the judgment in favor of Mr. Steen. This left the Kornbluths liable to Mr. Steen for a judgment balance in the amount of $13,862.02.

Because of such judgment obligation on the part of the Kornbluths, this action was commenced by them against Aetna. The Kornbluths in their complaint alleged that Aetna did not exercise good faith in attempting to settle the Steens' claim against the Kornbluths, and that Aetna was guilty of gross negligence and of bad faith in failing to settle the claims of the Steens for amounts which were within their policy limits. It was this issue which was tried to the trial court without jury, and which is the subject of this appeal.

In its appeal Aetna charges primarily that the trial court erred in not dismissing Kornbluths' case at the conclusion of the plaintiffs' evidence. In this connection Aetna charges that the trial court mingled two standards by which the liability of Aetna should be determined; namely, whether Aetna acted negligently or whether it acted in bad faith. Aetna also contends on this point that in no event did the plaintiffs sustain their burden of proof under either of such standards. Secondly, Aetna urges that, as a matter of law, Aetna could not be held liable in a case of this kind for its failure to settle within the policy limits unless the evidence before the court establishes that Aetna knew or should have known, in the exercise of reasonable judgment, that the outcome of the case between the Steens and the Kornbluths would in all likelihood be in excess of the policy limits. Third, Aetna individually attacks certain findings of fact and conclusions of law reached by the trial court on the basis that they were not supported by the record.


Essential to a resolution of all questions involved in this case is a determination of the standard by which the liability or lack of liability on the part of Aetna to the Kornbluths will be measured. An examination of the authorities bearing on this question reveals that various tests or standards have been applied by different courts. Annot., 40 A.L.R.2d 168. Some courts have held that the matter of settlement lies within the sole discretion of the insurer, and that it is under no duty to the insured to accept a given settlement offer. McDonald v. Royal Indemnity Insurance Co., 109 N.J.L. 308, 162 A. 620. This is a view which we hereby specifically reject. We also specifically reject the theory that the insurer carries an implied obligation to Accept any settlement offer which is within the insurance policy limits. To our knowledge such view has not been accepted by any jurisdiction. There remain three so-called standards or tests for measuring the possible liability of the insuring company in situations of this type. These have been categorized as (1) the duty of insurer to exercise good faith and act with equal consideration for its interests and those of its insured; (2) proof of bad faith on the part of the insurer; and (3) negligence on the part of the insurer. There has been no expression by the Colorado Supreme Court as to which of these standards or tests is applicable within this jurisdiction. Our law has been presumed to be within the realm of the good faith and equal consideration standard. United States Fidelity and Guaranty Company v. Lembke, 10 Cir., 328 F.2d 569.

The distinctions between the various standards or tests which we have enumerated for consideration appear to us to be largely illusory and quite frequently more a matter of semantics than legal principle. In reviewing the cases, it appears to us that some courts, in evaluating the scope of responsibility of the insuring company and speaking of good faith, are often dealing in terms of due care or lack of negligence, and that others, when speaking of bad faith on the part of the insuring company, are actually dealing with negligence on the part of the insuring company. As has been noted elsewhere, the terms of 'bad faith' and 'negligence' in particular have often been used interchangeably, and, in fact, are to some extent interchangeable. 7A Appleman, Insurance Law and Practice, (1962 Ed.) Sec. 4712.

At the root of all the standards is the basic concept that the duty which is owed by the insurer to the insured arises out of the contractual relationship of the parties. By the terms of the insurance...

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