American Sur. Co. of N.Y. v. J. F. Schneider & Son, Inc.

• Decision Date: 15 November 1957
• Court: United States State Supreme Court — District of Kentucky
• Parties: AMERICAN SURETY COMPANY OF NEW YORK, Appellant, v. J. F. SCHNEIDER & SON, Inc., Appellee.

Page 192

307 S.W.2d 192

AMERICAN SURETY COMPANY OF NEW YORK, Appellant, v. J. F. SCHNEIDER & SON, Inc., Appellee.

Court of Appeals of Kentucky.

Nov. 15, 1957.

John P. Sandidge, Woodward, Hobson & Fulton, Louisville, Henry L. Bryant, Pineville, for appellant.

A. E. Funk, Jr., Arthur Rhorer, Middlesboro, for appellee.

MONTGOMERY, Judge.

American Surety Company of New York appeals from a judgment in the sum of $2,700 in favor of J. F. Schneider & Son Inc., of Middlesboro. The basis of the claim was that the appellant, in bad faith, failed to settle two damage actions against appellee.

Several grounds are urged for reversal. It is necessary to discuss only whether appellee proved bad faith on the part of the appellant, the single issue submitted to the jury. Appellant's motion for a directed verdict and motion for a judgment notwithstanding the verdict were overruled.

Appellant was the insurer of the trucks operated by appellee. The limits of liability on the policy were: as to bodily injury, $10,000 for each person and $20,000 for each accident, and as to property damages, $5,000. The policy contained the following provision:

'the company shall:

'(a) defend any suit against the insured alleging such injury, * * * or destruction and seeking damages on account thereof, * * * but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.'

One of appellee's trucks covered by the policy collided with a car in Lincoln County, Kentucky, on June 17, 1952. Walter Peterson, driver of the car, was killed. He had about seventeen years' life expectancy and a pension paying close to $5,000 annually. Lucille Peterson, his wife, received severe permanent injuries. The damage to the car, as stipulated, was $2,100. Two actions for damages seeking recovery of $52,000 and $55,100 were filed against appellee.

Appellant employee Sam Kennedy, of Somerset, to defend the actions as soon as they were filed. Following Kennedy's death, Fritz Krueger and M. D. Harris, both of Somerset, were employed. Since the actions involved amounts in excess of the insurance coverage, appellee employed his regular attorney, Arthur Rhorer, of Middlesboro, to represent his interest in the defense and upon the counterclaim. Appellee also employed Ernest G. Baxter, of Stanford, to assist in the trial. The plaintiffs in the action were represented by Pat Rankin, Stanford, Kentucky, and William C. Wilson, Knoxville, Tennessee.

The cases were consolidated for trial. Appellee had filed a counterclaim for damage to its truck. The only eyewitness to the collision was the truck driver. The evidence was conflicting. The decisive fact issue was to as which vehicle was traveling in the wrong lane of the highway at the time of the collision.

Prior to the date of trial, there had been some discussion of settlement. The claims manager for appellant, L. R. McClure, had discussed settlement with the Knoxville attorney, who had asked $75,000. The lowest offer to settle prior to trial was $30,000, which was considered as too high by all of the parties concerned in the defense of the actions. On the day before the trial at a conference of the defense counsel and George Schneider, appellee's president, settlement was discussed. It was agreed that the cases should be settled if a reasonable figure could be secured. Authority was obtained by Krueger from appellant to offer $17,000 in settlement and appellee agreed to contribute $1,000 in addition. Rankin, as attorney for the claimants, was contacted, but the offer was refused. A counteroffer of $30,000 was made, which was reduced to $28,000. No settlement resulted.

On Thursday, the day of the trial, Schneider said, he demanded of Krueger that an offer of $23,000 be made, which was not done. On Friday he directed Baxter, his attorney, to make the offer. Appellee was to pay $900 and appellant $22,100, its full liability.

The case was submitted to the jury late Friday afternoon, and after short consideration the jury was excused for the weekend. Krueger approached Rankin with the proposal that: 'If you get your people to accept $23,000, I will see if I can get it for you.' Rankin refused, saying that $28,000 was the low offer. Baxter then presented the matter to Rankin again, unsuccessfully. Schneider said he demanded that the offer be kept open until the following Monday. Excepting Baxter, all of the defense counsel, McClure, and Schneider departed. Baxter was to await the jury action on Monday.

After the jury departed, Rankin visited the jury room to see if there was anything there that would give him some idea as to what the jurors were thinking. From his observation of a blackboard used by the jury, he concluded that some of the jury felt that appellee's defense was good. He considered the question of liability as not clear. The largest verdict in a death case rendered theretofore in Lincoln County had been $5,000.

Mrs. Peterson and Rankin's co-counsel returned to Stanford on Sunday night. Rankin discussed the case with them and in view of doubtful liability and the record of low jury verdicts, it was agreed that the $23,000 offer should be accepted. On Monday morning when the court convened, the jury returned to its room for further consideration of the verdices. Rankin then approached Baxter and unsuccessfully attempted to obtain an offer in excess of $23,000....