Associated Wholesale Grocers, Inc. v. Americold Corp.

• Court: Kansas Supreme Court
• Writing for the Court: SIX; ABBOTT; RICHARD W. WAHL
• Citation: Associated Wholesale Grocers, Inc. v. Americold Corp., 261 Kan. 806, 934 P.2d 65 (Kan. 1997)
• Decision Date: 07 March 1997
• Docket Number: No. 75279,75279
• Parties: ASSOCIATED WHOLESALE GROCERS, INC., et al., Plaintiffs/Appellees, v. AMERICOLD CORPORATION; Safeway, Inc., et al., Defendants, and Northwestern Pacific Indemnity Company, Garnishee/Appellant.

Page 65

934 P.2d 65

261 Kan. 806

ASSOCIATED WHOLESALE GROCERS, INC., et al., Plaintiffs/Appellees, v. AMERICOLD CORPORATION; Safeway, Inc., et al., Defendants and Northwestern Pacific Indemnity Company Garnishee/Appellant.

No. 75279.

Supreme Court of Kansas.

March 7, 1997.

Syllabus by the Court

1. An insurer assumes a duty to define any limitations on coverage in clear and explicit terms.

2. The test to determine whether an insurance contract is ambiguous is not what the insurer intends the language to mean, but what a reasonably prudent insured would understand the language to mean.

3. Primary insurance coverage is insurance coverage under which liability attaches immediately upon the happening of the occurrence that gives rise to liability. An excess insurance policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance.

4. An excess insurer owes an implied good faith obligation regarding settlement negotiations. Even if it has not assumed the defense or control of settlement negotiations, an excess insurer has the right under the policy to consent to any settlement reaching its coverage level. The excess insurer has an implied obligation to exercise that right in good faith.

5. While the insurer's good faith obligation to settle is implied, the insurer's coverage obligations are set forth in the policy. When an insurer wrongfully denies coverage, the insurer breaches an express contract provision.

6. An insured does not lose rights against the insurer by entering into a settlement after the insurer's bad faith denial of coverage and refusal of a reasonable settlement offer within policy limits.

7. If a covenant not to execute is permissible in a case in which the insurer has defended and provided coverage, but has breached the implied good faith settlement obligation, then it should be no less permissible in a case in which the insurer has breached that obligation by wrongfully denying coverage and rejecting a reasonable policy limits settlement offer.

8. If the insurer's rejection of a reasonable offer to settle within the policy limits is either negligent or in bad faith, after its wrongful denial of coverage, the insured should be free to negotiate a reasonable, good faith settlement with a third-party claimant, even though the insurer offered to defend the insured.

9. The reasonableness of a policy limits settlement offer must be viewed through the insurer's eyes at the time the offer was rejected. The insurer must evaluate the settlement offer without regard to policy limits.

10. In determining whether an insured's settlement above policy limits with a third-party claimant without the insurer's consent is reasonable, the solvency of the insured is relevant.

11. The plaintiff has the burden of initially presenting a prima facie case to establish the reasonableness of a settlement amount. The proof requires, at a minimum, enough information for the district court to make an independent evaluation of the reasonableness of the settlement.

12. An insured's action for damages for breach of an insurer's implied good faith settlement obligation is contractual in nature.

13. Factors for evaluating the circumstances surrounding an insurer's coverage denial include: (1) whether the insured was able to obtain a reservation of rights; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way to limit any potential prejudice to the insured; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute.

14. Although both a primary and an excess insurer owe the insured an implied duty of good faith, the specific contractual duties owed by each are defined in the insurance policy.

15. In plaintiffs' garnishments against the excess insurer to enforce consent judgments entered against the insured, the record is examined and it is held: (1) Summary judgment for plaintiffs is reversed; (2) denial of summary judgment for the excess insurer is affirmed; (3) the absolute pollution exclusion in the excess insurance policy does not apply to damages caused by smoke from a hostile fire; (4) the occurrence issue is not properly preserved for appellate review; (5) the excess insurer failed to produce sufficient evidence to raise a material issue of fact concerning the "other insurance" issue; and (6) material issues of fact remain as to the good faith and reasonableness of the settlement amount resulting in the consent judgments, the excess insurer's bad faith in denial of coverage and rejection of settlement within the policy limits, and the liability of the excess insurer for the judgments over policy limits.

Wayne T. Stratton, of Goodell, Stratton, Edmonds & Palmer, L.L.P., Topeka, argued the cause, and Charles R. Hay, of the same firm, was with him on the briefs for garnishee/appellant.

Andrew W. Horstman, of Robins, Kaplan, Miller & Ciresi, Minneapolis, MN, argued the cause, and Donald W. Bostwick, of Adams, Jones, Robinson & Malone, Wichita; N. Jack Brown, of Boddington & Brown, Kansas City; and David S. Evinger and Robert J. Gilbertson, of Robins, Kaplan, Miller & Ciresi, Minneapolis, MN, were with him on the briefs for plaintiffs Arkwright Mutual Insurance Company; Doskocil Companies, Inc., for itself and as assignee of Industrial Risk Insurers; and Wilson Foods Corporation.

John M. Duggan, of Duggan, Shadwick & Doerr, P.C., Kansas City, MO, argued the cause, and John E. North, Jr., and Pamela K. Black, of McGrath, North, Mullin and Kratz, P.C., Omaha, NE, were with him on the briefs for ConAgra, Inc. and Swift-Eckrich, Inc. James A. Durbin and Richard N. Bien, of Swanson, Midgley, Gangwere, Kitchin and McLarney, L.C., Kansas City, MO, were on the briefs for Safeway, Inc.

Edward J. Barbosa, William J. Gotfredson, and Edward L. Smith, of Knipmeyer, McCann, Smith, Manz & Gotfredson, Kansas City, MO, were on the briefs for Safeway, Inc.; Kraft Foodservice, Inc.; Fleming Companies, Inc.; and Marcus Phillips, d/b/a Phillips Confections, Inc., and Hanover Kansas City, Inc.

Daniel J. Strausbaugh and Steffanie Stracke, of Couch, Strausbaugh, Pierce & King, Chartered, Overland Park, and Laura A. Foggan, Daniel E. Troy, and John C. Yang, of Wiley, Rein & Fielding, Washington, DC, were on the brief for amicus curiae Insurance Environmental Litigation Association.

Steven C. Day, of Woodard, Blaylock, Hernandez, Roth & Day, Wichita, was on the brief for amicus curiae Kansas Association of Defense Counsel.

SIX, Justice:

This is a first impression pollution exclusion liability insurance excess coverage case involving a finding of bad faith for refusal to settle within policy limits. The judgments for plaintiffs totaled $58,670,754. The defendant excess carrier's policy limit is $25 million. Our journey to resolution takes us deep into "insurance country," where an unfamiliar landscape is dominated by both primary and excess carrier contractual relationships with the insured and the absence of case law controlling those relationships. Our vehicle is summary judgment.

INTRODUCTION

Various tenants and their subrogated insurers (plaintiffs) sued Americold Corporation and its subsidiary, Americold Services Corporation (both called Americold), the owner and manager of an extensive underground cold storage facility. Plaintiffs in cases pending in both federal district court and the district court of Wyandotte County sought recovery for damaged food products. A fire starting on December 28, 1991, burned for several months and produced smoke spreading throughout the facility. Americold's primary general liability insurer, National Union Fire Insurance Company (National Union), provided Americold's defense. Plaintiffs sought damages of approximately $66 million.

For the year 1991, Americold had primary general liability coverage for tenant claims of $1 million, with $25 million excess coverage, through Northwestern Pacific Indemnity Company (NPIC), the garnishee-appellant, and $15 million excess coverage to the National Union and NPIC policies through TIG Insurance Company (TIG). The plaintiffs and their separate judgments are:

Arkwright Mutual Insurance Company                               $20,466,087.00
                Doskocil Companies, for itself and as assignee of Industrial     $ 6,421,104.00
                  Risk Insurers and Wilson Foods Corporation
                Kraft Foodservice, Inc.                                          $ 4,930,373.00
                Safeway, Inc., and General Accident Ins. Co.   $ 5,283,027.00
                Fleming Cos., Inc., Commerce & Industry Ins. Co. and Institute   $14,037,145.00
                  of London Underwriters
                Marcus Phillips d/b/a Phillips Confections and Hanover Kansas    $   146,876.00
                  City, Inc
                ConAgra, Inc., and Swift"Eckrich, Inc.                           $ 7,386,142.00
                

After extensive discovery, the parties participated in court-ordered settlement conferences (including both federal and state cases) before a federal magistrate. NPIC and TIG contended that various policy provisions, including an absolute pollution exclusion, raised coverage questions and declined to offer any amount in response to a policy limits settlement offer from plaintiffs. Concluding that NPIC and TIG were denying coverage, Americold negotiated a settlement with plaintiffs, which included consent judgments totaling $58,670,754, a covenant by plaintiffs not to execute against the assets of Americold, and an assignment of Americold's claims against its excess insurers. National Union tendered its policy limits on the eve of the settlement. Following entry of the consent judgments in the state and federal cases, plaintiffs filed garnishments in the district court of Wyandotte County against NPIC and TIG....