Baker v. Northwestern Nat. Cas. Co.

• Decision Date: 01 February 1965
• Parties: Frederick L. BAKER, Jr., Respondent, v. NORTHWESTERN NATIONAL CASUALTY Co., a domestic insurance corporation, Appellant.
• Court: Wisconsin Supreme Court

Page 493

132 N.W.2d 493

26 Wis.2d 306

Frederick L. BAKER, Jr., Respondent, v. NORTHWESTERN NATIONAL CASUALTY Co., a domestic insurance corporation, Appellant.

Supreme Court of Wisconsin.

Feb. 1, 1965.

Rehearing Denied March 30, 1965.

Ray T. McCann, Milwaukee, for appellant.

Aberg, Bell, Blake & Metzner, Madison, for respondent.

GORDON, Justice.

The Insurer's Violations of Duty.

In ruling upon Northwestern's motion for summary judgment, this court considered various duties on the part of an insurer which relate to whether it has acted in good faith in failing to settle the claim. Baker v. Northwestern Nat. Casualty Co. (1963), 22 Wis.2d 77, 125 N.W.2d 370. Referring to Hilker v. Western Automobile Ins. Co. (1931), 204 Wis. 1, 231 N.W. 257, 235 N.W. 413, we discussed three specific duties on the part of the insurance carrier.

The first duty recited in the 1963 Baker Case (22 Wis.2d p. 82, 125 N.W.2d p. 372) was that the insurance company 'must have made a diligent effort to ascertain the facts.' The second duty discussed (p. 83, 125 N.W.2d p. 373) was that devolving upon the insurer, after an investigation reveals the probability that a recovery will exceed the indemnity, 'to indicate such fact to the insured, to the end that he may take such steps as may be open to him for his own protection.' The third duty considered (p. 83, 125 N.W.2d p. 373) was 'that of keeping the insured timely and adequately informed of any offers of settlement received from the claimant and of the progress of any settlement negotiations.'

The first question of the special verdict consisted of three parts and inquired into the jury's resolution of the factual issues surrounding the alleged violation by Northwestern of its duties described above. The following are the questions and the jury's answers thereto:

'Question One:

'Was the defendant, Northwestern National Casualty Company, negligent with respect to:

'a) Failing to make a diligent effort to ascertain the facts upon which an intelligent and good faith evaluation could be made of the claim of Robert Walker?

'Answer: Yes.

'b) Failing to indicate to its insured, Frederick L. Baker, Jr., that a recovery could exceed his policy limits to the end that he might take such steps that might be open to him for his own protection?

'Answer: Yes.

'c) Failing to keep its insured, Frederick L. Baker, Jr., timely and adequately informed of any offers of settlement received from claimant, and of the progress of settlement negotiations?

'Answer: Yes.'

Upon this appeal, Northwestern urges that the evidence does not support the jury's answers to each part of Question One of the special verdict. Our examination of the record persuades us that there is credible evidence to sustain the jury's responses.

Did Northwestern fail to make a diligent effort to ascertain the facts? The company may have been misled by its adjuster's report that Mrs. Walker had made 'quite a good recovery.' The adjuster stated that he had procured this information by way of 'the grapevine;' the fact was that Mr. Walker had sustained several permanent disabilities. His right knee was permanently restricted in motion; his legs were of unequal length; his jaw was permanently injured so as to limit the extent that he could open his mouth. In addition, Mr. Walker was obliged to undergo surgery (after the date of the adjuster's report), which involved two-and-one-half hours under general anesthesia and a two weeks hospitalization. He was also advised that he might incur substantial future medical and dental care.

The record contains evidence from which the jury may have concluded that Northwestern was not diligent in that the company failed to obtain medical reports concerning the permanence of Mr. Walker's jaw injury. Although Northwestern's attorney expressly requested that the company make arrangements for its own examinations of Mr. Walker by an oral surgeon, there is no evidence that the company did so.

Northwestern's representatives did not get in touch with Mr. Walker's employer to determine his job status both before and after the accident. It is noted that in evaluating Mr. Walker's damages the jury found that he had incurred a past wage loss of $5,748 and would sustain a future wage loss of $4,160. Both of these findings as to wage loss were affirmed upon the appeal to this court.

Upon this record the jury was warranted in concluding that there was a probability of an overage and, therefore, that Northwestern was dutybound to apprise its insured so that he could take his own protective steps if he chose to. It is obviously difficult to decide in advance when a overage may be 'probable.' One court observed cynically, 'It is always probable that something improbable will happen.' Warren v. Purtell (1879), 63 Ga. 428, 430. No simple guidelines are available; each case will depend on its own peculiar facts.

While Mr. Baker was awere that the claim of Mr. Walker was for a sum greater than the limits of his insurance policy, Northwestern did not advise Mr. Baker of his right to have independent counsel to protect him with regard to an overage judgment. Mr. Baker consulted an attorney as to the claim for his own damages against Mr. Walker; on the other hand, there is no evidence that Mr. Baker either was informed by Northwestern or learned from independent sources that he was entitled to his own representation with reference to an overage notwithstanding the fact that he was obliged to surrender control of the defense to his insurer.

The record also contains credible evidence to support the jury's finding that Northwestern did not keep Mr. Baker adequately informed of compromise offers and of the progress of settlement negotiations. Several settlement opportunities occurred which were not transmitted to Mr. Baker. We recognize that an attorney does not have to take seriously all comments relating to settlement. Occasionally remarks are made between competing counsel which are of a bantering nature and are not meant to be taken seriously. We do not suggest that such casual conversations need be forwarded by an insurer to its policyholder or by an attorney to his client. However, in a case involving a probable overage, an insurance carrier must be circumspect to communicate all offers which are not patently jocular or frivolous.

In the instant case, it would appear that the only proposal that was transmitted to Mr. Baker was one which would have necessitated his paying approximately $6,000 toward the settlement. Northwestern concedes that it also received a written offer to settle Mr. Walker's claim for $25,000 plus costs. The fact that this offer was withdrawn a few weeks later does not relieve Northwestern from the onus which attended its failure to have communicated the existence of the proposal to its insured.

On May 27, 1960, Northwestern received a letter from its attorney, Mr. Block, which contained the following statement: 'Present demands for settlement are $25,000.00.'

In addition, the record discloses that there was a conference with the trial judge on June 24, 1960, which was attended by the various attorneys. At that time, Mr. Berg, the attorney for Mr. Walker, had the following discussion with Mr. Block, the attorney for Northwestern:

'Mr. Berg: Judge, I would like to ask Mr. Block, can this case be settled for $25,000 at this point?

'Mr. Block: I can't answer the question, because it is not pertinent to the issues involved at all. Therefore, I cannot answer the question on the record; I don't think it has any place in the issues in this case.'

Another discussion as to settlement was described by Mr. Jackman, the attorney who was representing Mr. Walker on the counterclaim by Mr. Baker. Mr. Jackman said that he recollected the offer by Mr. Berg to settle for $25,000 and also gave the following testimony:

'A. * * * I told Mr. Block that I believed that if he could raise $22,000.00 or $23,000.00 to settle the case that Mr. Berg would recommend to his client that he do so.

* * *

* * *

'A. On Saturday morning we were called back by the Judge to frame a verdict. Shortly before, as I recall, that conference began, Mr. Block asked Mr. Berg if Mr. Berg would settle the case for $22,000.00 or $23,000.00. Mr. Berg then replied, as I recollect, that he would have to take it up with his client, but he first wanted to know if Mr. Block had authority to make a firm offer before he would take it up with his client, and Mr. Berg said he would be around Janesville all weekend, and if Mr. Block would get in touch with his company and then get in touch with Mr. Berg when he had authority, Berg would let him know promptly.

'Q. Did you make further inquiry on Monday morning whether anything had developed from that?

'A. When we came back Monday morning I asked Mr. Berg what had transpired, and he said nothing.'

Since these several settlement prospects were not passed on to Mr. Baker, according to his testimony, the jury could properly conclude that under the circumstances Northwestern failed in a duty it owed to its insured.

The Finding of Bad Faith.

The jury determined that Northwestern's refusal to settle within its policy limits was an act of bad faith toward Mr. Baker. In the absence of bad faith, a policyholder cannot surcharge an overage against his insurance company merely because of negligence on the part of the latter in deciding to litigate rather than to settle. Baker v. Norhwestern Nat. Casualty Co. (1963), 22 Wis.2d 77, 81, 125 N.W.2d 370; Maroney v. Allstate Ins. Co. (1961), 12 Wis.2d 197, 201, 107 N.W.2d 261; Berk v. Milwaukee Automobile Ins. Co. (1944), 245 Wis. 597, 601, 15 N.W.2d 834. The extent and character of the negligence, however, are factors to be considered by the trier of fact in weighing the matter of bad faith. To hold the carrier liable for the excess judgment, the insured must show by clear, satisfactory and convincing evidence that the carrier acted in bad...