Baker v. Northwestern Nat. Cas. Co.

• Decision Date: 20 December 1963
• Citation: 22 Wis.2d 77,125 N.W.2d 370
• Parties: Frederick L. BAKER, Jr., Respondent, v. NORTHWESTERN NATIONAL CAS. CO., a domestic corporation, Appellant.
• Court: Wisconsin Supreme Court

Page 370

125 N.W.2d 370

22 Wis.2d 77

Frederick L. BAKER, Jr., Respondent, v. NORTHWESTERN NATIONAL CAS. CO., a domestic corporation, Appellant.

Supreme Court of Wisconsin.

Dec. 20, 1963.

Ray T. McCann, Milwaukee, for appellant.

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

CURRIE, Justice.

Northwestern concedes that there are disputed questions of fact but contends that these are immaterial because Northwestern is entitled to summary judgment as a matter of law. It asserts that, even though the disputed facts be decided in Baker's favor, they would establish only negligence on Northwestern's part, not bad faith, and that Northwestern's liability can only be predicated upon bad faith. Berk v. Milwaukee Automobile Ins. Co. (1944), 245 Wis. 597, 15 N.W.2d 834, and Maroney v. Allstate Ins. Co. (1961), 12 Wis.2d 197, 107 N.W.2d 261, are cited as supporting authority.

The holding of the Berk and Maroney Cases is accurately stated in headnote 1 of the Maroney Case, 12 Wis.2d at page 197, 107 N.W.2d at page 261 as follows:

'It is not bad faith if counsel for an automobile liability insurer refuses to settle the claim of an injured person under the bona fide belief that the insurer might defeat the action or keep the verdict within the policy limits, and even though it may be that the insurer acted negligently, exercising poor judgment, it is not enough to show that the insurer acted negligently in deciding to litigate rather than to settle the case, bad faith being a species of fraud requiring clear, satisfactory, and convincing evidence to sustain a finding thereof.'

Therefore, if Baker had grounded his cause of action against Northwestern solely on the facts: (1) that Northwestern had rejected an offer by Walker to settle the latter's negligence action for the policy limit of $25,000; and (2) that the final judgment recovered by Walker against Baker and Northwestern was in excess of $40,000; Northwestern would have been entitled to summary judgment under the rule of the Maroney and Berk Cases. The facts before the circuit court, however, were not so limited. The materiality of these additional facts will be considered after we first examine the applicable law bearing on the issue of Northwestern's exercise of good faith.

The most illuminating discussion bearing on this issue is found in Mr. Justice OWEN'S well-reasoned opinion (on reargument) in Hilker v. Western Automobile Ins. Co. (1931), 204 Wis. 1, 12 et seq., 231 N.W. 257, 235 N.W. 413. It was therein held that a correlative duty on the part of the insurer to exercise good faith toward the insured, in determining whether or not to settle, arises from certain provisions of the insurance contract. These provisions turn over to the insurer absolute control of the defense of any action brought against the insured which asserts a liability that lies within the coverage of the contract, and exclude the insured from interfering in any negotiations for settlement. As significantly noted by Mr. Justice OWEN in the Hilker Case, in order for the insurer to make a good-faith decision not to settle within policy limits, it must have made a diligent effort to ascertain the facts upon which only an intelligent and good-faith judgment may be predicated. The test of such diligence is that 'which a man of ordinary care would exercise in the investigation and adjustment of claims.' The opinion also states that the insurer has a further duty in addition to that of exercising diligence to ascertain the facts determining liability. This further duty is stated in these words (204 Wis. at pages 15-16, 235 N.W. at page 415):

'In addition to this a further duty plainly devolves on the insurer. After it has made an investigation of the accident and the injury, and faces the probability that a recovery will exceed the indemnity, it plainly becomes the duty of the insurer 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.'

Thus, the Hilker Case in effect holds that the failure of the insurer to have performed either or both of the foregoing duties prevents its decision not to settle within policy limits from being one made in good faith. In addition to the duties stressed in the Hilker Case there must be added a third duty which is imposed upon the insurer as a result of the insured surrendering to it the sole control of all settlement negotiations, namely, 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. Brown v. Guarantee Insurance Company (1957), 155 Cal.App.2d 679, 689, 319 P.2d 69, 66 A.L.R.2d 1202. See also Byrnes v. Phoenix Assurance Company of New York (D.C.Wis.1959), 178 F.Supp. 488, 490, and Anno. 40 A.L.R.2d 168, 216, § 17. Failure of the insurer to perform any one or more of these three duties presents a jury issue with respect to whether the insurer acted in good faith in refusing to settle within policy limits. There may be other factors bearing on the insurer's good faith, in addition to its failure to perform these specified duties, but we find it unnecessary to explore these in resolving the instant appeal.

Keeping these three duties of the insurer in mind, we now turn to the record made on the motion for summary judgment in order to ascertain whether any issue of fact was presented with respect to...