Ballard v. Citizens Cas. Co. of New York

• Decision Date: 31 March 1952
• Docket Number: No. 10425.,10425.
• Citation: 196 F.2d 96
• Parties: BALLARD et al. v. CITIZENS CAS. CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Seventh Circuit

196 F.2d 96 (1952)

BALLARD et al. v. CITIZENS CAS. CO. OF NEW YORK.

No. 10425.

United States Court of Appeals Seventh Circuit.

March 31, 1952.

Floyd E. Thompson, Chicago, Ill., Clarence W. Heyl, Peoria, Ill., Johnston, Thompson, Raymond & Mayer, Chicago, Ill., Heyl, Royster & Voelker, Peoria, Ill., for appellant.

Wallace J. Black, Kenneth W. Black and Glen L. Borden, all of Peoria, Ill., Black, Black & Borden, Peoria, Ill., for appellees.

Before MAJOR, Chief Judge, and DUFFY and LINDLEY, Circuit Judges.

DUFFY, Circuit Judge.

Defendant insurance company, for a premium of $171.36, issued an indemnity contract to Bertram J. Ballard and Sue D. Ballard (collectively hereinafter called the insured), insuring them for a period of three years against liability for damages in the amount of $2500 which might be asserted under an Illinois statute entitled, "An Act relating to Alcoholic Liquors", Ill.Rev. Stat.1951, c. 43, § 94 et seq. (more familiarly known as the Dram Shop Act). This is an appeal from a judgment entered upon a jury verdict finding a lack of good faith by the defendant company in refusing to settle within the limits of said indemnity policy a claim which was asserted under said statute.

Charlotte O. Farwell brought a suit in the Circuit Court of Henry County, Illinois, against the Ballards under the statute for $50,000 damages claiming loss of support as a result of the Ballards selling intoxicating liquor to her husband, causing his intoxication which resulted in his death. A judgment for $6500 was entered in that case in favor of Charlotte Farwell.

The insurance policy issued to the Ballards by the Citizens Casualty Company of New York (hereinafter called company) provided the company would investigate all reported accidents and defend any suit for damages brought against the insured under the Dram Shop Act, and that all expense incurred by the company for investigation and defense, including all costs taxed against insured in any such suit, and all interest accruing after entry of judgment would be at the expense of the company. The policy provided that the company would employ its own attorneys in the defense of any claim under the statute brought against insured, and that the company would have full discretion in the conduct of any negotiations for settlement of any claim, and that insured would not admit any liability nor settle any claim unless at their own expense.

The policy further provided that if the company elected to appeal from any judgment it would give notice to the insured of its intention to so do and that the insured would furnish their share of an appeal bond for any portion of a judgment in excess of the policy limit; and that if cash or other securities were not put up by the insured, then the company would cause such proceeding to review the judgment to be conducted without giving any bond.

From the evidence at the trial the jury was entitled to believe the following state of facts: The summons in the Farwell suit was served May 7, 1948, and defendant company was promptly notified. On May 14, 1948, the company employed Welch and Welch, attorneys, to defend the suit. Sheridan Welch, the junior partner, interviewed Bertram Ballard about the middle of May and again about six weeks to two months later. Ballard informed Welch that Fred R. Farwell, husband of Charlotte Farwell, had been in his tavern on the night he was killed and that he had been sold intoxicating liquor, but that to his knowledge Farwell was not intoxicated. Welch told Ballard about the policy limits and told him he could get another attorney to represent him, but that he did not think it was necessary, because usually this kind of case "don't grow too large — usually never amount to too much." Welch also told Ballard that there was nothing to worry about, that "at the most it wouldn't exceed the limits of the policy." A few days after the first interview Ballard went to Welch's law office and asked Sheridan Welch whether he was going to get any witnesses. Later Ballard brought four witnesses to Welch's office to be interviewed. On the night that Farwell was in Ballard's tavern there were 20 to 30 people present.

A written offer to settle the case for $2,500 was delivered to Sheridan Welch by Ballard, and a copy was delivered to Attorney Brian who had been employed by the Ballards in May as their personal attorney after the insurance company had employed Welch and Welch. After Welch read the offer he told Ballard that the company would not be interested in a settlement of the suit at the face of the policy, that "they would probably take it to court and settle for less." Upon Ballard's inquiry, "Who will get stuck for the balance?" Welch commented, "That is up to you," and that there would not be much chance of getting stuck because Polzin, attorney for Charlotte Farwell, was a young attorney.

Brian interviewed a Mr. Johnson who operated a tavern located near the Ballard tavern, and learned that Farwell had been in Johnson's tavern just before going to Ballard's. Johnson said Farwell was sober, but gave Brian the name of his waitress, Margaret Willey, who had waited on Farwell. Brian then conferred with Sheridan Welch and told him to be sure to interview Margaret Willey, because she had continued to serve Farwell and his companion after Johnson had left the tavern.

After the settlement offer of $2,500 had been received, Sheridan Welch told Brian that the company had turned it down, but gave no reason. When Brian asked if there was any other proposition, the answer was, "No." In a later conversation at the Elks Club, Brian told Tom Welch, the senior partner, that there were features about the Farwell case that he did not like; that plaintiff had one small child and that plaintiff was pregnant; and that there always was danger in that kind of case before a jury. Brian testified in the case at bar that he never had said that he "did not believe that the case should be settled," nor that he was "sure the defense would win the case."

Upon the trial, during a recess after the jury was selected, Brian asked Polzin, plaintiff's attorney, "Why don't you make me a proposition — one that I can get this thing settled — make me one that I can get this thing settled." Polzin then offered to settle for $2,000. Brian asked Polzin to wait and he then told Tom Welch of the offer to settle for $2,000. After Welch commented about not getting through to the company in New York, Brian asked him what he should tell Polzin in reply to the $2,000 offer, and Tom Welch said, "I don't care what you tell him. I am not interested in the settlement." He further stated that if plaintiff got a judgment it would not be for over $1,000 or $1,500.

When the attorneys arrived at the court-house before the trial started, Brian discovered that Witness Johnson would not testify that Farwell was not intoxicated, and Tom Welch decided he should not be called as a witness. Sheridan Welch did not interview Margaret Willey until two days before the trial, but she then refused to talk to him, claiming that plaintiff's attorney had talked to her first.

At the trial no one denied that Farwell had been sold intoxicating liquor in the Ballard tavern. No issue was made that Farwell had not met his death shortly after leaving the Ballard tavern. No issue was made as to plaintiff's loss of support. Margaret Willey testified for the plaintiff on the first day of the trial that Farwell and his companion were intoxicated in the Johnson tavern, that she shut them off and did not give them any more to drink because of their intoxication. No endeavor was made by Welch and Welch to communicate the offer of settlement to the company, although the trial went into the second day and they did not have authority to settle the case.

After judgment had been entered the company filed a notice of appeal. Shortly thereafter Tom Welch told Brian that the company was not going to complete the appeal, and that it offered to pay the face of the policy. Brian urged Welch to do all he could to get the company to change its decision about appealing, saying he thought the case could be reversed because of erroneous instructions; and he pointed out that it would be unfair to the defendants if the appeal were not prosecuted, reminding Welch of the two opportunities the company had to settle the claim within the policy limit. Brian also notified Welch that the Ballards were willing to put up their share of the cash or security on 5 days' notice, as provided by the policy.

Several weeks later Welch wrote to the Ballards that the company had decided not to complete the appeal. The Ballards then employed Attorneys Black, Black and Borden, who served a written notice on the company demanding that the appeal be perfected. In response the company, although still represented by Welch and Welch, offered to employ Black, Black and Borden as its sole attorneys in the matter. Black, Black and Borden properly and promptly refuse the tendered employment because of the obvious conflict of interest. The company failed to give Ballards the 5 days' notice, as provided by the policy, and the time for filing the appeal bond expired. Although the company later professed to be willing to appeal, it was then too late to protect the Ballards. Had the bond been timely filed, it would have operated as a supersedeas. However, execution having been served on the Ballards, they were required to and did pay the judgment in full.

In the case at bar the jury returned a general verdict favorable to plaintiffs. In addition the jury answered two special interrogatories which, approved by the trial court and incorporated in the judgment, were: (1) that in defending the suit brought by Charlotte Farwell against the Ballards the attorneys for the defendants did not investigate and try said case in the same manner that an ordinarily prudent attorney would have acted under the same or similar circumstances; and...