Berk v. Milwaukee Auto. Ins. Co.

• Court: United States State Supreme Court of Wisconsin
• Writing for the Court: MARTIN
• Citation: 245 Wis. 597,15 N.W.2d 834
• Parties: BERK v. MILWAUKEE AUTOMOBILE INS. CO.
• Decision Date: 10 October 1944

245 Wis. 597
15 N.W.2d 834

BERK
v.
MILWAUKEE AUTOMOBILE INS. CO.

Supreme Court of Wisconsin.

Oct. 10, 1944.

Appeal from a judgment of the Circuit Court for Milwaukee County; Roland J. Steinle, Judge.

Reversed.

[15 N.W.2d 835]

Action commenced May 1, 1941, by Paul A. Ladwig, plaintiff, against Milwaukee Automobile Insurance Company, a Wisconsin corporation, defendant, to recover the excess over the coverage of an automobile liability policy, the coverage being limited to $5,000 and costs, and the judgment rendered against plaintiff being in the sum of $10,000 damages, with costs and disbursements taxed in the sum of $167.45. After issue was joined and on the 8th day of May, 1942, Mr. Ladwig died intestate. Thereafter, letters of administration in the estate of Mr. Ladwig were duly issued, and on October 21, 1942, the administrator assigned and transferred the alleged cause of action to the plaintiff-respondent, David J. Berk.

This action arises out of the case of Kuhle v. Ladwig, reported in 237 Wis. 147, 295 N.W. 41, in which action the plaintiff recovered a judgment against Paul A. Ladwig and his insurance carrier, Milwaukee Automobile Insurance Company. The judgment provided that plaintiff recover from defendant Milwaukee Automobile Insurance Company the sum of $5,000 of said $10,000 damages, plus the costs and disbursements in the sum of $167.45. The defendant insurance company paid that part of the judgment rendered against it.

The instant action was brought against defendant for the balance of said former judgment with interest on said sum of $5,000 from December 27, 1939, at six per cent per annum. It is alleged in the complaint in the instant action ‘that pursuant to the terms of said insurance policy (the coverage policy issued by defendant on the Ladwig automobile), said defendant assumed and undertook full, absolute and complete charge and control of the defense of said claim and action (Kuhle v. Ladwig, supra), exclusively, on behalf of the said Paul A. Ladwig and on its own behalf, and excluded and deprived the said Paul A. Ladwig from exercising any discretion, power, authority or judgment either in compromising or in defending such claim or action, and engaged its own counsel exclusively for that purpose, and assumed and retained full, complete and absolute authority in respect to settling said claim and said action, to the complete exclusion of Paul A. Ladwig.’

The action was tried to the court. The substance of the court's findings is to the effect that a person of ordinary care and prudence, in the exercise of that degree of care and diligence which such a person would have exercised in the management of his own business were he investigating and adjusting a claim such as the Kuhle claim, would have accepted the offer of settlement which was made during the pendency of the Kuhle case; that, in refusing to accept the offer of settlement of the Kuhle claim which was made on behalf of Marie Kuhle before the Kuhle case was begun, the defendant failed to exercise that degree of care and diligence which a person of ordinary care and prudence would have exercised in the management of his own business were he investigating and adjusting such claim; that, in deciding to litigate, and in litigating, the Kuhle case rather than settle it, and to refuse the offer of settlement which was made during the pendency of said case, the defendant failed to exercise that degree of care and diligence which a person of ordinary care and prudence would have exercised in the management of his own business were he investigating and adjusting a claim such as the Kuhle claim; that the defendant's decision to reject the offer of settlement which was made before the Kuhle case was begun, was the result of the defendant's failure to weigh the probabilities in a fair and honest way; that the defendant's decision to reject the offer of settlement which was made before the Kuhle case was begun, was made in bad faith; that the defendant's decision to litigate the Kuhle case rather than settle it, and to reject the offer of settlement which was made during the pendency of said case, was made in bad faith.

As conclusions of law the court found: (1) That the defendant failed and refused in bad faith to settle the Kuhle claim before the Kuhle case was begun; (2) that the defendant decided to litigate, and litigated the Kuhle case in bad faith, rather than settle it.

Upon these findings and conclusions of law, judgment was entered in favor of the plaintiff against defendant for the sum of $5,000, plus interest and costs. Defendant

[15 N.W.2d 836]

appeals. Further material facts will be stated in the opinion.

Dennis J. Regan and Bender, Trump & McIntyre, all of Milwaukee (Eugene L. McIntyre, of Milwaukee, of counsel), for appellant.

Churchill, Davis & Churchill, of Milwaukee, for respondent.

Wilkie, Toebaas, Hart & Jackman, of Milwaukee, amici curiae.

MARTIN, Justice.

The facts in the case of Kuhle v. Ladwig, so far as here material, are adequately stated in 237 Wis. 148, 149, 295 N.W. 41, and will not be here repeated. The trial court's findings, the substance of which is set out in the preceding statement, are to the effect that a person of ordinary care and prudence, in the exercise of that degree of care and diligence which such a person would have exercised in the management of his own business were he investigating and adjusting a claim such as the Kuhle claim, would have accepted the offer of settlement which was made during the pendency of the case; that in refusing to accept the offer of settlement, which was made on behalf of Marie Kuhle before the case was begun, the defendant failed to exercise that degree of care and diligence which a person of ordinary care and prudence would have exercised in the management of his own business were he investigating and adjusting such claim; that the defendant's decision to refuse the offer of settlement which was made before the case was begun was the result of defendant's failure to weigh the probabilities in a fair and honest way; that the defendant's decision to reject the offer of settlement which was made before the case was begun was made in bad faith; that the defendant's decision to litigate the case rather than settle it and to reject the offer of settlement which was made during the pendency of said case was made in bad faith. The court's conclusions of law are grounded on bad faith.

Plaintiff can prevail only on the basis that defendant acted in, or was guilty of, bad faith in rejecting the offer of settlement, and in defending that action rather than settling same. Bad faith is a species of fraud, and the evidence to sustain a finding thereof must be clear, satisfactory, and convincing. Massey v. Richmond, 208 Wis. 239, 246, 242 N.W. 507. The test is not whether the defendant acted negligently, but whether it acted in had faith toward the plaintiff. In some jurisdictions the courts have permitted recovery where the insurer was guilty of negligence is not making a settlement. See Annotation, 131 A.L.R. 1501, 1502.

In Wisconsin Zinc Co. v. Fidelity & D. Co., 162 Wis. 39, 155 N.W. 1081, Ann.Cas.1918C, 399, the complaint alleged three separate causes of action: the first one on contract; the second one in tort based on negligence; and the third one on fraud and bad faith. The defendant demurred separately to each of the causes of action on the ground that they failed to state facts sufficient to constitute a cause of action. The trial court overruled all of the demurrers. On appeal, this court sustained the trial court as to the first and second causes of action, but reversed as to the third. At page 50 of 162 Wis.,155 N.W. at page 1086, Ann.Cas.1918C, 399, the court said: ‘They further hold that the parties may agree, and that under such contracts they do agree, that the insurer shall have the exclusive right to settle claims, and that this...