Bollinger v. Nuss

• Decision Date: 25 January 1969
• Docket Number: No. 45179,45179
• Citation: 202 Kan. 326,449 P.2d 502
• Parties: Walter BOLLINGER (Plaintiff), Appellant, v. Karl NUSS (Defendant), Appellant, and Western Casualty and Surety Company (Garnishee), Appellee.
• Court: Kansas Supreme Court

Page 502

449 P.2d 502

202 Kan. 326

Walter BOLLINGER (Plaintiff), Appellant, v. Karl NUSS (Defendant), Appellant, and Western Casualty and Surety Company (Garnishee), Appellee.

No. 45179.

Supreme Court of Kansas.

Jan. 25, 1969.

Syllabus by the Court

1. In defending and settling claims against its insured, the insurer of a liability or indemnity policy owes to the insured the duty to act in good faith an without negligence; failure to do so will result in the insurer being held liable for the full amount of the insured's resulting loss, even if that amount exceeds policy limits.

2. In this jurisdiction a liability insurer may be held liable in excess of its undertaking under the policy if it acts negligently or in bad faith when considering offers to compromise the claim against the insured for an amount within policy limits.

3. Whether the conduct of an insurer who rejects a settlement offer within the limits of its policy is measured by the good faith test or negligence test, the real question is the degree of consideration which an insurer must give to those interests of the insured which conflict with its own.

4. The rule in this jurisdiction is that in acting on offers of settlement within policy limits, the insurer may properly give consideration to its own interests, but it must also give at least equal consideration to the interests of the insured. This means that the insurer must evaluate the claim without looking at the policy limits and as though it alone would be responsible for the entire amount of any judgment rendered on the claim. Thus, under the negligence test the insurer must conduct itself with that degree of care which would be used be an ordinarily prudent person in the management of his own business, with no policy limits applicable to the claim. Likewise, under the good faith test, the insurer must in good faith view the situation as it would if there were no applicable policy limits.

5. Under either the negligence test or the good faith test much the same factors may be relied on in determining whether or not an insurer is liable for failing to accept an offer of compromise within policy limits. In the final analysis the question of liability depends upon the circumstances of the particular case and must be determined by taking into account various factors discussed in the opinion.

6. A duty is imposed on the insurer to communicate to the insured the results of any investigation indicating liability in excess of policy limits and any offers of settlement, so that the insured may take proper steps to protect his own interests.

7. An attorney must be given considerable leeway in trying a lawsuit, and ordinarily the matter of trial strategy must be left in his hands rather than in the hands of his client.

8. Where the insurer acts honestly and in good faith upon adequate information, it should not be held liable for mere error of judgment because it failed to prophesy the result. The insurer does not act in bad faith if it honestly believes, and has good cause to believe, that any probable liability will be less than policy limits.

9. Whether an insurer in defending a claim and refusing an offer of settlement within policy limits was negligent or acted in bad faith is a question for the trier of fact in each case, and the findings of the lower court, when supported by substantial, competent evidence, will not be disturbed on appeal.

10. Issues of fact in a garnishment proceeding are to the determined by the court, and the parties are not entitled to a jury trial as matter of right.

11. In a garnishment proceeding instituted to determine the extent of an insurer's liability where a judgment rendered against its insured exceeded policy limits, the record is examined, and it is held, the district court did not err in (1) finding the insurer did not act negligently or in bad faith in defending the claim or rejecting an offer of settlement within policy limits; (2) ruling the parties were not entitled to a jury trial on issues of fact; and (3) ruling on certain evidentiary matters.

H. Lee Turner, Great Bend, argued the cause, and J. Eugene Balloun and Max E. Eberhart, Great Bend, were with him on the brief for appellant Bollinger.

Robert E. Southern, Great Bend, was on the brief for appellant Nuss.

Don C. Foss, Great Bend, argued the cause, and Tudor W. Hampton, Jerry M. Ward and Norman G. Bailey, Great Bend, were with him on the brief for appellee.

O'CONNOR, Justice:

This was a garnishment proceeding to determine the extent of the insurer's liability where a judgment rendered against its insured exceeded policy limits.

The plaintiff, Walter Bollinger, recovered a judgment for $30,483.84 against the defendant, Karl Nuss. Defendant's insurer, Western Casualty and Surety Company, using the services of Mr. Tudor W. Hampton, an attorney of the Barton County Bar, defended the case under the obligation of its policy. After the insurer paid its policy limits of $25,000 into court, an order of garnishment was issued against the insurer. Both plaintiff and defendant took issue with the garnishee-insurer's answer which stated it owed nothing further on the judgment. The issue tried to the court at the garnishment hearing was whether or not the garnishee-insurer was negligent or acted in bad faith in respect to settlement negotiations and in the defence of the case. The lower court determined the matter in favor of the garnishee-insurer, and plaintiff and defendant have appealed, stating their respective positions on appeal are identical, and presenting the points to be considered in a single brief.

Although the several points urged by appellants all relate to the proceedings in garnishment, the principal question centers on the trial court's determination that the insurer was not negligent and did not act in bad faith during the course of settlement negotiations, or in conducting the defense of the action on behalf of the defendant-insured. Since there was some conflict between the testimony of the defendant and that of Mr. Hampton, who were the only witnesses at the garnishment hearing, we will summarize the evidence in the light most favorable to the prevailing party below, the garnishee-insurer.

On November 3, 1963, as plaintiff was walking across the street, he was struck by an automobile driven by the defendant. Plaintiff sustained bodily injuries which necessitated hospitalization, and treatment by several physicians. His actual medical and hospital expenses, as later determined by the jury, amounted to $2,873.84.

Plaintiff filed suit on September 30, 1964, against defendant for $85,000. As previously indicated, the maximum coverage provided by defendant's policy was in the amount of $25,000. After the action was filed, an associate of Mr. Hampton dispatched a letter by certified mail to the defendant. The pertinent portions of that letter follow.

'This is to advise you the amount sued for in said petition is in excess of your coverage under your policy with Western Casualty and Surety Company, your insurance carrier. The company will, of course, defend you to the limits of your policy, but if on account of the demand in excess of your coverage you wish to employ counsel at your cost to represent your interests, above your coverage or make an independent investigation of the accident in question, feel free to do so. However, unless you wish legal representation of your own to represent your interests as may be involved, it will not be necessary to take such steps as we as attorneys for your company will represent your personal interests without costs to you.

'Rest assured everything possible will be done to protect you in accordance with the terms and within the policy limits.'

After a conference with Mr. Hampton about the letter, and also a discussion of the facts pertaining to the accident, defendant stated he would be satisfied if Hampton would 'go ahead and handle the case on his behalf along with the insurance company.' Hampton further advised defendant he would have to pay any amount over and above the policy limits. Hampton testified, 'I advised him that if it (the judgment) went above $25,000.00, it would be his baby, he would have to take care of that.' Thereupon, Hampton filed an answer denying negligence on the part of the defendant and alleging that plaintiff was contributorily negligent. An exchange of interrogatories and the taking of depositions, including that of one of plaintiff's doctors, followed. Medical reports from plaintiff's doctors were also made available to Hampton, who, in turn, discussed their contents with defendant. Hampton told defendant about plaintiff's alleged permanent injuries, that the major disability claim was loss of hearing, and that plaintiff 'had a hole in the side of his leg.' Defendant was also informed of the approximate medical expenses being claimed.

During pendency of the action defendany made twenty to thirty visits to Mr. Hampton's office to discuss the case. At these conferences defendant always maintained that plaintiff was partly to blame for the accident because, in defendant's opinion, had plaintiff been paying attention to where he was going, he would have seen defendant's automobile and gotten out of the way. But Hampton told the defendant the defense of contributory negligence would be very difficult to prove because of plaintiff's alleged loss of memory and lack of an eyewitness.

It appears that at a pretrial conference (the date not disclosed in the record) plaintiff was informed of the insurer's policy limits of $25,000. Prior to trial on June 20, 1966, Hampton made two offers of settlement, both of which were with defendant's knowledge: the first for $7,500 in March 1966; the second for $10,000 about a week before trial. Hampton had recommended, and received authority from the insurer, to settle the case if it could be accomplished in the range of $10,000. The only offer submitted by plaintiff's cou...