Bourget v. Government Employees Insurance Company

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: FRIENDLY, , MOORE and OAKES, Circuit
• Citation: Bourget v. Government Employees Insurance Company, 456 F.2d 282 (2nd Cir. 1972)
• Decision Date: 22 February 1972
• Docket Number: No. 380,Docket 35507.,380
• Parties: Gerald BOURGET, Plaintiff-Appellee, and Security Insurance Company of Hartford, Inc., Intervening Plaintiff-Appellee, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant-Appellant.

456 F.2d 282 (1972)

Gerald BOURGET, Plaintiff-Appellee, and Security Insurance Company of Hartford, Inc., Intervening Plaintiff-Appellee, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant-Appellant.

No. 380, Docket 35507.

United States Court of Appeals, Second Circuit.

Argued January 4, 1972.

Decided February 22, 1972.

Stephen Duke, New Haven, Conn., for appellee.

Peter C. Dorsey, New Haven, Conn. (Flanagan, Dorsey & Flanagan, New Haven, Conn., of counsel), for intervening-appellee.

Curtiss K. Thompson, New Haven Conn. (Thompson, Weir & Barclay, New Haven, Conn., of counsel), for appellant.

Before FRIENDLY, Chief Judge, MOORE and OAKES, Circuit Judges.

FRIENDLY, Chief Judge:

In this diversity action we are called upon to predict what result the Supreme Court of Connecticut would reach under a provision in a statute of that state, now Title 38, § 38-175, of the General Statutes,¹ enacted in 1919, which has previously been construed in this context in only one reported case, and that in a federal court. Turgeon v. Shelby Mutual Plate Glass & Cas. Co., 112 F.Supp. 355 (D.Conn.1953) (Smith, then D.J.). Although the parties have favored us with liberal quotations from Connecticut opinions on other problems of liability insurance, none throws any real light on the matter here at issue.

This action stems from a collision, in Connecticut, on March 18, 1965, between a tractor-trailer being driven by plaintiff Bourget, a resident of Massachusetts, for his employer, Branch Motor Express Company, and a passenger car owned and operated by Oren Thompson, a resident of Connecticut. Bourget was injured; Thompson was killed and his car was destroyed. There appears to have been no doubt that Thompson was solely at fault. Thompson was insured by defendant, Government Employees' Insurance Company (GEICO), a District of Columbia corporation having its principal place of business there, under a standard liability policy with a personal injury limit of $20,000.

On May 27, 1965, an inventory of Thompson's estate was filed in a Connecticut probate court. The sole asset was $2,275, representing the proceeds of the insurance on his car. The administrative account filed on December 6, 1968, and accepted by the court, after public notice, on December 11, 1968, showed the payment of claims of $129.63 and of $947.02 for funeral, probate and legal expenses, the latter of which were entitled to priority, see Bennett v. Ives, 30 Conn. 329, 335 (1862); Conn.Gen. Stat. § 45-229, and of $1,198.15 to his widow, Patricia Thompson, for her support as a widow's allowance, which was also entitled to priority. See Barnum v. Boughton, 55 Conn. 117, 10 A. 514 (1887); Conn.Gen.Stat. § 45-250. The account stated there was no property available for distribution. Although there is no specific indication in the record, the estate appears to have been settled under the simplified procedure provided by § 45-230 of the Connecticut General Statutes for insolvent estates.²

On September 20, 1965, Bourget elected to receive workmen's compensation benefits, under governing Massachusetts law, from his employer's liability insurer, Security Insurance Company of Hartford, Inc. (Security), a Connecticut corporation. The agreement provided for compensation benefits of $53 per week for Bourget and of $36 per week for his dependents. The benefits were to continue as long as Bourget remained partially disabled and, in the case of the latter payments, so long as the dependency continued. Security also agreed to pay the costs of any litigation brought by Bourget.

On October 1, 1965, Bourget filed an action in the District Court for Connecticut against Mrs. Thompson as administratrix, seeking compensatory damages of $150,000.00 and exemplary damages of $50,000. He was represented by the firm of Lynch & Traub under an arrangement for a contingent fee of 331/3% of the gross amount of any recovery. Pursuant to its policy obligations, GEICO retained counsel, Morris Tyler, Esq., to defend the action on the estate's behalf and notified Mrs. Thompson that since the complaint was in excess of the policy limits, she had the right to hire her own counsel for the estate. She declined to do so. GEICO's investigation led it to conclude that Bourget was substantially overstating his injuries from the collision, some of which, in its view, were the result of a 1961 accident and others of which it believed not to exist at all. Although Judge Zampano, who was to preside at the trial, suggested at a pre-trial conference that GEICO would be well advised to settle for the policy limit of $20,000 less a small saving and Bourget's counsel was prepared to compromise in that area, the highest settlement offer GEICO's counsel ever transmitted was $12,500. The jury rendered a verdict for $94,900; judgment was entered for that sum plus costs of $442.65. GEICO paid Bourget $20,000; up to the time of trial, Security had paid Bourget some $16,225 in benefits and it received $9,606.94 from the payment made by GEICO.

After a demand that the administratrix pay the balance of $75,342.65, which met with the response that might have been anticipated, Bourget brought an action in the District Court for Connecticut against GEICO for that sum, avowedly pursuant to the last sentence of § 38-175, see note 1. The district court granted a motion to join Security as a plaintiff. Later it refused to dismiss the action on various grounds urged by GEICO, 313 F.Supp. 367 (D. Conn.1970). Although GEICO insists that it was justified in refusing to meet Bourget's terms for settlement, we accept that the evidence was sufficient to take the case to the jury if GEICO owed Thompson's estate the duty generally imposed upon liability insurers, whether this be phrased in terms of good faith or of due care. See R. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1139-42 (1954); 7A Appleman, Insurance Law and Practice §§ 4712, 4713 (1962). However, there was no such duty under the unusual circumstances of this case.

The basis for judicial imposition on liability insurers of a duty to exercise good faith or due care with respect to opportunities to settle within the policy limits "is that the company has exclusive control over the decision concerning settlement within policy coverage, and company and insured often have conflicting interests as to whether settlement should be made . . ." Keeton, supra, 67 Harv.L.Rev. at 1138; Harris v. Standard Accident and Ins. Co., 297 F.2d 627, 630 (2 Cir. 1961), cert. denied, 369 U.S. 843, 82 S.Ct. 875, 7 L.Ed 847 (1962). Whether one considers the insured's claim to sound in tort, as most of the cases have, see Keeton, supra, 67 Harv.L.Rev. at 1138 n.5, or as based on an expansive reading of the contractual obligation to protect up to the agreed limits, see Comunale v. Traders & General Insurance Co., 50 Cal.2d 654, 328 P.2d 198 (1958); Terrell v. Western Casualty & Surety Co., 427 S.W.2d 825 (Ky.1968), what gives rise to the duty and measures its extent is the conflict between the insurer's interest to pay less than the policy limits and the insured's interest not to suffer liability for any judgment exceeding them. In the rare instance where the insured has no such interest, there can be no conflict and the duty does not arise. Such was our holding in Harris v. Standard Accident and Ins. Co., supra. Contrast Young v. American Casualty Co. of Reading, 416 F.2d 906 (2 Cir. 1969), petition for cert. dismissed pursuant to Rule 60, 396 U.S. 997, 90 S.Ct. 580, 24 L.Ed.2d 490 (1970).

There could scarcely be a case where the insured's lack of interest in avoiding a judgment exceeding the policy limits was as clear as this one. Thompson had no assets at all except his car. The insurance proceeds on this were completely consumed by claims to which Connecticut gave priority over Bourget's,³ Barnum v. Boughton, 55 Conn. 117, 10 A. 514 (1887) (widow's allowance not attachable); Bennett v. Ives, 30 Conn. 329, 335 (1862) (expenses for funeral and settlement of estate rank before other debts of estate); see Conn.Gen.Stat. §§ 45-229, 45-230, 45-250. Satisfaction of Bourget's claim was thus unnecessary to pass even a small amount to Thompson's heirs. Counsel's suggestion that some asset now unknown might fall into the estate at some future time ignores reality.⁴ Since Thompson was killed, the threat of a judgment hanging over him was nil.

We recognize that in Lee v. Nationwide Mutual Ins. Co., 286 F.2d 295, 296 (4 Cir. 1961) (Maryland law), the court spoke of "the utter irrelevance of the death to the insurer's tort, which was committed by the insurer long after the insured's death, with absolutely no connection between the two."⁵ However, that case differed in that the estate had assets of $1,144.48, which would have been distributable but for the injured party's judgment, see 184 F.Supp. 634, 637 (D.Md.1960). We cannot agree that the death of the insured is irrelevant "to the insurer's tort" in a case where, by removing the possibility of damage, it has destroyed all basis for an insurer's liability, whether in tort or in contract; it is thus quite irrelevant that the insurer's conduct occurred "long after the insured's death." Since under the unusual facts of this case, there was no possible conflict of interest between the insurer and the insured, there is no basis of imposing a duty on the former as a matter of common law. Moreover, the approach in the Lee case runs counter to the rationale of our Harris decision, see 297 F.2d at 630-635, which we continue to find persuasive, and which we must follow unless the final sentence of the Connecticut statute § 38-175, requires otherwise.

The parties have engaged in extensive debate as to whether the final sentence has any application to claims for failure to exercise good faith with respect to settlement. GEICO argues with some force that the last sentence of the section deals only with the type of...