Brunet v. American Ins. Co.

• Decision Date: 20 May 1987
• Docket Number: Civ. A. No. 86-274.
• Citation: 660 F. Supp. 843
• Parties: Marcel BRUNET, Jr. v. The AMERICAN INSURANCE CO. and State Farm Mutual Automobile Insurance Co.
• Court: U.S. District Court — District of Vermont

660 F. Supp. 843

Marcel BRUNET, Jr. v. The AMERICAN INSURANCE CO. and State Farm Mutual Automobile Insurance Co.

Civ. A. No. 86-274.

United States District Court, D. Vermont.

May 20, 1987.

COPYRIGHT MATERIAL OMITTED

Thomas Z. Carlson, Langrock, Sperry, Parker & Wool, Burlington, Vt., for plaintiff.

Robert H. Erdmann, Dinse, Erdmann & Clapp, Burlington, Vt., for defendant American Ins. Co.

James W. Coffrin, Pierson, Affolter & Wadhams, Burlington, Vt., for defendant State Farm Mut. Auto. Ins. Co.

OPINION AND ORDER

BILLINGS, District Judge.

On March 24, 1987, plaintiff filed with the Court a motion for summary judgment on several issues. Both defendants opposed the motion and moved for summary judgment on the same issues themselves. The Court heard oral argument on April 23, 1987.

Background

On January 17 1984, plaintiff Marcel Brunet, Jr. was seriously injured in an automobile accident in New Hampshire while on a work assignment for his employer, Brunet Construction, Inc. The ownership of the automobile is apparently still in dispute (either Loren Brunet or Brunet Construction owned the car — for the purposes of this motion actual ownership is irrelevant), but it was insured by a business automobile policy from The American Insurance Company (American). That policy had limits of $300,000 for liability and $40,000 for uninsured motorist coverage.¹ Brunet also held two separate personal automobile policies from State Farm Mutual Automobile Insurance Co. (State Farm), each of which included uninsured motorist coverage of $100,000. The driver of the car that collided with Brunet, William Cronin, was insured by National Grange Mutual Insurance Company (National Grange) for liability up to $50,000.

National Grange, Cronin's insurer, has offered to settle with plaintiff for the limits of its policy in exchange for a full release of itself and its insured from all liability. Cronin has furnished an affidavit that he has no additional assets of value. Plaintiff wishes to accept the settlement, and State Farm has consented, but American refuses to give its consent because it wishes to preserve its subrogation rights against Cronin individually. Further, plaintiff has made formal demands on both American and State Farm for payment under their uninsured motorist (UM) coverages, but neither will agree to pay yet. As a result, in an attempt to define the responsibilities of each company, plaintiff seeks declaratory judgment on five legal issues. Defendants argue that they are entitled to judgment on these same five issues. We shall discuss and determine each issue in turn.

DISCUSSION

1. Must American consent to settlement with Cronin and National Grange?

American's insurance policy contains a clause that "the insurance does not apply to: 1. Any claim settled without our consent." Plaintiff's Motion for Summary Judgment, Exhibit B, Part VI(C)(1). After receiving an offer from Cronin's insurance company, National Grange, to settle for the full amount of its policy and an affidavit by Cronin that he is unemployed and has no assets other than a 1980 automobile, plaintiff contacted American for their consent to accept the settlement. American refused to consent, stating that it wished to preserve its subrogation rights, and suggested several alternative courses of action. American does not assert, however, that Cronin has any assets beyond the insurance policy to which its subrogation rights would be valuable.

The relationship between an insurer and its insured is a "mutually fiduciary" one; each party owes the other "the duty of utmost good faith in their dealings together." Johnson v. Hardware Mut. Casualty Co., 109 Vt. 481, 490, 1 A.2d 817 (1938). The Vermont Supreme Court has defined bad faith by an insurer as "the intentional disregard of the financial interest of the insured in the hope of escaping the full responsibility imposed upon it by its policy." Id. at 491, 1 A.2d 817. This good faith standard was developed in a slightly different context than we have before us now. Johnson involved an insured-defendant in a personal injury case who, because of the insurer's refusal to settle, was found personally liable for an amount far in excess of the limits of the policy. However, the standard applies equally to all relations between an insurer and insured, no matter what the legal context or the amount involved. Therefore, we find that defendant American owes plaintiff a duty of good faith in considering Cronin's proposed settlement.

Good faith in this context means that American must consent to the settlement if the settlement is within the best interests of both insurer and insured. In this case, the alleged tortfeasor's insurer has offered to settle with plaintiff for $50,000, the full limit of its policy. The alleged tortfeasor himself, Cronin, has sworn that he has no assets. Therefore, the settlement offer appears to provide plaintiff with the full amount of recovery he can actually expect from the alleged tortfeasor. American has presented no evidence in the form of affidavits or otherwise that Cronin has or will have any additional assets from which further damages could be recovered; because Cronin has no assets beyond the $50,000 policy limits, American's subrogation rights are worthless. As its subrogation rights are of no value, American's refusal to consent cannot be in good faith. American has nothing to gain by refusing, while its insured has everything to lose. We find that under the circumstances presented here American has a duty as a matter of law to consent to plaintiff's settlement with and full release of Cronin and National Grange and its failure to do so constitutes bad faith as a matter of law.²

2. What is the applicable limit of American's UM coverage under 23 V.S.A. § 941(c)?

The Vermont Uninsured Motorist statute, 23 V.S.A. § 941, was amended as of July 1, 1983, to require that UM coverage "for new or renewed policies ... be identical to those provided in the policy selected by the person obtaining" it, but not less than certain statutory minimums. 23 V.S.A. § 941(c). The face amount of American's UM coverage is $40,000; the liability coverage is $300,000. Plaintiff claims that this amendment increases American's UM coverage to $300,000. American claims that the amendment does not apply to this policy. We agree with American.

The statute clearly states that the amendment applies to "new or renewed policies." This policy was issued on March 19, 1983, for one year. The bill went into effect on July 1, 1983, and the accident occurred on January 14, 1984. Thus, the policy was not a "new or renewed" policy at the time the statutory amendment was passed, nor had it become new or renewed at the time of the accident. The plain meaning of the statute is that it apply to only those policies that were actually new or renewed after the effective date of the statute. Had the legislature intended that all insurance policies immediately adopt the new standards it would have used less restrictive language such as "all policies".

Plaintiff cites a bulletin from the State Department of Banking and Insurance in support of its position. Plaintiff's Motion for Summary Judgment, Exhibit J. The bulletin does indicate that the Department considered the statute to apply to all insurance policies, but it does not provide any rationale for the Department's reading of the statute. Because it appears to violate the plain meaning of the statute, we do not find the Department's bulletin persuasive.

In conclusion, we find that the July 1983 amendments do not apply to the policy in force at the time of this accident. Therefore, the applicable limit of American's UM coverage is the face amount of $40,000.

3. Is State Farm's "anti-stacking" or "excess-escape other insurance" clause on its UM coverage valid?

The insurance policies issued by State Farm include a clause that provides:

3. If the insured sustains bodily injury while occupying a vehicle not owned by you, your spouse or any relative, this coverage applies:

a. as excess to any uninsured motor vehicle coverage which applies to the vehicle as primary coverage, but

b. only in the amount by which it exceeds the primary coverage.

If coverage under more than one policy applies as excess:

a. the total limit of liability shall not exceed the difference between the limit of liability of the coverage that applies as primary and the highest limit of liability of any one of the coverages that apply as excess, and

b. we are liable only for our share. Our share is that per cent of the damages that the limit of liability of this coverage bears to the total of all uninsured motor vehicle coverage applicable as excess to the accident.

Plaintiff's Motion for Summary Judgment, Exhibit A, at 9. State Farm maintains that the clause reduces its responsibility for payment from the face amount of $100,000 UM coverage per policy to $30,000 per policy. State Farm asserts that American's coverage is the "primary" coverage and thus State Farm's policies provide only excess coverage. As excess coverage, State Farm claims it is liable only in the amount its coverage exceeds American's primary coverage—in this case American's coverage, if it is primary, provides $40,000 coverage, and thus under State Farm's interpretation State Farm's liability would be limited to $60,000. Further, State Farm claims because its two policies both apply as excess, the second part of the provision quoted above comes into play, and its total liability is only $60,000, which is divided equally between the two policies.

Plaintiff alleges that this provision is invalid under Vermont law after Goodrich v. Lumbermens Mut. Casualty Co., 423 F.Supp. 838 (D.Vt.1976). The Goodrich court held that an "other insurance" clause similar to State Farm's was invalid because it violated 23 V.S.A. § 941. The court found that the statute required "every policy" to have a minimum UM coverage, rather than requiring...