Byrnes v. Phoenix Assurance Company of New York

• Decision Date: 06 June 1962
• Docket Number: No. 13610.,13610.
• Parties: John J. BYRNES, Trustee for Charles Albert Lund, Plaintiff-Appellant, v. PHOENIX ASSURANCE COMPANY OF NEW YORK, a foreign corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

303 F.2d 649 (1962)

John J. BYRNES, Trustee for Charles Albert Lund, Plaintiff-Appellant, v. PHOENIX ASSURANCE COMPANY OF NEW YORK, a foreign corporation, Defendant-Appellee.

No. 13610.

United States Court of Appeals Seventh Circuit.

June 6, 1962.

Thomas P. Maroney and Maroney & Schiro, Milwaukee, Wis., for appellant.

F. H. Prosser, Jack R. Wiedabach, Milwaukee, Wis., Wake, Prosser, Zimmermann & Quale, Milwaukee, Wis., of counsel, for appellee.

Before HASTINGS, Chief Judge, and SCHNACKENBERG and SWYGERT, Circuit Judges.

HASTINGS, Chief Judge.

This is an action brought by John J. Byrnes, Trustee for Charles Albert Lund, Bankrupt (appellant) against defendant, Phoenix Assurance Company of New York (appellee). Plaintiff claims damages occasioned by the alleged bad faith of defendant in failing to settle within its policy limits a claim for personal injuries arising out of an automobile accident.

The case was tried to the court without a jury. The trial court found the facts and stated its conclusions of law in favor of defendant. Judgment was entered thereon dismissing plaintiff's complaint. This appeal followed.

Plaintiff contends that the trial court erred as a matter of law in failing to find for him.

On July 23, 1950, an automobile collision occurred at the intersection of Highway 50 and County Trunk B in Kenosha County, Wisconsin. Charles Albert Lund (the Bankrupt) was the driver of an automobile northbound on County Trunk B, and his wife was his passenger. Montgomery Ward Thorne was the driver of an automobile eastbound on Highway 50, and Carol Lind was his passenger. Personal injuries were sustained by Lund, his wife and Carol Lind.

At the time of the accident, Thorne had liability insurance with Hartford Accident and Indemnity Co. with limits of $15,000 and was beneficiary of a multimillion dollar trust. Lund had similar insurance with Phoenix Assurance Company of New York (defendant) with limits of $10,000 and no non-exempt assets of his own at the time of the accident and subsequent trial.

Shortly after the accident Lund retained William Sheldon, an attorney, to pursue any claim Lund might have against Thorne. Sheldon was also retained by defendant with respect to the defense of any claim which might be asserted against Lund, its insured. A thorough investigation of the facts surrounding the accident was made by defendant through its agents. Sheldon conducted an investigation on behalf of defendant and Lund. According to the findings of the district court in the instant case, Sheldon determined that "while there was some risk involved of a judgment against Mr. Lund in excess of any recovery in his behalf there was also a good chance of a finding of no causal negligence on behalf of Mr. Lund * *."

As a result of the accident, two suits were brought in the Circuit Court of Kenosha County, Wisconsin. In one, Carol Lind was plaintiff and Lund, Phoenix Assurance Company of New York (Lund's insurance carrier and defendant in the instant action) and Thorne were defendants. In the other, Lund and his wife sued Thorne.

With the filing of Carol Lind's complaint, seeking damages in excess of the Phoenix policy limits, it was apparent that Lund's interest in the litigation and defendant's interest therein might diverge. With respect to the dual representation by Sheldon of Lund and defendant, the district court made the following findings of fact:

"6. Upon receipt of the complaint in the action above referred to, Phoenix Assurance Company transmitted to Charles Albert Lund by certified mail a letter commonly known as an `excess\' letter, which letter advised Mr. Lund of the fact that the claims being made against him were far in excess of his policy limits, and which letter further advised him of his right and need for an attorney to represent his personal interests in the matter with regard to excess liability.

"7. Upon receipt of this letter Mr. Lund discussed the matter with members of his family and with Attorney Sheldon and specifically requested that Attorney Sheldon continue to represent his interests and specifically agreed to Attorney Sheldon\'s undertaking the representation of both himself and the Phoenix Assurance Company in the entire matter."

Lund was further advised that in the event he and Thorne were both found negligent with respect to Carol Lind's injuries he would be liable to contribute 50% of her judgment regardless of the percentages of negligence attributable to Lund and Thorne. Lund was also advised that such judgment for contribution would probably exceed any judgment he might obtain in his separate suit for personal injuries against Thorne. The district court found that in view of the fact that Lund had no non-exempt assets and the possibility of a jury finding him completely free of negligence, Lund insisted the matter be tried stating he had nothing to lose by going through the trial.

Before the two state court cases were tried, a settlement was proposed. Under the proposed settlement, Carol Lind was to receive $70,000, $63,000 to be paid by the Thorne trust and $7,000 by defendant on Lund's behalf. Lund was to receive $9,000, $4,000 to be paid by Hartford Accident and Indemnity Co., Thorne's insurer, and $5,000 to be paid by Carol Lind. Thorne and his insurer were to waive their contribution rights against Lund. The settlement was never consummated because of the refusal of the Thorne trust to make any payment in the matter.

These two cases were consolidated for trial which commenced on March 16, 1953. On the second day of trial, Carol Lind's attorney made the following statement: "If the court please, the plaintiff, Carol Lind, at this time offers to settle her cause of action against Charles Lund and the Phoenix Indemnity Company for $10,000.00, reserving, however, her right against Montgomery Ward Thorne." This offer was not accepted by defendant, and no further settlement negotiations took place.

The jury found Lund negligent with respect to crossing the intersection at too slow a rate of speed. In response to motions after verdict, the trial court found Lund causally negligent as a matter of law with respect to lookout. On appeal, the Supreme Court of Wisconsin affirmed the trial court's decision with respect to Lund's lookout but reversed the jury's finding that Lund proceeded through the intersection too slowly. Lind v. Lund, 266 Wis. 232, 63 N.W.2d 313 (1954). The ultimate result was a judgment in favor of Carol Lind for $84,629.47 against Lund and Thorne and a judgment in favor of Lund for $11,155.50 against Thorne.

After judgment in the state court, Lund filed a voluntary petition in bankruptcy and John J. Byrnes was appointed trustee. The trustee brought this action against defendant for bad faith in failing to settle Carol Lind's claim against Lund. In finding for defendant, the district court held, inter alia, that there was "not one iota of evidence in this matter showing any bad faith on the part of defendant or any bad faith or unlawyerlike conduct on the part of Mr. Sheldon. * * *"

The standard by which defendant's conduct is tested is set forth in Berk v. Milwaukee Automobile Ins. Co., 245 Wis. 597, 601, 15 N.W.2d 834, 836 (1944), where it is stated: "Plaintiff can prevail only on the basis that defendant acted in, or was guilty of, bad faith in rejecting the...