Dillingham v. Tri-State Ins. Co.

• Decision Date: 08 May 1964
• Docket Number: TRI-STATE
• Parties: , 214 Tenn. 592 Raymond N. DILLINGHAM, Appellant, v.INSURANCE CO., Inc., and Midwestern Insurance Co., Inc., Appellees.
• Court: Tennessee Supreme Court

Page 914

381 S.W.2d 914

18 McCanless 592, 214 Tenn. 592

Raymond N. DILLINGHAM, Appellant, v. TRI-STATE INSURANCE CO., Inc., and Midwestern Insurance Co Inc., Appellees.

Supreme Court of Tennessee.

May 8, 1964.

Rehearing Denied July 15, 1964.

Nell Sanders Aspero, Memphis, Aspero & Aspero, Memphis, of counsel, for appellant.

Edward W. Kuhn, Henry T. V. Miller, Memphis, McDonald, Kuhn, McDonald, Crenshaw & Smith, Memphis, of counsel, for appellees.

HOLMES, Justice.

The parties will be referred to according to their status in the Trial Court. The complainant, Raymond N. Dillingham, filed his original bill in this cause on May 15, 1963, naming as defendant Tri-State Insurance Group. This bill alleges that complainant had recovered a judgment in the Circuit Court of Shelby County against one Cyrus Huffman, Jr., in the amount of $7,500.00 for personal injuries and $250.00 for property damages, that Huffman's liability was insured by the named defendant under a policy with a $5,000.00 limit of liability for bodily injury to one person and a limit of $5,000.00 for property damage. The bill further alleged that the insurer had paid into the registry of the Circuit Court $5,250.00 on this judgment and that execution for the balance of $2,500.00 of the judgment had been issued and returned 'nulla bona'. It is also alleged in the original bill that complainant, prior to the trial in the Circuit Court, had offered to settle the Circuit Court case for a total of $3,000.00, which was $2,000.00 less than the policy limit, which settlement the insurer had refused to make. The bill charged the insurer with bad faith and negligence in refusing to settle within the policy limits, and prayed for a recovery against the insurer for the excess of the judgment held by complainant over and above the limit of the policy.

On May 29, 1963 the complainant filed an amended bill in this cause, naming as defendants Tri-State Insurance Co., Inc., and Midwestern Insurance Co., Inc. These defendants first filed their answer to the original and amended bill, which they were later allowed to withdraw, and then filed a demurrer to these bills upon the ground, among others, that the bill showed on its face that the defendants did not owe any duty of care to complainant and did not breach any duty owed to him. The Chancellor sustained this demurrer and then, upon application of complaint, granted complainant leave to amend the original and amended bills so as to set up an assignment to the complainant from the named insured Cyrus Huffman, Jr., of his cause of action against the defendant insurance companies. The Chancellor granted complainant leave to file this amendment. The amendment to the amended bill setting forth the alleged assignment was filed on October 16, 1963. Thereafter the defendants filed a further demurrer setting forth as one of the grounds thereof that the cause of action sued on was not assignable and that the action could not be maintained by the complainant as assignee of the insured. By stipulation of the parties, the policy issued by the defendants to Huffman was made a part of the record. The Chancellor sustained this further demurrer of the defendants and dismissed the original bill and amended bill as amended. The complainant then sought leave to again amend so as to add the insured Cyrus Huffman, Jr., as a party complainant in the cause. This last application to amend was denied by the Chancellor and the bill was dismissed. From this action the complainant has duly prosecuted his appeal to this Court and assigned errors.

By Assignment of Error Number One, the complainant insists that a judgment creditor alleging bad faith and negligence on the part of the insurer in refusing to settle within the policy limits may maintain an action against the insurer for the excess judgment over and above the policy limit. In support of this contention, complainant in the brief and oral argument in this Court relies upon Auto Mutual Indemnity Co. v. Shaw, 134 Fla. 815, 184 So. 852. In the Shaw case the Supreme Court of Florida did hold that, under terms of the policy issued by the insurer in that case, the judgment creditor, after the return of an execution against the insured unsatisfied, could maintain an action against the insurer for the excess. The policy in that case provided:

'the judgment creditor shall have a right of action against the Company to recover the amount of said judgment to the same extent that Assured would have had if he had paid the judgment.' (Emphasis supplied.)

The provision of the policy issued by the defendants in this case is as follows:

'No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.

'Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafer be entitled to recover under this policy to the extent of the insurance afforded by this policy.' (Emphasis supplied.)

The Florida Courts have held that a policy containing the same provision contained in the policy issued by the defendants in the case now before the Court gives no right of action to the judgment creditor against the insurance company for any excess of the judgment over and above the policy limit.

In Canal Ins. Co. etc. v. Sturgis (Fla.App.), 114 So.2d 469, the District Court of Appeal of Florida, at page 471 of 114 So.2d stated:

'In our opinion, the 'insurance afforded by this policy' should be construed to mean the insurance provided by the policy up to the policy limits. As we view it, the amount in excess of the policy limits which an insured might in a proper case be able to recover against the insurer because of its negligence or bad faith in failing to compromise or settle a claim, is not truly of the character of 'insurance', but rather constitutes damages resulting from the insurer's tort or breach of contract.'

This opinion of the Florida District Court of Appeal was in all things affirmed by the Supreme Court of Florida in Sturgis v. Canal Insurance Co. etc. (Fla.), 122 So.2d 313. The Supreme Court of Florida stated:

'We have reached the conclusion that the District Court was correct in its decision that a judgment creditor may not maintain a suit directly against the insurer for recovery of the judgment in excess of the insurance policy limits under the circumstances of this case and the language of the insurance policy issued by the respondent.'

In an article by Professor Robert E. Keeton appearing in 67 Harvard Law Review, 1136 et seq., (May 1954) in discussing the liability of insurance companies for judgments in excess of policy limits, at page 1175, it is stated:

'Has claimant a cause of action in his own right? Some policies have contained a provision that claimant, after writ of execution against insured is returned unsatisfied, may recover against company to the same extent as could insured if he had paid the judgment; such provision has been construed as applying to the recovery to which insured would have been entitled under the doctrine of excess liability (citing the Shaw case and a federal case). Typical policies now in use do not contain this provision; in the absence of such a policy provision, the courts have declined, at to the cause of action in excess of policy limits, to permit direct recovery by claimant against company. The excess liability of company arises out of the relationship between insured and company. Claimant is a stranger to that relationship. Not only is company without any duty to claimant to accept claimant's reasonable settlement offer, but also, if there is a sizeable disparity between the settlement offer and the amount of the judgment obtained in the trial which follows refusal of the offer, claimant is benefited rather than harmed by company's refusal to settle. It would therefore be anomalous to permit claimant to recover directly against company in his own right (in the absence of policy provision, such as the italicised phrase above, clearly having that meaning.)'

In Tennessee, actions to recover the excess over the policy limits have been expressly held to be actions ex delicto. In the recent case of Carne v. Maryland Casualty Co., 208 Tenn. 403, 346 S.W.2d 259, this Court, speaking through Mr. Justice Burnett, now Mr. Chief Justice Burnett, stated:

'* * * Of course, such a suit, and the basis for liability thereon, arises out of a contract but they are ex delicto nevertheless. This being true, we are confronted with the proposition that this is the kind of lawsuit which is based upon bad faith. This is the gist of the present controversy where 'the issue is one sounding in tort." 208 Tenn. 406, 346 S.W.2d 261.

The defendants in the case before the Court owed no duty of care to the complainant. It cannot be said that the complainant suffered any injury because of the alleged bad faith on the part of the insurer in refusing to settle. Had the complainant's offer of settlement been accepted, the complainant would have recovered $3,000.00. Since the insurer refused to accept that offer of settlement, the complainant has collected $5,250.00. Certainly it would be anomalous to allow the judgment creditor in such a situation to recover damages for the insurer's failure to settle the case for much less than the judgment creditor has already collected.

Among the cases holding that a suit for the excess may not be maintained by the judgment creditor are Murray v. Mossman, 56 Wash.2d 909, 355 P.2d 985 (holding the action sounds in tort); Francis v. Newton et al., 75 Ga.App. 341, 43 S.E.2d 282; Paul v. Kirkendall, 6 Utah 2d 256, 311 P.2d 376; Duncan v. Lumberman's Mutual Casualty Co., 91...