Farmers Group, Inc. v. Trimble, 81CA0851

Citation658 P.2d 1370
Case DateAugust 26, 1982
CourtCourt of Appeals of Colorado

Rector, Retherford, Mullen & Johnson, J. Stephen Mullen, Colorado Springs, for plaintiffs-appellees.

Pryor, Carney & Johnson, P.C., Thomas L. Roberts, W. Randolph Barnhart, Englewood, for defendant-appellant.


Defendant, R. Bruce Trimble, appeals the dismissal of his counterclaims against plaintiff insurance companies. We affirm in part and reverse in part.

The following facts are undisputed. Farmers Group, Inc., is the attorney-in-fact management company for various subsidiary insurance companies, including Farmers Insurance Exchange (Farmers Exchange) and Mid-Century Insurance Co. (Mid-Century). In 1977, Mid-Century issued a homeowner's liability insurance policy to defendant and his wife. In 1978, Farmers Exchange issued an automobile liability insurance policy to defendant.

On November 6, 1978, while defendant and his son, Douglas, were insureds under these policies, Douglas drove defendant's automobile on to the front yard of the residence of Robert Jensen, seriously injuring Jensen. Defendant promptly reported the incident to a Farmers Exchange agent, and that company immediately commenced an investigation. The Farmers Exchange automobile liability policy contained a bodily injury liability limit of $50,000 per person. It also authorized Farmers Exchange to make such investigation and settlement of claims as it deemed expedient, and provided that Farmers Exchange had the right and duty to defend, at its own expense, suits against defendant.

On November 20, 1978, a Farmers Exchange agent forwarded a letter to Douglas stating that the automobile policy's "intentional act exclusion" might operate to deny him coverage; that the company would investigate the accident "with a full reservation of its rights"; and that "by negotiating for settlement, or settlement" the company did not "waive its right to deny coverage."

At some time prior to mid-December 1978, Earl Chaney, a senior Farmers Exchange claims adjuster, stated in writing that he would require the full $50,000 limit in settlement authority. By the end of 1978, Farmers Exchange knew that Jensen already had sustained approximately $10,000 in damages and that his injuries were permanent.

In early 1979, Jensen offered to settle the case for $50,000, the policy limit of the automobile policy. Farmers Exchange rejected the offer, stating that the company was not in a position to settle because it had questions about the coverage under its policy and because there was a possibility that the carrier of Jensen's homeowner's policy might assert a personal injury protection benefits lien for medical payments made to Jensen. Farmers Exchange at no time informed defendant or his son of Jensen's settlement offer or of the facts disclosed by its investigation.

In March 1979, Jensen filed a civil action against defendant, Douglas, and a third party asserting claims for $200,000 compensatory and $200,000 exemplary damages. The claims against defendant were based on negligent entrustment and the family car doctrine.

On April 9, 1979, the adjuster, Chaney, selected an attorney (the "retained attorney") to defend defendant and his son against Jensen's claims. Chaney informed the retained attorney that Farmers Exchange had sent a "reservation of rights" letter to Douglas concerning the automobile policy's intentional act exclusion. Chaney also informed defendant and Douglas, by letter of April 9, 1979, that they could retain private counsel, at their own expense, to protect their personal interests with respect to a potential judgment in excess of the policy limits and exemplary damages not covered by the policy. The letter also stated that it was not necessary for them to retain private counsel because the attorney retained by Farmers Exchange "will represent your personal interests without cost to you." The letter noted that Jensen's demands exceeded the policy limits, but did not explain the available policy limits and did not refer specifically to either the automobile policy or the homeowner's policy. By June 1979, Farmers Exchange had reserved $50,000 in connection with Jensen's lawsuit and had estimated the value of Jensen's claims to be between $75,000 and $150,000.

In November 1979, defendant's deposition was taken and Jensen's attorney discovered the existence of the Mid-Century homeowner's policy. Subsequently, the retained attorney informed defendant that Jensen was seeking to establish the applicability of the Mid-Century homeowner's policy $100,000 liability coverage. On November 12, 1979, Jensen's attorney informed the retained attorney and a Farmers Exchange agent that the case of Douglass v. Hartford Insurance Co., 602 F.2d 934 (10th Cir.1979) established coverage for Jensen's negligent entrustment claim under the Mid-Century policy. This letter was forwarded to Chaney, but not to defendant.

In March 1980, the retained attorney filed a motion for summary judgment respecting Jensen's claims. The trial court initially granted summary judgment on the negligent entrustment claim. However, after considering Jensen's motion for reconsideration, it reinstated that claim. Prior to the trial court's reinstatement of that claim, the retained attorney informed defendant by letter that the negligent entrustment claim had been dismissed and that he advised defendant to retain "an attorney to protect you regarding the potential claim in excess of your policy limits." An original trial date of June 10, 1980, was continued to September 1981, to permit resolution of insurance coverage issues.

In October 1980, the plaintiff insurance companies instituted this suit against defendant. Their complaint sought a declaration that the Mid-Century homeowner's policy provided no coverage with respect to the negligent entrustment claim asserted by Jensen against defendant in the pending action. Defendant retained an attorney, answered the complaint, and asserted counterclaims against plaintiffs.

In April 1981, Jensen's claims against defendant were settled. Jensen received $50,000 under the Farmers Exchange policy and $12,000 under the Mid-Century policy. In connection with that settlement, plaintiffs also reimbursed defendant for certain attorney fee costs defendant had incurred in defending this declaratory action, and defendant released plaintiffs from any further claims for attorney fees in this case. Plaintiffs' complaint has been dismissed as moot.

Defendant's amended counterclaims, alleging five claims for relief, seek compensatory and punitive damages allegedly caused by the plaintiffs' conduct in handling the claims asserted by Jensen against defendant and Douglas. When the trial court granted plaintiffs' motion to dismiss these counterclaims, defendant perfected this appeal.


Defendant first contends that the trial court erroneously granted plaintiffs' motion for summary judgment on his first counterclaim for negligence. We agree.

Defendant's first counterclaim alleges, inter alia, that plaintiffs acted negligently by summarily rejecting Jensen's settlement offers and by allowing Jensen to institute litigation against defendant, thus exposing defendant to the risk of a large excess judgment for over two years. It alleges damages for attorney fees, expenses, and costs; severe emotional distress; loss of sleep; and impairment of credit rating.

An insurance carrier representing an insured pursuant to the requirements of an insurance contract must exercise reasonable care in fulfilling its duty of representation. Aetna Casualty & Surety Co. v. Kornbluth, 28 Colo.App. 194, 471 P.2d 609 (1970). The trial court concluded that defendant's first counterclaim alleged negligence. We agree that this counterclaim sufficiently alleges the tort of negligent performance of a contract and the trial court's conclusion is not disputed on appeal. The trial court further concluded, however, that defendant's alleged damages were not compensable in a negligence action. We disagree with this conclusion.

To recover on a claim of negligence, a plaintiff must prove that he suffered injury as a result of the defendant's negligence. Doyle v. Linn, 37 Colo.App. 214, 547 P.2d 257 (1975). Absent injury, there is no action. A contrary result would encourage baseless litigation and would ignore the fundamental principle that one who fails to exercise reasonable care is liable only for the foreseeable consequences of the breach of duty, not for the breach per se. See DeCaire v. Public Service Co., 173 Colo. 402, 479 P.2d 964 (1971).

Here, defendant claims economic loss incurred by his having to employ an attorney in September and October of 1979. Defendant's deposition reveals that he was forced to obtain the attorney's services in defense of the suit filed by Jensen because a date for the taking of defendant's deposition in that case was approaching and defendant was not able to discuss the proceeding with the retained attorney. Defendant indicated that at the time of the deposition he had paid the attorney $280 of a fee totalling approximately $1,280.

We conclude that the cost of hiring the attorney, if caused by plaintiffs' negligence, could be considered damages naturally flowing from the failure of the insurer to exercise reasonable care in representing the insured in the course of litigation. Such costs are no less foreseeable than the overage judgments which have traditionally formed the basis for damage claims in this type of litigation. See Aetna Casualty & Surety Co. v. Kornbluth, supra.

Contrary to plaintiffs' argument, the principles governing recovery of...

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