Farmers Ins. Exchange v. Schropp, 48408

• Decision Date: 11 July 1977
• Docket Number: No. 48408,48408
• Citation: 567 P.2d 1359,222 Kan. 612
• Parties: FARMERS INSURANCE EXCHANGE, Appellant, v. Michael D. SCHROPP, a minor, and the Estate of Clint R. Sohl, Deceased, Appellees.
• Court: Kansas Supreme Court

Page 1359

567 P.2d 1359

222 Kan. 612

FARMERS INSURANCE EXCHANGE, Appellant, v. Michael D. SCHROPP, a minor, and the Estate of Clint R Sohl, Deceased, Appellees.

No. 48408.

Supreme Court of Kansas.

July 11, 1977.

SYLLABUS BY THE COURT

1. A liability insurer, having assumed control of the right of settlement of claims against the insured, may become liable in excess of its undertaking under the policy provisions if it fails to exercise diligence and good faith in considering offers to compromise the claim for an amount within the policy limits.

2. Whether an insurer in defending a claim and refusing an offer of settlement within policy limits was negligent or acted in bad faith is a question for the trier of fact in each case.

3. The duty to consider the interests of the insured arises not because there has been a settlement offer from the plaintiff but because there has been a claim for damages in excess of the policy limits. This claim creates a conflict of interest between the insured and the carrier which requires the carrier to give equal consideration to the interests of the insured.

4. The duty to settle arises if the carrier would initiate settlement negotiations on its own behalf were its potential liability equal to that of its insured.

5. An insurer is obligated to exercise diligence and good faith in its efforts to settle damage claims within the policy limits, whether its insured is financially responsible or insolvent.

6. An insurer, aware that liability is probable and that claims will likely be substantially in excess of policy limits, may initiate settlement proceedings with all potential claimants by inviting them to participate in a joint settlement conference; or it may attempt to settle claims within the policy limits as they are presented; or it may promptly and in good faith commence an action in interpleader. The first of these alternatives is preferable, where the claimants are readily available and such a procedure may avoid litigation.

7. An insured need not wait until his property is seized under an excess judgment before commencing action against an insurer whom the insured claims has acted negligently or in bad faith in failing to settle a claim within the policy limits. The action lies, whether or not the insured has paid or can pay an excess judgment.

8. The burden is upon an appellant to designate a record sufficient to present its points to this court, and to establish the claimed error.

9. In an appeal by an insurer from a judgment against it in excess of its policy limits, entered in a declaratory judgment action commenced by the insurer, the record is examined and it is held:

(a) the trial court did not err in quashing the taking of the deposition of claimant's counsel, under the circumstances set forth in the opinion;

(b) claimant's counsel was not disqualified to serve as trial counsel;

(c) when unexpected evidence necessitates calling trial counsel as a witness, the trial court may in the exercise of its discretion permit such attorney to withdraw as trial counsel, and then to give testimony in the case;

(d) the trial court did not err in awarding fees and expenses to the administrator of the estate of a deceased insured, to whom the insurer owed a duty to defend under the policy terms;

(e) a claimant may not recover separate judgments against an insurer for medical expenses and for stipulated damages, when the stipulated damages include the same medical expenses, under the facts herein; and

(f) there was substantial competent evidence to support the jury's finding that appellant acted negligently or in bad faith toward its insured in handling the claim of Michael D. Schropp.

Christopher A. Randall, Wichita, argued the cause, and H. Lee Turner and Raymond L. Dahlberg, of Turner & Hensley, Chartered, Great Bend, were with him on the brief for the appellant.

Robert L. Howard, Foulston, Siefkin, Powers & Eberhardt, Wichita, argued the cause and Gerald Sawatzky, Wichita, was with him on the brief for appellee, Michael D. Schropp.

Thomas J. Berscheidt, Ward & Berscheidt, Great Bend, argued the cause, and was on the brief for appellee, The Estate of Clint R. Sohl, Deceased.

MILLER, Justice.

Farmers Insurance Exchange appeals from judgments in excess of its policy limits, entered against it and in favor of Michael D. Schropp and the Estate of Clint R. Sohl, deceased, following a jury trial. Farmers raises a barrage of issues which will be discussed later in this opinion.

This action was commenced as a declaratory judgment suit by Farmers. It arises out of a two-car collision which occurred on October 25, 1969, on U.S. Highway No. 56, near Ellinwood, Kansas. Clint R. Sohl, insured by Farmers, was driving an eastbound vehicle, a Ford Falcon. He was accompanied by a friend, Daryl C. Thompson. Michael Blackman was driving a Plymouth sedan in a westerly direction on the same highway. Passengers in the Blackman car were Michael D. Schropp, Stephen L. Dunham and Stephen M. Arnold. The Ford driven by Sohl veered into the left or westbound lane as it rounded a curve. It collided with the Blackman Plymouth, striking it fully front to front in the westbound lane. The physical evidence at the scene, the highway patrol report, and the photographs all support these facts. There were no witnesses except the occupants of the vehicles. Sohl and Thompson were killed; Blackman, Schropp, Dunham and Arnold sustained personal injuries, those of Schropp being by far the most serious.

Farmers investigated immediately. The facts outlined above were known to it within a few days; they are included within the report of Farmers' investigator, prepared November 28, 1969. Insofar as liability is concerned, no subsequent facts were learned. The only later developments were in the physical condition and health of the injured persons. Schropp was in intensive care for over thirty days. During that time, one of Farmers' adjusters called on Schropp's mother three times, and each time told her that if she would send the medical bills to him, Farmers would take care of them. On December 30, 1969, Robert Howard, who had been retained as counsel for Schropp, wrote to Farmers and accepted its offer to make advance payments of medical bills. He enclosed statements totaling $9,144.65. Almost a month later Farmers replied, stating that it was not then in a position to make advance payments, but it might be shortly, and it would be in touch with Howard in the near future regarding settlement.

The company did not contact Howard regarding settlement. On February 13, 1970, Howard again wrote the company. He enclosed Schropp's medical and hospital bills, which then exceeded $26,000, and he made formal demand for payment of the policy limits in settlement of the Schropp claim. (The policy limits were $25,000 for one person, maximum of $50,000 for each accident.) Howard fixed a ten-day limit for acceptance of the demand.

Russell Cleeton, the claims manager who was handling the matter for Farmers, was given policy limits authority authorization to pay the entire $50,000 to settle all claims arising out of this collision, or $25,000 to settle any one claim on February 20, 1970. On the same date Cleeton wrote Howard, saying that it would take Farmers a few days longer but ". . . we will certainly give you a decision as to your client's claim just as soon as it is feasibly possible to do so under the circumstances."

At that time, Cleeton was aware that the specials (hospital and medical expenses) for the other claimants totaled only four to five thousand dollars. On February 26, 1970, Cleeton shipped the company file to Mr. Turner for handling, and shortly thereafter Cleeton called Howard and told him that it would be necessary for Howard to petition for the appointment of an administrator of the Estate of Clint R. Sohl, and to file a formal claim in that proceeding.

Howard, as attorney for Schropp, then filed a petition for administration of the Estate of Clint R. Sohl in the probate court of Pawnee County, Kansas, on March 12, 1970. On March 26, the matter came on for hearing. The court appointed Morgan Wright as administrator, and issued letters of administration to him. Farmers, having resisted Wright's appointment, authorized its attorneys, who were acting as counsel for Sohl's parents, to appeal Wright's appointment to the district court. The district court heard the matter on May 19, 1970, and affirmed the orders of the probate court and the appointment of Wright as administrator. Petitions for allowance of demands were filed against the estate by Michael D. Schropp, Michael G. Blackman, and Stephen M. Arnold.

Farmers then decided not to litigate the matter in Pawnee County. On July 2, 1970, it filed a petition for declaratory judgment in the district court of Barton County, Kansas, joining Blackman, Schropp, Dunham, Arnold, and the parents and next of kin of Daryl C. Thompson as defendants. Farmers had made no overtures or offers of settlement to any of the parties. The policy limits authority given to its claims manager in February remained unexercised.

Farmers paid $50,000 into court at the time the declaratory judgment action was filed. It alleged that it was in doubt as to whether it should pay any part of the proceeds to the defendants; it asked the court to determine its rights and those of the defendants; and it asked that it be released from all further liability to the defendants. Schropp moved to join the Estate of Sohl as an additional party defendant; Farmers opposed that motion. After hearing, the district court found the estate to be a necessary party and granted the motion, joining Sohl's estate as a party defendant.

On September 15, 1970, counsel for Blackman, Schropp, Dunham, Arnold, and for the parents of Thompson, stipulated that by reason of the extremely serious injuries sustained by Schropp, the value of his claim against the Estate of Sohl greatly exceeded...