Ferris v. Employers Mut. Cas. Co.

Decision Date11 June 1963
Docket NumberNo. 50988,50988
Citation122 N.W.2d 263,255 Iowa 511
PartiesCharles F. FERRIS, Jr., Appellee, v. EMPLOYERS MUTUAL CASUALTY COMPANY, Appellant.
CourtIowa Supreme Court

Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, and Guthrie & Blackburn, Webster City, for appellant.

McCarville & Bennett, Fort Dodge, for appellee.

THOMPSON, Justice.

This case is a by-product of Ferris v. Riley, 251 Iowa 400, 101 N.W.2d 176. In that case, in which Ferris claimed damages from Riley arising out of an automobile collision, the final judgment was for the plaintiff in the sum of $55,000.00. The coverage limit in Riley's liability policy with the defendant insurance company was $10,000.00. After the trial of the original case in the district court and appeal, all of which resulted in the judgment above referred to, the present defendant, which will hereafter be known as the insurer, paid in the policy limit and costs, leaving $45,000.00 unpaid on the judgment. Execution was issued against Riley and returned unsatisfied, and it fairly appears that he has no assets from which any sum can be recovered. Thereupon a receiver was appointed for Riley's property.

Ferris then brought his action against the insurer, his petition being in three divisions. The first was based upon contract; the second, upon bad faith; and the third upon negligence. There is no merit in the claim of any contract liability as between Ferris and the insurer, it is not argued here, and we give it no further attention.

Riley's receiver by petition of intervention made common cause with the plaintiff. The plaintiff claims the right of action against the insurer under section 516.1 of the Code, I.C.A. which we quote: '516.1 Inurement of policy. All policies insuring the legal liability of the insured, issued in this state by any company, association or reciprocal exchange shall, notwithstanding any other provision of the statutes, contain a provision providing that, in event an execution on a judgment against the insured be returned unsatisfied in an action by a person who is injured or whose property is damaged, the judgment creditor shall have a right of action against the insurer to the same extent that such insured could have enforced his claim against such insurer had such insured paid such judgment.' The policy in question here contained the required provision.

Whether this is sufficient to authorize an action such as this for recovery in excess of the policy limits we do not decide, because it is not argued by the defendant. Perhaps this is because of the petition of intervention, brought in behalf of the insured, in whose behalf such an action, if supported by the facts, would of course lie. See Wellman v. Hawkeye-Security Insurance Company, 250 Iowa 591, 94 N.W.2d 761. The defendant meets plaintiff's claim squarely by denying that there was any bad faith or negligence on its part sufficient to generate a fact issue.

I. Some governing principles of law must first be considered and settled. The case was tried at law to the court; and so its findings of fact, if supported by any substantial evidence, are binding upon us, unless in arriving at them the court erred in its rulings on evidence or in other respects upon questions of law. Before the defendant will be entitled to a reversal with directions, as asked, it must appear that it should have been given a directed verdict in the trial court, as requested.

The burden was upon the plaintiff to show bad faith, including negligence as a possible factor therein. In an able article in 7 Drake Law Review, 23-40, it is said: 'The cases are quite uniform in holding that the burden of proof is upon the insured to prove negligence or bad faith, and not upon the insurer to prove lack of it.' In Berk v. Milwaukee Automobile Insurance Company, 245 Wis. 597, 15 N.W.2d 834, 836, it is held: 'Bad faith is a species of fraud, and the evidence to sustain a finding thereof must be clear, satisfactory, and convincing.' See also Cowden v. Aetna Casualty & Surety Co., 389 Pa. 459, 134 A.2d 223, 229. This language is used in Maryland Casualty Co. v. Cook-O'Brien Construction Co., 69 F.2d 462, 466, C.C.A., 8th Cir.: 'The doctrine that fraud or bad faith are never presumed, but must be proven, is directly applicable.' This was quoted with approval by the same court in Frank B. Connet Lumber Co. v. New Amsterdam Casualty Co., 8 Cir., 236 F.2d 117, 126. Whether the evidence must be clear, satisfactory and convincing, as the Wisconsin and Pennsylvania Supreme Courts have held, we do not now decide. It is sufficient here to say that the burden of proof is upon the plaintiff.

Also, it must be pointed out that the plaintiff's rights are to be measured by those of Riley as against the defendant insurer. The statute, section 516.1, I.C.A. supra, and the provisions of the policy, if applicable at all here, do no more than place the plaintiff in Riley's position. As the case is presented to us if Riley would have been entitled to recover an excess policy judgment, the plaintiff would likewise be so entitled; if Riley could not recover, neither can the plaintiff. It should be noted that the trial court made no findings of fact and entered no judgment on the petition of intervention filed by Riley's receiver. It merely said that in view of its finding for the plaintiff, the petition of intervention was moot.

II. We think it necessary that we determine at this point whether an excess recovery action must be based upon bad faith, or upon negligence, or upon both. As the Drake Law Review article above referred to points out, there is great confusion in the courts at this point. Some adopt the bad faith test; some the negligence test; and some combine features of both. Insurer's Liability Exceeding Policy Limits, 7 Drake Law Review, 25, 26, 27. Many cases do not distinguish which test is being followed, and some erroneously refer to what are really negligence tests as bad faith. It would be impossible to analyze the many cases which have used one test or the other, or a combination of both. We think our own case of Henke v. Iowa Home Mutual Casualty Company, 250 Iowa 1123, 97 N.W.2d 168, has committed us to the rule that the test is one of bad faith, but that some negligences may be material on that issue. We said: 'Failure to do so (to use care and diligence in investigating the case) will be held negligence and will have an influence on the issue of bad faith.' Loc. cit. 250 Iowa 1131, 97 N.W.2d 174. We think this statement should be modified to the extent that not every negligence of the insurer should be held evidence of bad faith. It is only acts of negligence that show or permit an inference of indifference to or disregard of the interest of the insured that can fairly be said to support a charge of bad faith.

III. Some statement of the evidence adduced in the instant case now becomes material. There is little factual dispute. While the original case of Ferris v. Riley was pending, there were various negotiations for settlement. An offer of settlement for $10,000.00, the exact policy coverage, was made by the plaintiff, and was met with a counter offer of $7,500.00 by the defendant. At the time the trial started, the plaintiff offered to accept $8,500.00; $8,000.00 was offered and declined. While the case had been investigated by agents for the defendant insurer, great reliance was placed upon the company's attorney, John H. Mitchell, of Fort Dodge. Mr. Mitchell is a former attorney general of Iowa and has had a long and successful career as a practicing attorney, with much experience in the trial of negligence cases. The insurer depended much upon his judgment. When the matter was first placed in his hands, Mr. Mitchell contacted the defendant Riley, told him that he was counsel for the insurance carrier, that the claim might exceed the limits of Riley's coverage, and that he was free to engage his own counsel. Although Riley had in fact consulted an attorney in Webster City in regard to a minor criminal charge growing out of the same collision, he elected to be represented by Mr. Mitchell in all civil matters connected with it. Nor has he expressed any dissatisfaction with Mr. Mitchell's services to this date.

Riley was not consulted about the settlement negotiations, except that he was present when the final offers of $8,500.00 and $8,000.00 were made, and so of course knew of them. He made no protest, and no request that the case be settled. In fact, his attitude was at all times, including the time of the trial of the second case, that he was in no manner at fault and should not have been found liable in any amount. He so testified. He was present during the first trial, consulted with Mr. Mitchell as to selection of the jury and handling of the witnesses, and is still satisfied with Mr. Mitchell's representation. Further facts will be referred to as they become relevant.

IV. The essential matters that must be shown in order to sustain a charge of bad faith, or negligence amounting to bad faith, are set out in 40 A.L.R.2d, page 171, anno.: Liability Insurer--Duty to Settle. There is little if any substantial difference in the terms of the policies considered in the numerous cases which have been decided in various jurisdictions. As in the case at bar, the insurer was always given control of the case, including litigation and settlement negotiations. The difference has been in the varying facts, with the several courts arriving at conflicting interpretations of the inferences to be drawn and the rules of law to be applied. It is impossible to reconcile the cases, and an attempt to analyze all of them would extend this opinion beyond possible bounds.

We shall consider the tests set out in 40 A.L.R.2d above referred to. First is this: 'It may be indicative of either bad faith or negligence that the evidence as to liability or damages was strongly against the insured.' In the...

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