General Acc. Fire & Life Assur. Corp. v. Little

• Decision Date: 16 July 1968
• Docket Number: No. 8466,8466
• Parties: GENERAL ACCIDENT FIRE & LIFE ASSURANCE CORPORATION, Ltd., Appellant, v. Irene Bernice LITTLE, Administratrix, Appellee.
• Court: Arizona Supreme Court

Page 690

443 P.2d 690

103 Ariz. 435

GENERAL ACCIDENT FIRE & LIFE ASSURANCE CORPORATION, Ltd., Appellant, v. Irene Bernice LITTLE, Administratrix, Appellee.

No. 8466.

Supreme Court of Arizona, In Banc.

July 16, 1968.

John E. Madden (deceased) and John S. Schaper, Phoenix, for appellant.

Stevens & Leibow, and John J. Dickinson, Phoenix, for appellee.

UDALL, Vice Chief Justice:

The appellee, Irene Bernice Little, brought this action as the assignee of Elza A. Allen and Claudie Beatrice Allen, who were the named insureds under an automobile public liability policy carried with the appellant, hereinafter referred to as General.

On October 22, 1959 Mrs. Allen was involved in an accident which resulted in the death of Mrs. Little's seventeen-year-old son. Appellee thereafter brought suit against the Allens, during the pendency of which General was offered an opportunity to settle for $4,000.00. This offer was rejected and a jury ultimately returned a verdict in favor of Mrs. Little, administratrix, in amount of $17,500.00. Thereafter General paid its policy limits, $5,000, and accrued costs on the judgment. With no execution being levied or any other steps being taken to collect the balance of the judgment, Mrs. Little accepted from the Allens the following assignment:

'WE, ELZ A. ALLEN and CLAUDIE BEATRICE ALLEN, for value received, hereby assign to IRENE BERNICE LITTLE, Administratrix of the estate of JIMMY ANDREW HAVNER, deceased, her executors, administrators and assigns, all our right, title and interest in our claims, rights of action and causes of action against The General Accident Fire and Life Assurance Corporation, Ltd., and Potomac Insurance Group doing business as The General Accident Group, based on the negligence, breach of contract and bad faith of said Company in failing to settle cause No. 111201, Superior Court of Maricopa County, State of Arizona, within the policy limits of our liability policy with said company and we authorize IRENE BERNICE LITTLE, Administratrix of JIMMY ANDREW HAVNER, deceased, her executors, administrators and assigns, to commence action on, prosecute and collect thereon, and take all legal or other measures deemed proper or necessary, with the same force and effect as we could do.

'This assignment is made To secure the payment of a judgment rendered against us in cause No. 111201, Superior Court of Maricopa County, Arizona, the payment of which obligation will render this assignment void; otherwise, to be of full force and effect.' (emphasis added)

Armed with this assignment Mrs. Little instituted the present action. The complaint herein alleged the death of Jimmy Havner, Mrs. Little's son; the prior suit and judgment, the issuance of a liability policy by General, the defense of the prior action by General, the offer and refusal of settlement within policy limits and further alleged that such refusal was based on the bad faith and negligence of General resulting in damage to the Allens in amount of $12,500 (amended complaint); and, finally, the assignment to Mrs. Little was alleged.

General defended on the basis that the complaint failed to state a claim on which relief could be granted. General admitted the accident, the issuance of the policy and the defense of the claim under the terms of the policy; but denied that the accident and death were caused by any negligence of Claudie, or that General had been negligent or had acted in bad faith in refusing to accept the offers of settlement and further denied that the Allens had sustained any damage or that any claim of the Allens had been assigned to Mrs. Little. As to the latter denial the trial court entered a pre-trial order 'that the cause of action asserted by plaintiff is properly in the plaintiff by virtue of the assignment in question and the trial of said cause shall proceed on the merits.'

Trial resulted in a jury verdict of $12,500. General's motions objecting to the form of judgment entered thereon (which provided for interest), for a new trial, and for judgment notwithstanding the verdict were all denied. This appeal follows.

This is only the second opportunity this court has had to review an 'excess liability' case. As we noted in the earlier case the 'law in this regard is of comparatively recent development and the cases are not entirely harmonious,' Farmers Insurance Exchange v. Henderson, 82 Ariz. 335, 313 P.2d 404. Farmers is authority for the proposition that an insurer must give equal consideration to the interests of an insured in determining whether to settle or defend a claim, and that a failure to do so does not constitute good faith.

General has no quarrel with the Farmers holding but contends in the instant case that the assignment of an insured's excess liability claim, as collateral security, does not make the judgment creditor the real party in interest as required by Rule 17(a), Rules of Civil Procedure, 16 A.R.S. ¹ General cites from Mosher v. Hiner, 62 Ariz. 110, 154 P.2d 372, language taken from the early case of Curry v. County of Gila, 6 Ariz. 48, 53 P. 4, the following:

'Any person interested in the subject-matter of the suit who has a personal interest in the judgment is a 'real party in interest,' and unless joined in the action he cannot be bound by the judgment, and for this very reason the law says that he shall be made a party. * * *'

Though the question is not at all settled, the appellant is willing to concede that an excess liability claim may be the subject of an absolute assignment or be transferred by operation of law, Comunale v. Traders & General Insurance Co., 50 Cal.2d 654, 328 P.2d 198, 68 A.L.R.2d 883; Brown v. Guarantee Insurance Co., 155 Cal.App.2d 679, 319 P.2d 69, 66 A.L.R.2d 1202. General argues however that the assignment here involves no release or discharge of the liability of the insured for the payment of the judgment; that Mrs. Little could immediately levy execution against the Allens' property, and that by the terms of the assignment the Allens are in no way absolved of their responsibility to pay the judgment.

Under these circumstances General points out that generally a judgment creditor has no Direct right to maintain an excess liability suit for any bad faith in an insurer's dealings with its policyholder. Sturgis v. Canal Insurance Co., Fla., 122 So.2d 313; Chittick v. State Farm Mutual Automobile Ins. Co., D.C., 170 F.Supp. 276. Nor can a judgment creditor institute garnishment proceedings based on bad faith of the insurer, Francis v. Newton, 75 Ga.App. 341, 43 S.E.2d 282; Paul v. Kirkendall, 6 Utah 2d 256, 311 P.2d 376. The basic reasoning behind such holdings is well stated by Professor Keeton in his article, Liability Insurance and Responsibility for Settlement, 67 Harv.Law Review 1136, 1176:

'* * * 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 benefitted 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 * * *.' (Our emphasis)

We find no merit in appellant's contentions. It has long been the law in Arizona, and the law in most if not all jurisdictions that an assignee of a chose in action may maintain suit thereon in his own name, United Verde Extension Mining Co. v. Ralston, 37 Ariz. 554, 296 P. 262. He need not be the full party in interest, Mosher v. Hiner, supra at 62 Ariz. 112,154 P.2d 374; and the debtor or alleged obligor is not prejudiced as he may assert his defenses as fully against the assignee as he could the original claimant, A.R.S. § 44--144. Nor is the fact that the assignment is given as collateral security on the original tort judgment, if such be the case, of any consequence to General, for payment to the assignee of any judgment rendered in this cause will completely discharge General of further obligation and constitute a complete bar to any possible future action the Allens might institute against it.

It would seem to this court that if the company seriously felt such would not be the case, they would have moved to have the Allens joined as additional parties. In addition to Comunale v. Traders & General Insurance Co., supra and Brown v. Guarantee Insurance Co., supra, as to the assignability or partial assignability of an excess liability claim see the very recent cases of Atlantic City v. American Casualty Insurance Co., D.C., 254 F.Supp. 396 and Gray v. Nationwide Mutual Ins. Co., 422 Pa. 500, 223 A.2d 8. ² We hold that appellees had standing to maintain this action as assignees of the insured and the trial court properly denied the motion to dismiss.

Secondly, the appellant contends that looking at all the evidence in the light most favorable to Mrs. Little, she failed to sustain her burden of proving bad faith and hence the trial court erred in overruling the motions for directed verdict and for judgment notwithstanding the verdict.

What constitutes a breach of duty to exercise good faith? In Farmers Insurance Exchange v. Henderson, supra, we said:

'* * * It occurs to us that when the insurer is defending litigation against the insured, employs attorneys to represent the interests of both and has sole power and opportunity to make a settlement which would result in the protection of the insured against excess liability, common honesty demands that it not be moved by partiality to itself nor be required to give the interests of the insured preferential consideration. A violator of this rule of equlity of consideration cannot be said to have acted in good faith. (citations omitted) The enunciation of the rule is not difficult but its...