Granados v. Wilson
| Decision Date | 27 January 2023 |
| Docket Number | 123,684 |
| Citation | 523 P.3d 501 |
| Parties | Nancy GRANADOS, Individually, as Heir-at-Law of Francisco Granados, Decedent, and as Class Representative of All Heirs-at-Law of Francisco Granados, Decedent, Appellee/Cross-appellant, v. John WILSON, Defendant, and Key Insurance Company, Appellant/Cross-appellee. |
| Court | Kansas Supreme Court |
James P. Maloney, of Foland, Wickens, Roper, Hofer & Crawford, P.C., of Kansas City, Missouri, argued the cause, and Kevin D. Brooks, of the same firm, and James D. Oliver, of Foulston Siefkin, LLP, of Overland Park, were with him on the briefs for appellant/cross-appellee.
Michael W. Blanton, of Gerash Steiner Blanton P.C., of Evergreen, Colorado, argued the cause, and Jared A. Rose, of The Law Office of Jared A. Rose, of Kansas City, Missouri, was with him on the briefs for appellee/cross-appellant.
Richard L. Budden, of Shamberg, Johnson & Bergman, Chtd., of Kansas City, Missouri, and Jakob Provo and James R. Howell, of Prochaska, Howell & Prochaska LLC, of Wichita, were on the brief for amicus curiae Kansas Trial Lawyers Association.
Cynthia J. Sheppeard, of Goodell Stratton Edmonds & Palmer LLP, of Topeka, was on the brief for amicus curiae Kansas Association of Defense Counsel.
This garnishment action arises from tragic circumstances. In October 2017, John Wilson was driving inebriated and ran a red light, striking another car and killing the driver. The driver's wife, Nancy Granados, brought a wrongful-death lawsuit against Wilson, and the district court entered a judgment against Wilson for $3,353,777.52.
To collect on that judgment, Granados filed a garnishment action seeking payment from Key Insurance Company under the automobile liability insurance policy it had issued to Wilson. Under that policy, Key limited its coverage for bodily injuries caused by Wilson to $25,000 per person or $50,000 in the aggregate. Despite these policy limits, Granados alleged Key's negligent and bad-faith handling of Wilson's claim rendered it liable for the entire judgment. After conducting a bench trial, the district court agreed with Granados and entered judgment against Key for $3,481,901.29.
But on appeal, a panel of the Court of Appeals reversed the district court's judgment. The parties ask us to resolve two issues central to the panel's holding: (1) whether an insurer has a legal duty to settle with an injured third-party before that party has formally demanded compensation for injury; and (2) whether Granados proved that Key's negligence and bad faith caused the excess judgment against Wilson.
As to the first question, we reject the framing of the issue below. We decline the invitation to define an insurer's legal duties more narrowly, or in a more particularized manner, than established under our precedent. And under that precedent, insurers do not have a discrete legal duty to settle. Rather, when handling claims against its insureds, insurers have an implied contractual duty to act in good faith and to act with reasonable care under the circumstances. Whether specific acts or omissions related to the insurer's investigation, evaluation, communication, or settlement strategy breach either of these two legal duties is a question typically reserved for the trier of fact. By trying to define the contours of an insurer's purported "duty to settle" under Kansas law, the panel transformed a question of fact into a question of law, thereby invading the province of the fact-finder.
When a court applies an incorrect legal standard or framework, we often remand the case so the court can apply the correct one. But such a remand would be futile here because, as to the second question, we hold Granados failed to meet her burden to prove that Key's handling of the claim caused the judgment exceeding policy limits. Whether an insurer's conduct was the proximate or legal cause of the judgment is a question of fact. And as an appellate court, we typically defer to the district court's findings on such matters. But our deference is not absolute—a district court's findings must be supported by substantial competent evidence. The record before us contains no evidentiary support for the district court's finding that Key's conduct caused the excess judgment against Wilson. And because causation is an essential element of Granados' claim against Key, we affirm the panel's decision, albeit under a different rationale, and remand the matter to the district court to enter judgment for Key.
The facts relevant to the issues before our court occurred after Key learned of the October 2017 crash that killed Granados' husband. Thus, we do not focus on the circumstances leading to the crash. Suffice it to say there is no dispute Wilson was at fault.
Wilson notified Key about the crash the day after it happened. Based on this notice, Granados was identified as a claimant in Key's claim management system. This notice also triggered Key's claim liability review. As part of that review, Key obtained the police report, which revealed Wilson had run the light and appeared to be under the influence of alcohol or drugs or both. Thus, Key concluded Wilson was at fault and damages would exceed the $25,000 per-person coverage limit for bodily injuries under the automobile liability policy.
But Key never informed Wilson that it had reached that conclusion. It never contacted Granados to discuss settlement. Nor did it inform Wilson he would be responsible for any judgment exceeding policy limits if the case did not settle within those limits. Key eventually closed its claim file, believing Granados would not pursue any claim against Wilson.
In June 2018, about eight months after the accident, Granados filed a wrongful-death suit against Wilson. Key learned of the suit in early July. Three weeks later, it offered to settle Granados' claim against Wilson for the $25,000 policy limit. But Granados rejected that offer, explaining Key's failure to offer the policy limit pre-suit constituted negligence and bad faith because insurers have a duty to promptly begin settlement negotiations when liability is clear and damages exceed policy limits. Whether insurers have a discrete legal duty under Kansas law to initiate settlement negotiations would come to frame much of the ensuing litigation, including the issues before our court.
After rejecting Key's settlement offer, the parties entered a "Settlement Agreement and Covenant not to Execute." Under that agreement, Granados promised not to execute on any judgment she obtained against Wilson in the wrongful-death action. In exchange, Wilson assigned to Granados any claims he had against Key under the automobile liability insurance policy. Following a September 2019 bench trial in the wrongful-death action, the district court entered judgment for Granados and against Wilson for nearly $4.5 million. The district court later granted a joint motion to amend the judgment, reducing the judgment amount to $3,353,777.52.
Several months later, Granados tried to collect on that judgment by filing a garnishment action against Key in Wyandotte County District Court. Standing in the shoes of Wilson in that garnishment action, Granados alleged Key had breached several implied contractual duties that it owed to Wilson. Granados alleged Key breached its duty to investigate the claim, its duty to evaluate the claim and consider the insured's interests, its duty to communicate the results of the investigation and evaluation to the insured, and its duty to negotiate a settlement. Granados argued these discrete legal duties, implicit in the automobile liability policy, required Key to contact Granados before the wrongful death suit was filed and settle for policy limits. Granados alleged she would have accepted that offer to avoid hiring a lawyer and suing. Thus, Granados claimed Key's breach of these implied contractual duties caused the judgment exceeding the $25,000 policy limit.
Both parties moved for summary judgment. Consistent with Granados' framing of the case, the summary-judgment filings focused on the scope of an insurer's discrete legal duties under Kansas law. The district court denied both motions and set the case for trial.
The matter proceeded to a two-day bench trial in November 2020. While several people testified, the testimony from two witnesses is particularly relevant to our analysis. First, Granados testified that before she engaged counsel and filed the wrongful death suit, she would have settled within policy limits, even if it were only $2,000 or $5,000, to avoid taking the case to trial and paying attorney fees. Second, a Key employee testified that many injured third parties never pursue recovery and about two-thirds (66%) of potential bodily-injury claimants never receive any payment from Key.
The district court issued its ruling from the bench. As the Court of Appeals panel observed, the "district court's comments about the case were somewhat meandering, and the court did not delineate explicit findings of fact and conclusions of law." Granados v. Wilson , 62 Kan. App. 2d 10, 17, 505 P.3d 794 (2022). That said, the district court's comments established several relevant findings, including: (1) Granados was a credible witness and would have settled for the $25,000 policy limit if Key had pursued settlement pre-suit; (2) it was reasonable under the circumstances for Key not to initiate settlement, so Key did not have a duty to do so; (3) Key breached its duty to communicate the results of its evaluation to Wilson and advise him of his personal liability for a judgment exceeding the policy limits; and (4) Key's breach of its duty to communicate with Wilson caused the excess judgment. Based on those findings, the district court entered judgment for Granados in the amount of $3,481,901.29.
Both parties sought review at the Court of Appeals. In Key's appeal, it argued Granados had failed to present...
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