Great American Insurance Company v. Ratliff

• Decision Date: 23 June 1965
• Docket Number: No. LR-64-C-38.,LR-64-C-38.
• Citation: 242 F. Supp. 983
• Parties: The GREAT AMERICAN INSURANCE CO., Plaintiff, v. T. J. RATLIFF and Allen Holland, Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

242 F. Supp. 983

The GREAT AMERICAN INSURANCE CO., Plaintiff, v. T. J. RATLIFF and Allen Holland, Defendants.

No. LR-64-C-38.

United States District Court E. D. Arkansas, W. D.

June 23, 1965.

John M. Lofton, Jr., Little Rock, Ark., for plaintiff.

Louis Tarlowski, Little Rock, Ark., Robert N. Hardin and O. Wendell Hall, Jr., Benton, Ark., for defendant T. J. Ratliff.

Ben M. McCray, Benton, Ark., for defendant Allen Holland.

HENLEY, Chief Judge.

This is a suit for a declaratory judgment brought by plaintiff, The Great American Insurance Co., hereinafter the Company, a New York corporation having its principal place of business in that State, against T. J. Ratliff and Allen Holland, individual citizens of Saline County, Arkansas. The amount in controversy, exclusive of interest and costs, is in excess of $10,000.

The purpose of the suit is to secure an adjudication that the Company is not liable to pay any portion of a $15,000 judgment which Ratliff obtained against Holland in 1964 in the Circuit Court of Saline County. That litigation arose out of an episode which took place on the night of August 7, 1963, at a point on Arkansas State Highway No. 183 near Bauxite, Arkansas. On the occasion in question Ratliff was operating his motor vehicle along the highway when it was struck one or more times by a following vehicle. The Ratliff vehicle was overturned and Ratliff sustained personal injuries.

At the time of the episode there was bad blood between Ratliff and Holland, and the former accused the latter of having deliberately driven his automobile into the rear of the Ratliff car for the purpose of killing or injuring Ratliff. On the morning following the accident Ratliff procured the issuance of a warrant for the arrest of Holland on a charge of reckless driving and on a further charge of assault with intent to kill, which latter offense is a felony under Arkansas law. Holland was arrested and was released on bail. On August 10, 1963, Ratliff filed a suit against Holland in the Saline County Circuit Court alleging in substance that Holland had deliberately driven his vehicle into the rear of the Ratliff vehicle. Actual damages in the sum of $100,300 were sought, and Ratliff also sought punitive damages in the sum of $50,000.

Throughout August 1963 Holland was the holder of a standard form automobile liability insurance policy issued by the Company. The limits of that policy as far as personal injuries were concerned were $10,000 for injuries to any one person and $20,000 for injuries resulting from any one occurrence. The policy also provided indemnity for property damage to the extent of $5,000 for any one occurrence.

The policy obligated the Company to pay on behalf of Holland all sums which Holland might become legally obligated to pay as damages for personal injuries or property damage resulting from his ownership, maintenance, or operation of the car described in the policy, and to defend any suit alleging such injuries or damage even though the suit might be groundless, false, or fraudulent. The Company was empowered to investigate and settle any claims or suits against Holland as it might deem expedient.

In the instant case the Company relies on an exclusion clause of the policy which clause provided that the policy did not afford protection with respect to injuries "caused intentionally by or at the direction of the insured."

When Holland was served with summons in the State court litigation, he immediately notified representatives of the Company. An adjuster for the Company took a non-waiver agreement from Holland and proceeded to make an investigation of the case. At the outset of the investigation Holland took the position, which he has consistently maintained, that neither he nor his car was involved in a collision of any kind, intentional or accidental, with the Ratliff vehicle on the night of August 7, 1963, or at any other time.

Having completed its investigation, the Company undertook the defense of the suit against Holland and was perforce required to take the position that Holland was not involved in a collision with Ratliff on the occasion in question. On August 29, 1963, the Company filed on behalf of Holland an answer in the State court denying each and every material allegation of the complaint.

While the record does not expressly so establish, it is reasonably inferable that Ratliff's attorneys in the State court litigation became aware of the exclusion in the Holland policy and realized that if Holland was convicted on the criminal charge or if the civil case was submitted to the jury on an intentional tort theory, the exclusion might be applicable and that a judgment against Holland might not be collectible in the absence of insurance. In any event, the criminal charges against Holland have never been brought to trial, and on March 12, 1964, Ratliff filed an amended and substituted complaint in the State court alleging that the conduct of Holland was reckless or grossly negligent rather than intentional.

On March 19, 1964, the Company commenced this action in this Court alleging the applicability of the exclusion clause and seeking an adjudication of nonliability. While the complaint in the instant case referred to the pendency of the Ratliff-Holland litigation in the Circuit Court and alleged that the State court case had been set for trial on April 10 of that year, the Company did not seek a stay of proceedings in the State court. Rather, on April 8, 1964, Holland filed a motion for a continuance in the State court, referring to the pendency of the declaratory judgment litigation in this Court.

The motion was not granted, and the original case was tried in the Circuit Court on April 10, the trial resulting in a general verdict for Ratliff in the sum of $15,000. On April 17, 1964, judgment upon the verdict was entered. Holland prosecuted an appeal to the Supreme Court of Arkansas, and the judgment of the Circuit Court was affirmed on December 21, 1964. Holland v. Ratliff, 238 Ark. 819, 384 S.W.2d 950.

Prior to the trial in the State court, Ratliff manifested a willingness to accept $10,000 in satisfaction of his claim, and Holland made demand on the Company to settle the case for that sum. That demand was refused by the Company and, as indicated, the judgment rendered against Holland was $5,000 in excess of the policy limit.

It is the position of both defendants here that the case in the State court was submitted to the jury on a negligence theory and not on a theory of intentional tort; that the verdict of the jury and the judgment of the Circuit Court establish the quality of the conduct of Holland as having been negligent rather than intentional, and that the Company now has no right to go behind the State court judgment and undertake to show that the conduct of Holland was such as to make the policy exclusion applicable. Ratliff contends, alternatively, that even if the exclusion is applicable as between the Company and its insured, Holland, it has no applicability to the claim of an injured third person.

Not only do the defendants deny that the Company is entitled to the relief which it seeks; they also have filed counterclaims praying that the Company be adjudged liable to pay the full amount of the Ratliff judgment plus a statutory penalty of 12 percent and a reasonable attorney's fee.¹ The basis of the claim that the Company is liable for the full amount of the Ratliff judgment rather than for its $10,000 policy limit is the allegation that the Company was guilty of negligence or bad faith in refusing to accept Ratliff's offer to accept $10,000 in settlement of his claim.

The Company naturally denies that defendants are entitled to relief on their counterclaims, and in that connection it denies specifically that it was guilty of either negligence or bad faith in refusing to pay Ratliff $10,000 prior to the State court trial.

The record before the Court consists of the pleadings, a copy of the policy, certain documentary evidence, including a copy of the transcript of the proceedings in the Circuit Court, and the oral testimony of the Company's adjuster, Mr. Washburn, that of Holland and Ratliff, and that of certain other witnesses which the Court finds it unnecessary to mention.

As the Court sees the case the following questions are presented: (1) Does the exclusion upon which the Company relies, if otherwise applicable, apply to a claim advanced by an injured third party who holds a judgment against the insured? (2) If so, may the Company in this action undertake to show without regard to the State court proceedings that Holland's conduct with respect to Ratliff fell within the exclusion? (3) If the second question is answered in the affirmative, then were Ratliff's injuries "caused intentionally by * * * the insured?" (4) Assuming that the Company is liable herein, then does its liability extend beyond the $10,000 policy limit? (5) Again assuming liability, are defendants entitled to an award of penalty and attorney's fee?

I.

While the questions relating to the limit of the Company's liability including its liability for penalty and attorney's fee are the last of the questions above outlined, the Court finds it convenient to dispose of them first. In answering them the Court will assume for the moment and for purposes of argument only that the Company's defense based on the exclusion clause in the policy has not been sustained.

The law of Arkansas is that where a liability insurer has an opportunity to settle a claim against the insured within the policy limits and fails to do so, and where the injured party recovers a judgment against the insured in excess of the policy limits, the insurer is liable to the full extent of the judgment if its failure to settle was due either to negligence or bad faith on its part. Dreyfus v. St. Paul Fire & Marine Ins. Co., 238 Ark. 724, 384 S.W.2d 245; Southern Farm Bureau Casualty Ins. Co. v. Hardin, 233 Ark. 1011...