Henke v. Iowa Home Mut. Cas. Co.

• Decision Date: 09 June 1959
• Docket Number: No. 49722,49722
• Parties: E. W. HENKE, Administrator of the Estate of Richard Allen Townsend, Deceased, Plaintiff-Appellee. v. IOWA HOME MUTUAL CASUALTY COMPANY, Defendant-Appellant.
• Court: Iowa Supreme Court

Page 168

97 N.W.2d 168

250 Iowa 1123

E. W. HENKE, Administrator of the Estate of Richard Allen Townsend, Deceased, Plaintiff-Appellee. v. IOWA HOME MUTUAL CASUALTY COMPANY, Defendant-Appellant.

No. 49722.

Supreme Court of Iowa.

June 9, 1959.

Rehearing Denied July 24, 1959.

Larson & Carr, Charles City, for appellant.

Keith S. Noah, Charles City, for appellee.

PETERSON, Justice.

June 19, 1955 at about 1:15 A.M., Richard Allen Townsend was driving his car west toward Clarksville, in Butler County, on a gravel road. He had Mr. and Mrs. W. Paul Hess with him in the front seat. Two young girls, Mary Kelm and Betty Johnson were in the back seat. There is substantial evidence he was driving from 85 to 95 miles an hour. There was some evidence, although not conclusive, he was racing with another car. There was heavy dust and fog, and he did not see a slight curve in the road. He kept driving straight ahead, running into the grass at the side of the road, and then into a ditch. He suddenly put on his brakes, slid 213 feet, and wrecked his car by running into a concrete culvert. Mr. Townsend and Mr. Hess were killed, Mrs. Hess was very seriously and permanently injured. The two girls in the back seat were seriously injured. E. W. Henke was appointed administrator of Mr. Townsend's estate, and Harry Eliason of the estate of Mr. Hess. Mrs. Hess sued the Townsend estate for $37,000; Mr. Eliason Admr. for $30,827.80; and the two girls, in a joint suit, for $6683.85.

Mr. Townsend had a liability policy with defendant for $5000 for one person, and $10,000 for one accident. There were many negotiations by Mr. Henke, Administrator, with defendant and its attorneys for settlement of all cases. Finally, before trial, all plaintiffs offered to settle for $8000. LaMars Mutual Insurance Co., insurer for Larry Lodge, who was accused for racing with Townsend, offered to pay $500, leaving a net figure of $7500, for which defendant could have settled all cases. Defendant refused.

Mrs. Hess' case was tried first, resulting in a verdict of $25,000. Defendant paid $5000, leaving $20,000 unpaid judgment against Townsend estate. Negotiations were again entered into for settlement of case of Mr. Hess estate and the two girls. They offered to accept $4800, or $200 under remaining policy limit. Defendant refused. The Hess estate case was tried, resulting in a verdict of $16,447.30. Defendant paid $5000, leaving a judgment of $11,447.30 against the Townsend estate. The case of the two girls has not yet been tried. Defendant never appealed as to either verdict.

Plaintiff sued defendant for the unpaid balance of the two judgments, plus an expenditure of $507.50 made by the Townsend estate in connection with defending the two cases, or a total of $31,954.80. Plaintiff alleges bad faith on the part of defendant in failing to settle all cases, when it could have been done substantially below policy limit. Jury was waived and the case tried at law to the court. Judgment was rendered for the full amount. Defendant has appealed.

Appellant raised nine assignments of errors. They can be consolidated and considered under four general statements: 1. The court erred in admitting as evidence, an inter-office memo from the office of defendant. 2. The court erred in admitting the transcripts of the testimony taken at the two trials. 3. The court erred in its findings of facts in that the facts did not show sufficient bad faith so that the case should be submitted to a jury. (in this case, to the court as the trier of the facts) 4. The court erred in rendering judgment for $31,954.80, whereas if bad faith was proven it should have been rendered for either $832.45, or $1500.

One of the earliest cases involving the question at issue in this case was an Iowa decision. Getchell & Martin Lumber Mfg. Co. v. Employers' Liability Assurance Corp. 1902, 117 Iowa 180, 90 N.W. 616, 62 L.R.A. 617. It is not of value as a precedent, as the final decision veered off on a side issue. As a historical matter involving the subject at hand it is worthy of brief consideration.

Defendant had issued a liability policy insuring plaintiff as against claims of employees, not exceeding $1,500 in any one case. An employee, Newbury, secured a judgment for $4300. Defendant proceeded to appeal, but its attorneys failed to perfect appeal, and the appeal was dismissed on motion. Employer sued liability company for this negligence. This court held there was no liability, as there was no assurance there would have been a reversal. There was a presumption of the correctness of the judgment at nise prius, and no evidence was available to overcome this presumption.

Appellant cites this case in support of its contention as to measure of damages. Since the case was decided on the narrow question above outlined, it is not relevant to the damage question. We will consider the assignment of error as to damages in Division IV.

In the last two decades a new body of law has arisen. The question has been litigated where the insurer could have settled for policy limits or less, and yet verdicts were rendered against the insured in excess of such limits, in over two hundred decisions in Federal and State Courts.

Inflationary economic conditions, and the tremendous increase in the number of automobile accidents have quickly and greatly increased the number of cases, and size of verdicts. In this new era the case at bar is a case of first impression on the subject in this court. The basis of the cases are the reciprocal obligations placed upon the parties under the liability contract or policy.

In the case at bar, defendant, for a stipulated consideration, among other provisions, agreed: 'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person, caused by accident and arising out of the ownership, maintenance or use of the automobile.' 'Defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.'

Insured, among other provisions, agreed: 'The insured shall cooperate with the company and, upon the company's request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others as shall be imperative at the time of accident.'

A brief statement describes the broad outlines of the question involved. If an insurer acts in complete good faith as to all investigation and negotiations concerning the catastrophe involved it is not liable for excess judgments above policy limits. If negligent, as held in some cases, or if it acts in bad faith, as is now the majority rule, the trial court is obligated to submit to the jury the question of recovery for the excess.

The variations as to facts as to both of these situations are almost as numerous as the decisions rendered. We cannot, therefore, establish a hard and fast rule under this decision for all Iowa cases in the future. We will decide this case, under its facts, and discuss some factors involved, which have been established through reoccurrence and reaffirmance in the state and Federal cases.

To list all cases considering the subject would be superfluous. We will list a few fairly recent cases, together with some helpful articles in which the question has been discussed. 40 A.L.R.2d, the article on pages 168 to 226; Iowa Law Review, Vol. 43, No. 4, Page 588 (1958); Drake Law Review, Vol. 7, No. 2, P. 23 (1958); Following articles in the Insurance Law Journal: No. 278, March 1946, P. 130; No. 333 October 1950, P. 734; No. 391, August 1955, P. 525; No. 415, August 1957, P. 483; No. 421, February 1958, P. 77; No. 425, June 1958, P. 404; Ballard v. Citizens Cas. Co., 7 Cir., 1952, 196 F.2d 96; Royal Transit Ins. v. Central Surety & Ins. Corp., 7 Cir., 168 F.2d 345; Olympia Fields Country Club v. Bankers Indemnity Ins. Co. 325 Ill.App. 649, 60 N.E.2d 896; Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413; Springer v. Citizens Casualty Co., 5 Cir., 1957, 246 F.2d 123; Southern Fire & Casualty Co. v. Norris, 1951, 35 Tenn.App. 657, 250 S.W.2d 785.

A brief statement of some factors involved, and cases establishing good faith is advisable.

Bad faith requires more than a showing of inadvertence or honest mistake of judgment. Berk v. Milwaukee Automobile Insurance Company, 245 Wis. 597, 15 N.W.2d 834; Georgia Casualty Company v. Mann. 242 Ky. 447, 46 S.W.2d 777; City of Wakefield v. Globe Indemnity Company, 246 Mich. 645, 225 N.W. 643; Norwood v. Travelers Insurance Company, 204 Minn. 595, 284 N.W. 785, 131 A.L.R. 1496; Henry v. Nationwide Insurance Company, D.C., 139 F.Supp. 806; American Casualty Co. of Reading Pa. v. Howard, 4 Cir., 187 F.2d 322.

Where there is no clear and definite evidence that the claim could be settled within the policy limits or for a reasonable figure, or the proposal of the claimant was merely conditional, the insurer cannot be held liable for refusal to settle within the policy limits. Jones v. Highway Insurance Underwriters, Tex.Civ.App., 253 S.W.2d 1018.

If the insurer has exercised good faith in its dealings with the insured and if the settlement proposal has been fully and fairly considered and decided against, based upon an honest belief that the action could be defeated or the judgment held within the policy limits, and in which respect local counsel have honestly expressed their...