Herges v. Western Casualty and Surety Company

• Decision Date: 27 March 1969
• Docket Number: No. 19231.,19231.
• Citation: 408 F.2d 1157
• Parties: Paul HERGES, as Trustee for the Heirs of Clotilda Fleischhacker, Decedent, and as Assignee of the Claim of Clemens John Theis, Appellant, v. WESTERN CASUALTY AND SURETY COMPANY, a Foreign Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

408 F.2d 1157 (1969)

Paul HERGES, as Trustee for the Heirs of Clotilda Fleischhacker, Decedent, and as Assignee of the Claim of Clemens John Theis, Appellant, v. WESTERN CASUALTY AND SURETY COMPANY, a Foreign Corporation, Appellee.

No. 19231.

United States Court of Appeals Eighth Circuit.

March 27, 1969.

Ronald R. Frauenshuh, of Weis, Frauenshuh & Narveson, Paynesville, Minn., for appellant.

Robert M. Austin, of Carroll, Cronan, Roth & Austin, Minneapolis, Minn., for appellee.

Before BLACKMUN, GIBSON and HEANEY, Circuit Judges.

HEANEY, Circuit Judge.

The issue on this appeal is whether the trial court erred in finding that the Western Casualty and Surety Company acted in good faith in refusing to settle a wrongful death action in state court against its insured within the limits of its insurance policy. Western restricted its offer to what it considered to be the "nuisance value" of the case, $1,000. The jury returned a verdict of $35,000.

The initial action arose out of an automobile accident in which Clotilda Fleischhacker, a mother of six minor children, was killed. The accident occurred on July 19, 1965, at 1:10 A.M., on County Road No. 12, in Stearns County, Minnesota, approximately one mile west of Richmond.

Western's insured, Clemens J. Theis, was driving his automobile along the county road when it collided with an automobile driven by the decedent. The decedent was entering the road from a narrow field road used as a shortcut between County Road No. 12 and State Highway No. 23.

Western received notice of the accident on the day that it occurred and caused an immediate investigation to be made. The investigation focused on Theis' negligence, the decedent's contributory negligence and the status of the field road.

The latter question was of importance because if the road was a private one, Theis had the right of way.¹ If the road was a public one, the question of right of way would become a fact question. Theis would then have the burden of showing conditions which would take the case out of the general rule that the person approaching an intersection from the right, in this case the decedent, has the directional right of way.²

Western's investigation disclosed the following:

(1) Theis had been drinking beer prior to the accident and may have also consumed hard liquor. His driving ability, however, remained unimpaired.

(2) The field road was located on private land and no public contribution had been made either for its construction or maintenance. The road was not designated or posted as a township, county or state highway.

(3) Theis knew that the public used the field road. He did not see the decedent's car until just before the front of his car collided with the left side of the decedent's car. The decedent's car was pushed about eighty-five feet to the east.³

(4) The decedent had an unobstructed view of approximately 700 to 800 feet in the direction from which Theis approached before entering the intersection.

Western concluded from its investigation that the field road was private, that its insured had the right of way and was free from negligence, and that the decedent was contributorily negligent. Western concedes, however, that its insured's negligence and the decedent's contributory negligence were jury issues. Western also recognizes that Minnesota statutory law creates a rebuttable presumption that the decedent was acting with due care.⁴

Theis was injured in the accident and his car was damaged. He retained counsel to bring an action on his behalf. The decedent's insurer settled Theis' personal injury claim for $4,500. It also paid Western, as subrogee of Theis, seventy-five per cent of the damage to Theis' car.

Plaintiff, the decedent's representative, subsequently sued Western's insured for $35,000, the maximum permissible under the Minnesota Wrongful Death Statute. M.S.A. § 573.02, Subd. 1. Early in the pretrial proceedings, he offered to settle for $20,000. This offer was subsequently reduced to $10,000 and then to $9,000. Western rejected each settlement offer. It proposed to settle the claim for $1,000, the "nuisance value" of the case. It refused to make further offers. The $9,000 offer was orally communicated to Theis.

On June 7, 1966, the first day of trial, Western prepared a written statement which they asked Theis to sign. It recited that the insured understood that the insurance policy only protected him up to $10,000, that the amount sued for exceeded that sum, and that the insured had a right to engage lawyers at his own expense if he desired. Theis signed the statement and indicated that he did not wish to engage independent counsel. He also stated that he did not believe that he was responsible for the decedent's death. Western retained this signed letter for its files. This was the first time that Western had advised Theis of his rights.

Initially, Western believed that the field road would be held to be a private road as a matter of law. During the early stages of the trial, however, the owner of the land on which the field road was located testified that while he considered the road to be a private one, it had been used by the public with his acquiescence for more than twelve years. This testimony was admittedly sufficient to justify the state district court in submitting the issue of whether the road was public or private to the jury. Western did not change its offer as a result of this testimony.

The jury returned a verdict of $35,000. Western acknowledges that the size of the verdict was not unexpected in the light of the decedent's age and family responsibility. No appeal was taken to the Minnesota Supreme Court as Western was advised by its counsel that the disputed issues were factual ones.

Western partially satisfied the judgment by paying the decedent's representatives $10,000, the limit of its liability as to one person under the policy issued to Theis. Theis subsequently assigned to plaintiff his rights against the insurer. The consideration for the assignment was an agreement to refrain from garnishing Theis' wages or initiating any proceeding to collect the balance of the judgment against him. Plaintiff also agreed to refrain from taking any steps to have Theis' driving license revoked by reason of the unpaid automobile personal injury judgment standing against him.

On August 10, 1966, Theis filed a voluntary petition in bankruptcy. He was discharged on March 6, 1967.

The plaintiff commenced an action against Western for $25,000, the difference between the amount of the verdict and the partial satisfaction of the judgment. The case was tried by the court without a jury. The court properly considered the question as being one of Minnesota law. In correctly holding that the test of Western's liability was one of good faith,⁵ the court quoted from Larson v. Anchor Casualty Co., 249 Minn. 339, 340, 82 N.W.2d 376, 378 (1957):

"The rule in this state is that a liability insurer, having assumed control of the right of settlement of claims against the insured under a policy which gives it the exclusive right to defend and settle, may become liable in excess of its undertaking under the policy provisions if it fails to exercise `good faith\' in considering offers to compromise the claim for an amount within the policy limits; there must be bad faith on the part of the insurer with resulting injury to the insured before there can be a cause of action against the insurer for the excess over its undertaking."⁶

The court found that the plaintiff had not sustained its burden of proving that Western had failed to act in good faith. It found that Western had made a prompt and complete investigation, that it had advised Theis of the $9,000 settlement offer, that it had informed Theis of the limits of his policy over $10,000 and that Western had not exercised bad faith in the handling of settlement negotiations. It further found that the case had been competently tried.

The plaintiff contends on appeal that Western breached its obligation of good faith representation by: (1) failing to conduct a complete investigation of the accident; (2) failing to advise the insured prior to the commencement of trial that the insured had a right to private counsel and failing to encourage the insured to retain such counsel; (3) failing to give timely notice of the insurer's adverse interest and the danger of an excess judgment; and (4) failing to inform the insured in a meaningful manner of settlement offers and to properly consider the interest of the insured when reaching a decision on them.

The record adequately supports the court's finding that the case was competently investigated and tried. The record also supports the court's specific findings that Western communicated the $9,000 settlement offer to Theis, that it advised him that the amount sued for exceeded his insurance coverage, and that he had a right to engage counsel at his own expense if he desired. There is less in the record to support the court's implicit findings that the notices were timely and meaningful. Western erred in waiting until the morning of trial to communicate with Theis. It further erred in failing to advise Theis in detail as to the implications of an excess verdict.⁷

We do not believe, however, that these failures would, standing alone, be sufficient to justify a reversal.

The more difficult question is whether Western's adamant position that the case had only a "nuisance value" was compatible with its obligation of "good faith." The District Court answered in the affirmative. It commented:

"* * * It may well be that the settlement of decedent\'s insurer of Theis\' claim and Western\'s subrogated claim caused defendant Western to take too lightly the potential hazards in the Trustee\'s action * * *. Where there are six minor children bereft of the care and comfort of a young mother, the damages could well reach the maximum if the case reaches the jury. * * * Before the

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