Hilker v. W. Auto. Ins. Co. of Ft. Scott, Kan.

Decision Date10 March 1931
Citation235 N.W. 413,204 Wis. 1
PartiesHILKER v. WESTERN AUTOMOBILE INS. CO. OF FT. SCOTT, KAN.
CourtWisconsin Supreme Court

OPINION TEXT STARTS HERE

Appeal from Circuit Court, Racine County.

On rehearing.--[By Editorial Staff.]

Mandate confirmed.

For former opinion, see 231 N. W. 257.Hoyt, Bender, Trump, McIntyre & Hoyt, of Milwaukee (Eugene L. McIntyre, of Milwaukee, of counsel), for appellant.

Simmons, Walker, Wratten & Sporer, of Racine, for respondent.

OWEN, J.

Upon a motion made for a rehearing in this case, it was feelingly contended that the opinion, 231 N. W. 257, 261, filed herein produced confusion with reference to the character of the duty which an indemnity insurance company owed to its insured in the matter of making a settlement. It was pointed out that there were two lines of authority, one of which holds that the indemnity company is liable for negligent conduct, while the other holds that it is liable only when its conduct or lack of conduct amounts to bad faith. It was contended that, while the case of Wisconsin Zinc Co. v. Fidelity & Deposit Co., 162 Wis. 39, 155 N. W. 1081, Ann. Cas. 1918C, 399, held that the company was liable only for bad faith, the opinion filed herein overrules that part of the Wisconsin Zinc Co. Case which negatives the relation of principal and agent between the insurer and the insured, and that the language used in the opinion herein substitutes as a standard for the conduct of the insurance company that of ordinary care instead of good faith, as indicated by the following excerpt: “But the good-faith performance of the obligation, which the insurance company assumed when it took to itself the complete and exclusive control of all matters that determined the liability of the insured, requires that it be held to that degree of care and diligence which a man of ordinary care and prudence would exercise in the management of his own business, were he investigating and adjusting such claims.”

In view of the suggestion that the opinion filed herein threw doubt upon the question considered, we were prompted to grant a rehearing. Upon the rehearing we were favored by very able and comprehensive briefs and arguments. The subject has received our earnest reconsideration, and it is to be hoped that what is here said will be characterized by a degree of clarity that will enable the views of this court, upon a question which seems to be in more or less tautological confusion, to be understood. We use the term tautological confusion because our consideration of the authorities leads us to believe that what confusion there is on the part of courts is purely tautological, and springs from a none too critical use of terms. Terms which are not strictly convertible or synonymous have been used by different courts to indicate the same thing. Negligence has been used by some courts to mean the same thing that other courts have designated as bad faith. Bad faith, especially, is a term of variable significance and rather broad application. Generally speaking, good faith means being faithful to one's duty or obligation; bad faith means being recreant thereto. In order to understand what is meant by bad faith, a comprehension of one's duty is generally necessary, and we have concluded that we can best indicate the circumstance under which the insurer may become liable to the insured by failure to settle by giving with some particularity our conception of the duty which the written contract of insurance imposes upon the carrier.

In express terms the contract imposes no duty at all a breach of which makes the insurer liable to the insured for a failure to settle or compromise a claim. However, all courts are agreed that the insurer does owe to the insured some duty in this respect. This duty is implied as a correlative duty growing out of certain rights and privileges which the contract confers upon the insurer. By the terms of this contract the absolute control of the defense of such actions is turned over to the insurer, and the insured is excluded from any interference in any negotiations for settlement or legal procedure. It is generally understood that these are rights and privileges which it is necessary for the insurer to have in order to justify or enable it to assume the obligations which it does in the contract of insurance. So long as the recovery does not exceed the limits of the insurance, the question of whether the claim be compromised or settled, or the manner in which it shall be defended, is a matter of no concern to the insured. However, where an injury occurs for which a recovery may be had in a sum exceeding the amount of the insurance, the interest of the insured becomes one of concern to him. At this point a duty on the part of the insurer to the insured arises. It arises because the insured has bartered to the insurance company all of the rights possessed by him to enable him to discover the extent of the injury and to protect himself as best he can from the consequences of the injury. He has...

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