Insurance Co. of North America v. Spangler

• Decision Date: 06 March 1995
• Docket Number: No. 89-CV-1001-J.,89-CV-1001-J.
• Citation: 881 F. Supp. 539
• Parties: INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation, Petitioner, v. Linda G. SPANGLER, as Personal Representative for and Administratrix of the Estate of William H. Spangler deceased, Respondent.
• Court: U.S. District Court — District of Wyoming

881 F. Supp. 539

INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation, Petitioner, v. Linda G. SPANGLER, as Personal Representative for and Administratrix of the Estate of William H. Spangler deceased, Respondent.

No. 89-CV-1001-J.

United States District Court, D. Wyoming.

March 6, 1995.

Lawrence B. Cozzens, Crowley, Haughey, Hanson, Toole & Dietrich, Billings, MT, for Estate of William H. Spangler, Jr.

Jeffrey C. Brinkerhoff, Brown & Drew, Casper, WY, for Insurance Co. of North America.

J. John Sampson, Sher County Judge, Sheridan, WY, for Richard A. Nelson, Neland Inc.

DECISION ON MOTION FOR SUMMARY JUDGMENT

ALAN B. JOHNSON, Chief Judge.

This matter is before the court on Petitioner's Motion for Summary Judgment and Respondent's Motion for Summary Judgment, or in the Alternative, for Partial Summary Judgment and Motion in Limine.

The court having considered the Motions, the Memoranda in Support and in Opposition to the Motions, the papers and pleadings filed herein, having heard argument of counsel, and upon its own review of the applicable authorities will deny Petitioner's Motion for Summary Judgment and will grant, in part, and deny, in part, Respondent's Motion for Summary Judgment. The Court will also deny, without prejudice, Respondent's Motion in Limine.

INTRODUCTION

Petitioner, Insurance Company of North America ("INA"), seeks summary judgment in this declaratory judgment action, contending a stipulated judgment of liability is unenforceable against it because the insured entered into the agreement without consent or notice to INA on the eve of jury trial in the wrongful death action petitioner was defending under a reservation of rights. Respondent seeks summary judgment contending that the stipulated judgment it negotiated with the insured is fully enforceable.

FACTUAL AND PROCEDURAL BACKGROUND

On June 28, 1986, William H. Spangler and Roy Conzelman had an altercation immediately outside Fort Devil's Tower Bar, at Fort Devil's Tower, Wyoming. Although Mr. Spangler was taken from the scene of the fight, he died later that night as a result of fight-related injuries. Mr. Conzelman and Mr. Spangler were both patrons of the bar and had consumed alcoholic beverages served at the bar before the fight broke out. The bar was owned and operated by Richard Nelson.

INA provided property and casualty insurance to Mr. Nelson. The policy provides coverage of $500,000 for liability for bodily injury, personal injury and property damage, but excludes coverage for "claims for harm for which the insured ... may be held liable as a result of engaging in the business of ... selling or serving alcoholic beverages." Petitioner's Ex. C, at 1.

On February 22, 1988, Mrs. Spangler filed a wrongful death action in this court against Mr. Nelson and Mr. Conzelman. INA provided a defense by retaining an attorney to represent the insured. However, on March 23, 1989, INA notified Mr. Nelson that it was reserving its rights regarding the claim for punitive damages and, pursuant to the policy's liquor liability exclusion, for the allegation that "Richard A. Nelson, negligently breached his duty of care ... by allowing a person of known violent propensity to enter Ft. Devil's Tower Bar, purchase alcohol, and remain on the premises...."

On January 5, 1989, INA filed this declaratory judgment action seeking a determination that the policy did not cover the claims in the wrongful death action. Mr. Nelson's potential liability in the wrongful death case exceeded the policy limits so he hired his own lawyer to represent his interests in this action and in the wrongful death action. This action was stayed pending resolution of the wrongful death case.

On November 13, 1989, defense counsel hired by INA to defend the wrongful death action filed a $60,000 Offer of Judgment. This offer was rejected. The wrongful death claimants then renewed their earlier $300,000 offer of settlement and imposed a December 1, 1989 deadline for acceptance.

Trial in the wrongful death case was to begin on Monday, December 4, 1989. On the afternoon of Thursday, November 30, 1989, Mrs. Spangler's attorney contacted Mr. Nelson's personal attorney with a settlement offer. Mr. Nelson's attorney conveyed the settlement offer to him by telephone but suggested that due to a conflict, Mr. Nelson retain a different attorney to advise him on the settlement. Mr. Nelson was assisting the defense attorney provided by INA prepare for trial when he received this phone call. Mr. Nelson immediately contacted another attorney by telephone who agreed to represent him. They discussed the offer and the new attorney then called Mrs. Spangler's attorney with a favorable response.

The parties dispute when the settlement was final. The attorney provided by INA believed a settlement had been reached the afternoon of the 30th. As a result, he stopped trial preparation.

On November 30, 1989, Mrs. Spangler's attorney faxed the following letter to INA, where it was received after 4:00 p.m.:

Please be advised that we have reached an agreement with Richard Nelson in the wrongful death case. Pursuant to this agreement, Mr. Nelson has agreed to allow a consent judgment to be entered against him in the amount of $450,000. As part of this agreement, Mr. Nelson will assign to Linda Spangler all rights that he has under his insurance policy with INA. In return, Linda Spangler will agree not to execute against Mr. Nelson personally. This agreement will become final at 12:00 p.m. on December 1, 1989, unless a settlement with INA is reached before that time.

Petitioner's Ex. H.

Although INA alleges the settlement was final before it received the letter, its representatives did discuss that INA would have to withdraw its reservation of rights by noon on December 1, if it wanted to prevent the settlement. In the afternoon of December 1, 1989, INA faxed a letter to Mr. Nelson's counsel, asserting that the November 30, 1989 faxed letter was its first notice of negotiations between the insured and the claimant and that INA was not afforded adequate time to formulate a response to the settlement demand. Petitioner's Ex. I.

Based upon the Nelson/Spangler Stipulation, judgment of $450,000 was entered against Richard A. Nelson in the wrongful death case. As a result, INA amended the pleadings in this action to bring in Mrs. Spangler as a party and amended the complaint to seek a declaration that it is not obligated to pay any portion of the stipulated judgment.

ISSUES ON MOTIONS FOR SUMMARY JUDGMENT

INA seeks summary judgment on the following grounds:

1. Where the settlement was unauthorized and where, due to the covenant not to execute, the settlement imposes no liability on the insured, there is no coverage;

2. The insured breached the policy's "duty to cooperate" provision by entering into a unauthorized settlement with Mrs. Spangler and therefore INA is relieved of any obligation to pay the resulting judgment against Mr. Nelson. A corollary of this contention is that entering into the settlement agreement with Mrs. Spangler constituted bad faith by Mr. Nelson which relieves INA of any obligation to pay the judgment against Mr. Nelson;

3. If the insured's settlement did not violate his "duty to cooperate," the insured failed to give the insurer adequate and timely notice of the settlement as required by the case law;

4. Settling the wrongful death claims for $450,000.00 was an unreasonable settlement and therefore INA has no obligation to pay any portion of that settlement; and

5. The liquor liability exclusion of the Policy excludes coverage for any of the claims asserted by Mrs. Spangler against Mr. Nelson, and therefore INA has no obligation to pay any portion of the judgment.

Respondent answered the amended complaint of INA and served a counterclaim alleging breach of contract, third-party bad faith, fraud, and declaratory judgment as to the proper interpretation of Wyoming's comparative negligence statute.

Respondent seeks summary judgment on the following grounds.

A. The claims asserted by Mrs. Spangler against Mr. Nelson were covered by INA's insurance policy.

B. Mrs. Spangler is entitled to summary judgment on INA's breach of cooperation clause and bad faith claims.

C. The insured fully complied with any requirement for notice of the settlement of INA.

D. Even if there is a factual question of the sufficiency of the notice to INA, as a matter of law INA cannot rely on a lack of notice.

E. Mrs. Spangler is entitled to summary judgment on INA's fraud claim.

F. The settlement reached by Mr. Nelson was reasonable as a matter of law.

The issues have been extensively briefed by the parties and the court has carefully reviewed the memoranda, exhibits and testimony that has been tendered to it.

STANDARD FOR SUMMARY JUDGMENT

This court will grant summary judgment where, viewing the record in the light most favorable to the party opposing summary judgment, it shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "A `material' fact is one `that might effect the outcome of the suit under the governing law.'" Farthing v. City of Shawnee, 39 F.3d 1131 (10th Cir.1994) quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). And "a `genuine' issue is one where `the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Id. The court views the evidence in the light most favorable to the nonmoving party. Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 635, 121 L.Ed.2d 566 (1992). "The moving party bears the initial burden of showing that there is an absence of any issues of material fact. If the moving party meets this burden, the non-moving party then has the burden to come forward with specific facts showing that there is a...