Jackson v. SAINT PAUL-MERCURY INDEMNITY COMPANY

• Citation: 339 F.2d 40
• Decision Date: 12 February 1965
• Docket Number: No. 15508.,15508.
• Parties: Paul O. JACKSON and Ralph D. Jackson, individually and doing business as East Tawas Recreation, Plaintiffs-Appellants, v. SAINT PAUL-MERCURY INDEMNITY COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

339 F.2d 40 (1964)

Paul O. JACKSON and Ralph D. Jackson, individually and doing business as East Tawas Recreation, Plaintiffs-Appellants, v. SAINT PAUL-MERCURY INDEMNITY COMPANY et al., Defendants-Appellees.

No. 15508.

United States Court of Appeals Sixth Circuit.

December 12, 1964.

As Amended February 12, 1965.

Malcolm M. Heber, Royal Oak, Mich., Barry K. Branch, Royal Oak, Mich., on the brief for appellants.

Robert E. Plunkett, Detroit, Mich., Ward, Plunkett, Cooney, Rutt & Peacock, and Charles T. McGorisk, Detroit, Mich., on the brief for appellees.

Before O'SULLIVAN and PHILLIPS, Circuit Judges, and PRETTYMAN, Senior Circuit Judge.¹

HARRY PHILLIPS, Circuit Judge.

Appellants owned and operated a bowling alley and bar, doing business as a partnership. On April 25, 1956, an Indian named LeRoy Jones became intoxicated at appellants' bar. Later in the day this intoxicated customer became involved in an altercation with one Michael Pinter, an employee of the Holland Hotel, which resulted in the loss of sight in one of Pinter's eyes. In accordance with M.S.A. §§ 18.993(1)-18.993(7) Comp. Laws Mich. 1948, § 436.22; Pub.Acts, Mich. 1933, Ex.Sess., No. 8 appellants carried a policy of liquor liability insurance, issued by the St. Paul-Mercury Indemnity Company, one of the appellees herein. The policy had a limit of $10,000 for any one injury.

Pinter sued appellants herein on the ground that Jones was served intoxicants at appellants' bar at a time when he already was intoxicated, with the consequence that he thereafter struck Pinter in the eye. Pinter recovered judgment against appellants for $30,338.50. The insurance company paid $10,000 toward the satisfaction of this judgment, this being the extent of its liability under the policy of liquor liability insurance. Appellants ultimately settled the balance of the judgment for $17,500 and contend that as a result of this payment their business was ruined and that they were forced to sell their bowling alley and bar at a loss.

Appellants filed the instant action against the insurance company upon the ground that Pinter's suit against appellants could have been compromised at a much lower figure than the $30,338.50 judgment but for the failure of the insurance company to conduct settlement negotiations in good faith and the action of the company in concealing material facts from appellants during the course of such negotiations. In the instant case the jury returned a verdict of $8,750 in favor of appellants. This verdict was set aside by the district court upon appellees' motion for judgment n. o. v., and judgment was entered for defendants-appellees.

On this appeal appellants contend that the district court erred in granting the motion for a judgment n. o. v., and in setting aside the verdict of the jury.

Before the trial of Pinter's suit, his attorney made an offer of settlement. While there is some dispute in the evidence as to the exact terms of this offer, the appellee insurance company construed it as an offer to settle the case for $16,370.77, which would be the amount of liability insurance, $10,000, plus workmen's compensation paid and anticipated to be paid, plus medical expenses. It was recognized that the amount of workmen's compensation paid had to be refunded to the workmen's compensation insurance carrier out of any recovery effected by Pinter. The insurance company submitted to the appellants herein the proposed compromise of the Pinter suit, and agreed that the company would pay $10,000, the full amount of its obligation under the policy, if appellants would pay the balance of $6,370.77.

In granting the motion for judgment n. o. v., the district judge, the Honorable Wade H. McCree, Jr., found that appellants took the adamant position that they would pay nothing in the Pinter case and decided to take their chances upon the outcome of that suit, saying:

"The law on this case seems to be that in addition to its contractual obligation under the provisions of the contract, the insurer owes to the insured a duty to conduct negotiations in good faith. * * *

"In the instant case the insurance company, defendant herein, went to great lengths to advise the insured of the danger it faced of a possible verdict in excess of policy limits. This disclosure is evidenced by several letters addressed by the insurer to the insured, such letters being exhibits received in evidence herein.

"The court finds that the evidence is beyond dispute that the insured was advised of the insurer\'s apprehension in this respect and that the insured was told on several occasions that it might be well to engage an attorney to protect the interests of the insured. * * *"

Appellants base their main argument for reversal upon the fact that their insurer, St. Paul-Mercury Indemnity Co., had merged with the St. Paul Fire & Marine Insurance Company on January 1, 1957, prior to the commencement of the Pinter suit, and the latter company was the workmen's compensation carrier for the Holland Hotel, which paid workmen's compensation to Pinter for the loss of his eye. Appellants charge that their insurance carrier, as well as the attorneys who represented them as defendants in the Pinter litigation, had a conflict of interest, in that the insurance carrier was obligated to defend the Pinter suit on behalf of appellants, and at the same time was seeking to be reimbursed for workmen's compensation benefits paid by it as workmen's compensation carrier to Pinter. It is contended that because of the failure of their insurance company to disclose these material facts appellants were unaware of the true situation and were "blindfolded."

No question is raised as to the ability and experience of the members of the law firm engaged by the insurance company to defend the Pinter suit or as to the skill and good faith of the attorneys in the preparation and trial of the suit. The record contains ten letters written by the law firm to appellants concerning the Pinter litigation. These letters pointed out the danger of a verdict substantially in excess of $10,000, suggested that appellants employ their own counsel to assist in the defense, and set forth details concerning the offer of compromise, including the name of the workmen's compensation carrier.²

Under the law of Michigan, "The insurer is liable to the insured for an excess of judgment over the face of the policy when the insurer, having exclusive control of settlement, fraudulently or in bad faith refuses to compromise a claim for an amount within the policy limit." City of Wakefield v. Globe Indemnity Co., 246 Mich. 645, 648, 225 N.W. 643, 644; Stevens v. Northwestern National Casualty Co., 305 F.2d 513 (C.A. 6), cert. denied, 374 U.S. 812, 83 S.Ct. 1703, 10 L.Ed.2d 1035; Bentley v. Farmers' Insurance Exchange, 289 F.2d 59 (C.A. 6). It is recognized, however, that if the insured actively concurs in the rejection of a compromise offer, he cannot recover against the insurer for failure to settle. 29A Am.Jur. Insurance § 1445 (1960). In Stevens v. Northwestern National Casualty Company, supra, this court held that the insurance company was not guilty of bad faith when the insured had concurred in the decision against settlement, saying:

"The insured had been advised of the amount claimed which was in excess of the policy limits and of his right to engage counsel to represent him for his uninsure 1 liability. He was content to be represented by the attorney for the insurance company. He agreed with their judgment that the case did not warrant settlement." 305 F.2d at 514.

Viewing the evidence in the light most favorable to appellants, we agree with the district judge that it is conclusively established that appellants...