Jessen v. O'DANIEL

• Decision Date: 06 November 1962
• Docket Number: Civ. No. 221.
• Parties: Henry JESSEN, Plaintiff, v. Howard O'DANIEL, Administrator with the Will Annexed of the Estate of John T. O'Daniel, Deceased, Defendant and Cross-Complainant, v. NATIONAL FARMERS UNION PROPERTY & CASUALTY COMPANY, a corporation, Cross-Defendant.
• Court: U.S. District Court — District of Montana

210 F. Supp. 317

Henry JESSEN, Plaintiff, v. Howard O'DANIEL, Administrator with the Will Annexed of the Estate of John T. O'Daniel, Deceased, Defendant and Cross-Complainant, v. NATIONAL FARMERS UNION PROPERTY & CASUALTY COMPANY, a corporation, Cross-Defendant.

Civ. No. 221.

United States District Court D. Montana, Billings Division.

November 6, 1962.

COPYRIGHT MATERIAL OMITTED

Hugh J. Lemire, Miles City, Mont., for plaintiff.

Colgrove & Brown, Miles City, Mont., for defendant and cross-complainant.

White & Steele, Denver, Colo., and Wiggenhorn, Hutton, Schiltz & Sheehy, Billings, Mont., for cross-defendant.

JAMESON, District Judge.

On July 11, 1958, plaintiff instituted this action in the District Court of Custer County, Montana, to recover $35,000.00, with interest, from the estate of John T. O'Daniel, deceased, on a judgment entered against O'Daniel by the District Court of Garfield County, Montana, on October 14, 1957, in a personal injury action arising from a truck-automobile collision on November 4, 1954. On that date O'Daniel was insured under a policy issued by the cross-defendant (hereinafter referred to as National) for bodily injury to one person in the limit of $10,000.00. The defendant filed an answer and cross-complaint against National. On June 3, 1959, National removed the action to this court on the ground of diversity of citizenship.

The Garfield County judgment was affirmed by the Supreme Court of Montana on February 5, 1960, 136 Mont. 513, 349 P.2d 107. On March 17, 1960, National paid to plaintiff the sum of $11,509.17, representing the policy limit of $10,000.00, plus interest and costs. On June 2, 1960, judgment was entered in the District Court of Custer County, Montana, in favor of plaintiff and against the defendant in the sum of $40,733.78.

Defendant and cross-complainant seeks to recover from National the amount of the judgment, with interest, entered by the District Court of Garfield County, Montana, in favor of plaintiff and against O'Daniel, in excess of the policy limit.

It was admitted that National retained James P. Lucas, an attorney at Miles City, Montana, to represent O'Daniel in the personal injury action; that Lucas conducted the defense of this action; that the policy of insurance provided that the company could "make such investigation, negotiation and settlement of any claim or suit as it deemed expedient"; and that prior to and during the trial of the personal injury action, plaintiff offered to settle his claim and cause of action for $9,000.00. The cross-complaint alleges that National, against the protest of O'Daniel, refused to cause the action to be settled for $9,000.00, toward which sum O'Daniel, though not bound to do so, offered to contribute voluntarily the sum of $2,000.00; and that National was negligent and guilty of bad faith in failing to negotiate the settlement and accept compromise offers within the limit of its policy.

The evidence consists of a rather voluminous exchange of correspondence between Lucas and National, the complete record in the personal injury action of Jessen v. O'Daniel, and oral testimony of plaintiff, Lucas, Howard O'Daniel, son of John T. O'Daniel, Roland L. Colgrove, counsel for plaintiff in Jessen v. O'Daniel and for both plaintiff and cross-complainant in this action, and Robert C. Hoth, assistant claims manager and suit examiner for National.

Exhaustive briefs have been filed by both parties, in which the facts are discussed in detail. Essentially there is little dispute with respect to the pertinent facts. There is sharp disagreement regarding the inferences and legal conclusions to be drawn from those facts.

At the outset, the court recognizes the obligation on the part of an insurer to exercise ordinary care and diligence in (a) investigating an accident and interviewing witnesses; (b) giving due consideration to applicable law; (c) making adequate preparation for trial; (d) appraising and evaluating the case from a settlement standpoint; and (e) negotiating for a settlement where a fair and honest appraisal of the case requires such action.

Cross-complainant first contends that National was guilty of negligence and bad faith in failing to make a reasonable and diligent investigation of the accident and the law applicable thereto. Both briefs discuss fully the evidence bearing upon this contention. The opinion of the Montana Supreme Court in Jessen v. O'Daniel, supra, sets forth the facts pertinent to its conclusion that the evidence presented a jury case, and that viewing the evidence in the light most favorable to the plaintiff, the verdict of the jury could not be disturbed. After reviewing the evidence relating to National's investigation of the accident and applicable law, the briefs of counsel, and the decision of the Montana Court in Jessen v. O'Daniel, it is my conclusion that cross-complainant has failed to sustain his first contention.¹

Cross-complainant contends further that National was negligent and guilty of bad faith in (a) failing to settle the case when it knew there was a strong possibility that the verdict would exceed the policy limits; (b) rejecting the advice of its own attorney and agent urging settlement; (c) failing to inform the insured of National's final compromise offer; (d) failing to give adequate consideration to the interests of the insured; and (e) recognizing the advisability of settlement, attempting to get the insured to contribute thereto. In determining whether National was negligent or guilty of bad faith in any of these particulars, it is necessary to refer in some detail (1) to the settlement negotiations in advance of trial; (2) Lucas' communications with the insured and company relating to the policy limits; and (3) the conversations immediately prior to and during trial between Lucas and (a) the insured, (b) Hoth, and (c) plaintiff's counsel.

Lucas was employed by National within a month after the accident. On March 30, 1955, he wrote Jessen offering to pay medical bills plus $200.00. On April 13, Jessen rejected the offer and indicated that he might take about $5,000.00 or $6,000.00. On June 6, Lucas, on behalf of National, wrote Jessen offering $740.00, which was rejected by Jessen on June 13, 1955.

On July 11, 1955, Lucas reported to National that plaintiff had retained an attorney who submitted an oral demand of $5,000.00, and that he had told the attorney National would reject the offer. In letter to Lucas dated July 13, 1955, National took the position that Jessen was contributorily negligent and informed Lucas that the $5,000.00 offer should be rejected and counsel advised that the $740.00 offer would be withdrawn unless accepted within ten days.

Suit was instituted on April 5, 1956, for $70,796.00. In a letter dated April 3, 1956, National suggested that Lucas "write an excess letter to our insured advising him that his limits are only in the amount of $10,000 and that he had the alternative of choosing an attorney of his choice to represent him or work with you in this matter".

On April 27, 1956, Lucas wrote the insured:

"You will recall that the limit of your coverage in the case brought by Mr. Jessen is $10,000, whereas the suit claims damages in the sum of $71,161.00 or in the amount of $61,161.00 in excess of your insurance coverage. I called this to your attention orally the other day and you advised that you desire me to represent you on all facets of the case, as well as acting as the attorney for the insurance company.

"No written notice has been given to you however, and at the request of the insuring carrier I am calling to your attention that if a judgment should be rendered in excess of $10,000, you will be liable for that excess amount. To that end you are entitled to hire your own counsel at your own expense to protect your interest in the case, and it is my understanding that you so desired me to represent you.

"Please advise if the situation is otherwise."

On January 29, 1957, Lucas wrote National's Montana representative: "I am sorry about the delay in forwarding you the copy of the letter you requested. On April 27, 1956, I forwarded an excess letter to Mr. O'Daniel advising him that his insurance coverage was only $10,000.00, a copy of this letter being inclosed. Prior to that time Mr. O'Daniel had conferred with me about the case and asked me to handle his end also, but I, nevertheless, wrote him the inclosed letter and he came in and confirmed the original arrangements. If there is anything further to be done in connection with this feature of the case please advise."

O'Daniel paid Lucas a fee of $500.00 for his services.

In a letter to National dated May 17, 1956, Lucas recommended a settlement "in the neighborhood of $2,500".² On September 27, 1956, Lucas wrote National that the least plaintiff's counsel would accept was $9,000.00 and that the case was difficult to evaluate. He set forth the strong and weak points in the case. He expressed the opinion that "beyond any question, there is contributory negligence on the part of Mr. Jessen in this matter". On the other hand, he called attention to the fact that both O'Daniels were poor witnesses and that the case would be tried in Jessen's home county. He suggested an offer of $5,000.00, stating: "Frankly, I dislike making an overture of settlement in a situation of this type, where we apparently have a good defense, but feel we are on dangerous ground because of the facts heretofore given." National wrote Lucas on October 8, 1956, that, if the settlement proposal did not drop below $5,000.00, they would have to try the case.

On April 4, 1957, Lucas wrote National in pertinent part: "The last offer of settlement was in the form of a demand from opposing counsel for $9,000.00. I have made them the top offer of $5,000.00 which you authorized, and they have rejected it. This is a case in which we have a good defense but which, nevertheless, is dangerous in that it does...