Knobloch v. Royal Globe Ins. Co.

• Decision Date: 09 December 1974
• Citation: 46 A.D.2d 278,362 N.Y.S.2d 492
• Parties: Fred KNOBLOCH et al., Respondents, v. ROYAL GLOBE INSURANCE COMPANY, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 492

362 N.Y.S.2d 492

46 A.D.2d 278

Fred KNOBLOCH et al., Respondents, v. ROYAL GLOBE INSURANCE COMPANY, Appellant.

Supreme Court, Appellate Division, Second Department.

Dec. 9, 1974.

George S. Pickwick, New York City (William F. McNulty and Anthony J. McNulty, New York City, of counsel), for appellant.

Bernard R. Selkowe, New York City, for respondents.

Before GULOTTA, P.J., and HOPKINS, SHAPIRO, CHRIST and MUNDER, JJ.

SHAPIRO, Justice.

Plaintiff Rena Knobloch owned an automobile which was covered under a $10,000 to $20,000 policy of liability insurance issued by the defendant, Royal Globe Insurance Company (Royal Globe). On June 2, 1962 her son, Fred Knobloch, the other plaintiff, was driving the insured automobile when it was involved in a one-car accident in which a passenger, John A. Wickman, was injured. As a result of the accident Wickman sued the Knoblochs and the East Hudson Parkway Authority to recover damages for the injuries sustained by him. ¹ He recovered a judgment against the Knoblochs and the Authority for $75,383.50, which on appeal was affirmed by this court (Wickman v. Knobloch, 34 A.D.2d 617, 309 N.Y.S.2d 570). The judgment was satisfied by the authority and the Knoblochs--each paying one-half--with Royal Globe, as the Knoblochs' insurer, paying $10,000 (plus interest and costs)--its policy limit--toward the payment made by their insureds. The Knoblochs, contending that their insurer, defendant Royal Globe, in bad faith failed to settle the claim against them, within their policy limits, when it could have done so, have recovered a judgment for $30,236.50, representing the amount above $10,000 they were compelled to pay (plus additional amounts for interest, the expenses incurred by them on the appeal in the Wickman case, and the costs and disbursements in this case). We reverse the Knoblochs' judgment and dismiss their complaint. By reason of that determination we must also reverse an order which had granted a motion by the Knoblochs to add interest to the $30,236.50 recovery, and must dismiss the motion as academic.

THE QUESTION ON THIS APPEAL.

The major issue raised by this appeal is a novel one--whether a settlement offer of the maximum coverage of the policy made by an insurer a few days before the beginning of the trial, with notice of that offer being given to the insureds at that time, can sustain a finding of lack of good faith in protecting the insureds' interest sufficient to make the insurer liable for the excess which its insureds had to pay under the judgment against them. We answer that question in the negative.

THE FACTS.

After the accident described hereinabove in the preliminary statement, Royal Globe's representatives were in touch with one Browne, the attorney for Wickman. In 1962 there were two such communications, in one of which Browne was informed of the $10,000 policy coverage. In December, 1962 Royal Globe notified the Knoblochs of their possible personal liability over and above the policy coverage and of their right to have their own attorney cooperate in the defense of the action. On January 7, 1963 Royal Globe arranged with Browne for an examination of the injured claimant by its doctor. On May 19, 1964 Browne offered to settle the case against the Knoblochs for $9,500. He was asked to provide the insurer with data on special damages. On December 15, 1965 Royal Globe's representative, when told by Browne that he wanted all or nearly all of the $10,000 coverage, said he might recommend such an amount but needed an authorization to obtain Wickman's hospital records and proof of his lost earnings and hospital bills. On March 11, 1966 Royal Globe's representative told Browne he had the hospital authorization but not the hospital and medical bills. On September 20, 1966 Browne was told by Royal Globe's representative that it had not yet received some of the bills and earnings data. On February 27, 1967 Browne was informed by Royal Globe that the claim would be taken up by its committee and that he would be given its best figure. On March 10, 1967 Royal Globe offered Browne $6,500. He rejected the offer, reiterating his demand for $9,500. In February, 1968 Brown again spoke to Royal Globe's representative and repeated his willingness to take $9,500. He was given a firm offer of $8,500 and was asked if he would take $9,000. Brown refused, standing on his $9,500 demand. On March 21, 1969, when the case appeared on the day calendar, Royal Globe's trial attorney requested an adjournment because Fred Knobloch was on a business trip outside of the country. An adjournment to April, 1969 was granted. At the time of this adjournment Royal Globe's counsel told Browne that Knobloch had retained private counsel, one Bernard R. Selkowe. On April 3, 1969 Royal Globe's representative offered Browne $9,000. He refused to accept that sum saying, 'At this stage of the game I am going to let the case ride.' On April 9, 1969, and shortly before the trial was to begin, Royal Globe's trial counsel told Browne that the Royal Globe representative who had been handling the negotiations with him 'had foolishly been trying to save some money, a few dollars in this case, and he told * * * (the representative) to throw in the whole policy.' He then offered Browne the total policy coverage of $10,000. Browne rejected the offer.

On April 12, 1969, two days before the trial of the Wickman suit commenced, plaintiff Fred Knobloch authorized his attorney, Selkowe, to offer up to $10,000, plus costs, on his behalf as a contribution to a possible settlement of the claim against him and his mother. On April 14, 1969, the first day of the trial of the Wickman case, Royal Globe's trial counsel again offered the full policy coverage of $10,000 plus costs and Selkowe offered an additional $2,500. This offer was rejected by Browne, who indicated that he wanted $60,000 from both sets of defendants (the Knoblochs and the Authority). The Attorney General, who was representing the Authority, refused to contribute anything to a possible settlement. Selkowe made no offer to contribute more than $2,500 above Royal Globe's offer of its policy limit of $10,000, even though admittedly he had been authorized by the Knoblochs to go as high as $10,000, if necessary. Selkowe testified that he 'indicated' that he would go higher and 'called upon the Royal Globe to offer above its ten; and the Royal Globe wouldn't offer a cent abvoe its ten. So, therefore, there was no point in my going above the $2500 * * *.' ² The trial then proceeded, resulting in a judgment in favor of Wickman against the Knoblochs and the Authority for, as above stated, $75,383.50.

THE LAW.

Under present New York case law the obligation of an insurer to its insureds in connection with its determination of whether to settle claims against the insureds for risks covered by the policy, or to defend them if they go to litigation, is solely one of good faith conduct and there is no liability for mere negligence in failing to settle a claim.

In Auerbach v. Maryland Cas. Co., 236 N.Y. 247, 140 N.E. 577, the plaintiffs were the insureds under a $5,000 policy of liability insurance issued by the defendant. While the policy was in force their car was involved in an accident resulting in personal injuries to a married woman named Mrs. O'Neill. Mrs. O'Neill thereafter brought an action against the insureds to recover damages in the sum of $40,000 for her injuries and her husband sought to recover $10,000 for loss of her services. During the pendency of the action, which was defended by the insurer pursuant to the terms of its policy, the insurer had an opportunity to settle the action for $6,500, which it declined to do unless the insureds contributed $3,000 toward the settlement. The case thereafter proceeded to trial and resulted in a verdict of $20,000 in favor of Mrs. O'Neill and $5,000 in favor of her husband.

Under those facts the Court of Appeals held that the insurer was not in default of any contractual obligation assumed by it to its insured when it refused to contribute more than $3,500 of its policy limit of $5,000 toward the settlement of the O'Neill action, saying (pp. 252--253, 140 N.E. p. 578):

'There are no allegations in the complaint to the effect that the insurance company was negligent either in investigating the facts connected with the accident, or in the defense of the action, not a suggestion that it was guilty of fraud or misrepresentation in any way. A contract of insurance, like other contracts, is to be construed according to the sense and meaning of the terms which the parties have used; and if such terms are clear and unambiguous, they are to be understood in their plain, ordinary, and popular sense. Imperial Fire Ins. Co. v. Coos County, 151 U.S. 452, 14 S.Ct. 379, 38 L.Ed. 231; Drilling v. New York Life Ins. Co., 234 N.Y. 234, 137 N.E. 314. The terms here used are clear and unambiguous. The intent of the parties, if the language used be given a reasonable construction, cannot be misunderstood. There is nothing in the policy by which the insurance company obligated itself to settle, if an opportunity presented itself. It was given the option to settle, if it saw fit to do so, or to try the action, as it preferred. It, however, was under no legal obligation, either express or implied, to compromise or settle the claims prior to the trial. The plaintiffs, when they accepted the policy, did so with full knowledge of the fact, if an action were brought, that they surrendered to the insurance company absolute, full, and complete control of it, including the settlement or trial. Rumford Falls Paper Co. v. Fidelity & Casualty Co., 92 Me. 574, 43 A. 503; Schmidt & Sons Brewing Co. v. Traverlers' Ins. Co., 244 Pa. 286, 90 A. 653. They also knew there was no provision in the policy which obligated the insurance company to pay any amount whatever prior to the rendition of a judgment. The policy was one indemnifying...