Kohlstedt v. Farm Bureau Mut. Ins. Co.

• Decision Date: 14 December 1965
• Docket Number: No. 51731,51731
• Citation: 258 Iowa 337,139 N.W.2d 184
• Parties: Albert H. KOHLSTEDT, Appellant, v. FARM BUREAU MUTUAL INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 184

139 N.W.2d 184

258 Iowa 337

Albert H. KOHLSTEDT, Appellant, v. FARM BUREAU MUTUAL INSURANCE COMPANY, Appellee.

No. 51731.

Supreme Court of Iowa.

Dec. 14, 1965.

Charles E. Hird, Jefferson, for appellant.

Floyd E. Page, of Page & Nash, Denison, for appellee.

THORNTON, Justice.

This is an 'excess judgment' case. Plaintiff, insured, brought this action at law against his insurer to recover a balance of $10,000 in excess of a $15,000 policy of auto liability insurance held by plaintiff at the time he was involved in an accident November 10, 1960, and for interest and other damages. The accident case out of which this one arose is Nielsen v. Kohlstedt, 254 Iowa 470, 117 N.W.2d 900, wherein we reversed the judgment as to Kohlstedt's codefendant, Hutchinson, because the record therein was insufficient as a matter of law to show the plaintiff, Nielsen, was other than a guest in Hutchinson's car. This left the present plaintiff the sole defendant liable for the total judgment of $25,000.

This case was submitted to the jury and a verdict returned in favor of plaintiff, insured. The trial court sustained defendant's motion for judgment notwithstanding the verdict and plaintiff appeals.

I. The question for determination is the sufficiency of the evidence to show bad faith on the part of defendant, insurer. In excess judgment cases we have adopted the bad faith test, Henke v. Iowa Home Mutual Casualty Company, 250 Iowa 1123, 97 N.W.2d 168. Negligence that shows or permits an inference of indifference to or disregard of the interest of the insured is material on that issue. Ferris v. Employers Mutual Casualty Company, 255 Iowa 511, 516, 122 N.W.2d 263, 266. Plaintiff's burden is to show bad faith by a preponderance of the evidence. No citation of authority is necessary. R.C.P. 344(f) 6.

Plaintiff's liability policy with defendant had limits for bodily injury of $15,000 for any one person, $30,000 for any one accident. Under the policy provisions defendant, insurer, has control of the case including litigation and settlement negotiation and plaintiff is required to co-operate. The duty case on the insurer is to conduct good faith investigation of all aspects of the case and to consider and propose settlement in good faith based on its investigation and apparent state of the law within policy limits. This means its employees and agents, including doctors and lawyers, must act in good faith. It is not required to compensate for plaintiff's failure to carry adequate insurance. Ferris v. Employers Mutual Casualty Company, 255 Iowa 511, 519, 122 N.W.2d 263.

II. The accident out of which this action arose occurred November 10, 1960, at 7:00 a. m. at a graveled county road intersection with no traffic signs. Plaintiff here, alone in his car, was traveling east, the driver of the other car, Hutchinson, with three other persons riding with him, was traveling south. Plaintiff had the directional right of way. The right front of plaintiff's car struck the right rear of the other car in the southwest quadrant of the intersection. The plaintiff in the accident case, Nielsen v. Kohlstedt, 254 Iowa 470, 117 N.W.2d 900, riding in the right rear seat, was thrown from the car receiving severe facial and head injuries. The sun was in the eyes of both drivers, neither one saw the other until too late to avoid the collision. Hutchinson and his riders were bricklayers and tenders going to work. Plaintiff and Hutchinson reported the accident to defendant the same forenoon and each gave statements at that time. Defendant's adjusters promptly contacted the other occupants of Hutchinson's car. Nielsen, plaintiff in the accident case, was hospitalized and defendant's adjuster was unable to talk with him. The initial report on Nielsen was that his condition was serious and he might die. Within 30 days the accident suit was commenced for $25,000 naming plaintiff here and Hutchinson, driver of the other car, as defendants. The petition was amended on the first day of trial, increasing the prayer to $100,000. Defendant employed local counsel and advised plaintiff by letter the suit was in excess of his policy limits, if he wished he could employ separate counsel and if he had further questions he could contact the office of the general counsel or Mr. Edward S. White, local counsel, of Carroll, Iowa. Plaintiff contacted Mr. White and subsequently employed Mr. Bernard L. Willis of Lake City as his personal attorney. Mr. White and Mr. Willis appeared for and represented Kohlstedt, plaintiff here, in the accident case. Mr. James R. Hamilton of Storm Lake appeared for the other defendant, Hutchinson. Mr. Wendell Pendleton of Storm Lake represented plaintiff Nielsen. All of these lawyers are able and competent trial lawyers and so qualified at the trial.

We must consider the evidence in the light most favorable to plaintiff, rule 344(f) 2, Rules of Civil Procedure. If there is substantial evidence from which the jury could properly draw an inference of bad faith plaintiff is entitled to a reversal. The defendant is not required to pay every offer of settlement within the policy limits. To show bad faith it must appear not only the settlement offer was reasonable but the insurer had no reasonable basis for its judgment the offer was not reasonable. The question is was the judgment of the insurer reasonable at the time, not was it correct in the light of subsequent events. Ferris v. Employers Mutual Casualty Company, 255 Iowa 511, 519, 122 N.W.2d 263.

III. Plaintiff's case as to liability is based on his own testimony, that of his attorney, Mr. Willis, Mr. Pendleton, the transcript of the accident case, and the discovery deposition of Mr. Seitzinger, assistant general counsel of defendant. Plaintiff, of course, is entitled to the benefit of any favorable testimony produced by the defense.

Plaintiff's testimony did not disclose anything bearing on bad faith other than he was not notified of the various steps in settlement negotiations. Mr. Willis represented him personally from the time the action was started. And where Mr. Willis acquiesced or agreed with procedures to be taken involving judgment, plaintiff cannot now be heard to say such were unreasonable or constitute bad faith.

Mr. Willis' position as to the necessity of a medical examination and to opening settlement negotiations before the time of trial are such.

The defendant cannot be charged with failure to properly investigate the physical facts of the accident. The reports in evidence show that was done. And defendant is properly chargeable with knowledge of fact and law thus obtained. We think defendant is properly chargeable with knowledge the case would go to the jury against their man, plaintiff here, at least, because of his failure to maintain a proper lookout. This was apparent from plaintiff's first reports to the insurer and that of the co-defendant. Defendant knew Nielsen's injuries were serious but not the extent of such. Long before trial it knew Nielsen had returned to work. It also had the benefit of plaintiff's personal attorney, Mr. Willis', conference with Dr. Rost. Mr. White asked Mr. Willis to contact the doctor and Mr. Willis testified:

'According to Dr. Rost the injuries to the plaintiff Nielsen were substantial. There was a severe brain injury. At that time he thought the man was going to die and I related that to Mr. White.'

On the first day of the trial of the accident case at the time the petition was amended to increase the prayer to $100,000 Mr. Willis stated:

'* * *, the total damages here were twenty-five thousand, * * * we were not concerned and did not request an examination of the plaintiff * * * Had you started out asking for $100,000.00 we would have requested an examination of this man, but you didn't do that.'

Mr. Willis also testified Mr. White was agreeable at first to settling and stated they would take that up at Sac City (at the trial). Mr. Willis does not indicate such plan was then unacceptable.

IV. The jury could properly find offers of settlement were made to Mr. White, of $8000 during the summer or fall sometime before trial, of $10,000 after taking plaintiff Kohlstedt's deposition the day the trial started, which were not communicated to plaintiff or Mr. Willis, that during plaintiff's case a $15,000 offer was made by Mr. Pendleton to Mr. White and apparently nothing was done, that oral demands to settle had been made by Mr. Willis on behalf of Mr. Kohlstedt, not only long before trial but at the start of and during the trial, and that Mr. White directed Mr. Willis to stay out of settlement negotiations. All of these constitute some evidence of bad faith but all combined would not be sufficient to show bad faith if defendant insurer's refusal to settle was based on reasonable good faith grounds or it did in good faith attempt to settle within policy limits. It would not be guilty of bad faith if the settlement figure of the plaintiff in the accident case at all pertinent times was in excess of policy limits. In other words, the plaintiff in the accident case can not make an excess case by making a suggestion of settlement within policy limits and later raising the offer in excess of the limits. Both proposals and counter proposals must be reasonable in light of the facts and law known or chargeable at the time.

At the close of plaintiff's case Mr. Willis ascertained from Mr. Pendleton the case could be settled for $15,000 if settled promptly. In response to Mr. Willis' inquiry to whether the case could be settled for $15,000, Mr. Pendleton stated, 'That is true at this time.' Mr. Willis then made a written demand the defendant insurer settle. Mr. White then dictated his resistance, which has been introduced in this record by plaintiff insured. It contains the following:

'* * * in the opinion of its counsel, if there by any liability in this action to the plaintiff, it will be a liability jointly borne by both defenda...