Kootenai County v. Western Cas. and Sur. Co.
| Decision Date | 01 February 1988 |
| Docket Number | No. 16632,16632 |
| Citation | 113 Idaho 908,750 P.2d 87 |
| Parties | COUNTY OF KOOTENAI, State of Idaho, Plaintiff-Appellant, v. The WESTERN CASUALTY AND SURETY CO., a Kansas Corp., duly authorized to do business in the State of Idaho, Foremost Insurance Company, a Michigan corporation, duly authorized to do business in the State of Idaho; Underwriters of Lloyd's of London, a non-admitted insurer of the State of Idaho, Quarles Agency of Coeur d'Alene, Idaho, duly authorized agent of the above-named Defendants, and William Quarles, jointly and severally; Douglas Schedler; Quarles & Schedler Agency, a partnership, and Schedler Agency, of Coeur d'Alene, Idaho, purchaser and successor in interest to Quarles Agency and Quarles & Schedler Agency, Defendants-Respondents, and Pacific Insurance Co., a California Corporation, duly authorized to do business in the State of Idaho, Defendant. |
| Court | Idaho Supreme Court |
Howard & Owens, Kenneth B. Howard (argued), Coeur d'Alene, for appellant.
Daniel W. O'Connell, Lewiston, for respondent Western Cas.
Samuel Eismann, Coeur d'Alene, for respondent Foremost.
Eugene L. Miller, Coeur d'Alene, for respondent Quarles.
Sims, Liesche & Newell, P.A., Coeur d'Alene, for respondent Lloyd's. Starr Kelso, argued.
On October 31, 1975, a judgment was awarded to Nixon against Triber in Kootenai County Case No. 33521, and a Writ of Execution was issued upon that judgment in the sum of $1,674.65. In the course of proceeding upon the Writ of Execution, Kootenai County Sheriff Thor Fladwed executed a sale of real property owned by the Tribers, but failed to comply with the statutory requirements concerning notice and sale under I.C. § 11-302. The sheriff's execution sale was held on December 17, 1975. Howard and Loralee Black purchased the Tribers' property at the execution sale for $1,800, but the fair market value of the property was determined by the court to be $108,200. Sheriff Fladwed issued his deed to the purchasers on June 17, 1976, and the Tribers maintained that they did not learn of the sheriff's sale of their property until after the six month redemption period. The Tribers contested the execution sale on the grounds of improper notice and the resultant litigation culminated in this Court's opinion in Nixon v. Triber, 100 Idaho 198, 595 P.2d 1093 (1979). 1
The Tribers, relying on this Court's decision in Nixon v. Triber, brought suit against Sheriff Fladwed in order to obtain damages for the improper sale of their property. The Tribers moved for summary judgment against the sheriff, and on February 5, 1981, the trial court entered its order for summary judgment against Sheriff Fladwed. This judgment was for $108,200 plus interest, costs, and attorney fees, for a total judgment of $164,433.71. Kootenai County was not a named defendant in the suit against the sheriff, but did pay his attorney fees and eventually paid the judgment against the sheriff. 2
In the case at bar, Kootenai County has brought action against the three insurers with whom the County had policy coverage for this type of occurrence. The County has also sued Quarles Agency, which is the insurance agency that sold all of the policies to the County. Quarles was also the agency to which the county attorney sent notices of claims and notices of litigation proceedings for forwarding to the insurers. Essentially, the insurers are denying coverage claiming that the County did not give proper and timely notice of claims and suits based upon Sheriff Fladwed's negligence, and claiming that the sheriff's improper execution sale was not a covered loss under the insurance policies.
THE CLAIM AGAINST FOREMOST
The Foremost policy is an automobile liability policy with an attached Law Enforcement Officers' Professional Liability endorsement. This policy covers "Kootenai County and/or the officers and members of the Kootenai County Sheriff's Department."
Sheriff Fladwed was a defendant in the Nixon v. Triber litigation. Sheriff Fladwed was also an insured employee of the Kootenai County Sheriff's Department. Kootenai County had contracted with Foremost for insurance coverage for occurrences such as Sheriff Fladwed's improper execution sale of the Tribers' property. Since the negligent act of the sheriff was within the coverage of the policy, and since the sheriff was an employee insured under the policy Kootenai County obtained from Foremost, the County had every right to expect Foremost to step in and defend the suit against the sheriff. An insurance policy is a contract and the parties' rights and remedies are primarily establishable within the four corners of the policy. See I.C. §§ 41-102, 41-1802, 41-1822.
Assuming that notice to Foremost of occurrences and claims was properly and timely made (which issue is discussed below), the insurer must consider whether or not it has a duty to defend the insured when litigation ensues. The rule regarding an insurer's duty to defend is as follows:
The duty to defend arises upon the filing of a complaint whose allegations, in whole or in part, read broadly, reveal a potential for liability that would be covered by the insured's policy.
State of Idaho v. Bunker Hill Co., 647 F.Supp. 1064, 1068 (D.Idaho 1986). See also, Hirst v. St. Paul Fire & Marine Ins. Co., 106 Idaho 792, 683 P.2d 440 (Ct.App.1984) (Petition for Review Denied); and Pendlebury v. Western Casualty & Surety Co., 89 Idaho 456, 406 P.2d 129 (1965).
Bunker Hill continues with a pithy analysis of how and when an insurer must determine its potential for liability and duty to defend:
The problem which faces the insurers when a claim is made is determining if there is a potential for liability. However, as noted by the Hirst case [supra], since the advent of notice pleading there will likely be broad ambiguous claims made against the insured making it more difficult for the insurer to determine whether the insurance policy covers the claims. But as the court noted, where there is doubt as to whether a theory of recovery within the policy coverage has been pleaded in the underlying complaint, or which is potentially included in the underlying complaint, the insurer must defend regardless of potential defenses arising under the policy or potential defenses arising under the substantive law under which the claim is brought against the insured.... It is a misconception of the duty to defend, however, if the insurer refuses to defend and seeks a determination of the duty while the underlying case progresses against the insured, and then if found obligated under its duty, the insurer merely steps in and defends and pays defense fees that have accumulated. The proper procedure for the insurer to take is to evaluate the claims and determine whether an arguable potential exists for a claim covered by the policy; if so, then the insurer must immediately step in and defend the suit. At the same time, if the insurer believes that the policy itself provides a basis, i.e., an exclusion, for noncoverage, it may seek declaratory relief. However, this does not abrogate the necessity of defending the lawsuit until a determination of noncoverage is made. The insurer should not be allowed to "guess wrong" as to the potential for coverage. "[T]he provision for defense of suits is useless and meaningless unless it is offered when the suit arises." 7C. J. Appleman, Insurance Law and Practice § 4684 at 83 (Berdal ed. 1979).
Once it is concluded that an insurer owes its insured a duty to defend, the duty to defend and pay defense costs continues until such time as the insurer can show that the claim against the insured cannot be said to fall within the policy's scope of coverage. As stated in C. Raymond Davis & Sons, Inc. v. Liberty Mutual Insurance Co., 467 F.Supp. 17 (E.D.Pa.1979):
Bunker Hill, 647 F.Supp. at 1068.
The Tribers' original Complaint in Triber v. Black and Fladwed, made no specific claim for damages, but demanded an Order declaring Sheriff Fladwed's execution sale null and void, and such other relief as the court might deem just. Sheriff Fladwed's improper execution sale violated the provisions of I.C. § 11-302 by failing to post the required notices and the resulting penalty is found in I.C. § 11-303:
Sale without notice--Penalty.--An officer selling without the notice prescribed by the last section forfeits $500 to the aggrieved party, in addition to his actual damages; and a person wilfully taking down or defacing the notice posted, if done before the sale or the satisfaction of the judgment (if the judgment be satisfied before sale) forfeits $500.
Based on the analysis outlined in Bunker Hill, it was foreseeable to Foremost that it had a duty to defend an insured county employee until such time that Foremost could prove that the claim against the insured was outside the policy's scope of coverage. Foremost could have protected itself by seeking declaratory relief while defending Sheriff Fladwed against suit. In fact, Kootenai County kept Foremost apprised of the progress of this case well beyond the time of this Court's decision in Nixon v. Triber to uphold the improper execution sale. The unfolding of this litigation gradually revealed that there were facts and issues to be considered that were outside the scope of the Tribers' original complaint. After this Court rendered its opinion in Nixon v. Triber, of which Foremost was promptly informed by the County, it should have come as no surprise to Foremost that there remained an ongoing duty to defend the interests of Sheriff Fladwed and Kootenai County.
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