Larson v. Anchor Casualty Company

• Decision Date: 05 April 1957
• Docket Number: No. 36940,36940
• Citation: 249 Minn. 339,82 N.W.2d 376
• Parties: Quinten G. LARSON, Appellant, v. ANCHOR CASUALTY COMPANY, Respondent.
• Court: Minnesota Supreme Court

Page 376

82 N.W.2d 376

249 Minn. 339

Quinten G. LARSON, Appellant, v. ANCHOR CASUALTY COMPANY, Respondent.

No. 36940.

Supreme Court of Minnesota.

April 5, 1957.

Syllabus by the Court.

1. Where an excess verdict is sought against the insured, the insurer owes a duty to inform the insured of the receipt of a settlement offer so that the latter may take whatever course may be necessary for the protection of his own interests in the event the insurer should reject the offer.

2. While the insurer cannot disregard the plight of the insured where a claim or claims are made in excess of the coverage provided by the insurance policy, the insurer cannot be held liable without proof of fraud or bad faith for having chosen lawfully and in good faith to defend under and pursuant to the provisions of the insurance contract.

3. As between the insurer and the insured, good faith and fair dealing must be recognized as correlative obligations, since the insurer owes to the insured some duties in the matter of the settlement of claims covered by its policy, and if the liability is clear, the refusal to pay less than the limit of the policy in settlement must be made in good faith and upon reasonable grounds for the belief that the amount required to effect such settlement is excessive.

4. While the insurer's right to control negotiations for a settlement must be subordinated to the purpose of the contract, which is to indemnify the insured within the contract limit, nevertheless, it takes something more than a mere mistake to constitute bad faith and something more than an error of judgment to create liability with respect to the action of an insurer under a policy of public liability by which it is not absolutely bound to make a settlement.

5. The rule in this state is that a liability insurer, having assumed control of the right of settlement of claims against the insured under a policy which gives it the exclusive right to defend and settle, may become liable in excess of its undertaking under the policy provisions if it fails to exercise 'good faith' in considering offers to compromise the claim for an amount within the policy limits; there must be bad faith on the part of the insurer with resulting injury to the insured before there can be a cause of action against the insurer for the excess over its undertaking.

6. Where a conflict of interest arises between the insurer and the insured with respect to the action of an insurer under a policy of public liability wherein it has reserved the alternative right to defend or to make settlement, but where good faith and fair dealing are also correlative obligations between the insurer and the insured, a liability insurer is entitled to an honest statement by the insured and the insured to the insurer's good faith where accepting or rejecting a compromise offer is involved. A defense, however, undertaken by the insurer, showing reasonable and probable cause for rejecting the compromise offer, vindicates the insurer's good faith even though the defense is unsuccessful.

Thoreen, Thoreen & Lawson, Stillwater, for appellant.

Meagher, Geer, Markham & Anderson, O. C. Adamson, II, and David W. Nord, Minneapolis, for respondent.

NELSON, Justice.

Action against automobile liability insurer to recover excess amount not paid on a judgment heretofore obtained by one Thomas A. LeTourneau in a negligence action against the insured, Quinten G. Larson, plaintiff herein. Plaintiff charges insurer with bad faith upon several grounds but particularly with respect to its rejection of a settlement offer held open shortly prior to and during the trial of LeTourneau's suit against Larson. Larson is a farmer 45 years of age, married, and residing near Marine on the St. Croix, Washington County, Minnesota.

It appears that on June 24, 1951, while policy of Anchor was in full force and effect, Larson, the insured, while driving his automobile collided with the automobile of LeTourneau on a graveled township road. The collision resulted in severe personal injuries to LeTourneau and damage to his automobile. As required by the policy, Larson reported the accident to Anchor and its insurance agent, Wendell G. Johnson, a lawyer in a nearby town whom plaintiff had previously consulted on income tax items.

The policy contained the usual provisions as to coverage of bodily injury and property damage liability and other coverages afforded by the other terms of the policy. It also contained provisions with respect to defense, settlement, and supplementary payments. The aforesaid provisions were subject to the limits of liability, exclusions, conditions, and the other terms of the policy. The premium had been paid and the policy was in full force and effect. The bodily injury limits in said policy were $10,000 and $20,000, and property damage was limited for each occurrence to $5,000.

LeTourneau commenced suit against Larson for personal injuries and property damages in the amount of $90,000. The case was tried before the district court and a jury in Washington County in March 1954. The jury rendered a verdict in favor of LeTourneau in the sum of $62,500. Larson moved for a new trial, which motion was denied. For reasons stated in Anchor's file, no appeal was taken, and Anchor paid the sum of $10,245.08 under its policy together with an additional sum of $1,775.20 on damage to LeTourneau's car. Anchor also contributed to the extent of 50 percent to a settlement of $5,000 of a claim on the part of Miss Rydeen, who had been a passenger in Larson's car and who was injured as a result of the collision, relieving Larson and LeTourneau therefrom. It thereby became evident that LeTourneau's insurer at least felt at the time that its insured was sufficiently at fault to pay one-half of the Rydeen claim.

The counts of bad faith upon which plaintiff relies are: That Anchor failed to investigate said accident in a full and careful manner; that it failed to call as witnesses persons who would have testified to facts which were favorable to Larson; that it failed to accept an $8,500 offer of settlement made by LeTourneau prior to and during the trial of his suit against Larson; and that it failed to sufficiently inform Larson of said offer of settlement, thus giving him an opportunity to accept the same. It is further claimed that Wendell G. Johnson, local lawyer, who had been insurer's agent in issuing the policy of liability insurance and who was supposed to be representing Larson, was in fact acting for Anchor as to the excess being demanded beyond the limits of the policy and in bad faith failed to demand from Anchor in Larson's behalf that it accept the offer of settlement. Another item of bad faith charged against Anchor was that its counsel failed to thoroughly cross-examine LeTourneau's doctors relative to his injuries and failed to bring out at the trial that LeTourneau had been severely injured in a previous accident.

Plaintiff called as witnesses Dennis D. Daly and John S. McGrath, who had been counsel for LeTourneau in the suit against Larson, Kenneth B. Jones, branch claims supervisor for Anchor, who was in charge of adjusters, followed by Larson and Wendell G. Johnson, who had as agent sold the policy to Larson. The case file of Anchor was made available through cross examining Jones as an adverse witness and, except for certain items held to be immaterial, was received in evidence. This constituted the additional testimony upon which plaintiff relied to establish Anchor's bad faith as a basis of liability for LeTourneau's recovery in excess of the policy limits.

We fail to find wherein Anchor did not make an ordinarily prompt and proper investigation. The accident occurred June 24, 1951, at 6:45 p.m. It was reported promptly by Larson to insurer and the Johnson agency. On the next day, the 25th, Anchor obtained signed statements from plaintiff and statements from plaintiff's wife and from LeTourneau the driver of the other car, were taken with the aid of a court reporter. On the 26th, Anchor obtained an additional signed statement from Larson, and on that date Larson executed his 'first report' form.

In addition Anchor's investigator interviewed the county sheriff and one Fred Natt, the only witness which Larson had mentioned prior to July 19, 1951. Wendell G. Johnson went to view the scene of the accident the same night after receiving notice from Larson. The investigator had also discussed the matter with LeTourneau's insurer and LeTourneau's attorney prior to July 19, 1951.

Both the record and the file indicate that within 24 hours following the accident all eyewitnesses except Miss Rydeen, who was the girl passenger in Larson's car, had been interviewed. As soon, however as her attorney settled her claim against LeTourneau and Larson, Anchor interviewed her and obtained her statement, which was mostly negative. Following suit by LeTourneau October 21, 1953, Anchor obtained statements from three other persons following pretrial investigation: Charles Ancke, Larson's brother, and Edwin L. Whalen, all of whom had come upon the scene after the accident, and again interviewed Fred Natt, the other accident-scene witness. In addition, Wesley Carlson and Wendell G. Johnson, accident-scene witnesses, were interviewed, and as to LeTourneau, both a retail credit report and a physical examination were obtained.

At the trial of LeTourneau's suit against Larson all witnesses, generally substantiated Larson's version that he was struck on his own side of the road while traveling at what was deemed to be a reasonable speed. Furthermore the testimony of these same witnesses either indicated that LeTourneau was driving at a greater speed over a hill crest on Larson's side of the road facing the sun, or their versions of the situation were negative and neither substantiated nor contradicted Larson. LeTourneau to substantiate his claim testified to the contrary, claiming that Larson was speeding...