McChristian v. State Farm Mutual Automobile Ins. Co.

• Citation: 304 F. Supp. 748
• Decision Date: 15 October 1969
• Docket Number: No. F-69-C-11.,F-69-C-11.
• Parties: Noble McCHRISTIAN, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Arkansas

304 F. Supp. 748

Noble McCHRISTIAN, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

No. F-69-C-11.

United States District Court W. D. Arkansas, Fayetteville Division.

October 15, 1969.

Van H. Albertson, Huntsville, Ark., Putman, Davis & Bassett, Fayetteville, Ark., for plaintiff.

Crouch, Blair, Cypert & Waters, Springdale, Ark., for defendant.

OPINION

JOHN E. MILLER, Senior District Judge (sitting by designation).

This is an action timely removed from the Chancery Court of Madison County, Arkansas, against State Farm Mutual Automobile Insurance Company, based upon the defendant's alleged negligence and bad faith in failing to settle an action for personal injuries against its insured, plaintiff herein.

Jurisdiction is established by diversity of citizenship of the parties and the amount involved. 28 U.S.C.A. 1332(a).

The controversy between the parties arose in Arkansas and must be determined in accordance with the laws of Arkansas.

The following shall constitute the findings of fact and conclusions of law of the court, as contemplated by Rule 52 (a) of the Federal Rules of Civil Procedure.

On January 28, 1967, defendant issued to plaintiff a policy of automobile liability insurance #234929A2804, by which it agreed to indemnify plaintiff for all sums which he might become legally obligated to pay by reason of the operation of his 1954 Chevrolet pickup truck, up to and including $10,000 for bodily injury sustained by one person in any one accident or $20,000 for two or more persons in any one accident, and up to and including $5,000 for property damage. Said policy of insurance was in full force and effect on February 12, 1967. On that date plaintiff was involved in an automobile accident in which a car driven by Joseph R. Marlow collided with one driven by Jerry Don Parker. On October 23, 1967, Tommy Hooten, Rhoda Hooten and Michael Hooten, the occupants of the automobile driven by Parker, brought suit in the Circuit Court of Sebastian County, Arkansas, against plaintiff and Marlow seeking judgment against both for personal injuries and property damage allegedly sustained as a result of the collision. McChristian cross-complained against Marlow for contribution as a joint tort-feasor, and Marlow cross-complained against McChristian for his property damage.

A jury trial resulted in (1) a judgment against McChristian in favor of Tommy Hooten for $36,400; (2) a judgment against McChristian in favor of Rhoda Hooten for $1,200; (3) a judgment against McChristian in favor of Michael Hooten for $118; (4) dismissal of the Hootens' complaint against Marlow; (5) dismissal of Marlow's cross-complaint against McChristian; and (6) dismissal of McChristian's cross-complaint against Marlow. The dismissal of McChristian's cross-complaint was, of course, predicated upon a jury finding that McChristian was responsible for 100% of the negligence which proximately caused the accident.

The judgment of the Circuit Court was affirmed sub nom McChristian v. Hooten, (1969) 245 Ark. 1029, 436 S.W.2d 844. The company subsequently satisfied in full the judgments of Rhoda and Michael Hooten and has paid the sum of $11,400, plus interest, as a credit on the judgment of Tommy Hooten, leaving $25,000 unsatisfied on the latter judgment, which sum is the object of the present suit.

In the liability policy issued by defendant to plaintiff, defendant agreed:

"(2) To defend any suit against the insured alleging such bodily injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient."

By virtue of the quoted provision, the absolute control of the defense of such actions is turned over to the insurer, and the insured is excluded from any interference in settlement negotiations. It is generally understood that these are rights necessary for the insurer to have in order to justify or enable it to assume the obligations which it does under the contract. However, the reservation of control of settlement viewed in light of the company's obligation to pay on behalf of the insured up to the policy limit, all sums which he shall become legally obligated to pay, imposes upon the insurer a duty to act in good faith and in the exercise of reasonable care in investigating and evaluating for settlement purposes all claims against the insured. Where an insurer, either through negligence or bad faith, fails to settle a claim against its insured within the policy limits, when it is possible to do so, such insurer is liable to the insured for any judgment recovered against him in excess of such policy limits. Southern Farm Bureau Cas. Ins. Co. v. Mitchell, (8 Cir. 1963) 312 F.2d 485; State Farm Mutual Automobile Ins. Co. v. Jackson, (8 Cir. 1965) 346 F.2d 484; Southern Farm Bureau Cas. Ins. Co. v. Hardin, (1961) 233 Ark. 1011, 351 S.W.2d 153; Southern Farm Mutual Cas. Ins. Co. v. Parker, (1960) 232 Ark. 841, 341 S.W.2d 36; Home Indemnity Co. v. Snowden, (1954) 223 Ark. 64, 264 S.W.2d 642.

On the day of the collision, plaintiff drove from his home in a southerly direction upon a country road which intersects State Highway No. 74. His testimony reflects that he stopped when he reached the intersection and looked both east and west and that the highway was clear in both directions. Marlow was then traveling east, and Parker, the driver of the Hooten automobile, was traveling west. Both drivers testified that McChristian slowly entered the highway without coming to a complete stop. Plaintiff developed a speed of 515 m. p. h. as he completed a left-hand turn into the eastbound lane of travel. As he was crossing the median line, he observed the approach of the Hooten vehicle, but did not become aware of the presence of Marlow until the latter was immediately behind him. Plaintiff had traveled east down the highway approximately 150 feet prior to the impact.

When McChristian entered the highway, the Hooten automobile was located approximately 100-150 feet east of the intersection, traveling at 55-60 m. p. h. Parker noted the position of McChristian and saw Marlow crest the hill at a high rate of speed and go out of control. He immediately pulled the Hooten vehicle to the right and applied the brakes, leaving 80 feet of skid marks, but was prevented from getting completely off the highway by guard posts spaced along the shoulder.

When Marlow reached the crest of the hill, he saw McChristian entering the highway and immediately applied his brakes, leaving 462 feet of skid marks from the crest of the hill to the point of impact. Marlow attempted to pass McChristian in the gravel on the south shoulder of the highway, but the road was too narrow; he then cut back across the south side of the highway behind McChristian, went around McChristian and collided with the Hooten vehicle on the north side of the highway a few feet east and in front of McChristian. The impact knocked the Hooten automobile off of the highway on the north side and down an embankment, and each of the occupants sustained some degree of injury. Neither automobile struck the McChristian truck, which was then completely in the proper traffic lane on the south or right side of the highway.

If the concepts of good faith and negligence can be distinguished in the context of these cases, it may be that negligence relates more to the actual preparation and investigation of the claim against the insured, whereas good faith may relate more to the insurer's evaluation of the case and subsequent decisions regarding settlement. The relationship is, of course, quite close as negligence in the investigation of the claim may be such that the company does not possess sufficient information to make a good-faith judgment. See Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1140-1141 (1954).

An insurer clearly must exercise reasonable care to discover facts as to liability and damages upon which an intelligent decision may be based. Southern Farm Bureau Cas. Ins. Co. v. Mitchell, supra; Southern Farm Bureau Cas. Ins. Co. v. Hardin, supra; Radio Taxi Service v. Lincoln Mutual Ins. Co., (1960) 31 N.J. 299, 157 A.2d 319; Murach v. Massachusetts Bonding & Ins. Co., (1959) 339 Mass. 184, 158 N.E. 2d 338; Hoyt v. Factory Mutual Liability Ins. Co., (1935) 120 Conn. 156, 179 A. 842; Hilker v. Western Auto Ins. Co., (1931) 204 Wis. 1, 231 N.W. 257, 235 N.W. 413. This general statement quite obviously also involves a measure of good faith.

The company first became aware that its insured had been involved in an automobile accident when McChristian orally reported the event on May 19, 1967, over three months after the occurrence. McChristian did not feel that he was in anywise involved and simply made no earlier report to the company. State Farm nonetheless undertook the defense of the action, and on May 23, 1967, a field claims adjuster representing the company called on McChristian and took a recorded question and answer statement of his version of the facts surrounding the accident. On May 29, 1967, the Fayetteville, Arkansas, claims office notified the company's claims superintendent in charge of northwest Arkansas of the occurrence, and an initial reserve of $925.00 was placed on the claim. That sum was raised to $1,000 on June 29, 1967, on the basis of another report from the local claims office.

The attorney retained by State Farm in the accident case has been engaged in private practice for over thirty years, and is highly rated and well respected in the legal community. His firm had represented the company in similar cases since 1936. Following the assignment of the suit brought by the Hootens in the accident case in September 1967, shortly after the complaint was filed, counsel filed an answer and cross-complaint in which he specifically pleaded joint venture and...