National Farmers Union Property & Casualty Co. v. O'DANIEL

• Decision Date: 27 February 1964
• Docket Number: No. 18487.,18487.
• Parties: NATIONAL FARMERS UNION PROPERTY & CASUALTY COMPANY, a corporation, Appellant and cross-appellee, v. Howard O'DANIEL, Administrator with the Will Annexed of the Estate of John T. O'Daniel, Deceased, Appellee and cross-appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

329 F.2d 60 (1964)

NATIONAL FARMERS UNION PROPERTY & CASUALTY COMPANY, a corporation, Appellant and cross-appellee, v. Howard O'DANIEL, Administrator with the Will Annexed of the Estate of John T. O'Daniel, Deceased, Appellee and cross-appellant.

No. 18487.

United States Court of Appeals Ninth Circuit.

February 27, 1964.

Wiggenhorn, Hutton, Schiltz & Sheehy, and John C. Sheehy, Billings, Mont., and White & Steele, and Lowell White, Denver, Colo., for appellant.

Colgrove & Brown, and Bruce M. Brown, Miles City, Mont., for appellee.

Before HAMLIN, BROWNING and DUNIWAY, Circuit Judges.

HAMLIN, Circuit Judge.

In a Montana state court Henry Jessen was awarded a judgment of $35,000 against John T. O'Daniel in a personal injury action for damages as a result of a collision between an automobile driven by Jessen and a truck driven by O'Daniel. O'Daniel had a public liability policy with National Farmers Union Property & Casualty Company,¹ appellant herein, covering this accident, but the policy only covered him up to the sum of $10,000. Jessen's judgment was affirmed by the Montana Supreme Court.² Thereafter, National paid Jessen the full amount of its $10,000 coverage on account of such judgment. O'Daniel died without having made any payment on said judgment. After filing a claim for the excess of said judgment over $10,000 against O'Daniel's estate, Jessen brought suit in Montana state court on the judgment against Howard O'Daniel, appellee herein and son of John T. O'Daniel, as administrator of the estate of his father.

Appellee answered and filed a cross-complaint against National for negligence and bad faith in failing to settle the personal injury suit within the policy limits. National, a Utah corporation having its principal place of business in Denver, Colorado, removed the action to the United States District Court for the District of Montana upon proper motion on grounds of diversity of citizenship. The district court awarded Jessen $25,000 on his complaint and appellee $23,000 on his cross-complaint, findings of fact and conclusions of law being filed on November 28, 1962.³ Appellant appeals from the judgment on the cross-complaint, appellee from that portion of the decree which reduces the judgment against appellant from $25,000 to $23,000. Jurisdiction of this court is based on 28 U.S.C. § 1291 (1958).

From the record and the findings of the district court, the following facts appear. The collision occurred on November 4, 1954. National retained James P. Lucas to represent both itself and O'Daniel in defense of any action arising out of the accident. The trial court found that "the policy of insurance between National and O'Daniel provided that the company could `make such investigation, negotiation and settlement of any claim or suit as it deemed expedient', and imposed upon O'Daniel the duty to cooperate with the company in both settlement negotiations and conduct of the trial." The personal injury action filed by Jessen was for in excess of $70,000, and Lucas, at National's direction, wrote an excess letter to O'Daniel which is set forth in the margin.⁴ From this letter and from a letter of January 19, 1957, from Lucas to National's Branch Claims Manager in Great Falls,⁵ it is clear that National knew of the arrangement between O'Daniel and Lucas whereby Lucas was to represent O'Daniel on the amount in excess of the policy coverage. However, National made no objection to this arrangement.

Lucas had originally advised National and its assistant claims manager and suit examiner, Robert C. Hoth, that in his opinion Jessen was contributorily negligent as a matter of law because the law of Montana gave the right-of-way to the vehicle on the right, which in this case was O'Daniel's truck. This position was maintained by Hoth throughout the trial. Lucas, however, on learning that Montana law at the time of the accident gave the right-of-way to the first vehicle entering the intersection, decided that contributory negligence was a jury question — a view of the case adopted by the local trial court and later affirmed by the Supreme Court of Montana.⁶ Lucas was of the opinion that, if defendant's evidence went in intact, contributory negligence should be a good defense before the jury; however, he was "very apprehensive." Before trial Lucas wrote various letters to National which contained, inter alia, statements that "this is a case in which we have a good defense but which is nevertheless dangerous in that it does involve a local person before a local jury"; that "O'Daniel at his deposition was very excitable and makes an extremely poor witness"; "that his recollection was somewhat faulty; that Jessen was deputy sheriff of Garfield County and well thought of in that area; that these features, combined with a small town sentiment * * * makes the situation potentially a dangerous one." After taking Jessen's deposition, Lucas reported that it was "apparent that Jessen is going to be a very good witness" and that if the jury believed his story "we are in serious trouble." For a considerable time before the trial, Jessen's settlement demand was $9,000 and National's highest offer was $5,000. The trial started on October 8, 1957. On October 6, the Sunday before the trial, Lucas talked to O'Daniel, told him the case could be settled for $9,000 and that National would pay $5,000. Lucas then said, "Would you be willing to kick in anything with the $5,000?" In this conversation O'Daniel said he would "go $2,000." Lucas told O'Daniel he would call National and "tell them you will go the $2,000."

During the trial Lucas talked several times on the telephone with Hoth and advised him that the trial was "going badly"; that "opposing counsel had blown Mr. O'Daniel and one of his sons out of the water by impeaching them on a collateral matter"; "that O'Daniel had changed his story about applying the brakes"; and "that an adverse judgment could exceed $20,000." Lucas urged Hoth to accept Jessen's settlement offer of $9,000, but Hoth first refused to settle for more than $5,000, although he later raised this figure to $6,500. This last figure was not mentioned by Lucas to either Jessen or O'Daniel at any time. Hoth was also advised during the trial that O'Daniel had been alerted as to the progress of the trial and was demanding a settlement and had insisted that Lucas call an attorney in his (O'Daniel's) behalf; Hoth was also advised by Lucas that Lucas had called an attorney, one Clayton Jones, on behalf of O'Daniel, had advised him of some of the facts of the case, and that Jones had demanded on behalf of O'Daniel that the case be settled within the policy limits. Jones had no further contact with the case or with O'Daniel and never received a fee for his services. Hoth remained adamant and refused to settle the case. O'Daniel's offer to make a contribution of $2,000 toward settlement was not communicated by Lucas to either Jessen or Hoth, nor did Lucas notify anyone that the sum of $8,500 ($6,500 from National and $2,000 from O'Daniel) was available as a settlement offer. Parenthetically, it should be noted that the contribution offer by O'Daniel was made to Lucas before Lucas called Clayton Jones on O'Daniel's behalf, but that Hoth's offer to settle for $6,500 was made after that call.

The specific findings to which National objects on this appeal are findings 19 and 20, which read as follows:

"19. The combination of the following acts and omissions, taken together, establish bad faith on the part of National and a failure to give the interests of the insured equal consideration with its own interest in failing to settle within the policy limits: (1) The insured\'s demand that National settle within the policy limits: (2) the failure to give due regard to the advice of its counsel, who was the sole representative of National at the trial, that (a) the question of liability would be submitted to the jury and counsel would anticipate a verdict in favor of the plaintiff, (b) that the verdict might exceed $20,000.00, and (c) his recommendation that the case be settled for $9,000.00, the amount of plaintiff\'s demand; (3) the failure to give due consideration to the offer of contribution made by the insured to National\'s counsel; and (4) the failure of Lucas as National\'s attorney to (a) inform the insured of the last settlement offer authorized by National, and (b) to inform plaintiff or his counsel of the fact that the case could be settled for $8,500.00 by reason of National\'s offer of $6,500.00 and insured\'s offer to contribute $2,000.00.

"20. When the insured made an offer to contribute $2,000.00, both Lucas and the insured understood that this offer was made to Lucas as National\'s agent."

From these facts, the trial judge concluded: (1) That Lucas was at all times the attorney and agent of National, that his conduct and knowledge must be imputed to National, and that National therefore must be held responsible for his failing to disclose the various offers of the parties; (2) that National was guilty of bad faith and failure to give its insured's interest equal consideration in failing to settle within the policy limits; (3) that the $2,000 offer of contribution must be deducted from the $25,000 payable to Jessen by O'Daniel's estate to determine how much the estate had been injured by the failure to settle; and (4) that O'Daniel's cause of action had arisen as soon as judgment was entered in favor of Jessen in the personal injury litigation in 1957.

The issues presented by this appeal are: (1) Is the evidence sufficient to support a finding of bad faith on the part of National in failing to settle within the policy limits; (2) can Lucas's knowledge and conduct be imputed to National alone or must it also be imputed to O'Daniel so that the failure to settle can be attributed to O'Daniel's negligence equally with National's bad faith; (3) must the judgment be paid before damage can be shown to the...