North River Ins. Co. v. St. Paul Fire and Marine Ins. Co.

• Decision Date: 01 August 1979
• Docket Number: No. 78-1903,78-1903
• Parties: NORTH RIVER INSURANCE COMPANY, Appellant, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 721

600 F.2d 721

NORTH RIVER INSURANCE COMPANY, Appellant, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellee.

No. 78-1903.

United States Court of Appeals,

Eighth Circuit.

Submitted May 15, 1979.

Decided June 29, 1979.

Rehearing and Rehearing En Banc Denied Aug. 1, 1979.

Gerald L. Reade, Brady, Kabeiseman, Reade, Abbott & Johnson, Yankton, S. D., for appellant.

Deming Smith, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., for appellee.

Before BRIGHT, HENLEY and McMILLIAN, Circuit Judges.

HENLEY, Circuit Judge.

This is the third suit in federal court in the District of South Dakota that has arisen from a serious motor vehicle collision that occurred in August, 1971. One of the vehicles involved was an automobile being operated by Robert Lowry, whose wife is Janel J. Lowry. The other vehicle was a tractor-trailer owned by Cochran, Inc. and being operated by a Cochran employee, Loudner. As a result of the accident Mr. Lowry sustained extensive and totally and permanently disabling injuries. He and his wife filed suit against Cochran, Inc., its owner, Jon Cochran, and the truck driver. They sought recovery in the total amount of $1,750,000.00.

At the time of the accident Cochran was insured by Commercial Union Insurance Company to the extent of $250,000.00, and the policy protected Loudner as well as his corporate employer. That policy had been obtained by Mr. Cochran through the Black Hills Agency, Inc. of Rapid City, South Dakota.

The suit filed by the Lowrys was defended by Commercial Union and was tried before a jury in the district court with Judge Andrew W. Bogue presiding. The jury found for the plaintiffs and assessed damages in favor of Mr. Lowry in the sum of $659,732.63 and in favor of Mrs. Lowry to the extent of $50,000.00. Thus, the total award, exclusive of interest, amounted to $709,732.63, a sum largely in excess of the $250,000.00 limit of Commercial Union. The deficiency amounted to $459,732.63. The judgment bore interest at the rate prescribed by South Dakota law.

Commercial Union paid its limit and passed out of the litigation. As of and probably prior to that time, Mr. Cochran had taken the position on behalf of his company that he had instructed Black Hills to obtain excess or umbrella coverage for the corporation that would have been adequate to pay off the Lowry judgment in full after Commercial Union had discharged its obligation. Black Hills denied that it had been so instructed. In any event, no umbrella policy was issued, and Cochran and Loudner found themselves judgment debtors to the extent of the deficiency that has been mentioned. The case that produced the original judgment in favor of the Lowrys may be called Case 1.

In the circumstances just outlined, Cochran and Loudner assigned their excess coverage claims against Black Hills to Mr. and Mrs. Lowry, and the Lowrys satisfied their judgment against Cochran and Loudner. Mr. and Mrs. Lowry then filed suit against Black Hills alleging that Cochran had ordered the excess coverage, and that the failure of Black Hills to procure it amounted to negligence and breach of contract. That case may be called Case 2.

When Case 2 was commenced, Black Hills was protected by an errors and omissions policy issued by St. Paul Fire and Marine Insurance Company that had a limit of $150,000.00. Additionally, Black Hills had purchased from North River Insurance Company an umbrella policy which provided coverage in excess of St. Paul's limit and which was adequate to satisfy any excess judgment that the Lowrys, as assignees of Cochran and Loudner, might obtain against Black Hills.

In the trial of Case 2, which was also heard by a jury in the district court with Judge Bogue presiding, the Lowrys were represented by their attorneys; ¹ Black Hills was defended by St. Paul which was represented by its attorneys, and North River had its attorney sitting in the case as an observer and monitor. Counsel for North River did not actively participate in the trial of Case 2 which is sometimes called the "errors and omissions" case.

As of the commencement of the trial of Case 2 Mrs. Lowry and her attorneys had indicated that they would settle the case for $350,000.00 which was about $100,000.00 less than the unpaid balance of the judgment that the Lowrys had obtained in Case 1. Apparently, neither North River nor St. Paul was interested in settling at that figure.

As the trial proceeded, Mr. Flaskamp, attorney for North River, put together a settlement proposal under the terms of which the case would be settled for a total figure of $266,000.00. Of that sum St. Paul would pay its $150,000.00 errors and omissions limit, plus $36,000.00 interest, and North River would pay $80,000.00. That proposal may have been agreeable to the attorneys for Mrs. Lowry, but it is not clear that it was satisfactory to her, or that her attorneys had any authority to bind her to the $266,000.00 figure.

In any event, St. Paul was not willing to contribute more than $93,000.00 to the settlement, and the settlement was not consummated. North River never indicated any interest in increasing its own contribution from $80,000.00 to $173,000.00 which, with the $93,000.00 that St. Paul was willing to pay, would have amounted to $266,000.00, assuming that the case could have been settled for that sum.

In Case 2 the claim of the Lowrys against Black Hills was essentially a liquidated claim based on the unpaid balance of the judgment rendered in Case 1. The amount of that balance was $459,732.63 plus accrued interest amounting to $39,398.45, or a total of $499,131.08. The jury found for Mr. and Mrs. Lowry and Black Hills appealed. We affirmed. Lowry v. Black Hills Agency, Inc., 509 F.2d 1311 (8th Cir. 1975).

The judgment was discharged by St. Paul paying $150,000.00 and North River paying the balance amounting to $349,131.08. ² And, thereafter North River commenced the instant suit against St. Paul, which suit may be called Case 3.

The position of North River is that when St. Paul refused to contribute its policy limit of $150,000.00 to effectuate the $266,000.00 settlement of Case 2, it was guilty of bad faith and breach of duty to plaintiff as the excess carrier and is liable to plaintiff for the money that plaintiff was required to expend as a result of the judgment. ³

St. Paul denied liability, and the case went to trial before a jury with Chief Judge Fred J. Nichol presiding. The district court denied a motion for a directed verdict made by the plaintiff at the conclusion of all of the evidence and sent the case to the jury. The jury found in favor of St. Paul; plaintiff's motion for judgment notwithstanding the verdict, or, alternatively, for a new trial was denied, and this appeal was perfected.

Prior to the closing arguments in the case North River submitted 29 separate requests for instructions, and St. Paul submitted 21 requests. Judge Nichol seems not to have granted any of the requests, as such; instead, he gave to the jury his own comprehensive charge which covers 30 pages of the trial transcript and which evidently incorporates the requests of the respective parties to the extent that the judge felt that they were correct statements of the law.

For reversal, North River contends that the trial court made a pretrial error in refusing to sequester certain witnesses whose depositions were to be taken, and that miscellaneous errors were made in the conduct of the trial. We find those contentions to be without merit and will not comment on them further.

More basically, North River...