Noshey v. American Automobile Ins. Co., 6326.

• Decision Date: 06 February 1934
• Docket Number: No. 6326.,6326.
• Citation: 68 F.2d 808
• Parties: NOSHEY et al. v. AMERICAN AUTOMOBILE INS. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

68 F.2d 808 (1934)

NOSHEY et al. v. AMERICAN AUTOMOBILE INS. CO.

No. 6326.

Circuit Court of Appeals, Sixth Circuit.

February 6, 1934.

Clarence E. Clifton, of Memphis, Tenn. (George Randolph and Wassell Randolph, both of Memphis, Tenn., on the brief), for appellants.

Sam P. Walker, of Memphis, Tenn. (Waring, Walker & Cox, of Memphis, Tenn., on the brief), for appellee.

Before MOORMAN, HICKS, and SIMONS, Circuit Judges.

SIMONS, Circuit Judge.

Decision necessitates a consideration of principles governing the liability of an insurer obligated to indemnify who undertakes to compromise or defend a claim against the assured, and the application of such principles to facts, which must be accepted as proved.

The appellants were plaintiffs below. They were indemnified against loss which might result from their operation of an automobile truck under a general liability insurance policy issued to them by the appellee in an amount not exceeding $10,000, for injury to any one person. The policy was the usual indemnity contract, the insurer agreeing inter alia to investigate all accidents and to defend all suits thereon in the name and on behalf of the assured; providing that the assured should not voluntarily assume any liability, interfere in negotiations for settlement, or in legal proceedings, or settle any claim without the written consent of the insurer previously given, and reserving to the insurer the right to settle or defend as it may elect any suit brought against the assured.

Demurrers in the court below to the plaintiffs' declaration, and their amended declarations, on the ground that they failed to state a cause of action, were sustained. We are therefore required to consider sufficiently pleaded facts as proved, and to determine whether upon such assumed facts and the inferences they may reasonably support a cause of action has been stated within the applicable rules of law.

During the life of the policy plaintiffs' automobile truck, operated in its business by one of its employees, accidentally ran down from behind a man by the name of Armour Slover, who was at the time lawfully crossing a street in Memphis at an intersection. Slover was fifty years of age, in good health, and regularly employed at a salary of $150 per month. The injuries were serious, the suffering great, and the result a crippling of Slover for life. Notice of the accident was at once given to the defendant, which made its usual investigation and assumed entire and exclusive control of settlement negotiations with Slover.

Defendant's investigation disclosed the seriousness and permanent character of the injuries; that plaintiffs would have to rely for defense to a damage action solely upon the unsupported statement of its truck driver, who was interested in clearing himself of culpability, whereas Slover's case would be based upon the evidence of one or more reputable, disinterested eyewitnesses. Negotiations for settlement were entered into by the defendant, and an offer was made on behalf of Slover to settle the claim for $12,500, to which the defendant countered with an offer of $1,500, which during successive stages in the negotiations was raised to $7,500. On September 28, 1929, Slover sued plaintiffs for $40,000. In May, 1930, Slover offered to settle for $10,000, and the plaintiffs urged prompt acceptance. No reply was made to Slover's offer, or heed given to the plaintiffs' advice. Defendant's attorneys recognized that the suit was a dangerous one, and that settlement should be made, but were unable to secure the consent of defendant's local agent. In July Slover's representative complained to the plaintiffs at the delay, and insisted upon a prompt answer. Meanwhile the damage suit was set for trial in September. This plaintiffs immediately communicated to the defendant, and again urged acceptance. The defendant failed to act until August, when it agreed to settle for $10,000 but was advised that on account of the proximity of the trial the offer had been withdrawn. In September the defendant's agent for the first time conceded the damage suit to be desperate; that in all probability recovery would be had far in excess of $10,000. He declared the defendant willing to pay the full coverage, but advised plaintiffs that if they owned real estate in their own names to immediately convey such property to their respective wives so as to place it beyond the reach of the anticipated judgment. The advice was spurned. The agent thereupon urged plaintiffs' attorneys to make the best settlement possible to protect their client, and were advised that they would gladly do so, but were precluded under the policy from acting without the written consent of the insurer. Such written consent was promised, but, though repeatedly requested, was never forthcoming. No settlement being effected, the damage suit came to trial, and resulted in a verdict for Slover in the sum of $22,500. Judgment was affirmed by the Court of Appeals of Tennessee (14 Tenn. App. 42) and certiorari denied by the Supreme Court. The defendant paid its policy liability with interest and costs, and the plaintiffs paid the balance of the judgment with interest. It is for this amount they sue.

Their action is planted upon three grounds, to wit: The negligence of defendant in failing to accept the $10,000 offer, bad faith in failing to make a settlement and in failing to give written authority to the plaintiffs to settle, and for breach...