Nungesser v. Bryant

• Decision Date: 23 March 2007
• Docket Number: No. 94,176.,No. 94,888.,94,176.,94,888.
• Parties: Jimmy L. NUNGESSER, Plaintiff/Appellee, v. Josh M. BRYANT, Defendant/Thirdparty Plaintiff/Appellee, v. EMCASCO Insurance Company, Third-party Defendant/Appellant.
• Court: Kansas Supreme Court

153 P.3d 1277

Jimmy L. NUNGESSER, Plaintiff/Appellee, v. Josh M. BRYANT, Defendant/Thirdparty Plaintiff/Appellee, v. EMCASCO Insurance Company, Third-party Defendant/Appellant.

No. 94,176.

No. 94,888.

Supreme Court of Kansas.

March 23, 2007.

Teresa L. Watson, of Fisher, Patterson, Sayler & Smith, L.L.P., of Topeka, argued the cause, and Steve R. Fabert, of the same firm, was with her on the briefs for appellant.

Jacob S. Graybill, of Graybill & Hazlewood, L.L.C., of Wichita, argued the cause, and N. Russell Hazlewood, of the same firm, was on the brief for plaintiff/appellee.

Jeffery L. Carmichael, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Wichita, argued the cause and was on the brief for third-party plaintiff/appellee.

The opinion of the court was delivered by BEIER, J.:

This case arises out of an auto accident in which plaintiff Jimmy L. Nungesser was seriously injured. It requires us to consider whether Kansas law permitted defendant Josh M. Bryant to pursue an action alleging negligent or bad faith failure to settle by his insurer, EMCASCO Insurance Company (EMCASCO), before his liability on Nungesser's personal injury claim had been established.

The district court permitted Bryant's claim against EMCASCO to go forward, and EMCASCO now appeals the determination that it must pay a $2 million consent judgment entered in favor of Nungesser and against Bryant, as well as attorney fees under K.S.A. 40-256 and K.S.A. 40-908.

A review of the relevant factual and procedural chronology is required for our analysis.

The accident occurred on July 8, 2002. Bryant, a minor, driving a pickup truck, failed to yield the right of way to Nungesser, who was riding a motorcycle. Nungesser suffered a serious brain injury.

For a period of time after the accident, Nungesser was hospitalized at Wesley Medical Center in Wichita, pursuant to a preferred-provider arrangement between Wesley and Nungesser's health maintenance organization, Coventry Health Care. After Nungesser was discharged, Wesley filed notice of a $45,532.85 hospital lien and served Nungesser, Bryant, and EMCASCO.

The Bryant family's auto policy with EMCASCO had a $300,000 single liability limit. EMCASCO received notice of the collision and Nungesser's claim 2 days after the accident, and its claims adjuster, Bruce Fischer, began his investigation. During the third week of August 2002, when Fischer learned the extent of Nungesser's injuries, he suggested to EMCASCO that potential liability to Nungesser would exceed the policy limit and that EMCASCO should settle the claim.

Within a few days, Fischer extended an oral offer to Nungesser's wife, Carolyn, to settle for the policy limit, payment to be made in the form of a check made out to Nungesser and Wesley jointly. The Nungessers' attorney, David G. Crockett, discussed the offer with Fischer, including the Wesley lien. Crockett was investigating the validity of the lien, which he believed was contrary to law.

Fischer confirmed EMCASCO's earlier oral offer to settle for the policy limit in a September 4, 2002, letter to Crockett.

On September 30, 2002, Wesley submitted Nungesser's bill to Coventry. The amount due from the Nungessers personally, according to a Coventry statement sent to the Nungessers on October 4, 2002, was $180.

On October 2, 2002, Crockett drafted but never mailed a letter to Fischer. The draft expressed specific objections to the Wesley lien and suggested that the Nungessers were prepared to accept EMCASCO's offer of the policy limit if the settlement check were made payable to Nungesser and his attorney, rather than to Nungesser and Wesley.

On October 9, 2002, Carolyn Nungesser attempted to pay Wesley $180 with a "payment in full" notation on her check. She included a note, which read in part:

"I am enclosing our check for $180.00 to pay the enclosed bill.

"Your hospital [lien], `Wesley's,' will not let [EMCASCO] pay $300,000.00 to Jim for our settlement.

"This check should take care of Wesley[']s bill. Please notify [EMCASCO] that you have withdrawn [the lien] immediately so we can conclude our settlement."

Wesley rejected the check marked "payment in full" and requested one without such a notation, as Coventry had not yet paid Nungesser's balance. The Nungessers offered no such payment.

On October 23, 2002, Fischer mailed a second letter to Crockett, offering to settle Nungesser's claim against Bryant for the policy limit by forwarding a check payable jointly to Nungesser and Wesley. Fischer later testified that Crockett did not respond to this offer.

On October 28, 2002, Wesley served on Nungesser, Bryant, and EMCASCO an amended lien notice in the amount of $49,993. Approximately 1 month later, the Nungessers hired attorney Jacob S. Graybill to assist Crockett with claims against Bryant and Wesley.

On December 18, 2002, in a telephone conversation with Fischer, Crockett orally offered to settle Nungesser's claim in exchange for a $300,000 check payable to Nungesser and Crockett rather than to Nungesser and Wesley. Crockett also offered to escrow money in his trust account to address Wesley's $49,993 lien.

The next day, before taking time off during the holidays, Fischer left a telephone message for Crockett, stating that EMCASCO would not agree to settle unless Wesley was named as a joint payee on the check.

On December 31, 2002, Crockett sent the following letter to Fischer:

"This letter will recap our conversation on December 18 and your telephone message on December 19.... When we spoke on December 18, I told you that we were willing to accept your offer of coverage limits ... but that we needed to make some arrangement with [EMCASCO] in order that we could do so without allowing Wesley Medical Center to control the settlement proceeds.... I offered to escrow money in my trust account so that we could settle with [EMCASCO] without capitulating to Wesley's demands. You told me you would look into this and call back the following day since you were getting ready to take some vacation time over the holidays. You did express some concern because you said Wesley's attorney, Curtis Loub, had been very aggressive in asserting Wesley's claims against our settlement proceeds.

"On December 19 you did call, and you left a message stating that, because of Wesley's demands, [EMCASCO] would not pay the settlement proceeds unless Wesley were named on the check—right along with Jim Nungesser—as a joint payee! Obviously this would mean that the only way Jim could receive any money from [EMCASCO] would be if he surrendered to all the claims of Wesley.

....

"It would ... seem to me that Wesley has interfered with Mr. Bryant's legitimate expectation that the limit of his liability insurance would be available to buy his release from a claim that obviously exposes him to literally millions of dollars of liability.

....

"By persuading [EMCASCO] to refuse to pay the limit of Mr. Bryant's insurance policy directly to Mr. Nungesser, Wesley has deprived Mr. Bryant of what will probably be the only opportunity he will ever have to purchase his complete release in return for the proceeds of a policy of insurance he paid for.

"In light of the foregoing, Mr. Nungesser has no alternative but to evaluate other alternatives."

There is no dispute between the parties that Crockett's December 31, 2002, letter accurately described the events of December 18 and 19. When Fischer received this letter, he contacted EMCASCO's attorney, Charles Millsap, who in turn contacted Crockett on January 2, 2003, a Thursday. Millsap would later testify by way of affidavit that he had been given the impression when Fischer contacted him that an agreement to settle for the policy limit had already been reached. The parties also agree that no settlement offer was made by either party, nor any agreement reached, during the conversation between Crockett and Millsap on January 2. The two did discuss the potential for a lawsuit against Wesley. Crockett did not tell Millsap that Nungesser was prepared to file suit against Bryant within a few days.

Nungesser sued Bryant on January 6, 2003, the Monday following that Thursday, i.e., 1 business day after the conversation between Millsap and Crockett. Nungesser's petition sought $10 million in damages.

One week later, Wesley filed a second amended lien notice, reducing the amount to $180. It released its lien altogether a month later.

On January 15, Graybill sent a lengthy letter to Millsap, enclosing a copy of the petition filed by Nungesser against Bryant. Among other things, Graybill's letter stated that the Nungessers terminated "any further negotiations calculated to relieve Mr. Bryant of the full measure of his liability in return for payment" of the policy limit of $300,000. He also referred to $2 million plus as an amount for which the case might settle. He questioned the manner in which EMCASCO had conducted Bryant's settlement negotiation, and further suggested that EMCASCO retain independent counsel for Bryant.

EMCASCO arranged for Marc Powell to defend Bryant in the suit filed by Nungesser; by early March, Bryant had hired Jeffery S. Carmichael to pursue a claim against EMCASCO. Powell filed Bryant's answer to Nungesser's petition on April 23, 2003. On June 11, 2003, Carmichael filed a third-party petition on Bryant's behalf, naming Wesley and EMC Insurance Company (EMC), EMCASCO's parent company, as defendants. Bryant later settled with Wesley and amended his third-party petition to substitute EMCASCO for EMC. He sought full indemnity from EMCASCO on tortious interference with contract and breach of fiduciary theories, claiming EMCASCO negligently or in bad faith failed to settle Nungesser's claim within its $300,000 policy limit before suit was filed.

EMCASCO moved to dismiss Bryant's third-party claims, arguing that a direct action against an auto insurer was prohibited and that it should not be a party to Nungesser's tort action...