Pacific Employers Ins. v. PB Hoidale Co.

• Citation: 789 F. Supp. 1117
• Decision Date: 01 April 1992
• Docket Number: Civ. A. No. 87-1384-B.
• Parties: PACIFIC EMPLOYERS INSURANCE COMPANY, a California Corporation, Plaintiff, v. P.B. HOIDALE COMPANY, INC., Employers Mutual Casualty Company, and Lightner-Kanaga Insurance, Inc., Defendants.
• Court: U.S. District Court — District of Kansas

789 F. Supp. 1117

PACIFIC EMPLOYERS INSURANCE COMPANY, a California Corporation, Plaintiff, v. P.B. HOIDALE COMPANY, INC., Employers Mutual Casualty Company, and Lightner-Kanaga Insurance, Inc., Defendants.

Civ. A. No. 87-1384-B.

United States District Court, D. Kansas.

April 1, 1992.

COPYRIGHT MATERIAL OMITTED

Timothy J. Finnerty, McDonald, Tinker, Skaer, Quinn & Herrington, Wichita, Kan., Debra J. Arnett, Hartley, Nicholson & Hartley, P.A., Paola, Kan., for Pacific Employers Ins. Co.

Jeffery L. Carmichael, Morris, Laing, Evans, Brock & Kennedy, Chtd., Wichita, Kan., for P.B. Hoidale Co., Inc.

Eldon L. Boisseau, Turner & Boisseau, Chartered, Wichita, Kan., for Employers Mut. Cas. Co.

Floyd E. Gehrt, William A. Larson, Gehrt and Roberts, Chartered, Topeka, Kan., for Lightner-Kanaga Ins., Inc.

MEMORANDUM AND ORDER

BELOT, District Judge.

This matter is before the court on cross motions for summary judgment, (Doc. 263, Joint Motion of Plaintiff and defendant P.B. Hoidale Co., Inc.); (Doc. 260, Motion of Employers Mutual), and plaintiff's motion to strike (Doc. 291). This is a declaratory action seeking to determine the liability of a primary insurance carrier, an excess insurance carrier, and their common insured for a judgment entered against the insured in state court. Jurisdiction is based upon diversity.

The court has previously outlined the essential facts of this case in its order of January 29, 1992. 782 F.Supp. 564. On July 1, 1987, a jury in Sedgwick County District Court returned a verdict in favor of one Cletus Doll for injuries Doll sustained while driving a tank truck near Lake Afton, Kansas. Defendant P.B. Hoidale Company, Inc. ("Hoidale") had installed a 25,000 gallon tank on the truck that separated in the course of the accident. The jury found Hoidale 55% at fault, and a judgment in the amount of $1,715,256 was entered against Hoidale.

The judgment against Hoidale exceeds its coverage under a $500,000 primary insurance policy issued to Hoidale by defendant Employers Mutual Casualty Company ("Employers"). Hoidale also had taken out an insurance policy for $1,000,000 excess coverage, which policy was issued by plaintiff Pacific Employers Insurance Company ("Pacific").

Pacific and Hoidale ("Movants")¹ jointly seek to hold Employers liable for the amount of the entire judgment against Hoidale — notwithstanding the $500,000 limit on the primary insurance policy that it issued. Movants allege that Employers is liable for the entire judgment because Employers: (1) failed to give timely notice to either Pacific or Hoidale that an excess claim had been made against Hoidale, thus depriving these parties of the opportunity to protect their exposure to excess liability; (2) failed to consider the strength of Doll's case against Hoidale; and (3) failed to conduct settlement negotiations and advise Movants of settlement offers made by Doll. Stated another way, Movants claim that Employers is liable for the entire judgment entered against Hoidale due to Employers' alleged bad faith and/or negligence in handling the claims made against its insured.

A. Summary Judgment on Factual Grounds

Both Movants and Employers claim that undisputed facts establish as a matter of law either the presence or absence, respectively, of Employers' bad faith or negligence in defending Hoidale.

Rule 56(c) of the Federal Rules of Civil Procedure directs the entry of summary judgment in favor of the party who "shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A principal purpose "of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses...." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The court's inquiry is to determine "whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Summary judgment is inappropriate if there is sufficient evidence on which a trier of fact could reasonably find for the nonmoving party. Prenalta Corp. v. Colorado Interstate Gas Co., 944 F.2d 677, 684 (10th Cir.1991).

The burden of proof at the summary judgment stage is similar to that at trial. "Entry of summary judgment is mandated, after an adequate time for discovery and upon motion, against a party who `fails to make a showing to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Aldrich Enters., Inc. v. United States, 938 F.2d 1134, 1138 (10th Cir.1991) (quoting Celotex, 477 U.S. at 322, 106 S.Ct. at 2552). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact by informing the court of the basis for its motion. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552. This burden, however, does not require the moving party to "support its motion with affidavits or other similar materials negating the opponent's claim." Id. (emphasis in original). once the moving party properly supports its motion, the nonmoving party "may not rest upon mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. at 2514; Devery Implement Co. v. J.I. Case Co., 944 F.2d 724, 726 (10th Cir.1991). The court reviews the evidence in a light most favorable to the non-moving party, e.g., Washington v. Board of Public Utilities, 939 F.2d 901, 903 (10th Cir.1991), under the substantive law and the evidentiary burden applicable to the particular claim. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513.

The court has reviewed the parties' arguments and exhibits and finds that genuine issues of material fact exist precluding a grant of summary judgment in either party's favor on the issues of bad faith or negligence.

B. Summary Judgment on Legal Grounds

Employers also contends that it is entitled to summary judgment on purely legal grounds. Employers contends that as a matter of law an excess carrier, such as Pacific, has no claim against a primary insurance carrier, such as itself, for its bad faith or negligence in failing to settle claims made against the common insured of the primary and excess carrier.

It is well-settled in Kansas that "an insurance company may become liable for an amount in excess of its policy limits if it fails to act in good faith and without negligence when defending and settling claims against its insured." Glenn v. Fleming, 247 Kan. 296, 305, 799 P.2d 79 (1990). See also Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502 (1969); Smith v. Blackwell, 14 Kan.App.2d 158, 162, 791 P.2d 1343 (1989), review denied, 246 Kan. 769 (1990).

Employers assumes, for purposes of its legal arguments, that it was negligent or acted in bad faith in handling the claim against Hoidale, but nonetheless seeks to avoid any liability to Pacific. Employers claims that its liability to Pacific is barred by the absence of any contractual privity between Employers and Pacific or, in the alternative, by the absence of any direct legal duty toward Pacific sufficient to allow Pacific to pursue an independent tort action against Employers.

It is unnecessary to discuss these arguments in detail. Even in the absence of contractual or a direct legal duty, Kansas courts have allowed bad faith claims to be asserted under subrogation principles. See, e.g., Gilley v. Farmer, 207 Kan. 536, 544, 485 P.2d 1284 (1971) (plaintiff-creditor may stand in the shoes of defendant-debtor to assert defendant's bad faith claim against his insurer); Bergeson v. Dilworth, 749 F.Supp. 1555, 1558 (D.Kan.1990). Kansas cases have recognized both "conventional" subrogation, which is grounded in contract and "legal" subrogation, which is grounded in equity and arises by operation of law.

In Insurance Co. of N. Am. v. Medical Protective Co., 768 F.2d 315, 321 (10th Cir.1985), the court applied Kansas law in holding that an excess insurance carrier had subrogation rights against a primary insurance carrier under an insurance policy providing that the excess carrier "shall be subrogated to the extent of any payment hereunder to all of insured's rights of recovery therefore." Id. at 320.² Recently, the Kansas Supreme Court expressly held "that an insured's breach of contract claim for bad faith or negligent refusal to settle may be assigned." Glenn, 247 Kan. at 314, 799 P.2d 79.

In this case, the policy issued by Pacific to Hoidale provides:

In the event of any payments under this policy, Pacific shall be subrogated to all the Insured's rights of recovery therefore against any person or organization; ....

(emphasis added). Clearly, this provision is sufficient under Kansas law to allow Pacific to assert any claims that Hoidale might have against Employers. See also Maryland Casualty Co. v. American Family Ins. Group, 199 Kan. 373, 429 P.2d 931, syl. ¶ 8 (1967) (under both conventional and equitable subrogation, excess carrier could assert claim against primary carrier who refused to pay settlement within primary policy limits).

Employers attempts to avoid subrogation by claiming that Pacific did not avail itself of the subrogation clause, but rather chose to sue Hoidale directly, alleging that Hoidale breached its obligation under the excess policy to notify Pacific of the suit. To the contrary, the record reflects that Pacific expressly relies on the subrogation clause as a basis for asserting its bad faith claim against Employers. (Plaintiff's Response, Doc. 294, at 9).

Finally, Employers claims that Pacific has alleged that Hoidale's "lack of notice was a contractual breach," and therefore that Pacific has admitted "that its insured (its...