Parich v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 19 October 1990
• Docket Number: No. 89-4636,89-4636
• Citation: 919 F.2d 906
• Parties: Sam PARICH, Wesley Parich and Aimee V. Parich, Plaintiffs-Appellees Cross-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., Defendant-Appellant Cross-Appellee, and John Judice and Audrey Judice, Intervenors-Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 906

919 F.2d 906

Sam PARICH, Wesley Parich and Aimee V. Parich, Plaintiffs-Appellees Cross-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., Defendant-Appellant Cross-Appellee, and John Judice and Audrey Judice, Intervenors-Cross-Appellees.

No. 89-4636.

United States Court of Appeals, Fifth Circuit.

Oct. 19, 1990.

Howard W. Martin and Paul D. Escott, Martin, Taulbee, Bowe, Bares & Oliver, Lafayette, La., for State Farm.

Edmond L. Guidry, III, Guidry & Guidry, Martinville, La., for Parich et al.

Carolyn Ingraham-Dietzen, Lafayette, for intervenor-Judice.

Appeals from the United States District Court for the Western District of Louisiana.

Before GARZA, GARWOOD and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

In this diversity case, State Farm appeals a judgment based on a finding that it negligently failed to settle an auto-accident suit against an insured. State Farm soon realized that the victim's medical expenses would exceed the insured's $25,000 policy limits, but could not reach a settlement with the victim. The case went to trial, and the jury rendered a verdict against the insured for almost $400,000. As part of a subsequent compromise agreement, the insured agreed to pay the victim $15,000 and to assign him its right to sue State Farm for negligent failure to settle, in return for release from liability on the judgment. The victim and the insured then sued State Farm.

After a bench trial on the issue of negligent failure to settle, the district court found that State Farm had negligently failed to settle the case and awarded judgment against State Farm. In doing so, however, the district court held the post-judgment settlement between the insured and the victim had not been a valid compromise of their dispute. The insured had thus retained its right of action against State Farm. The district court entered judgment in the insured's name, but ordered it paid to the victim, who intervened in the action. For the reasons set forth below, we reverse.

I

On May 31, 1982, Wesley Parich, son of Sam and Aimee Parich, had an automobile accident involving John Judice in New Iberia, Louisiana. Judice suffered extensive injuries to his legs, hip, and head. State Farm Mutual Automobile Insurance Company had issued a liability policy covering the Parich family and the car Wesley was driving. The policy provided bodily injury liability limits of $25,000 per person.

On March 24, 1983, the Judices sued the Pariches and State Farm in state court. On April 22, they added the city of New Iberia and its insurance company as defendants. On July 8, Alex Lopresto, the attorney for State Farm, offered to pay the policy limits, $25,000, plus $10,000 from the Pariches to settle the case. Cecilia Bonin, attorney for the Judices, rejected the offer and countered with a request that State Farm unconditionally tender $25,000. State Farm refused.

On September 6, 1984, Bonin offered to settle the case for State Farm's policy limits, costs, and interest plus $25,000 from the Pariches. State Farm counter-offered on September 12, with a proposal to settle for $24,000 (the balance of its policy limits, as $1,000 had already been advanced to the Judices for medical expenses), court costs, and $12,000 from the Pariches. Bonin rejected this counter-offer.

A year-and-a-half later, as trial was approaching, the parties exchanged new offers and counter-offers. On March 13, 1986, Bonin offered to settle with State Farm for $310,000; Lopresto refused. Meanwhile, Bonin was also discussing a settlement with the city of New Iberia. These negotiations were more successful. On the morning of March 21, Bonin and the Judices met with an attorney for the city. State Farm was not represented at this meeting. The Judices agreed to settle their claims against the city for $157,000.

Bonin then immediately telephoned Lopresto and offered to settle the case against State Farm for the balance of its policy limits ($24,000), interest, court costs and $12,000 from the Pariches. This was exactly the offer that State Farm had made in September of 1984, except that it included a request for interest on State Farm's portion of the settlement. Lopresto explained that he would need authority from a State Farm Claim Adjuster to agree to pay interest, and called Clyde Landreth, a Claims Supervisor. Landreth told him that State Farm had a company policy of not paying interest on settlements unless there was a judgment in force.

Lopresto called Bonin back and explained that State Farm would not pay interest. He then stated that because they were so close to a settlement (the interest was then roughly $8,000), he would contact the Pariches to see if they could make up the difference. Bonin indicated this was not acceptable, because the additional money had to come from State Farm, and withdrew her offer. Depending upon the testimony of Bonin, Lopresto or Landreth, this entire round of phone calls occurred within the space of fifteen minutes to two hours. On March 24, Bonin formally withdrew the March 21 offer in a letter to Lopresto, and restated her earlier offer of $310,000. A week later, on April 1, Lopresto offered to settle the case for $24,000 from State Farm with interest, plus $15,000 from the Pariches. Bonin rejected this offer on April 7.

The case was tried April 14-16. The jury assigned ninety percent of the fault to the Pariches and State Farm, and ten percent to the city of New Iberia. State Farm paid its policy limits of $24,000, plus interest, leaving a balance due from the Pariches of $355,700 together with interest from March 24, 1983.

In early May, the Judices and the Pariches began further negotiations. Everyone realized that the Pariches could not pay the judgment. The parties considered State Farm's potential liability to the Pariches for its handling of the case. On May 7, Lynn DeRouen, attorney for the Pariches, wrote the Judices confirming a telephone conversation in which the Pariches agreed to pay the Judices $15,000, to assign any rights they might have against State Farm to the Judices, and to assist in a suit against State Farm for negligent failure to settle, in exchange for full release from liability. By copy of that letter, DeRouen informed Bonin that the Pariches were willing to assign their rights to the Judices and requested that she draft the necessary documents. On May 12, Bonin wrote DeRouen, acknowledging receipt of his letter and stating that she was preparing the paperwork. On July 17, Sam Parich paid Bonin $15,000 and obtained a receipt.

Attorneys for the Pariches and Judices apparently discussed different ways of substituting the Judices for the Pariches in a suit against State Farm, including a transfer of litigious rights and an intervention by the Judices in a suit filed by the Pariches. Pursuant to these discussions, Edmond L. Guidry, III, attorney for the Pariches in this case, sent DeRouen two documents: a petition for damages against State Farm on behalf of the Pariches and an assignment of the Pariches' rights against State Farm to the Judices. According to Guidry's instructions, the assignment was to be executed in "authentic form" (before a notary and two witnesses) after State Farm filed an answer in the proposed suit. Guidry asked DeRouen to review the petition and assignment with the Pariches, to have them sign the verification on the petition, and to return the original petition for filing.

The assignment provided:

PERSONALLY CAME AND APPEARED: WESLEY PARICH, ... and SAM and AMY [sic] V. PARICH, ... who declared that in consideration of their release from that certain Judgment rendered against them in favor of John Glenn Judice and Audry [sic] Judice in the matter entitled "John Glenn Judice and Audry [sic] Judice v. Wesley Parich, Amy [sic] Parich, Sam Parich, State Farm Insurance and City of New Iberia," 16th Judicial District Court, Parish of Iberia, State of Louisiana, Civil Action No. 52363, said Judgment having been signed by Judge Edward A. delaHoussaye on April 22, 1986, said assignors have sold, assigned, transferred, set over and delivered and by these presents does, sell, assign, transfer, set over and deliver onto John Glenn Judice and Audry [sic] Judice, their successors and assigns, to their own proper use and benefit forever, any and all sum or sums now due or owing said assignor, and all claims, demands and cause or causes of action of whatever kind and nature which said assignor had or now has or may have against State Farm Insurance Company, arising out of State Farm Insurance Company's failure to properly defend and/or settle the claims against them in the aforementioned matter, ...

It also stipulated that the Pariches would assist the Judices in any action against State Farm. It did not mention the $15,000 payment.

On January 16, 1987, the Pariches executed the assignment. DeRouen himself notarized it, although the Pariches actually signed the document out of his presence. He then returned the completed assignment and the petition to Guidry. When the assignment was returned, no action had yet been filed against State Farm. Ten days later, on January 26, 1987, the Pariches brought this action in Louisiana state court against State Farm for negligent failure to settle. State Farm removed the case to federal court, and the Judices were permitted to intervene.

After a two-day bench trial, the court found that State Farm was negligent in failing to settle the Judices' claim against the Pariches for the policy limits, plus interest and $12,000 from the Pariches. The court further held that the post-judgment agreement between the Pariches and the Judices constituted neither a valid compromise nor a valid assignment of litigious rights. The compromise was not valid under La.Civ.Code art. 3071, both because there was no mutual consent to adjust differences and because performance of the agreement was not executed in the agreed upon manner (i.e., before a...