Potomac Insurance Company v. Wilkins Company

• Decision Date: 18 April 1967
• Docket Number: No. 8659.,8659.
• Citation: 376 F.2d 425
• Parties: POTOMAC INSURANCE COMPANY, a Corporation, Appellant, v. WILKINS COMPANY, Inc., a Corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

376 F.2d 425 (1967)

POTOMAC INSURANCE COMPANY, a Corporation, Appellant, v. WILKINS COMPANY, Inc., a Corporation, Appellee.

No. 8659.

United States Court of Appeals Tenth Circuit.

April 18, 1967.

Forrest S. Blunk, of January, Gilchrist, Blunk & Johnson, Denver, Colo., for appellant.

Myron H. Burnett, of Burnett, Watson & Horan, Denver, Colo., for appellee.

Before PICKETT, LEWIS and HICKEY, Circuit Judges.

PICKETT, Circuit Judge.

On May 1, 1957, Wilkins Co., Inc., a Colorado corporation, was engaged as a general contractor in a construction project at Torrington, Wyoming. John N. Starks, then 24 years old, who was employed by a subcontractor, fell from the top of a ladder and sustained spinal injuries which rendered him a total and permanent quadraplegic. Starks brought a damage action against Wilkins Compay for $750,000, alleging that an employee of Wilkins Company negligently moved an extension cord attached to his electric drill, thereby causing him to fall from the ladder on which he was working.

At the time of the accident Wilkins Company maintained a comprehensive general liability policy with Potomac Insurance Co., a Pennsylvania corporation, with a bodily injury limit of $100,000. In accordance with the terms of this policy, Potomac undertook to defend the action.¹ Before trial an offer was made by Starks to settle for $95,000, and during trial, at the close of Starks' evidence, the amount was reduced to $85,000. Wilkins Company's privately retained attorney, William K. Ris, considered that the case could result in a verdict against Wilkins Company in an amount substantially greater than the $100,000 policy coverage, and accordingly he made continuous demand upon Potomac, both before and during the trial, that Starks' claim be settled within the policy limits. Potomac, however, after thorough investigation, insisted that there was no proof of liability on the part of its insured, Wilkins Company, and accordingly, it refused to consider any settlement in excess of $25,000, thus effectively declining all demands to settle.

In 1963, the case was tried to a jury in the United States District Court for the District of Colorado, and a verdict was returned in the amount of $300,048.38. Thereafter, the court granted a new trial, confined solely to the issue of damages. Before the new trial, however, Wilkins Company, through its attorney, and with Potomac's approval, effected a settlement with Starks in the amount of $115,000. Potomac paid its policy limit of $100,000, and Wilkins Company paid the remaining $15,000.

Wilkins Company thereupon brought this suit to recover the excess, claiming that Potomac negligently and in bad faith failed to settle Starks' claim within the $100,000 policy limit.²

Throughout these proceedings Potomac has maintained that it acted with diligence in the investigation, preparation and conduct of the trial, and that it afforded equal consideration to the interests of its insured, Wilkins Company. The trial court, sitting without a jury, found that Potomac was not negligent in its investigation of the accident or its preparation of the case for trial; that the case was properly tried; that the conclusion of Potomac's counsel as to the absence of liability on the part of Wilkins Company was arrived at honestly. As to the issue of good faith, however, the court, after commenting upon the closeness of the Starks case and the uncertainties of litigation, found as follows:

"But certainly the defendant and its counsel realized that there was always the chance that their judgment and opinion would be wrong, and that this case could result in a verdict, and if it did, they certainly were advised of the probabilities that there would be a very substantial excess judgment.

* * *

The evidence does not disclose any consideration by the company of the effect upon Wilkins and Company if they failed to accept this settlement, and all this, in view of the fact that if a judgment or a verdict was rendered in favor of the plaintiff in that Civil Action 7068, that the verdict almost had to be well in excess of the policy limits.

* * *

So the Court finds that the defendant Potomac Insurance Company did not act in good faith. * * *"

It is asserted by Potomac that the evidence is not sufficient to establish that it was guilty of bad faith in refusing to settle Starks' claim before or during trial. It is well established that the law imposes upon the insurer the duty to exercise diligence, intelligence, good faith, and honest and conscientious fidelity to the common interest of the insured as well as itself in determining whether to accept or reject an offer of settlement. While the insurer may properly give consideration to its own interest, it must in good faith give at least equal consideration to the interest of the insured, and if it fails to do so, it acts in bad faith. United States Fidelity and Guaranty Co. v. Lembke, 10 Cir., 328 F.2d 569; Moore v. United States Fidelity and Guaranty Co., 10 Cir., 325 F.2d 972; Traders & General Ins. Co. v. Rudco Oil & Gas Co., 10 Cir., 129 F.2d 621.

We are satisfied that when tested by this standard, the trial court's judgment is well supported by the evidence. It is apparent that the cause of Starks' accident was somewhat unclear and that his case against Wilkins Company was largely circumstantial. Potomac's counsel, after examining the results of Potomac's investigation of the accident, concluded that at the time Starks fell there was no one near the extension cord which was supplying electricity to his drill; he further concluded that the absence of certain safety measures amounted to strong evidence of contributory negligence on the part of Starks. It was therefore the position of Potomac that there was no evidence from which Starks could establish a prima facie case against Wilkins Company and that the suit should be settled only on a nominal basis. Wilkins Company's attorney, however, concluded that there was sufficient circumstantial evidence to indicate that Howard R. French, an employee of Wilkins Company, pulled the extension cord and caused the accident, and that the case would therefore be submitted to the jury. He accordingly transmitted his views to Potomac in writing, and demanded that the claim be settled within the policy limits. It is apparent that there was indeed considerable conflict in the evidence. French's own statements contradicted each other with respect to whether he moved the cord before or after Starks' fall. There was evidence that French was moving toward the cord immediately before Starks fell. And there were conflicting statements from other workmen as to whether Starks, upon having just fallen, indicated initially that it was no one's fault or that he was jerked off the ladder.³

It is clear that Wilkins Company, through its counsel, persisted in its demand that the suit be settled within the $100,000 policy limit. And it is equally clear that Potomac steadfastly refused to...