Ranger Ins. Co. v. Travelers Indem. Co.
Citation | 389 So.2d 272 |
Decision Date | 07 October 1980 |
Docket Number | No. UU-298,UU-298 |
Parties | RANGER INSURANCE COMPANY, Appellant, v. TRAVELERS INDEMNITY COMPANY, Appellee. |
Court | Court of Appeal of Florida (US) |
E. Harper Field and Susan B. Kirkland of Field, Granger, Santry & Mitchell, Tallahassee, for appellant.
Richard T. Jones of Jones & Langdon, Gainesville, for appellee.
Ranger Insurance Company appeals the trial court's order dismissing, with prejudice, its complaint against appellee-Travelers Indemnity Company. The two insurance carriers are, respectively, the excess automobile liability insurer and the primary automobile liability insurer for the City of Tallahassee. Ranger's complaint sought to recover against Travelers based upon its contention that Travelers exercised bad faith in failing to settle a claim under Travelers' primary policy insuring the City, as a consequence of which Ranger became liable for and paid funds in settlement of the claim over and above the amount it otherwise would have been required to pay in discharge of its excess liability. The questions presented on appeal are (1) whether an excess carrier has the right, in the absence of a contract or assignment from its insured, to maintain a cause of action against the primary carrier for damages resulting from the primary carrier's bad faith refusal to settle a claim against their common insured; and (2) if such a cause of action is maintainable in Florida, whether the complaint in this instance was sufficient to state a cause of action for bad faith refusal to settle. We have determined that the excess carrier has a cause of action against the primary carrier under the doctrine of "equitable subrogation", and that although the complaint was deficient, it was error to dismiss it with prejudice. We therefore reverse the order of the trial court.
The complaint alleges that Mr. and Mrs. Raker were injured in an automobile accident with a vehicle owned by the City of Tallahassee and driven by one of its employees. Travelers provided primary liability coverage up to $100,000 for one injury. Ranger provided liability coverage for injuries in excess of $100,000. About a month before the scheduled trial of the Rakers' law suit against the City, Mrs. Raker offered to settle for $125,000, and Mr. Raker offered to settle his claim for $75,000. Travelers counter-offered the sum of $30,000 in settlement of the claims of both Mr. and Mrs. Raker.
The complaint alleges further that Travelers failed to make any effort to pursue further negotiations with the Rakers even though Ranger advised Travelers that Ranger would contribute toward a settlement over Travelers $100,000, policy limit. Upon trial of the case Mrs. Raker was awarded damages of $170,000, and Mr. Raker was awarded $37,500, with an additional $1,492.50 court costs. Travelers paid the sum of $100,000 under its policy for Mrs. Raker's damages, and the sum of $38,992.50 for Mr. Raker's damages and costs. Ranger, as it was obligated to do under its insurance policy with the City, paid the excess of $70,000 for Mrs. Raker, together with interest accrued on the judgment.
The allegations of bad faith are that Travelers failed to actively negotiate for settlement with the Rakers until approximately one week prior to trial; its offer of $30,000 for both claims was unreasonable in the light of the Rakers' demand, the liability of the City, the lack of any comparative negligence on the part of Mrs. Raker, and the severity of the damages. The complaint also alleged Travelers' wrongful refusal to accept its own attorney's settlement advice and evaluation of the value of the claims, and possible jury verdict.
Both sides represent that this case is one of first impression in Florida. No appellate court in this state, so far as we have been able to determine, has been called upon to decide whether or not an excess carrier, under the circumstances alleged here, has a cause of action against the primary carrier for alleged bad faith in its settlement or refusal to settle claims under the primary insurance policy. We find, however, that the doctrine of "equitable subrogation," or as it is sometimes referred to, "legal" subrogation-meaning subrogation by operation of law, as opposed to "conventional" subrogation, which arises under an express or implied agreement-is well established in Florida. It was explained and applied, for example, in Allstate Life Insurance Co. v. Weldon, 213 So.2d 15, 18 (Fla. 3rd DCA 1968), in which the court referred to several earlier cases. Boley v. Daniel, 72 Fla. 121, 72 So. 644 (1916), held (72 So. at 645): "Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right." The two distinct types of subrogation are explained in Goodwin v. Schmidt, 149 Fla. 85, 5 So.2d 64 (1941) at 66: "Subrogation is either legal, that is, the right arising by operation of law, or else it is conventional, in which case the right arises by reason of contract between the parties." And the court in Ulery v. Asphalt Paving, Inc., 119 So.2d 432 at 436 (Fla. 1st DCA 1960) stated:
Subrogation, a creation of equity, is founded on the proposition of doing justice without regard to form, and was designed to afford relief where one is required to pay a legal obligation which ought to have been met, either wholly or partially, by another. Trueman Fertilizer Co. v. Allison, Fla., 81 So.2d 734. The right of subrogation has been sustained in almost every conceivable type of action where the party invoking it has been required to pay a debt for which another is primarily answerable, and which in equity and good conscience the other ought to pay....
Appellant cites substantial and persuasive authority for its position that an excess insurer is entitled to maintain an action against the primary insurer under the circumstances presented here. Peters v. Travelers Insurance, 375 F.Supp. 1347 (C.D.Cal.1974); Vencill v. Continental Casualty Co., 433 F.Supp. 1371 (S.D.W.Va.1977); Home Ins. Co. v. Royal Indemnity, 327 N.Y.S.2d 745 (Sup.Ct.1972); aff'd without opinion, 332 N.Y.S.2d 1003 (App.Div.1972); Western World Ins. Co. v. Allstate Ins. Co., 150 N.J.Super. 481, 376 A.2d 177 (1977); Estate of Penn v. Amalgamated General Agencies, 148 N.J.Super. 419, 372 A.2d 1124 (1977); Offshore Logistics Services, Inc. v. Awkwright-Boston Mfgs. Mutual Ins. Co., 469 F.Supp. 1099, 1103 n.7 (E.D.La.1979); and American Fidelity & Casualty Co. v. All-American Bus Lines, 190 F.2d 234 (10th Cir. 1951) reh. denied, cert. denied 342 U.S. 851, 72 S.Ct. 79, 96 L.Ed. 642.
The rationale for finding the existence of a cause of action in behalf of the excess insurer is stated in the well reasoned opinion of the Supreme Court of Minnesota in Continental Casualty Company v. Reserve Insurance Company, 238 N.W.2d 862 (Minn.1976), at 864:
The threshold question is whether a primary insurer owes any duty to an excess insurer in the settlement negotiation process. It is clear that any liability insurer owes its insured a duty of good faith in deciding whether to accept or reject a settlement. This duty includes an obligation to view the situation as if there were no policy limits applicable to the claim, and to give equal consideration to the financial exposure of the insured. Lange v. Fidelity and Cas. Co. of New York, 290 Minn. 61, 185 N.W.2d 881 (1971). Breach of this duty by rejecting in bad faith an offer within policy limits subjects the insurer to liability to its insured in the amount of a judgment in excess of those limits. Larson v. Anchor Cas. Co., 249 Minn. 339, 82 N.W.2d 376 (1957); Boerger v. American Gen. Ins. Co., 257 Minn. 72, 100 N.W.2d 133 (1959).
We hold that an excess insurer is subrogated to the insured's rights against a primary insurer for breach of the primary insurer's good-faith duty to settle. See, Peter v. Travelers Ins. Co., 375 F.Supp. 1347 (C.D.Cal.1974). As one commentator has observed, "In the case of excess coverage, the primary insurer should be held responsible to the excess insurer for improper failure to settle, since the position of the latter is analogous to that of the insured when only one insurer is involved." R. Keeton, Insurance Law, § 7.8(d). When there is no excess insurer, the insured becomes his own excess insurer, and his single primary insurer owes him a duty of good faith in protecting him from an excess judgment and personal liability. If the insured purchases excess coverage, he in effect substitutes an excess insurer for himself. It follows that the excess insurer should assume the rights as well as the obligations of the insured in that position.
The Minnesota Supreme Court also acknowledged important policy considerations which favor the right of the excess carrier to maintain bad faith actions against the primary carrier. The first of these considerations is the public and judicial interest in fair and reasonable settlement of lawsuits. A second consideration is the avoidance of a result which would permit an unfair distribution of losses among insurers. In this respect the Minnesota Court pointed out that excess and primary policies provide two distinct types of coverage, at different rates, involving different amounts and kinds of risks. Further, that "Whether on insurance-economics principles or general equitable principles, a party should not be made to bear a loss that rightfully belongs to another party." Id. at 865.
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