Rector v. Husted, 47198

• Decision Date: 02 March 1974
• Docket Number: No. 47198,47198
• Citation: 519 P.2d 634,214 Kan. 230
• Parties: Beverly J. RECTOR, Plaintiff-Appellee, v. Charles B. HUSTED, Defendant-Appellee, and St. Paul Insurance Companies, Garnishee-Appellant.
• Court: Kansas Supreme Court

Page 634

519 P.2d 634

214 Kan. 230

Beverly J. RECTOR, Plaintiff-Appellee, v. Charles B. HUSTED, Defendant-Appellee and St. Paul Insurance Companies, Garnishee-Appellant.

No. 47198.

Supreme Court of Kansas.

March 2, 1974.

Syllabus by the Court

1. In defending and settling claims against its insured, the insurer of a liability or indemnity policy owes to the insured the duty to act in good faith and without negligence; failure to do so will result in the insurer being held liable for the full amount of the insured's resulting loss, even if that amount exceeds policy limits. (Following, Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502.)

2. In this jurisdiction a liability insurer may be held liable in excess of its undertaking under the policy if it acts negligently or in bad faith when considering offers to compromise the claim against the insured for an amount within policy limits. (Following, Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502.)

3. Whether the conduct of an insurer who rejects a settlement offer within the limits of its policy is measured by the good faith test or negligence test, the real question is the degree of consideration which an insurer must give to those interests of the insured which conflict with its own. (Following, Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502.)

4. Whether an insurer in defending a claim and refusing an offer of settlement within policy limits was negligent or acted in bad faith is a question for the trier of fact in each case, and the findings of the lower court, when supported by substantial, competent evidence, will not be disturbed on appeal. (Following, Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502.)

5. In a garnishment proceeding instituted to determine the extent of an insurer's liability where a judgment rendered against its insured exceeded policy limits, the record is examined, and it is held, following Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502, that the district court did not err in finding the insurer acted negligently and in bad faith in refusing to make a reasonable attempt to settle the case within policy limits.

Myron L. Listrom, Sloan, Listrom, Eisenbarth, Sloan & Glassman, Topeka, argued the cause and was on the brief for garnishee-appellant.

James E. Benfer, Fisher & Benfer, Chartered, Topeka, argued the cause, and Charles S. Fisher, Jr., and Robert D. Ochs, Topeka, were on the brief for plaintiff-appellee, Beverly J. Rector.

SCHROEDER, Justice:

This is an appeal in a garnishment action wherein the plaintiff recovered a judgment against an insurance carrier for that portion of the plaintiff's judgment in excess of policy limits.

Beverly J. Rector (plaintiff-appellee) recovered a judgment for $12,500 against Charles B. Husted (defendant-appellee). Husted's insurer, St. Paul Insurance Companies (appellant) defended the case under the obligations of its policy. After the jury returned its verdict for plaintiff, an order of garnishment was issued against the insurer. The insurer answered that it was holding $9,624.65 for the defendant. On October 11, 1971, the plaintiff was paid $9,624.65 as partial satisfaction of the judgment against the defendant. The plaintiff took exception to the garnishee's answer and a garnishment hearing was held in the district court of Shawnee County, Kansas, on the issue of whether or not the garnishee-insurer was negligent or acted in bad faith in defending its insured under its policy. The trial court determined the garnishee-insurer had been both negligent and acted in bad faith in conducting the defense, and entered judgment against it for the entire amount of the judgment. Appeal has been duly perfected by the garnishee-insurer.

The facts giving rise to this proceeding are disclosed by depositions, exhibits and stipulations set forth in the record.

On November 14, 1968, Beverly J. Rector, a legal secretary 32 years of age, was driving to work on Fifth Street which is a one way through street. At the intersection of Fifth Street and Buchanan her automobile was struck by a vehicle driven by Charles B. Husted, who was traveling south on Buchanan. Husted had failed to stop at the designated stop sign at Fifth and Buchanan. The plaintiff's vehicle was spun half-way around, and she sustained a bump on her forehead. She got out of the car unassisted and walked across the street to telephone her place of employment. She them went back to the accident scene and remained for about 30 minutes before continuing on her way to work. She did not think she was injured except for the bump on her head, but later in the day her neck and back began hurting. She remained on the job all day.

The plaintiff has experienced pain in her lower back since the accident. Prior to the accident she never had any back trouble and had led a physically active life. As a result of her back discomfort she has curtailed many of her activities. She continues to feel pain when she performs household tasks like ironing, washing, and going up and down the stairs. When her back begins to hurt she takes pain pills, and soaks her back when that is possible.

She did not lose any wages as a result of the accident, and reported for work every day. She would try to take some time to rest in the afternoons.

On May 29, 1969, the plaintiff was in her automobile when it was struck from the rear by another vehicle. She denied being injured in this accident, and did not advise her doctors of it. In reporting the accident to the motor vehicle department she listed damage to her car as $400 and injuries as 'unknown'.

The plaintiff following her first accident consulted with two doctors concerning her condition.

Dr. Joyce, an orthopedic surgeon from Topeka, Kansas, saw the plaintiff from June 27, 1969, to July 28, 1971. Throughout this period of time the plaintiff continually complained to him of discomfort in her lower back region, though set did state on one occasion that she felt she was improving.

Dr. Joyce testified that X-rays did not reveal any injury to the lumbosacral area, but that ligamentis injuries to the lower back are difficult to see on an X-ray.

Dr. Joyce's diagnosis of the plaintiff was that she suffered a minimal permanent partial disability relative to the lower back. He explained that with a minimal type of disability a person experiences discomfort in the lower back at the end of a day in which she has done a lot of stooping or bending. The doctor used the term permanent to mean that the plaintiff will be faced with some discomfort in her back the rest of her life, not necessarily 24 hours a day, but only after doing a lot of stooping or bending.

Dr. Pusitz is a physician practicing in Topeka, Kansas, and specializing in orthopedic surgery. Dr. Pusitz examined the plaintiff on numerous occasions from November 20, 1968, until April 24, 1969. His initial examination disclosed a tenderness over her cervical spine and marked tenderness over both upper trapezii (two large muscles on each side of and extending all the way down the spine). His specific diagnosis was that the plaintiff has a sprain of the cervical spine, fibrositis of both upper trapezii with trigger points and a sacroiliac strain. In his opinion, the plaintiff's condition was the result of the November 1968, accident. His diagnosis was based on objective signs of injury rather than plaintiff's subjective complaints.

Dr. Pusitz placed the plaintiff in physiotherapy and muscle education sessions. He last examined her on April 24, 1969, and discharged her at that time with marked improvement; however, she still had certain disability which he described as permanent.

Dr. John Lynch, an orthopedic surgeon practicing in Topeka, Kansas, examined the plaintiff on April 21, 1971, at the appellant's request. He testified he could not find any objective sings of permanent disability to plaintiff's back. No abnormalities relating to the lower spine were detected by either X-rays or a neurological examination. He stated that the plaintiff had symptoms related to low back strain which in his experience was not unusual despite the absence of objective findings. He concluded plaintiff's condition was relatively minor and expected the symptoms to be resolved.

On cross-examination the doctor stated he did not mean by his testimony that the plaintiff did not suffer injury from the November, 1968, accident, and that her symptoms were consistent with injuries which could have occurred in an automobile accident. Also, it was his opinion the plaintiff was cooperative, straight forward and not malingering or overstating her claim.

The parties stipulated to the testimony of two witnesses: Myron L. Listrom, the attorney retained by the appellant to do the trial work, and Larry P. Schell, formerly a claims representative for the appellant who handled the plaintiff's claim.

The stipulation recites that if Listrom were called to testify he would have testified as follows:

'a. That he advised the Defendant during the course of the trial that Plaintiff would settle the case for $6,000.00 but that neither the Garnishee (insurer) nor Myron L. Listrom, their attorney, thought the case was worth that much. The Defendant made no response.

'b. That during the course of the trial, Myron L. Listrom discussed again with the Defendant that he, the Defendant, would be liable for any verdict in excess of $10,000.00 and the Defendant acknowledged that he was aware of this because of the letter he received from Myron L. Listrom bearing the date of September 2, 1970.

'c. (Letter dated September 2, 1970, from Listrom to Husted explaining that Listrom would represent the insurance company and Husted in the suit up to the $10,000.00 coverage, and that Husted would be personally liable for any amount exceeding $10,000.00 and suggesting Husted might want to retain counsel of his own.)

'd. (Husted's reply indicating he understood Listrom's letter and would not retain his own counsel.)

'e. That at no time...