Riske v. Truck Insurance Exchange, 73-1066.

• Citation: 490 F.2d 1079
• Decision Date: 16 January 1974
• Docket Number: No. 73-1066.,73-1066.
• Parties: Louis RISKE and Jerry Riske, Appellants. v. TRUCK INSURANCE EXCHANGE, a corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

490 F.2d 1079 (1974)

Louis RISKE and Jerry Riske, Appellants. v. TRUCK INSURANCE EXCHANGE, a corporation, Appellee.

No. 73-1066.

United States Court of Appeals, Eighth Circuit.

Submitted September 11, 1973.

Decided January 16, 1974.

Rehearing and Rehearing Denied February 6, 1974.

COPYRIGHT MATERIAL OMITTED

Kenneth M. Moran, Jamestown, N. D., for appellants.

Mart R. Vogel, Fargo, N. D., for appellee.

Before VAN OOSTERHOUT, Senior Circuit Judge, and LAY and ROSS, Circuit Judges.

Rehearing and Rehearing En Banc Denied February 6, 1974.

ROSS, Circuit Judge.

After a jury returned a verdict for Louis Riske and Jerry Riske, in the sum of $130,000, against Truck Insurance Exchange (Truck), the district court set aside the jury verdict and entered judgment for Truck. The Riskes appeal. We reverse and remand with instruction to reinstate the jury verdict and enter judgment for the Riskes in the sum of $130,000.

This case arises from a personal injury suit brought by Cynthia Ngan, an exchange student from Hong Kong, attending the University of North Dakota, against Jerry Riske and Louis Riske. Miss Ngan was injured when she was riding a snowmobile at the Riskes' farm in Minnesota. The snowmobile was an "Arctic Cat" model, manufactured by Arctic Enterprises, Inc. (Arctic). Miss Ngan was thrown from the snowmobile, and her right hand and arm became entangled in the track of the machine. The machine's back rest had broken off prior to the accident.

Miss Ngan subsequently brought suit against the Riskes and Arctic in the United States District Court for the District of North Dakota. She claimed the Riskes were negligent, and her action against Arctic was predicated on products liability, breach of warranty and strict liability. Truck defended the Riskes as required by their contract of liability insurance. Applying Minnesota law, the jury returned a verdict for Miss Ngan in the amount of $200,000. Under the comparative negligence law of Minnesota the jury found Jerry Riske to have been 45% negligent, Louis Riske 45% negligent, Miss Ngan 10% negligent, and declined to return a verdict against Arctic. Judgment was entered in Miss Ngan's favor for the sum of $180,000, and Truck paid the full policy coverage, which was $50,000.

Thereafter, the Riskes, pursuant to an agreement with Miss Ngan, brought suit against Truck alleging essentially that Truck had, in bad faith, refused to settle the lawsuit or otherwise consider the interests of the Riskes in good faith, and, secondly, that Truck had, in bad faith, negligently defended the Riskes. The jury agreed and awarded the sum of $130,000.

At the close of the plaintiffs' evidence the defendant moved for dismissal. At the close of all the evidence the defendant moved for directed verdict. The nature of the motions were that the Riskes had not shown effective offers to settle, the Riskes had not proven damages, and the Riskes had not proven bad faith. The court expressly reserved decision on the motions until after the jury returned its verdict. On December 8, 1972, the jury returned a verdict for the Riskes. On December 18, 1972, the district court granted the earlier motion for a directed verdict, set aside the jury verdict and ordered that judgment be entered in favor of Truck. The court concluded that "the evidence is not sufficient to support a finding of lack of good faith on the part of the defendant. . . ." Riske v. Truck Insurance Exchange, 351 F.Supp. 760, 766 (D.N.D.1972).

As we have noted before, the Riskes sought to recover on two theories: 1) bad faith failure to settle, and, 2) bad faith defense. Since we believe the evidence was sufficient to support the jury's verdict on the first theory, we need not reach the question of whether the evidence was sufficient to support the second.

A. Standard of Review.

In reviewing questions relating to the sufficiency of the evidence, it is clear that Minnesota law, North Dakota law, and federal law all require that this Court view the evidence and any inferences which may be reasonably drawn therefrom in the light most favorable to the nonmoving party. See, e. g., Ziegler v. National Life & Accident Insurance Co., 441 F.2d 869, 870 (8th Cir. 1971); Steel v. Downs, 438 F.2d 310, 311 (8th Cir. 1971); Hanson v. Ford Motor Co., 278 F.2d 586, 589-599 (8th Cir. 1960). See also Giordano v. Lee, 434 F.2d 1227, 1231 (8th Cir. 1970), cert. denied, 403 U.S. 931, 91 S.Ct. 2250, 29 L.Ed.2d 709 (1971). See generally, 9 C. Wright & A. Miller, Federal Practice and Procedure § 2524 at 541-547 (1971).

B. Applicable Law.

The district court in this diversity case applied Minnesota substantive law. Applying the forum state's conflict of laws rule, and characterizing the basis of this action as one in tort, 14 G. Couch, Cyclopedia of Insurance Law Second, § 51:22 at 523 (Anderson ed. 1965); Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1138 n. 5 (1954), we believe that Minnesota had the most significant contacts. Compare Issendorf v. Olson, 194 N.W.2d 750 (N.D.1972). Here the injury occurred in Minnesota, the contract of insurance related to Minnesota property, and the first lawsuit was tried under Minnesota law. Accordingly, we hold that Minnesota law applies.

C. Minnesota Law — Bad Faith Failure to Settle.

Under Minnesota law it is clear that:

A liability insurer which assumes control of the right of settlement of a claim against its insured under a policy which gives it the exclusive right to defend and settle may become liable in excess of its policy limits if it fails to exercise "good faith" in considering an offer to settle the claim within the policy limits.

Lange v. Fidelity & Casualty Co. of New York, 290 Minn. 61, 185 N.W.2d 881, 882 (1971). See also Herges v. Western Cas. & Surety Co., 408 F.2d 1157, 1161 (8th Cir. 1969); Keeton, Liability Insurance and Responsibility for Settlement, supra, 67 Harv.L.Rev. at 1136; 14 G. Couch, Cyclopedia of Insurance Law Second, supra, § 51:129 at 625-626; Anno., Duty of Liability Insurer to Settle or Compromise, 40 A.L.R.2d 168 (1955).

The Minnesota courts have defined this duty as follows:

The duty to exercise "good faith" with respect to the decision whether to accept an offer of settlement within the policy limits requires the insurer to view the situation as it would if there were no policy limits applicable to the claim, including the obligation to give equal consideration to the financial exposure of both the insured, whether solvent or insolvent, and the insurer, and the obligation to inform the insured, in the manner in which he would be advised if he consulted private counsel, in detail of the potential consequences of a deficiency judgment and of the potential conflict between the interests of the insurer and the insured.

Lange v. Fidelity & Casualty Co. of New York, supra, 185 N.W.2d at 882.

In this case, it appears, three offers to settle were made to Truck by Miss Ngan's attorney: 1) an offer for $25,000 shortly after the accident, 2) an offer for $45,000 sometime thereafter, and, 3) an offer for $25,000 during trial. For the moment, it will be assumed that the offers were viable and the question of the viability of the offers is discussed infra. In this case the Riskes proposed to prove bad faith failure to settle in three ways: 1) inadequate investigation, 2) inadequate evaluation of the claim, and, 3) inadequate consideration of the insured's interest. These devices for proving bad faith are standard analytical measures with respect to this question. See 14 G. Couch, Cyclopedia of Insurance Law Second, supra, §§ 51:10-51:18 at 514-520.

1. Inadequate Investigation.

The Riskes argued that Truck could not adequately determine whether to accept an offer to settle since it was ignorant of the extent of Miss Ngan's injury. As evidence of this contention the Riskes argue that Truck's attorney did not take the deposition of Miss Ngan's doctor. Instead Truck relied upon a medical report which indicated that the doctor had first established Miss Ngan's disability to be 25% in her right arm. At trial the doctor changed his testimony and indicated the disability could be as much as 60% in the right arm.

The Riskes called an expert witness by the name of Donald R. Hansen. Hansen, an attorney, was qualified as an expert in the field of personal injury law. It was his opinion that "good standards of practice" required that Truck's counsel depose the doctor. Truck on the other hand called two other lawyers, qualified in the personal injury field as experts, who testified that such a deposition procedure was unusual and not required.

It is undisputed that in order to evaluate the merits of an offer to settle one must be in possession of enough facts to make an accurate evaluation of the extent of injury. See, e. g., Maryland Casualty Co. v. Elmira Coal Co., 69 F.2d 616, 619 (8th Cir. 1934); 14 G. Couch, Cyclopedia of Insurance Law Second, supra, § 51:13 at 516; Anno., Duty of Liability Insurer to Settle or Compromise, supra, 40 A.L.R.2d at 208 § 13a. In this case, testimony from an expert witness indicated that the counsel for Truck should have deposed the doctor. While this evidence could be disbelieved on the basis of Truck's counter-testimony, it was at least a factor which the jury was entitled to consider.

2. Evaluation of the Claim.

Closely related to the allegation of improper investigation is the Riskes' contention that Truck evaluated Miss Ngan's claim in bad faith in that Ngan clearly had a strong case against the Riskes on both issues of liability and damages. We emphasize that:

It has frequently been recognized that the fact that the claimant had a very strong case against the insured on both these issues liability and damages has some tendency to show that the insurer\'s rejection of the offer was in bad faith.

14 G. Couch, Cyclopedia of Insurance Law Second, supra, § 51:18 at 520.

We believe the Riskes adduced...