Southern American Ins. Co. v. Hartford Acc. & Indem. Co.
| Decision Date | 12 November 1986 |
| Docket Number | No. 85,85 |
| Citation | 498 So.2d 280 |
| Parties | SOUTHERN AMERICAN INSURANCE COMPANY, v. HARTFORD ACCIDENT & INDEMNITY COMPANY. CA 1170. |
| Court | Court of Appeal of Louisiana — District of US |
C. Michael Hill and John K. Hill, Jr., Lafayette, for plaintiff-appellant.
Owen M. Goudelocke, Lafayette, for defendant-appellee.
Before EDWARDS, WATKINS and LeBLANC, JJ.
The issue on appeal is whether any duty owed by a primary insurer to an excess insurer in the settlement of claims was breached under the facts before us. Because we find that the primary insurer acted neither arbitrarily nor in bad faith, we affirm the trial court's dismissal of the excess insurer's action.
This suit arises from an automobile accident on October 22, 1979. Larry A. Fonseca was injured in the course of his employment with J. Ray McDermott Co., Inc. ("McDermott") when his automobile was struck from the rear by an automobile owned by the Sooner Pipe and Supply Corp. The parties to this suit, Hartford Casualty Insurance Co. ("Hartford") and Southern American Insurance Co. ("Southern American,") were, respectively, Sooner Pipe's primary and excess liability insurers. The liability limit of Hartford's primary policy was $250,000.00; Southern American's policy provided $5,000,000.00 in excess coverage.
After the accident, McDermott began making worker's compensation payments to its injured employee, Fonseca. Hartford, the primary insurer, learned soon after the accident that Fonseca had sustained a cervical and lumbar strain, and that the property damage was minimal. Fonseca filed suit against Hartford on January 14, 1980, and his attorney made a settlement demand of $200,000.00 in June. In October, Hartford learned that Fonseca had undergone a spinal fusion but it was unable to depose the surgeon, to determine the extent of injury, until late December.
In early January of 1981, Fonseca made a second settlement demand: the Hartford policy limit of $250,000.00, exclusive of McDermott's outstanding, but as yet unfiled, claim for worker's compensation payments. Because of information that Fonseca might have pre-existing injuries, and consequently, the need for further medical depositions, Hartford did not agree to this demand. Fonseca added the excess insurer, Southern American, as a defendant in February. On May 15, 1981, more than two months before discovery was to be completed, McDermott intervened in the lawsuit to assert its worker's compensation lien. After the extent and cause of Fonseca's injuries were evaluated, Hartford agreed to pay him the primary policy limits of $250,000.00 and Southern American agreed to pay approximately $25,600.00 (80% of the compensation lien) to McDermott. On April 6, 1982, a judgment of dismissal of all claims was entered. Southern American filed this suit on May 10, 1982, seeking reimbursement from Hartford for the amounts it paid to McDermott, and trial was held on February 6, 1985. By judgment signed on July 26, 1985 Southern American's action was dismissed.
On appeal, Southern American (the excess insurer) argues that Hartford (the primary insurer) owed it a duty to settle Fonseca's claim timely and within the primary policy limits. It is Southern American's position that Hartford acted negligently and in legal bad faith in failing to settle with Fonseca before McDermott intervened, and that it suffered damages as a result. Specifically, Southern American argues that had Hartford settled before McDermott intervened, McDermott's claim for its worker's compensation payments would have prescribed, and Southern American would have escaped liability altogether.
The initial issue, whether the primary insurer owes any settlement duty to an excess insurer, has not been directly addressed by the courts of this state.
Louisiana jurisprudence is clear that "the insurer is the champion of its insured's interests; that the interests of the insured are paramount to those of the insurer, and that the insurer may not gamble with the funds and resources of its policyholders." Cousins v. State Farm Mut. Auto. Ins. Co., 294 So.2d 272, 275 (La.App. 1st Cir.), writ refused, 296 So.2d 837 (La.1974) (emphasis added). Cousins described the duty of an insurer as follows: Id. (emphasis added). The following factors are considered in determining whether an insurer acted arbitrarily or in bad faith in failing to compromise:
(1) The probability of the insurer's liability; (2) the...
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