State Farm Mutual Automobile Insurance Co. v. Smoot

• Decision Date: 24 July 1967
• Docket Number: No. 23789.,23789.
• Citation: 381 F.2d 331
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Harvey Thomas SMOOT, Jr., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

381 F.2d 331 (1967)

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Harvey Thomas SMOOT, Jr., Appellee.

No. 23789.

United States Court of Appeals Fifth Circuit.

July 24, 1967.

Alex A. Lawrence, Robert M. Hitch, Savannah, Ga., Kirk McAlpin, Atlanta, Ga., for appellant, Bouhan, Lawrence, Williams & Levy, Savannah, Ga., of counsel.

Alton D. Kitchings, Savannah, Ga., for appellee.

Before COLEMAN and AINSWORTH, Circuit Judges, and CARSWELL, District Judge.

COLEMAN, Circuit Judge:

There is an old folk saying, the origin of which I know not, that "the third try is the charm". The legal warfare represented by this litigation had its origin nearly twelve years ago; now it is before this Court for the third time. In the most recent trial, the subject of this appeal, the plaintiff-appellee, on a jury verdict, was awarded judgment in the sum of $65,787.60. The Judgment will be affirmed.

Sergeant Smoot was the insured in a State Farm general automobile liability policy carrying limits of $10,000 as to any one person, $20,000 as to any one accident, and $5,000 property damage. On November 5, 1955, while driving on Skidaway Road, near Savannah, Georgia, Smoot collided from the rear with an automobile being driven by Mrs. Katie Mae Donaldson. He said he had been watching some children on bicycles on the shoulder of the road; his attention being thus diverted he failed to see Mrs. Donaldson stop in front of him. Thus the collision. The impact was enough to involve five vehicles and knocked one of the passengers in the Donaldson car to the floor of the vehicle.

Smoot was a member of the armed services of the United States. Three months after the accident he was assigned to duty on Guam. In the meantime, he had notified State Farm of the accident and they had taken his statement. About March 20, 1956, through Mrs. Donaldson's attorney, the Insurer received a medical report showing she had sustained a rather severe whiplash injury, causing misalignment of the fifth cervical vertebra, with a consequent narrowing of the fifth intervetebral space. She was then experiencing gradual progress toward the relief of her symptoms. Her attorney orally offered to settle the claim for $2,500. Later, a written offer was submitted to settle for $4,000. State Farm rejected these offers.

In July, 1956, the Donaldson attorney reported to State Farm a recurrence of certain symptoms in Mrs. Donaldson's condition. By September 27, 1956, the Insurer was able to have Mrs. Donaldson examined. The examination showed continued symptoms. About this time State Farm rejected an offer to settle for $5,000. Of great significance, Smoot was not informed of any of these offers and refusals.

In December, 1956, Mrs. Donaldson and her husband filed separate suits against Smoot in the City Court of Savannah. Mrs. Donaldson claimed $33,980. Her husband claimed $2,922.83. Whether there was valid service of process on Smoot was quite open to question, as he was still on Guam. Mrs. Donaldson by this time demanded $5,000 in settlement of her damages, and her husband demanded the $2,922.83 special damages claimed in his complaint.

On February 5, 1957, State Farm wrote Smoot a letter stating the company had forwarded his claim file to their attorneys and had "* * * asked that they look after the defense of the lawsuits brought against you by Katie Mae Donaldson and William M. Donaldson, husband * * *." The letter stated, "These attorneys will give the matter all necessary attention * * *," and warned Smoot of his duty to cooperate. This paragraph followed:

"Because of the fact that the amount claimed against you in these suits is in excess of the protection afforded by this policy, there may be a personal liability upon your part. In view of the possible personal liability, it will be agreeable with this company and its representatives for you, if you so elect, to procure attorneys of your own choosing, at your own expense, to represent you personally and appear in this matter, in addition to the attorneys we have selected and will compensate."

On February 11, 1957, State Farm moved for and apparently secured a stay of the Donaldsons' suits pending Smoot's return to the jurisdiction.

Smoot returned to the jurisdiction the first part of 1958, six months before City Court trial. In March, 1958, after a hearing, there was a decision against Smoot and State Farm on the question of whether the process previously obtained on Smoot was valid. Because of the failure of State Farm's attorneys to have a transcript or certificate made of the hearing, they rendered themselves unable to appeal that decision.

Just before trial on the merits, State Farm offered to settle both Donaldson cases for $5,000. The offer was refused. Mrs. Donaldson's doctors re-examined her a few days before trial. State Farm did not ascertain the results of these examinations.

At the trial, two physicians who had examined Mrs. Donaldson testified for the defense. Neither had ever seen x-rays of Mrs. Donaldson before taking the stand. Each essentially confirmed the plaintiffs' claims concerning the extent of Mrs. Donaldson's injuries, including the presence of some disc trouble, a permanent thing. State Farm knew the doctors would testify substantially as they did. In other words, State Farm knowingly adduced proof unfavorable to its assured.

While the City Court jury was considering its verdict, one of the attorneys retained by State Farm discussed with the attorney for the Donaldsons the possibility of a verdict in excess of the State Farm policy limits. There was undenied testimony below that the State Farm attorney mentioned the letter written to Smoot stating he could employ his own counsel and said that "the letter took care of it". Shortly after this conversation the jury returned verdicts against Smoot totaling $26,902.83, on which judgments and executions were entered.

The attorneys for State Farm filed a motion for a new trial, but they failed to timely file a necessary supporting brief of evidence as required by Georgia procedure. Through this omission, the motion automatically failed, Cf. Smoot v. Donaldson, 99 Ga.App. 191, 108 S.E.2d 295 (1959).

Having come to this unfortunate pass, Smoot filed suit against State Farm claiming damages equal to the excess of the Donaldson judgments over his policy limits. State Farm's petition for removal to the United States District Court on the basis of diverse citizenship was granted. The District Court then sustained what purported to be a motion to dismiss for failure to state a claim. Smoot's appeal to this Court resulted in a reversal and remand. Smoot v. State Farm Mut. Auto. Ins. Co., 5 Cir., 1962, 299 F.2d 525. That was the first trip to this Court.

We there held, 299 F.2d 525, at 531, that the allegations of the complaint "were quite sufficient to charge want of good faith in rejecting settlement offers within the policy limits and generally in the handling of the defense".

We elaborated:

"The question under the good faith doctrine is whether in the light of these developments the Insurer acted in good faith in failing to settle within the policy limits. By its very nature that question encompasses the more specific ones concerning the reasonable valuation of the case, whether, at each stage, proposed settlements were rejected consciously in terms of deliberative judgment evaluation or because of other or no reasons. The conduct under inquiry is no longer the simple one of the driver of the assured vehicle. It is now the action of the Insurer in the light of the conduct of its driver-assured, the probable medical evidence, and the like."

We next said:

"Two other somewhat peripheral matters must first be dealt with. The first is the contention that the Insurer formally notified the Assured that since the demands exceeded the policy limit, the Assured had a right, at this expense, to retain his own counsel. Just what relevance this had at this point where the matter is still in the stage of jousting on the pleadings, we are not quite sure. Obviously, this does not reduce the absolute obligation to exercise good faith (or absence of negligence as the local law specified) in the defense promised by the policy. The defense to be offered is `to defend any suit against the Insured alleging such injury * * *.\' Defense is not inexorably tied into either an actual, ultimate payment or the amount of it. American Fidelity & Casualty Co. v. Pennsylvania Threshermen, 5 Cir., 1960, 280 F.2d 453. No mention is made of claims within the policy limits. Next, the notice cannot shift to the Assured the expense of affording the defense which the policy promised him. That is what the Insured agreed, at its own expense, to supply. Finally, it is not clear what separate counsel can do. The settlement, by the policy terms is, of course, left to the Insurer. This means, of course, not at the unfettered whim of the Insurer but rather as good faith (or negligence as the local law prescribed) dictates a certain cause of action, settlement, trial, or the like. But apart from the Insurer\'s obligation to use the proper care (good faith or prudence as the case might be), little leeway is afforded to the so-called `independent\' counsel acting for the Assured\'s excess interests. What is he to do? If he settles, or encourages settlement by direct contact with the damage suit plaintiffs or the plaintiff\'s counsel, he invites a serious challenge that the Assured has declined to cooperate with the Insurer whose counsel is opposed to the idea of settlement. Or worse, he is exposed to the charge that he has connived with the enemy. If his purpose is merely to demand in legalistic terms that the Insurer settle the case, it amounts to no more than what the Assured could do after the event with the result being determined, not by the fact a demand was made, but by the absence or presence of requisite good or bad faith, prudence or imprudence, as the

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