Sweeten v. National Mut. Ins. Co. of D. C.

• Decision Date: 13 November 1963
• Docket Number: No. 89,89
• Parties: Howard A. SWEETEN, Adm'r, Estate of Thomas Larson, dec'd, v. NATIONAL MUTUAL INSURANCE COMPANY OF D. C.
• Court: Maryland Court of Appeals

Page 52

233 Md. 52

194 A.2d 817

Howard A. SWEETEN, Adm'r, Estate of Thomas Larson, dec'd, v. NATIONAL MUTUAL INSURANCE COMPANY OF D. C.

No. 89.

Court of Appeals of Maryland.

Nov. 13, 1963.

Robert J. Gerstung, Baltimore, for appellant.

John H. Mudd, Baltimore (Semmes, Bowen & Semmes, Baltimore, on the brief), for appellee.

Before HENDERSON, HAMMOND, HORNEY, MARBURY and SYBERT, JJ.

HENDERSON, Judge.

This appeal is from a judgment entered for the defendant after the trial court had sustained a demurrer to a second amended declaration. The declaration alleged that Thomas Larson had been sued by one Shanley for injuries sustained in an automobile accident; that in accordance with the terms of an automobile liability policy, written by the appellee covering Larson, the appellee undertook the exclusive defense of the action; that it had repeated opportunities to settle the case for a sum within the limits of the policy but negligently failed to do so; that Larson died before the case came to trial and his administrator was substituted as defendant; that the trial resulted in a judgment for Shanley against the administrator in the sum of $19,000, $9,000 in excess of the policy limit; that as a result of the appellee's negligence the administrator 'was injured and damaged in that this Estate is indebted and liable to Shanley in the amount of $9,000, Defendant having paid Shanley its maximum policy limit of $10,000.' A second count set out the same facts but relied upon allegations that the failure to settle was in bad faith rather than negligent.

The demurrer to each count was sustained on the ground that the declaration did not allege that the administrator ever paid, was able to pay, or was ever requested to pay, any part of the judgment, and that in the absence of any allegation of pecuniary damage, the declaration did not state a cause of action. At the outset it would appear that a general allegation of injury and damage might suffice. Cf. Mason v. Wrightson, 205 Md. 481, 488, 109 A.2d 128. But since no point is raised as to the technicalities of the pleading, and it appears to be conceded that the decedent's estate has no assets, and is presently unable to pay, and has no prospect of paying any part of the judgment, we are disposed to treat the case as though these facts had been developed upon motion for summary judgment.

The appellee appears to concede that the declaration sufficiently alleges a duty to settle on the part of the insurer, and a breach of that duty, both on the theory of negligence and on the theory of bad fath. We are referred to no Maryland case on the subject nor have we found one. The prevailing view appears to be that recovery should be rested on the theory of bad faith, because the insurer has the exclusive control, under the standard policy, of investigation, settlement and defense of any claim or suit against the insured, and there is a potential, if not actual, conflict of interest giving rise to a fiduciary duty. See Brown v. Guarantee Insurance Company, 155 Cal.App.2d 679, 319 P.2d 69, and a note on the case in 72 Harv.L.Rev. 568; Murray v. Mossman, 56 Wash.2d 909, 355 P.2d 985; Francis v. Newton, 75 Ga.App. 341, 43 S.E.2d 282; and cases collected in 40 A.L.R.2d 168. See also the notes in 16 Okla.L.Rev. 110; 24 Ohio State L.J. 393; 15 Ark.L.Rev. 401; [1958] Ins.L.J. 404; Keeton, Liability Insurance & Responsibilities for Settlement, 67 Harv.L.Rev. 1136. All authorities seem to agree that the liability is in tort, not in contract, although arising out of a contractual undertaking. But many courts hold that the obligation is not merely to exercise good faith but to use due care. Professor Keeton seems to think that there is no practical difference in the results, since on either theory the question is one for the jury. Many courts allow recovery on both theories, and some courts that restrict recovery to bad faith permit evidence of negligence in the proof. In view of the appellee's concession, we see no reason to choose between the two theories in the case at bar.

The appellee rests its case here on the proposition that there is no showing of damage, so long as the excess judgment is unpaid. It relies primarily upon a statement in Richardson v. Boato, 207 Md. 301, 304, 114 A.2d 49, 51, commenting upon the historical development of the various tort actions, that '[i]n the invasions of persons or property for which trespass was the remedy, injury was presumed from the violation of the absolute legal right. In the deceit and negligence cases, actual injury had to be shown to make an actionable wrong.' It is clear, however, that injury in a negligence case may consist of elements, such as pain and suffering, not susceptible of precise admeasurement, and damage claimed need not be for a liquidated amount. The holding of the case was simply that to establish injury or harm a causal connection between the negligence and the claimed harm must be shown. The question in the case at bar is whether the existence of an unpaid judgment will suffice to show injury and damage in the legal sense. On that point, the Boato case throws no light. The other Maryland case relied on, United States Fidelity & Guaranty Co. v. Williams, 148 Md....