Thomas v. Western World Ins. Co.

• Decision Date: 23 March 1977
• Docket Number: No. 76--197,76--197
• Parties: Willie THOMAS and Annie Thomas, his wife, d/b/a Bon's Laundry # I, Appellants, v. WESTERN WORLD INSURANCE COMPANY, a Florida Corporation, Appellee.
• Court: Florida District Court of Appeals

Page 1298

343 So.2d 1298

Willie THOMAS and Annie Thomas, his wife, d/b/a Bon's Laundry # I, Appellants, v. WESTERN WORLD INSURANCE COMPANY, a Florida Corporation, Appellee.

No. 76--197.

District Court of Appeal of Florida, Second District.

March 23, 1977.

Rehearing Denied April 21, 1977.

Richard A. Zacur and Richard Mensh, of Mensh & Mensh, St. Petersburg, for appellants.

Donald M. Spangler, of Marlow, Mitzel, Ortmayer & Shofi, Tampa, for appellee.

PER CURIAM.

The issue in this appeal is whether appellants who are insureds are entitled to seek recovery against their liability carrier for an amount in excess of the policy limits where their insurance carrier has wrongfully refused to defend a negligence action against them. The trial court answered the question in the negative and entered summary judgment in favor of the appellee insurer. We reverse.

It is undisputed that at the time material herein, appellants Willie and Annie Thomas owned and were doing business as Bon's Laundry #1. The liability for personal injuries was insured by appellee Western World Insurance Company for a limit of $5,000 for a single injury. In September 1973, one Michael Hancock was injured on appellants' business premises when appellants' agent, Kenney, who was in sole charge of their premises, allegedly threw acid on him. Hancock filed suit against the Thomases on November 26, 1973, and process was served on appellants on November 27, 1973.

Three days after being served with process, appellant Willie Thomas went to the carrier's local agent to make a loss report which the agent reduced to writing saying, in material part, 'Kids banging on doors using abusive language. Said they were going to break in and take money. Kenny chased them out and threw sulphuria acid on one kid. Kenny said the same boys had been there before bugging him.' The written report was thereupon, that same day, forwarded to the appellee carrier's home office together with--and this is significant--a copy of the summons and complaint filed in the case of Hancock v. Thomas, et al.

The significance of the forwarding to the carrier of Hancock's pleading is that Hancock's suit sounded in simple negligence, and no punitive damages were sought. Nevertheless, though chargeable with notice of this fact, the carrier's vice president of claims sent the Thomases a letter by certified mail on December 13, 1973, notifying them that the policy 'does not cover the occurrence' and 'that this policy excludes claims arising out of assault and battery.' This notice was delivered on December 17, 1973, the twentieth day following service of the complaint upon appellants and the day on or before which appellants were required to respond to Hancock's complaint against them.

Counsel for both parties have stipulated that the carrier never investigated the claim (beyond taking the aforesaid loss report); that it never attempted to settle Hancock's claim within policy limits (nor does it appear that an offer to so settle the claim was ever made on behalf of Hacock); that default was entered against the Thomases in the Hancock suit on January 18, 1974; and that on July 11, 1974, a final judgment was entered in favor of Hancock and against the Thomases in the sum of $18,459.73. It is further stipulated that after making the aforesaid loss report the Thomases had no further communications or contacts with the carrier or its agents regarding this matter prior to the instant suit, which was filed on January 14, 1975.

In this suit the Thomases seek the full amount of the judgment against them in favor of Hancock alleging that the carrier had wrongfully refused to defend. While the carrier answered denying liability, it nevertheless thereafter conceded its wrongful refusal to defend and filed an offer of judment in the sum of $5,000, representing its policy limits. On April 23, 1975, it paid the $5,000 policy limits to Hancock pursuant to a garnishment order in Hancock's case. The carrier then moved for summary judgment in the instant case and, on January 23, 1976, the motion was granted and a final summary judgment was entered, the trial court finding in pertinent part:

'The contract sued upon clearly excluded assault and battery and suits arising from the infliction of intentional torts. The stipulated facts proved that the defendant's decision to deny coverage and refuse to defend the matter of Hancock v. Thomas was made with no more information available other than the aforementioned loss report alleging the infliction of intentional acts, and the summons and complaint, which alleged negligence.

'While the court recognizes that the decision to deny coverage and refuse to defend was an error in judgment on the part of the defendant, in view of the allegations of the complaint setting forth a cause of action in negligence, it does not appear to this court as wantonly, maliciously, unethically, or in 'bad faith' and that there is no genuine issue of material fact upon these questions . . ..'

In support of the trial court's judgment, appellee makes two related arguments. First, it argues that a settlement offer by the injured party in the earlier lawsuit is a prerequisite to the insured's obtaining any judgment against the insurance company in excess of the policy limits. Second, it says that bad faith is another prerequisite to any excess judgment, and here there is no substantial evidence on which a jury could find bad faith.

Support for appellee's arguments may be found in Seward v. State Farm Mutual Ins. Co., 392 F.2d 723 (5th Cir. 1968), a diversity case arising in Florida. That case, relying primarily on American Fidelity and Fire Insurance Co. v. Johnson, 177 So.2d 679 (Fla.1st DCA 1965), made the following statements:

'This Court has summed up the Florida law: 'As we construe the law of Florida, absent conduct amounting to 'bad faith' or negligence 'to the extent of bad faith', the policy limits govern insurer's liability for failure to defend.' Hendry v. Grange Mutual Casualty Co., 5 Cir. 1967, 372 F.2d 222. See also Burton v. State Farm Mutual Automobile Insurance Co., 5 Cir. 1964, 335 F.2d 317.

'Loose generalizations may be found in secondary sources which state or imply that an insurer is held to strict liability for 'any damages' sustained as a result of the breach of contract for failure to defend. An examination of the cases, however, discloses that when an insurer is held liable for the excess over the policy, invariably there was offer to settle the initial claim. And invariasbly the insurer was either guilty of bad faith in refusing to accept a reasonable settlement within the policy limits or guilty of conduct tantamount to bad faith.

'. . ..

'We read American Fidelity as holding that in the determination whether an insurer's conduct amounts to bad faith in a suit for the excess judgment, an offer of settlement is a necessary element. . . .'

We cannot agree with the Seward case and accordingly we reverse the judgment of the trial court.

I. Settlement offer as prerequisite

In American Fidelity, after the carrier had denied coverage, the insured employed his own counsel to defend against a suit filed by a third-party claimant. In the course of the litigation, the claimants offered to settle within the policy limits of American Fidelity's policy. The insured lacked sufficient funds to settle and since American Fidelity had denied coverage, the offer was neither accepted by the insured nor communicated by him or his counsel to American Fidelity. Judgment in excess of the policy limits was thereafter entered and the insured sought to recover the full amount of the judgment. After affirming a finding that the carrier wrongfully refused to defend, the First District Court of Appeal sustained a judgment against the carrier for the full amount of the insured's liability established in the prior suit. Patently, the court went no further than to equate an uncommunicated offer of settlement with a communicated one so as to place American Fidelity within the general rule that a settlement offer supports an excess judgment against the insurer. It did not hold expressly that a settlement offer was essential to excess liability. We do not think the case impliedly held such an offer essential.

The observation by the Fifth Circuit in Seward that settlement offers seem invariably to appear in 'excess over' cases may well be true as far as it goes, but does not necessarily support the ultimate conclusion made by that court that a settlement offer is a 'necessary element.' Unfortunately, it appears Seward may have influenced subsequent Florida cases which apparently recognize the possibility of such a rule. ¹ We don't. In any case, at the very least we think it clear that American Fidelity does not stand for such a rule.

We think the issue of whether a settlement offer is a prerequisite for an excess judgment is clarified in Communale v. Traders & General Insurance Co., 50 Cal.2d 654, 328 P.2d 198 (Cal.1958), a case which is quoted extensively in both Seward and American Fidelity. That case states the following general principle:

'There is an important difference between the liability of an insurer who performs its obligations and that of an insurer who breaches its contract. The policy limits restrict only the amount the insurer may have to pay in the performance of the contract as compensation to a third person for personal injuries caused by the insured; they do not restrict the damages recoverable by the insured for a breach of contract by the insurer.'

Then the case points out that if the insured has employed competent counsel to represent him, there is no ground for concluding that the judgment would have been for a lesser sum had the defense been conducted by the insurer's counsel. In that situation the liability of the insurer for failure to defend is limited to the amount of the policy plus attorney's fees and costs. Finally, the case says this...