Vencill v. Continental Casualty Co.

• Decision Date: 20 June 1977
• Docket Number: Civ. A. No. 73-41-BL.
• Citation: 433 F. Supp. 1371
• Court: U.S. District Court — Southern District of West Virginia
• Parties: Herbert Cecil VENCILL, Juanita Sue Ellison and Melva S. Workman, Plaintiffs, v. CONTINENTAL CASUALTY COMPANY, a corporation, Defendant and Cross-Claimant. INSURANCE COMPANY OF NORTH AMERICA, a corporation, Defendant and Third-Party Plaintiff, v. George F. JAMES, Third-Party Defendant.

433 F. Supp. 1371

Herbert Cecil VENCILL, Juanita Sue Ellison and Melva S. Workman, Plaintiffs, v. CONTINENTAL CASUALTY COMPANY, a corporation, Defendant and Cross-Claimant.

INSURANCE COMPANY OF NORTH AMERICA, a corporation, Defendant and Third-Party Plaintiff, v. George F. JAMES, Third-Party Defendant.

Civ. A. No. 73-41-BL.

United States District Court, S. D. West Virginia, Bluefield Division.

June 20, 1977.

Harold D. Brewster, Jr., Sidney J. Kwass, Bluefield, W. Va., for plaintiffs.

Robert M. Richardson, Charles W. Davies, Bluefield, W. Va., for Insurance Company of North America; Edward W. Eardley, Charleston, W. Va., for Continental Casualty Company; Jerry J. Cameron, and Kenneth E. Trabue, Roanoke, Va., for George F. James.

MEMORANDUM OPINION

DENNIS R. KNAPP, Chief Judge.

FINDINGS OF FACT

In March, 1971, Herbert Vencill was notified by Employers of Wausau Insurance Company (hereinafter referred to as "Employers") that it would not renew the liability insurance contract it had with Vencill covering a fleet of vehicles used in connection with Vencill's contract carrier business in Virginia. Employers agent, Paul Cochran, told Vencill, however, that he would assist Vencill in obtaining new coverage. Cochran contacted George F. James, an independent insurance agent in Wytheville, Virginia, and asked if James could write the coverage. Cochran told James that Vencill needed coverage in at least the sum of $100,000 for each person up to the sum of $300,000 for each accident along with $50,000 for property damage. This coverage was a prerequisite to Vencill's being awarded a contract by Pounding Mill Quarries to haul stone.

After being unsuccessful in obtaining insurance for Vencill directly with any insurance company, James, on behalf of Vencill, made application to the Virginia Automobile Insurance Plan for the placing of Vencill's application with an insurance company under the assigned risk provisions of the Plan. Thereafter, James received notice from the State that the application had been assigned to Insurance Company of North America (hereinafter referred to as "INA"). INA subsequently sent the policy of insurance, naming Vencill as the named insured, to James. Under the basic insuring agreement, the policy (NAR 07 71 34) afforded coverage in the amount of $20,000 each person, $30,000 each accident, and $5,000 property damage (20/30/5). However, an endorsement was attached to the policy which stated, in pertinent part:

"In consideration of the additional premium it is hereby understood and agreed that the limits of liability are amended to read:

(1) $25,000 each person, $50,000 each accident Bodily Injury Liability and $10,000 each accident Property Damage Liability with respects to an accident arising out of the ownership, maintenance or use of the following vehicles while used as Common Carrier within the limits of Va. . . ."

By telegram dated April 23, 1971, INA notified the State Corporation Commission:

"THIS WILL CONFIRM THAT WE HAVE COVERED EFFECTIVE 4/21/71 UNDER POL. # NAR077134 FOR USE AS A COMMON CARRIER THE FLWG. ASSIGNED RISK: HERBERT CECIL VENCILL P. O. BOX 94 RIPPLEMEAD, VA. LIMITS OF COVERAGE ARE 25/50,000 B1 and 10,000 PD. AN MC11 FILING IS BEING ISSUED BY OUR OFFICE. 026 SUSAN GORMAN INS CO OF NORTH AMERICA."

The MC-11 issued¹ and countersigned by an authorized agent of INA showed that INA insured Vencill under Policy No. NAR 01 71 34, "which policy, by this endorsement, is amended" to provide coverage in at least the amounts of 25/50/1. Emphasis supplied. Nowhere in the certificate endorsement is there contained any territorial-limiting provision.

At any rate, James, believing that Vencill's limits of liability were 25/50/10, secured on behalf of Vencill excess coverage under a policy issued by Continental Casualty Company (hereinafter referred to as "CNA") through Atlas Underwriters Ltd. of Richmond, Virginia. An Excess Limits Policy, being Policy No. 807 06 39, insuring Vencill in the amount of $75,000/$250,000/$40,000 was issued by CNA. However, this coverage would be effective only after the limits of the underlying INA policy of 25/50/10 were exhausted. At this point, James and Vencill both thought that Vencill had $100,000/$300,000/$50,000 coverage.

Thereafter, on May 27, 1971, in Mercer County, West Virginia, a collision occurred between a truck owned by Vencill and being driven by Arthur Alley, an employee of Vencill, and an automobile driven by Melva S. Workman in which Juanita Sue Ellison was riding as a passenger. As a result of the collision, Workman and Ellison received serious personal injuries.

Both INA and CNA were notified of the accident; whereupon INA assigned to Don Lilly of John Roane, Inc., the task of adjusting the claims. Early on, and by all accounts, it was apparent that the accident was caused by the negligence of Alley,² and that therefore vicarious liability would be imposed on Vencill.

In the early part of the summer, 1971, both Workman and Ellison retained the services of Sidney Kwass, an attorney practicing in Bluefield, West Virginia, to represent their interests regarding their respective claims for injuries and damages.

On August 16, 1971, William Long, the claims resident representative for INA in Charleston, West Virginia, received word from INA's underwriting office that coverage was in the amount of 20/30/5. As early as September 8, 1971, there was realization on the part of INA that the claims of the two women might exceed the policy limits. In a letter to Lilly on that date, Long stated that ". . . there is a possibility the claim may exceed our limits."

On December 29, 1971, an INA inter-office memo regarding this claim was sent from Charleston to Pittsburgh which ominously stated:

"Have we placed the insured on notice of the potential excess exposure? Do you believe we should offer the policy limit in hopes to settle? As I recall this case involved serious injuries and the reduced limits could make the full policy exposure. We do not want to get into a `bad-faith' situation here."

In a letter to Lilly dated February 10, 1972, Kwass enclosed various medical reports concerning Mrs. Workman and on her behalf demanded the sum of $17,500 in settlement of her claim. Lilly told Long of this development; whereupon Long wrote to Lilly on February 18, 1972, stating that he believed the Workman demand to be excessive and that he would rather negotiate both claims at the same time. However, Long further stated that "it does appear that Mrs. Ellison has severe injuries and her claim could well run in excess of $20,000 limit per person."

In a February 29, 1972 letter to Long, Lilly outlined what had occurred at a meeting he had had with Kwass concerning settlement of the claims. At that meeting Lilly told Kwass that the INA policy limits were 20/30. Kwass was doubtful of this due to his knowing about the Virginia law on carriers being required to have minimum coverage of 25/50.³ Lilly told Kwass that that was true but the 25/50 endorsement only applied to an accident occurring in Virginia. At any rate, Kwass asked to see the policy. Lilly advised Long that "some discussion should be made along the lines of attempting to conclude the loss⁴ based on our policy limits." Emphasis supplied. Lilly then concluded the correspondence by stating that Kwass had "indicated that it might be possible just to settle both cases for the policy limits." Emphasis supplied.

Long replied on March 3, 1972, stating that he "certainly was not going to furnish Mr. Kwass a copy of our policy" nor was he giving Kwass any written confirmation of the limits. Long then informed Lilly that Vencill had "excess coverage and the excess carrier is on notice. Therefore, we do not have to be concerned with a bad faith situation."

Long concluded by stating ". . . when the time comes, I feel we should try to negotiate some savings on our limits."⁵ Emphasis supplied.

On March 9, 1972, Lilly again wrote Long advising him that Kwass had said that INA would "have to give him written disclosure of our policy limits and conditions and then he will accept the policy limits and settlement of both cases. . . ." Long replied to Lilly:

"I suggest you advise Mr. Kwass that we will verify our policy limits at the time of settlement. He can therefore make any settlement contingent upon the verification of our limits. That is, when settlement is agreed upon we will furnish Mr. Kwass a letter setting forth our limits.⁶

"In your discussions with Mr. Kwass please do not make any commitment to settle for the policy limit. Simply inform him that we will need full medical and specials on the claim of Mrs. Ellison before we can evaluate her injury for settlement purposes."

Kwass thereafter instituted two civil actions in the Circuit Court of Mercer County, West Virginia, on behalf of Ellison and Workman. INA retained the services of Joseph M. Sanders, Jr., of Bluefield to represent its interests in these actions. In addition, INA notified both Vencill and Alley that the plaintiffs were demanding amounts over and above the INA coverage and that they could obtain additional counsel to represent their interests, if they so desired. Each declined to do so. CNA was also advised of the institution of these actions.

When Long on May 17, 1972 forwarded the INA file to Sanders, he stated in his covering letter:

"In reviewing our file, you will note this is a case of clear liability and the only question is one of value. . . ."

Long was transferred to Pittsburgh the following September. At no time during his handling of the claim had INA offered any sum to Kwass in settlement of either claim.

Gerald Laukus became the new resident representative for INA in Charleston. In his November 28, 1972 letter to Laukus, Sanders stated:

"It is my opinion that, if necessary, we should offer Mrs. Ellison the full $20,000 coverage. While she is making a good recovery she still has bad injuries; this is a clear

...