Wade v. Emcasco Ins. Co.

• Decision Date: 10 April 2007
• Docket Number: No. 05-3044.,No. 05-3054.,05-3044.,05-3054.
• Citation: 483 F.3d 657
• Parties: Jerry L. WADE, II and Ninh Nguyen, Plaintiffs-Appellants, v. EMCASCO INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

483 F.3d 657

Jerry L. WADE, II and Ninh Nguyen, Plaintiffs-Appellants, v. EMCASCO INSURANCE COMPANY, Defendant-Appellee.

No. 05-3044.

No. 05-3054.

United States Court of Appeals, Tenth Circuit.

April 10, 2007.

Patrick B. Hughes of Adams & Jones, Chartered, Wichita, Kansas (N. Russell Hazlewood of Graybill & Hazlewood L.L.C., Wichita, Kansas with him on the briefs) for Plaintiff-Appellant Ninh Nguyen.

William J. Graybill of Graybill, Witcher & Ambrosier, Elkhart, Kansas for Plaintiff-Appellant Jerry L. Wade, II.

Stephen E. Robison (Lyndon W. Vix with him on the brief) of Fleeson, Gooing, Coulson & Kitch, L.L.C., Wichita, Kansas for Defendant-Appellee EMCASCO Insurance Company.

Before MURPHY, EBEL, and McCONNELL, Circuit Judges.

McCONNELL, Circuit Judge.

It is well settled in Kansas that an insurance company owes to its insured a duty to act in good faith and without negligence in the settlement of third-party claims. When an insurer negligently or in bad faith declines a settlement offer within the policy limits, takes the case to trial, and a verdict is rendered against the insured in excess of policy limits, the insurer is liable to the insured for the excess judgment. See Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502, 508 (1969). This case involves the application of this principle to an insurer's delay in acceptance of a settlement offer, and arises under what we trust is an unusual set of undisputed facts: the plaintiff in a tort suit against the insured demanded a policy-limits settlement shortly after an automobile accident where liability and causation were vigorously disputed, offered but did not provide relevant medical records, withdrew the settlement offer before giving the insurance company the medical records or providing medical releases, and then rejected the insurance company's policy-limits settlement offer— tendered the day after the insurance company received the medical records—solely because the plaintiff hoped to recover a much larger award on a bad-faith claim. We hold that the district court was correct to grant summary judgment in favor of the insurer on such a claim, both as to the insured and as to the tort plaintiff, to whom the insured assigned his rights against the insurer.

I. Background

Because this case arises on summary judgment, we must resolve all factual disputes and draw all reasonable inferences in favor of the nonmoving party. Roberts v. Printup, 422 F.3d 1211, 1214 (10th Cir. 2005). The following facts are undisputed.

This case arose from a tragic automobile accident in which a vehicle driven by Jerry L. Wade, II, collided with a minivan driven by Loan Vu, in which her husband, Ninh Nguyen, was a passenger. The accident occurred on February 23, 2001, at a four-lane intersection controlled by a traffic signal. Ms. Vu was proceeding northbound through the intersection and Mr. Wade was heading eastbound. One driver must have failed to stop at a red light. Ms. Vu maintained that she did not stop at the intersection because she had a green light. She could not say, however, whether there was traffic coming in the opposite direction because she does "not pay attention to the other direction of the street." Vu Dep. 64-65, App. 607. Mr. Wade claimed that he was stopped at a red light and proceeded through the intersection only after the light turned green. Witnesses to the accident also disagreed as to who had the green light. Susan Schrag reported that Mr. Wade entered the intersection against a red light, but Sheldon (Seth) Turner, a friend and co-worker of Mr. Wade who happened to be in a nearby car, claimed that Mr. Wade entered the intersection on a green light. Because the cause of the accident was contested, neither party received a citation.

After the accident, Mr. Wade, Ms. Vu, and Mr. Nguyen were taken to Wesley Medical Center. Ms. Vu and Mr. Wade were treated for relatively minor injuries. Mr. Nguyen was hospitalized for two weeks before being transferred to Wesley Rehabilitation Hospital, where he remained an additional five weeks. Mr. Nguyen suffered a spinal cord injury rendering him tetraplegic or quadriplegic.¹

Shortly after the accident, Mr. Wade filed a claim under his EMCASCO insurance policy for medical treatment and damage to his car. His policy provided a total of $100,000 coverage for all claimants in an accident. Mr. Wade was placed in contact with Russ Shreves, an EMCASCO adjuster. He completed a claim form in which he stated that he had a green light and the minivan ran the red light.

Less than a week after the accident, while Mr. Nguyen was still in Wesley Hospital, Ms. Vu retained Gary Patterson to represent Mr. Nguyen. On March 13, 2001, Mr. Patterson sent Mr. Shreves a letter in which he advised Mr. Shreves that he represented Mr. Nguyen and that Mr. Nguyen had suffered a spinal cord injury and may be permanently injured, opined that Mr. Nguyen's damages would exceed one million dollars, and inquired as to the limits of Mr. Wade's insurance policy. Mr. Patterson followed up his letter with a phone call to Mr. Shreves. Mr. Shreves assigned the investigation to an outside adjuster, Kyle Buck.

As part of his investigation, Mr. Buck was instructed to gather statements from the insured and witnesses. He interviewed Mr. Wade and Mr. Turner. During his interview, Mr. Wade explained that while he was at the hospital, he asked a hospital chaplain about the condition of the minivan's occupants and that the chaplain informed him that they were okay and would be released. This gave rise to suspicion that Mr. Nguyen's quadriplegic condition was not attributable to the accident. Mr. Buck also attempted, unsuccessfully, to obtain a statement from Ms. Schrag. He called Ms. Schrag eleven times between April 4, 2001, and June 29, 2001, and left seven messages for her. Although she returned one of his phone calls when he was out of the office, the two did not connect.

Meanwhile, Mr. Patterson obtained an authorization for release of medical information from Mr. Nguyen on March 29, 2001. On April 6, 2001, Mr. Patterson requested from Wesley Medical Center a complete itemization of Mr. Nguyen's medical expenses. By May 1, 2001, Mr. Patterson had forwarded Mr. Nguyen's medical bills to Mr. Shreves. In a letter to Mr. Shreves dated May 1, 2001, Mr. Patterson also offered to "settle all claims against [the] insured for prompt payment of [the] insured's policy limits" and explained that he had "ordered the medical records from Wesley Hospital and Wesley Rehabilitation Hospital and [would] forward same to [Mr. Shreves] upon receipt." Id. at 793. Based on Mr. Patterson's promise to send the medical records, Mr. Shreves did not attempt to obtain Mr. Nguyen's records himself.

Mr. Patterson received Mr. Nguyen's medical records from Wesley Rehabilitation Hospital, reviewed them, and forwarded them to Mr. Shreves on May 21, 2001. In a letter sent on May 21, 2001, Mr. Patterson said, without qualification, "I am also enclosing the medical records for Ninh Nguyen with this letter," and advised Mr. Shreves "that the policy limits settlement offer will be withdrawn on June 15, 2001." Id. at 794. Although this letter purported to include all of Mr. Nguyen's medical records, none of Mr. Nguyen's records from his two-week stay at the Wesley Medical Center were included. In fact, Mr. Patterson did not receive Mr. Nguyen's medical records from Wesley Medical Center until June 28, 2001, nearly two weeks after the settlement offer expired. And Mr. Patterson did not forward those records to Mr. Shreves after he received them on June 28. Instead, Mr. Patterson waited four months, until all settlement offers had expired, before sending the Wesley Medical Center records.

Mr. Patterson's May 21, 2001, letter also informed Mr. Shreves that Mr. Patterson had successfully contacted Ms. Schrag, who maintained that Mr. Wade had entered the intersection against a red light. Although Mr. Patterson volunteered to set up a meeting with Ms. Schrag and an EMCASCO representative, Mr. Shreves declined Mr. Patterson's offer, preferring that Mr. Buck make independent arrangements to interview Ms. Schrag. Although Mr. Buck continued his attempts to contact Ms. Schrag, all attempts to contact her before the June 15, 2001, settlement demand deadline were unsuccessful. On either June 5 or July 5, 2001, Mr. Shreves sent a letter to Mr. Wade informing him that Mr. Nguyen had filed a claim in excess of the policy limits. Mr. Shreves explained that "[t]he accident is still under active investigation" and that EMCASCO had thus far been unable to obtain a statement from one of the witnesses. Id. at 757.

On August 2, 2001, Mr. Patterson sent Mr. Shreves a copy of a witness statement obtained from Ms. Schrag on June 25, 2001. At that time, Mr. Shreves told Mr. Buck to stop attempting to contact Ms. Schrag, as he had already received a statement. Mr. Patterson did not explain why he waited five weeks before forwarding the statement to EMCASCO. In the August 2 letter, Mr. Patterson again offered to settle Mr. Nguyen's claim for the policy limits.

On August 7, 2001, Mr. Shreves called attorney David Cooper, who had been hired to defend Mr. Wade at EMCASCO's expense. On August 20, 2001—less than three weeks after the second settlement offer and before Mr. Cooper had an opportunity to review Mr. Nguyen's medical records—Mr. Patterson sent Mr. Shreves a letter withdrawing his second policy limits settlement demand. Mr. Patterson also enclosed a copy of the Petition filed against Mr. Wade and "agree[d] to delay serving th[e] Petition on [Mr. Wade] to give [EMCASCO] time to make a settlement offer on this case should [EMCASCO] decide to do so." Id. at 765. Mr. Shreves promptly forwarded that letter to Mr. Cooper with a note explaining that "[t]his is one of those situations that may not allow us to wait for all of the facts [because] the threat of excess judgment and `bad faith' may force us to proceed...