Wasserman v. Buckeye Union Cas. Co.

• Decision Date: 13 January 1972
• Citation: Wasserman v. Buckeye Union Cas. Co., 277 N.E.2d 569, 29 Ohio App.2d 7 (Ohio App. 1972)
• Parties: , 58 O.O.2d 6 WASSERMAN, Trustee in Bankruptcy for Steve Korea, Inc., Appellant, v. The BUCKEYE UNION CASUALTY COMPANY et al., Appellees.
• Court: Ohio Court of Appeals

Page 7

29 Ohio App.2d 7

277 N.E.2d 569, 58 O.O.2d 6

WASSERMAN, Trustee in Bankruptcy for Steve Korea, Inc., Appellant, v.The BUCKEYE UNION CASUALTY COMPANY et al., Appellees.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Jan. 13, 1972.

Syllabus by the Court

1.An insurer who has the exclusive right to settle or defend a claim against its insured owes its insured the duty of acting in good faith.

(a) in defending and settling claims against the insured when the claim is for an amount in excess of the policy limits;

(b) in rejecting an offer to settle a claim against the insured for less than the policy limits when the claim against the insured is in excess of the policy limits; and/or

(c) in rejecting an offer to settle a claim against its insured for the policy limits after a judgment has been rendered in excess of the policy limits.

2.Good faith of an insurer to its insured is being faithful to one's duty or obligation.The decision by the insurer to settle or not settle a claim must be honest, intelligent, impersonal, realistic and based on adequate information and tested by the expertise of the insurer.The insurer must also give equal consideration to the interests of the insured.

3.An insurer who has the exclusive right to settle or defend a claim against its insured is liable in damages to its insured if it fails to act in good faith toward the insured in rejecting an offer to settle a claim against the insured in excess of the policy limits when the claim can be settled for the policy limits.

4.The purpose of a court's instructions to a jury is to clearly define the issues in the case and by a correct statement of the law applicable to the facts developed at the trial assist the jury in arriving at a proper verdict.The charge ought not only to be correct but to be so adapted to the case and so explicit as not to be misconstrued or misunderstood by the jury in the application of the law to the facts as they find them from the evidence.

Frank Leonetti, Cleveland, for appellant.

Kitchen, Messner & Leyshon, Cleveland, for appellees.

KRENZLER, Judge.

This is an appeal on questions of law from a judgment of the Common Pleas Court of Cuyahoga County.

Appellant, hereinafter referred to as 'plaintiff,' is the duly qualified and appointed trustee in bankruptcy for Steve Koren, Inc.

AppelleeBuckeye Union Casualty Co., defendant, hereinafter referred to as 'Buckeye,' issued a liability insurance policy to Koren, Inc., in connection with the operation of its tavern and restaurant business at 1620 E. 66th Street, Cleveland, Ohio.The policy had a standard $10,000 liability limit for damage to one person, and also had the standard provision whereby the insurer would defend any lawsuit against the insured.

One Betty Coventry sustained injuries on the insured's premises and instituted proceedings against the insured Koren, Inc., in the Common Pleas Court of Cuyahoga County for $200,000 in damages.Steve Koren tendered the cause of action to Buckeye for defense under the terms of the policy, and Buckeye engaged the services of an attorney to defend the action.At pretrial Betty Coventry offered to settle the case for $8,500, but Buckeye refused to divulge the policy limits and refused any offer of settlement.Steve Koren was not present or represented by independent counsel at the pretrial discussion nor was he advised of Betty Conventry's offer to settle the case.

The case was tried a jury, which returned a $60,000 verdict for Betty Coventry against Koren, Inc.Betty Coventry offered to settle her $60,000 judgment for $10,000 while the case was on appeal, but this information was not communicated to Koren, and this offer was rejected by Buckeye.The notice of appeal was timely filed in this court, but due to Buckeye's failure to file a bill of exceptions, the case was dismissed.Koren was not notified of this dismissal.

Steve Koren did not take part in the decisions rejecting all settlement offers, but he agreed that the case should be appealed after judgment was rendered.He was not informed when the appeal was dismissed.

Betty Coventry instituted proceedings to collect on her judgment of $60,000, and to levy upon the assets of Koren, Inc.Koren, Inc., filed a voluntary petition in bankruptcy and Myron Wasserman, plaintiff herein, was appointed the trustee in bankruptcy.

Plaintiff filed this action and alleges that Buckeye conducted an improper investigation and failed to notify Koren of the settlement offer, making it impossible to settle the case, and that $50,000 damages were incurred because of the manner in which Buckeye conducted the handling of the defense in Berry Coventry's personal injury action.

The present case was tried to a jury.

The attorney for Buckeye ^* testified that he took the affidavit of the bartender, who allegedly witnessed the accident; that he took Betty Coventry's deposition and had her examined by Dr. Steuer and obtained a complete report from University Hospital, plus an investigative report.Based on these factshe made a determination that there was no liability on the part of Koren, Inc., and therefore refused both offers of settlement.

The attorney for Buckeye testified that he did not send any correspondence to Koren in regard to the settlement offers.The attorney for Buckeye testified that he did advise Koren of the possibility of a judgment in excess of the policy limits and that he should obtain independent counsel; this was denied by Steve Koren.There was testimony that Steve Koren lived in the country a short period of time and did not understand English well.

Steve Koren testified that he was satisfied with the manner in which the attorney for Buckeye handled the litigation.

The only instruction the court gave to the jury on the issue of the good faith of Buckeye, was to state paragraph two of the syllabus in Slater v. Insurance Co.(1962), 174 Ohio St. 178, 187 N.E.2d 45:

'* * * Now, the court will give you the definition as to bad faith or lack of good faith.It is as follows:

'A lack of good faith is the equivalent of bad faith.And bad faith, although not susceptible of concrete definition, embraces more than bad judgment or negligence.It imparts a dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will partaking of the nature of fraud.It also embraces actual intent to mislead or deceive another. * * *'

The jury returned a verdict for the defendant Buckeye upon which this appeal is taken.

The issue in this case is whether Buckeye acted in good faith in handling the defense in the case of Betty Coventry v. Steve Koren, Inc.

We are dealing with an important area of law and we must analyze the rights, duties and obligations of an insurer to an insured when the insured is sued for an amount in excess of the policy limits and the case can be settled for less than the policy limits before trial; or after a trial in which a jury returned a verdict in excess of the policy limits.These cases are known as excess liability cases.

The plaintiff's principal assignment of error is that the court's charge to the jury was not a correct statement of the law on bad faith, and that the court should also have charged the jury on the issue of negligence.

In order to resolve the principal issue in this appeal we must review the law regarding the liability of an insurer to an insured in excess liability cases.

In this casewe are dealing with a liability insurance policy whose purpose is to protect the insured from liability within the limits of policy coverage.The relationship between the the insurer and the insured is created by the terms of the insurance contract.In express terms the liability insurance policy casts no duty on the insurer to settle a claim against the insured.

The pertinent provision of the contract between Buckeye and Koren is as follows:

'* * * Sec. II.Defense, Settlement, Supplementary Payments: With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the company shall:

'(a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient * * *.'

Under such provisions of a liability insurance policy the insurer must either defend, settle or pay any judgment within the policy limits of liability.The insurer is free to negotiate and settle any claims without interference from the insured.An injured third party may be willing to settle his claim for an amount within the policy limits, but the insurer need not settle if he believes that he might defeat the action or keep the verdict within the policy limits.

Serious problems arise when an insurer has an opportunity to settle a claim for an amount within the policy limits but refuses to do so and a judgment is entered against the insured in an amount exceeding the policy limits.So long as there is limited coverage a conflict between the insurer and the insured will exist.

There has been much litigation throughout this country for the past forty years regarding the issue of excess liability.Several rules have developed, including the two extremes of no liability and absolute liability.In between are the two currently accepted rules of negligence and good faith.

The rule of no liability was predicated on the express terms of the insurance contract which gives the insurer absolute control of the claims against the insured.Auerbach v. Maryland Casualty Co.(1923), 236 N.Y. 247, 140 N.E. 577;Rumford Falls Paper Co. v. Fidelity & Casualty Co.(1899), 92 Me. 574, 43 A. 503.An exception to this rule is that liability may attach for acts of fraud or bad faith by the insurer.The law...