Waters v. American Cas. Co. of Reading, Pa.

• Decision Date: 30 June 1953
• Docket Number: 6 Div. 432
• Citation: 261 Ala. 252,73 So.2d 524
• Parties: WATERS v. AMERICAN CAS. CO. OF READING, PA.
• Court: Alabama Supreme Court

Page 524

73 So.2d 524

261 Ala. 252

WATERS v. AMERICAN CAS. CO. OF READING, PA.

6 Div. 432.

Supreme Court of Alabama.

June 30, 1953.

Rehearing Denied April 22, 1954.

Further Rehearing Denied June 30, 1954.

Wm. S. Pritchard, Victor H. Smith and Pritchard, McCall & Jones, all of Birmingham, for appellant.

Geo. W. Yancey, Jas. E. Clark, London & Yancey, and Francis H. Hare, all of Birmingham, for appellee.

PER CURIAM.

This is an action by the insured (Waters) against the insurer when the verdict of the jury exceeded the policy limits, and the insurer had an opportunity to settle within the policy limits prior to the verdict.

In 1946, Mr. Waters, plaintiff and appellant here, owned the Delmar Theatre in Birmingham. Mrs. Beatrice Anthony claimed that she was injured in that the seat she undertook to occupy in the theatre had no bottom, and that in sitting she sat down on the floor without being prevented by the seat. She sued Mr. Waters for $50,000, and the jury returned a verdict in her favor for $20,000, which was reduced to $15,000 by this Court. Waters v. Anthony, 252 Ala. 244, 40 So.2d 316.

Mr. C. R. Anthony, husband of Mrs. Beatrice Anthony, sued Mr. Waters for $5,000 for loss of services of his wife. The verdict in his case was for $5,000, which was reduced to $3,500 by this Court. Waters v. Anthony, 256 Ala. 370, 54 So.2d 589. Mrs. Anthony's case was tried in February 1948, Mr. Anthony's case in May 1948. When the cause of action in these two cases arose, Mr. Waters had $5,000 liability insurance with the defendant, American Casualty Company of Reading, Pennsylvania, appellee. The casualty company paid the $5,000 it had contracted to pay under its policy, and Mr. Waters sues for the difference between the $5,000 and the amount of recovery. (At the time of the trial of the instant case, this Court had not rendered its decision in the C. R. Anthony) case.)

The complaint as amended consisted of count one and count A. Count one charged defendant with negligence in that: Defendant, its servants, agents and attorneys negligently failed or refused to settle said claim for damages against this defendant for the sum of $5,000 within the limits of said policy.

Count A charged defendant with bad faith in 'that the defendant, by and through its agents and attorneys, while acting in the line and scope of their employment, knowing that credible sworn testimony had been introduced on the trial of said action of the said Mrs. Anthony against the plaintiff, * * * the defendant failed to perform the duty it owed this plaintiff and the exercise of good faith in the negotiations for the settlements of said claims and suits, but, on the contrary, wrongfully and in bad faith, and acting for its own interests, wrongfully failed, declined or refused to settle said claim after the institution of said suits against this plaintiff.'

Defendant's demurrer being overruled, the defendant plead the general issue and estoppel in short by consent. The trial court sent the case to the jury on both counts. Verdict was for the defendant and plaintiff appeals.

Appellant argued eight assignments of error, four (1, 2, 6 and 11-a) dealing with charges given at the request of appellee, three (16, 20 and 21) with answers given by attorneys who testified as experts and one (24) with the court's ruling on alleged improper argument to the jury.

Appellee had two cross-assignments of error in his original brief which was not filed when the cause was submitted, nor do we find the cross-assignments of error written in the record as required by Supreme Court Rule No. 3 as amended, Code 1940, Tit. 7 Appendix. Under the authority of Andrews v. Sullivan, Ala.Sup., 69 So.2d 870, these cross-assignments are not considered.

This question, presented here, has not been previously decided by this Court. We are aware that in cases of this nature courts generally hold that there may be liability on the part of the insurer for the excess of the judgment above the policy limits, but there is a division among them as to whether the liability of the insurer is based on (1) the rule of bad faith or (2) the rule of negligence. 131 A.L.R. 1500; 71 A.L.R. 1485; 43 A.L.R. 329; 37 A.L.R. 1484; 34 A.L.R. 750; 45 C.J.S., Insurance, § 936, p. 1069; 8 Appleman Insurance Law and Practice, Sections 4712 and 4713. We hold that there may be liability under both rules and properly drawn counts based either on negligence or bad faith should be held good, and separate counts, one charging negligence and one charging bad faith may be joined in the same complaint.

This Court has long since taken the position that under certain circumstances, for the breach of a contract there may be either an action of assumpsit or one in tort. That means that when there is a contract expressed to exercise reasonable diligence in the performance of an act, or when there is a specific contract to do an act, a failure to exercise reasonable diligence on the one hand or to do the act on the other gives rise to an action of assumpsit. But when the contract is to exercise reasonable care to perform the act, a failure to exercise such reasonable care may be redressed by either assumpsit or in tort. Mobile Life Ins. Co. v. Randall, 74 Ala. 170; Tennessee Coal, Iron & Railroad Co. v. Sizemore, 258 Ala. 344, 62 So.2d 459. When the contract does not in terms require reasonable care in doing the act stipulated to be done, the law imposes a duty--but does not imply a contract--to exercise due care in doing the act; and, therefore, when negligence exists in doing that act an action in tort only is available because there is no express or implied contract which is breached. Such is the result of our cases cited above.

In the instant case there is no express contract to exercise reasonable care in performing the duties required of the insurer. Therefore, for negligence in the performance of those duties an action in tort only will lie, and then only if the law imposes a duty to exercise due care. Such is the nature of count one charging negligence. Count A charges bad faith which is tantamount to an intentional failure to perform those duties.

The question which has given rise to much difference of opinion is whether or not the law implies a duty to exercise ordinary care in the performance of the contract, or whether it only requires good faith in its performance. We know of no particular reason why there should be any difference between the duty imposed by law in respect to the contract here involved and as to any other contract. 8 Appleman Insurance Law and Practice, section 4713; 45 C.J.S., Insurance, § 936, p. 1069.

We know of no other situation where a negligent act proximately resulting in damages to another requires that there must have been bad faith also in order to give rise to a cause of action. They constitute different concepts. They may be joined in separate counts in a suit, and either may exist without the other.

The question is asked in some of the authorities, 'What would constitute negligence in the failure to settle a case as distinguished from bad faith?' 131 A.L.R. 1501. The answer is that it is a question for the jury from all the facts and circumstances to determine whether the failure on the part of the insurer to make settlement is an act of negligence or one of bad faith. Both of those terms have a well understood meaning, and we do not see any reason why we should stumble over their application. In this connection it is well to observe that the mere failure on the part of the insurer to make a settlement within the limits of his contract when he has an opportunity to do so is not alone evidence of negligence or bad faith.

The allegation of negligence is made in one count of the complaint and bad faith in the other. In order to succeed it is necessary for the plaintiff to prove either negligence or bad faith. There is no presumption under the circumstances of this case of either negligence or bad faith. The principle of res ipsa loquitur has no application here and, therefore, the issue is simply made here as in all negligence cases whether, considering all the circumstances, the insurer failed to exercise ordinary care on the one hand or good faith on the other.

The evidence in the instant case consisted chiefly of the record of the testimony in the case of Mrs. Beatrice Anthony, the appellant attempting to show that the Anthony claim was well founded and strong. The appellee attempted to show that the alleged injuries of Mrs. Anthony could not have been received in the Delmar Theatre if Mr. Waters, his agents and employees were to be believed. It was undisputed that Mr. Waters notified defendant during the course of the trial that the two cases could be settled for $5,000, and suggested 'that you consider this proposition of settlement for that it is our thought as attorneys for your policy holders, the defendants in the caption cases, that the cases should be settled'.

It was also undisputed that Mr. Waters and his personal attorney could have settled the C. R. Anthony case for $1,000, but chose to try it on the same facts in Mrs. Anthony's case, and the verdict was for $5,000.

Assignments of error 16, 17, 20 and 21 deal with the admissibility of the testimony of Mr. Williams and Mr. Grooms, attorneys experienced in damage suir practice, in which the court permitted them to answer hypothetical questions based upon evidential facts which were or could have been the basis of the decision to try the case instead of settling it.

Mr. Williams, testifying for the defendant, was asked, after the facts had been hypothesized, 'Based upon that statement of the accident, and assuming that is the way it happened and assuming that is the situation that confronted Mr. Yancey, if you had been handling the case and had been in the same position he was, would you have paid $5,000.00 to settle that case?' The question asked Mr. Grooms, called by defendant, based on the same...