Younger v. Lumbermens Mut. Cas. Co.

• Decision Date: 19 April 1965
• Docket Number: No. 1401,1401
• Citation: 174 So.2d 672
• Parties: Robert YOUNGER, Plaintiff-Appellant, v. LUMBERMENS MUTUAL CASUALTY COMPANY, Defendant-Appellee.
• Court: Court of Appeal of Louisiana — District of US

Page 672

174 So.2d 672

Robert YOUNGER, Plaintiff-Appellant, v. LUMBERMENS MUTUAL CASUALTY COMPANY, Defendant-Appellee.

No. 1401.

Court of Appeal of Louisiana, Third Circuit.

April 19, 1965.

Rehearing Denied May 19, 1965.

Writ Refused June 28, 1965.

Simon & Trice, by Phil Trice, Lafayette, for plaintiff-appellant.

Davidson, Meaux, Onebane & Donhoe, by J. J. Davidson, Jr., Lafayette, for defendant-appellee.

TATE, Judge.

The present action is a sequel to Younger v. Bonin, La.App. 3 Cir., 149 So.2d 452, writs denied, 244 La. 150, 150 So.2d 769. (See also Lumbermens Mutual Cas. Co. v. Younger, La.App. 3 Cir., 158 So.2d 341.)

In the original litigation, the plaintiff obtained judgment in excess of $17,000 for personal injuries sustained by his minor daughter, Darlene, and for the medical expenses thereby occasioned. The liability of Lumbermens, the defendant driver's insurer, was limited to $5,000, its policy limits. 149 So.2d 452.

In the present suit, Younger seeks to recover from Lumbermens the amount of the judgment rendered in excess of the policy limits. The plaintiff Younger's action is based upon an assignment obtained by him from Mrs. Bonin, the defendant in the original suit (and Lumbermens' insured), of her cause of action for damages resulting from her own insurer's allegedly improper refusal to settle the plaintiff's claim against her within policy limits prior to the rendition of judgment casting Mrs. Bonin individually for damages some $12,000 in excess of the policy limits. This suit was dismissed upon an exception of no cause of action, and the plaintiff appeals.

The specified basis of the exception of no cause of action sustained by the trial court is that Mrs. Bonin had sustained no loss or damage as a result of the judgment rendered against her because Younger had been unable no collect any amounts from her, she being propertyless. At the oral argument of this appeal, prior to submission of the case in this court, see LSA-C.C.P. Art. 2163, the defendant's counsel was granted leave to file an exception of no cause of action additionally alleging as ground that, on the basis of this record, the actions of the defendant insurer in rejecting settlement offers were not arbitrary or capricious so as to make it liable to its insured (Mrs. Bonin) for an unwarranted refusal to accept a compromise offer slightly less than its policy limits, which was made to it by plaintiff's counsel prior to trial.

We find it unnecessary to discuss the other contentions raised by the defendant's exception of no cause of action, because we have decided that the exception should be sustained on this last specified ground. The allegations of the plaintiff's petition are admitted as true for purposes of the exception, and the plaintiff's petition incorporated by reference the entire record of the original litigation upon which the present cause of action is founded. Both parties are willing to concede that for purposes of this appeal we have the entire evidence or showing necessary to pass upon the essential merits of the demand, namely, whether the plaintiff as Mrs. Bonin's assignee can prove a cause of action based upon the defendant insurer's failure to accept prior to trial a compromise offer to settle the claim against Mrs. Bonin for slightly less than policy limits.

I.

The four Louisiana cases which have touched on the question have indicated that an insurer may be held liable to its insured for the excess of the policy limits for which the insured is cast, where the insurer's failure to accept an offer of compromise within policy limits is not in good faith or is arbitrary under the circumstances. New Orleans & C.R. Co. v. Maryland Casualty Co., 114 La. 153, 38 So. 89, 6 L.R.A.,N.S., 562; Wooten v. Central Mutual Ins. Co., La.App. 3 Cir., 166 So.2d 747; Stewart v. Wood, La.App. 1 Cir., 153 So.2d 497; Davis v. Maryland Casualty Co., 2 Cir., 16 La.App. 253, 133 So. 769.

None of these cases, however, discussed the standard of conduct by reason of which an insurer might become liable for the excess of policy limits. There is, however a full discussion at 7A Appleman, Insurance Law and Practice (1962 ed.), Sections 4711--4713 (pp. 551 et seq.), and also in the Annotation, 'Duty of liability insurer to settle or compromise', 40 ALR2d 168. In the absence of Louisiana jurisprudence on the question, we quote freely from the conclusions of the Appleman treatise concerning the nature and general criteria of liability in such circumstances, based upon the jurisprudence concerning the question when it has arisen in the other American jurisdictions.

Both the Appleman treatise and the cited annotation note that the cases are divided upon whether the liability is founded on a 'good-faith' concept of the duty owed by the insurer to the insured, or instead upon a 'negligence test', whereby the insured's liability is founded upon a question of due care under the circumstances. However, as stated at 7A Appleman, Section 4712, pp. 576, 578: '* * * many decisions, representative of many jurisdictions, have coupled in their discussions the terms 'bad faith' and 'negligence', seeming to use them as disjunctive or alternative tests. It is partly on this account--also partly because the same states will occasionally refer to one test and upon other occasions to the other--that the conclusion must be drawn that mere terminology means little. It is rather the factual situation which is significant in the light of the duty which exists, * * *.'

The Appleman treatise, cited above, speaks of the basis of the liability as follows, Section 4711 at p. 553: 'It is not sufficient for the insurer to consult its own self-interest. As a professional in the defense of suits, it must use a degree of skill commensurate with such professional standards. As the champion of the insured, it must consider as paramount his interests, rather than its own, and may not gamble with his funds. Its relationship is somewhat of a fiduciary one, and the liability is greater than indicated by some of the earlier holdings. Thus, if the insurer refuses to settle a claim because it believes that the insured is not liable, it is nevertheless answerable for such refusal if its belief was arbitrary or capricious.'

Again, the treatise summarizes the standard of the insurer's duty as follows, Section 4712 at p. 562: 'Some courts, in weighing the responsibilities of the liability insurer, speak of bad faith; some speak of negligence; others use the two terms interchangeably. And, in truth, they are to some extent interchangeable. The insurer, as a professional defender of lawsuits, is held to a standard higher than that of an unskilled practitioner. What might be ignorance in his instance may be unforgivable oversight of the insurer; what might be neglect in his instance could well constitute bad faith on the part of the insurer. The question is always: 'Did the insurer exercise that degree of skill, judgment, and consideration for the welfare of the insured which it, as a skilled professional defender of lawsuits having sole charge of the investigation, settlement, and trial of the suit may have been expected to utilize?' If it did, there is no problem; it is not liable. If it did not, then a court could easily describe its conduct as being negligent, or as not in accordance with the high duty of good faith which it owed to its insured.'

The Annotation at 40 ALR2d 168 discusses some of the factors relied upon by the courts in assessing the liability or not of an insurer for an allegedly unreasonable refusal to settle a claim against its insured within policy limits. The criteria include: issues of liability and damages in the original action by the claimant against the insured (Section 10 of annotation), the insurer's failure to investigate and ascertain facts (Section 13), the insurer's rejection of the advice of its own attorney or agent (Section 14), the rejection of a compromise offer made After a trial verdict against the insured (Section 15) ¹, a failure to inform the insured of the compromise offer (Section 17), the fault of the insured in influencing the insurer's rejection of the compromise offer or the insured's concurrence in the rejection of the offer (Section 18), and the relative extent of the risk of excess judgment to which the insured is subjected as compared with the insurer's exposure to liability or the relative amounts of excess and policy-limit judgments to which the insured and insurer respectively are exposed (Section 20).

II.

The original litigation, see 149 So.2d 452 (Docket No. 744 of this court), grew out of an accident in which the plaintiff's nine-year-old daughter Darlene was struck by an automobile driven by Mrs. Bonin, Lumbermens' insured. Darlene was crossing the street from a store.

Mrs. Bonin claimed that Darlene was struck just as the little girl had run out in front of Mrs. Bonin's vehicle from behind some parked cars; under this version, Mrs. Bonin of course was free of fault. On the other hand, both the trial and appellate courts accepted instead Darlene's version of the accident, according to which the girl had completed crossing the street from the store and was struck at the left edge of Mrs. Bonin's left lane; under which version, Mrs. Bonin's fault in striking the child at the far edge of the road and in the driver's wrong lane of traffic was obviously the sole proximate cause of the accident.

The plaintiff claims with considerable force that the defendant insurer unreasonably refused to accept the plaintiff's offer to settle the present suit for less than policy limits and thus unreasonably exposed its insured (Mrs. Bonin) to a judgment for the excess, based upon the following circumstances:

1. The undoubted fact that Darlene's injuries entitled her to a judgment well in excess of policy limits, if indeed Mrs. Bonin was negligent and her negligence was the sole proximate cause of the accident.

2. The facts...