Rowe, Richard Edwin

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Volume 70 | Issue 1 Article 14Insurance--Recovery of Excess Judgement forInsurance CompanyRichard Edwin RoweWest Virginia Univesity College of LawFollow this and additional works at: https://researchrepository.wvu.edu/wvlrPart of the Insurance Law CommonsThis Case Comment is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been acceptedfor inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contactian.harmon@mail.wvu.edu.Recommended CitationRichard E. Rowe, Insurance--Recovery of Excess Judgement for Insurance Company, 70 W. Va. L. Rev. ().Available at: https://researchrepository.wvu.edu/wvlr/vol70/iss1/14WEST VIRGINIA LAW REVIEWthe cause of a hernia" in Foose." Finally the court said, "[T]hemedical testimony of the surgeon does not stand alone but is sup-ported by other evidence relating to the condition before the colli-sion and the prior absence of a hernia." 5 Thus the West VirginiaSupreme Court held that expert testimony stating there was apossibility of causation supported by other evidence could besufficient to establish a causal relationship.In considering the quantity and quality of expert medical testi-mony necessary to establish a causal relation, the courts have takenvarious paths. Probability is accepted by all and required by some,although there are different standards by which it is constituted.Testimony of mere possibility alone is not sufficient, but, whencoupled with other evidence, it is sometimes enough to take thequestion of causation to the jury. This other evidence requirementis generally satisfied by a factual sequence of events in support ofthe possibility testimony of the expert. Earlier the West Virginiacourt seems to have required probability as a basis for establishingthe causal relationship. The more recent decisions of State v. Evansand Pygman v. Helton seem to dictate that West Virginia is fol-lowing the line of cases which permit causal relationship to beestablished by the expert's possibility testimony when supportedby other evidence.Linda L. HuppInsurance-Recovery of Excess Judgment fromInsurance CompanyX obtained a judgment against P, plaintiff, in excess of P'sliability policy limits. P sued D, his insurer, to recover the excessalleging that D had exercised "bad faith" in failing to settle theclaim within the policy limits. The trial court allowed recovery ofthe excess. Held, reversed. In holding that the evidence did notsupport the verdict for P, the court stated that, as a matter of law,D was guilty of neither negligence nor bad faith in not settlingwith the injured party. Speicher v. State Farm Mutual AutomobileInsrance Company, 151 S.E.2d 684 (W. Va. 1966).34 Id. at 287, 134 S.E.2d at 721.3- Id. at 288, 134 S.E.2d at 722. Here the court cited with approvalHamlin v. N.H. Bragg & Sons, 129 Me. 165, 151 A. 197 (1933) listing thefactual sequence of iat case, and thus endorsing the possibility-plus doctrine.[Vol. 701Rowe: Insurance--Recovery of Excess Judgement for Insurance CompanyPublished by The Research Repository @ WVU,CASE COMMENTSBy holding that the evidence did not support the verdict for theplaintiff, the court was not confronted with the problem of choosingbetween the two general tests advanced for finding a violation ofduty owed by the insurer to the insured when there is a judgmentin excess of policy limits. The courts, in this type case, have foundliability on the insurer for either making a "bad faith" refusal tosettle or being "negligent" in failing to reach a settlement.'The test of good or bad faith rests on the idea that the insurancecompany has assumed control of the defense and of the right tosettling claims, and may be liable in excess of policy limits if thefailure to settle was in "bad faith."2 The negligence test holds theinsurer liable for an excess judgment where the insurer negligentlyrejected a settlement offer.3 By comparing the general statementsof the two tests, it appears that the negligence approach imposes amore stringent standard of conduct upon the insurer.An insurance company has the duty to defend and "may makesuch investigation, negotiation, and settlement of any claim or suit asit deems expedient."4 The insurance company is trying to obtain thedischarge of its obligation "at the most economical price possible,through honorable and legal means." It is under no duty to settleor compromise simply for the benefit of the insured as long asthe insurer believes it has a reasonably fair prospect of escapingliability.6 All that is required is that the insurer give equal con-sideration to the interests of the insured.7The negligence test for finding a breach of these duties is basedon the tort theory that once someone acts, he must do so with thecare of an ordinary prudent man. A landmark decision on thenegligence test was Dumas v. Hartford Accident and Indemnity' The majority of jurisdictions follow the bad faith rule. Annot., 40A.L.R.2d 168, 178 (1955).2 14 G. CoucH, CYCLOPEDIA ON INSURANCE § 51:130 (2d ed. R. Anderson1965); 7A J. APPLEMA, INSURANCE LAW AD PRACTIcE § 4712 (repl. 1962).3 G. Coucin, supra note 2, at § 51:132; J. APPL -EAN, supra note 2, at§ 4713.4A standard provision quoted in the cases which comes from the auto-mobile liability insurance policy involved.5 Demer, The Views of an Insurance Company Claims Attorney, 66DiCK. L. Rv. 119, 121 (1961).6 Southern Fire & Cas. Co. v. Norris, 35 Tenn. App. 657, 668, 250 S.W.2d785,790 (1952).7 Jessen v. O'Daniel, 210 F. Supp. 317, 326 (D. Mont. 1962); FarmersIns. Exchange v. Henderson, 82 Ariz. 335, 338, 313 P.2d 404, 406 (1957);see Garcia & Diaz, Inc. v. Liberty Mut. Ins. Co., 147 N.Y.S.2d 306, 308(1955); Roos, A Note on the Excess Problem, 350 INs. L.J. 192, 195 (1952).1967]2West Virginia Law Review, Vol. 70, Iss. 1 [], Art. 14https://researchrepository.wvu.edu/wvlr/vol70/iss1/14WEST VIRGINIA LAW REVIEWCo.,' which decided that such claims should be based on negligencesince the company must use "due care and diligence" in finding outthe facts of the case, in learning the law, and considering whether ornot to settle. The thrust of the decision was that "the caution of theordinary person of average prudence should be employed."9Another standard which has been applied by this approach wasthat the insurer should exercise the degree of care and diligence,in determining whether to settle, which an ordinary prudent per-son would exercise in the management of his own business.'" Thenegligence test has been misused," and the fact that this test isvery difficult in application' 2 has caused it to be rejected in somejurisdictions.'3In considering the cases which have applied the bad faithapproach, a common element throughout seems to be that theinsurer should not be held to further liability simply because itultimately turns out that the judgment exercised in refusing tosettle was mistaken." This approach reasons that since the partiesagree by contract to the policy limits, the duty owed to the insuredis read into the agreement and therefore the obligation of theinsurer should not be extended beyond the duty of good faith.The insurer insures up to a certain amount, the limit set by insuredand for which he pays premiums, and it is a big penalty to hold theinsurer liable for a larger sum. It is therefore reasoned that sub-stantial culpability, bad faith, should be involved.'"8 94 N.H. 484, 56 A.2d 57 (1947).9 Id. at 489, 56 A.2d at 60. This case was largely based on 8 J. A pri-mAN, INsURANcE LAW AND PRACTcE §§ 4712-13 (1942) which the casequotes as saying the negligence rule is in the majority. This work has sincebeen revised and no longer holds to this proposition. 7A J. APPLEMAN, supranote 2, presently says there is little difference in the results of the two tests.'o G. A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544,547 (Tex. Com. App. 1929)." See Anderson v. St. Paul Mercury Indem. Co., 340 F.2d 406 (7th Cir.1965). In this case the court applied what they called the negligence test,but since the injuries were substantial, the settlement offered by plaintiff wasreasonable, and the liability of the insured looked certain, the decision ap-peared to be based on bad faith.12 Epps and Chappell, Insurer's Liability in Excess of Policy Limits: SomeAspects of the Problem, 44 VA. L. REV. 267, 271 (1958).' See Best Bldg. Co. v. Employers' Liability Assurance Corp., 247N.Y. 451, 456, 160 N.E. 911, 912 (1928); Burnham v. Commercial Cas. Ins.Co., 10 Wash. 2d 624, 639, 117 P.2d 644, 650 (1941).'4 See Wong and Marr v. Metropolitan Cas. Ins. Co. of N.Y. (Sup. Ct.of City and County of San Francisco sitting as a nisi prius ct. 1948) cited inChristian v. Preferred Accident Ins. Co., 89 F. Supp. 888, 890 (N.D. Cal.1950).19 Brown v. Guarantee Ins. Co., 155 Cal. App. 2d 679, 688, 319 P.2d 69,74 (1957).[Vol. 703Rowe: Insurance--Recovery of Excess Judgement for Insurance CompanyPublished by The Research Repository @ WVU,CASE COMMENTSSome of the fact situations which courts have considered toconstitute bad faith on the part of the insurer are: when thecompany has not given due regard to the recommendations of itstrial counsel,' 6 when the severity of plaintiff's injury is such thatany verdict against the insured is likely to be greatly in excess ofpolicy limits,'" "when the facts in the case indicate that a de-fendant's verdict on the issue of liability is doubtful,"'" when thereis a failure to investigate properly and ascertain the facts, 9 andwhen the settlement offer was equal to policy limits and theinsurer failed to consider it because he stood to lose very little.2"Perhaps there is no difference in the two approaches. In dis-cussing this problem Appleman"' says that even though a differencein language exists between the two tests, the same result wouldbe reached using either. He concludes that the question is es-sentially, "Did the insurer exercise that degree of skill, judgment,and consideration for the welfare of the insured which it, as askilled professional defender of lawsuits having sole charge of theinvestigation, settlement, and trial of the suit may have been ex-pected to utilize . 22. "" It has been said that the difference betweenthe bad faith rule and the negligence rule is merely a matter ofmethods of expression 3 and the results reached are the same.24More recent cases point to the fact that the two doctrines aremerging and that an insurance company must exercise good faithin its decision on whether or not to settle, and not be negligentin the investigation of the facts of the case. 5In an exhaustive study of the excess verdict problem, Keeton26says that the bad faith rule recognizes that ordinary care must be16 Royal Transit Inc. v. Central Sur. & Ins. Corp., 168 F.2d 345 (7th Cir.1948), cert. denied, 335 U.S. 844 (1948).' 7 Harris v. Standard Accident & Ins. Co., 191 F. Supp. 538, 540 (S.D.N.Y. 1961), rev'd on other grounds, 297 F.2d 627 (2d Cir. 1961).18 Id.19 Radio Taxi Service, Inc. v. Lincoln Mut. Ins. Co., 31 N.J. 299, 304,157 A.2d 319, 322 (1960).20See Georgia Cas. & Sur. Co. v. Reville, 97 Ga. App. 888, 891, 104S.E.2d 643, 645 (1958).21 7A J. APPLE AN, supra note 2, at §§ 4712-13.22 Id. at 562.23 Keeton, Liability Insurance and Responsibility for Settlement, 67 H~av.L. Rv. 1136, 1141 (1954).24 Comment, 48 MicH L. REv. 95, 100 (1949).2S Gaskill v. Preferred Risk Mut. Ins. Co., 251 F.Supp. 66, 68 (D. Md.1966); Sweeten Adm'r v. National Mut. Ins. Co., 233 Md. 52, 55, 194 A.2d817, 818 (1963); Hilker v. Western Auto. Ins. Co., 204 Wis. 1, 12, 235N.W. 413,415 (1931).26 Keeton, supra note 23.1967]4West Virginia Law Review, Vol. 70, Iss. 1 [], Art. 14https://researchrepository.wvu.edu/wvlr/vol70/iss1/14WEST VIRGINIA LAW REVIEWexercised in defending a case, and that the investigation is a partof the defense, and therefore negligence in investigation is anelement to be considered even in a bad faith jurisdiction. Heconcludes that with the jury system determining the final verdictthere seems to be little difference in result when either test isemployed in a specific situation.27A recent Virginia case, Aetna Casualty and Surety Company v.Price,28 decided that the good faith test rather than the negligencetest would be applied in that jurisdiction. Although this was anexcess judgment case for refusing to settle a malpractice claim,the court relied upon an automobile liability case for precedent. 9The District Court for the Southern District of West Virginia hasrecently decided an excess judgment case applying the "good faith"test." In the opinion the court speaks of both the bad faith andnegligence tests, but good faith is specifically stated as the propertest. The insurer "may become liable in excess of its undertakingsunder the policy provisions if it fails to exercise 'good faith' inconsidering offers to compromise the claim for an amount withinthe policy limits."31The West Virginia Vehicle Safety Responsibility Law,32 whileapplicable only to that portion of the policy required by law forfinancial security following an automobile accident, is pertinentwhen considering which approach West Virginia should follow.It states that a company can discharge its legal obligations for theamount of the policy covered by the act by a good faith settlement.This statement of public policy should be persuasive authorityupon the West Virginia court when it must choose between thetwo tests.7 Id. at 1142. Keeton states further that the real division of authority inthe courts may be in defining the duty to settle, and in what weight thecompany must give to its own interests and to those of the insured.28 206 Va. 749, 146 S.E.2d 220 (1966).29 Radio Taxi Service, Inc. v. Lincoln Mut. Ins. Co., 31 N.J. 299, 157A.2d 319 (1960). This case held that good faith must be used in dealing withoffers of compromise, and that a diligent effort must be made to ascertainthe facts upon which to base a good faith judgment.3 0 Inland Mut. Ins. Co. v. Peerless Ins. Co., 152 F. Supp. 506 (S.D.W. Va. 1957), a-'d on rehearing, 251 F.2d 696 (4th Cir. 1958).31 Id. at 513.32W. VA. CODE ch. 17D, art. 4, § 12(f)(3) (Michie 1966) provides:"The insurance carrier shall have the right to settle any claim covered by thepolicy, and if such settlement is made in good faith, the amount thereof shallbe deductible from the limits of liability .... ." (emphasis added).[Vol. 705Rowe: Insurance--Recovery of Excess Judgement for Insurance CompanyPublished by The Research Repository @ WVU,CASE COMMENTSBefore a liability insurance company can be held liable in excessof policy limits, it must be guilty of either "negligence" or "badfaith" in refusing to settle within the policy limits. Although theseare theoretically two separate tests, in practical application theresults may be very similar. Since the Virginia court"s and theDistrict Court for the Southern District of West Virginia,34 alongwith the West Virginia Legislature in the Safety ResponsibilityLaw"5 have all endorsed the "good faith" rule, it is most likelythat when the West Virginia Supreme Court of Appeals is con-fronted with the question they will follow the majority and requirethat refusal to settle be a "good faith" refusal.Richard Edwin RoweJuvenile Delinquency-Jurisdiction-Double JeopardyA juvenile, properly confined by the Juvenile Court of OhioCounty to the West Virginia Industrial School for Boys for auto-mobile theft and breaking and entering, was placed in the TaylorCounty jail because of misconduct at the school. Juvenile Courtof Ohio County ordered the youth returned to it whereupon he wastransferred, apparently without hearing, to the Intermediate Courtof Ohio County. Upon indictment and plea of guilty to auto theft,he was placed on probation. Later he violated probation andwas sentenced to the penitentiary. Petitioner successfully sought awrit of habeas corpus from Marshall County Circuit Court allegingunlawful and illegal detention. The warden of the state peni-tentiary brought error. Held, reversed. The Intermediate Courtof Ohio County had jurisdiction of the subject matter and thepetitioner waived his right to object to the jurisdiction over hisperson by remaining silent. Validity of conviction is not dependentupon how one gets before the court and double jeopardy is inappli-cable in juvenile court proceedings. Brooks v. Boles, 153 S.E.2d526 (W. Va. 1967).The West Virginia Code provides that the jurisdiction of ajuvenile court over one adjudged to be a delinquent continues3Aetna Cas. & Sur. Co. v. Price, 206 Va. 749, 146 S.E.2d 220 (1966).34lnland Mut. Ins. Co. v. Peerless Ins. Co., 152 F. Supp. 506 (S.D.W. Va. 1957), aff'd on rehearing, 251 F.2d 696 (4th Cir. 1958).35 W. VA. CODE ch. 17D, art. 4, § 12(f)(3) (Michie 1966).1967]6West Virginia Law Review, Vol. 70, Iss. 1 [], Art. 14https://researchrepository.wvu.edu/wvlr/vol70/iss1/14

Insurance--Recovery of Excess Judgement for Insurance Company

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Insurance--Recovery of Excess Judgement for Insurance Company

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