Sobolik, Dennis M.

English

UND Scholarly Commons (University of North Dakota)

North Dakota Law Review Volume 34 Number 3 Article 8 1958 Insurance - Insurer's Duties to Insured - Liability of Insurer for Judgment in Excess of Policy Limits Dennis M. Sobolik Follow this and additional works at: https://commons.und.edu/ndlr  Part of the Law Commons Recommended Citation Sobolik, Dennis M. (1958) "Insurance - Insurer's Duties to Insured - Liability of Insurer for Judgment in Excess of Policy Limits," North Dakota Law Review: Vol. 34 : No. 3 , Article 8. Available at: https://commons.und.edu/ndlr/vol34/iss3/8 This Case Comment is brought to you for free and open access by the School of Law at UND Scholarly Commons. It has been accepted for inclusion in North Dakota Law Review by an authorized editor of UND Scholarly Commons. For more information, please contact und.commons@library.und.edu. 19581 1'IECENT CASESstates where the insurer may be and is joined as a defendant, or sued directlyhy the injured party, the issue is triable as a 'part of the main cause and thecourts deny declaratory relief.5The propriety of a declaratory judgment where another action is pendinginvolving the same set of facts is a matter of dispute., Generally such reliefwill be granted, provided (1) the trial of the main cause will not determinethe matter in controversy, 7 (2) such relief will not prejudicially affect theinjured party by a trial of the issue,s and (3) the parties and facts are notidentical in both actions.0North Dakota would presurnably follow the reasoning of this case in grant-ing declaratory relief although no cases directly in point were found.'o Thereis a plausible policy argument against permitting such an action on the partof an insurer." In a case of this nature the insurance company must in effectattempt to prove the insured to be liable, i. e., a drunken driver, and uponfailing must turn around and defend against that which they had formerlysought to establish.' 2 However, the weight of authority allows such. actionsto be brought, and it would appear that where an actual controversy exists aninsurance company should be entitled to have its rights deternined withoutthe expense of an unwarranted claim.WILLIAM J. MCMENAMY.INSURANCE - INSU',En's D'sIES TO INSURED - LIABILITY OF INSUltER FOHJUDGMENT IN ExcEss OF Poricy LINMITS.- Action against insurer, who hadagreed to indemnify insured fe.r damages to insured's employees, to recoveramount in excess of policy limit paid by insured in discharge of judgmentagainst it for injury to employee. The Supreme Court of Oklahoma held,two justices dissenting, that the finding that insurer had not exercised goodfaith in handling claim-u for less than the policy limit was sustained by theevidence, and hence insurer was liable for excess over policy limits. Amer-5. Auto Mut. Indem._Co , v. Moore, 235 Ala. 426, 179 So. 368 (1938); New Am-sterdam Cas. Co. v. Simpson, 238 Wis. 550, 300 N.W. 367 (1941).6. 1 Anderson, Declaratory Judgments § 209 (2nd ed. 1951).7. Continental Cas. Co. v. National Household Distributors, 32 F.Supp. 849 (E.D.Vis. 1940); Strawn v. Sarpy County, 146 Neb. 783, 21 N.W.2d 597 (1946).8. United States F. & G. Co. v. Savoy Grill, 51 Ohio App. 504, 1 N.E.2d 946(1936). N. D. Rev. Code § 32-2311 (1943): "PARTIES. When declaratory relief issought, all persons who have or claim any interest which would be affected by the dec-lamation, shall be made parties, and no declaration shall prejudice the rights of persons notparties to the proceeding. ; see Northern Pac. Ry. Co. v. Warner, 77 N. D. 729,45 N.W.2d 196 (1950).9. See note 4 supra.10. Cf., Iverson v. Tweeden, 78 N. D. 132, 48 N.W.2d 367 (1951); Northern Pac.Ry. Co. v. Warner, 77 N.D. 729, 45 N.W.2d 196 (1950); Great Northern Ry. Co. v.Mustad, 76 N.D. 84, 33 N.W.2d 436 (1948); Asbury Hospital. v. Cass County, 72 N.D.359, 7 N.W.2d 438 (1943); Langer v. State, 69 N.D. '129, 284 N.W. 238 (1939); C.W. Jones Lumber Co. v. City of Marmarth, 67 N.D. 309, 272 N.W. 190 (1937). Min-nesota has followed the-rule of the principal case in State Farm Mut. Auto. Ins. Co. v.Skuluzacek, 208 Minn. 443, 294 N.W. 413 (1940).11. McFarland v. 'Cremshaw, 160 Tenn. 170, 22 S.W.2d 229 (1929). See alsoHeller v. Shapiro, 208.Vvis. 310, 242 N.W. 174 (1932). ..12. In the instant'!case. the dissenting justice stated, "Here the insurance companytried and did prove its own assured to be a drunkard to the satisfaction of the. trial judge,who made findings to that effect, and now, that we reverse the case; 'the selfsame insur-ance company is duty-bound to reverse its role and do everything in its power to provethat the assured was as sober as the trial judge, under the very covenant from whichunsuccessfully it attempted to extricate itself."NORTH DAKOTA LAW REVIEW [VOL. 34can Fidelity & Casualty Co. v. L. C. Jones Trucking Co., 312 P.2d 685 (Okla.1958).It is generally agreed that in an indemnity or liability policy, where theinsurer reserves the exclusive right to contest or settle any claim broughtagainst the insured, and prohibits him from voluntarily assuming any liabilityor settling any claim without the insurer's consent, except at his own cost, theinsurer has the option either to compromise or settle such claims.' Theseprovisions impose no contract obligation either express or implied to settleor compromise. The insurer's failure or refusal to settle or compromise sucha claim for an amount within the policy limits permits no action in assumpsitor on the contract against the insurer if a judgment is recovered against theinsured in excess of the policy limits.-The power vested in the insurer to settle or compromise claims broughtagainst the insured must be used in good faith.3 In exercising good faith, theinsurer is' generally held to that degree of care and diligence which an ordi-narily prudent person would exercise in the management of his own businessaffairs. 4 The decision to refuse settlement, to be a good faith conclusion, mustbe honest and intelligent; in order to be honest and intelligent, it must hebased upon a knowledge of the facts and circumstances upon which liabilityis predicated, and upon a knowledge of the nature and extent of the injuriesso far as they can be reasonably ascertained., Thus, an insurer is not liablefor failure to make a settlement in a situation where a reasonably prudent per-son exercising due care from the standpoint of the insured would not havemade it.6 The insurer's refusal of settlement is deemed in good faith if madein the honest belief that it has a fair chance of victory in the event of liti-gation; 7 that the verdict may be kept within the policy limits;' that the comp-romise offer is excessive: 9 that it has "legal defenses as yet undertermined bya court of last resort, which tairly seem applicable. ' oThe instant case, however, is in accord with the majority of jurisdictions.They hold that where the insurer is guilty of bad faith, it may be liable in tortfor failing or refusing to compromise or settle a claim brought against the1. See, e.g., State Auto Mut. Ins. Co. v. York, 104 F.2d '730 (4th Cir.), cert.denied, 308 U. S. 591 (1939); Kingan and Co. v. Maryland Cas. Co., 65 Ind. App.301, 115 N.E. 348 (1917); Johnson v. Hardware Mut. Ins. Co., 108 Vt. 269, 187 Atl.788 (1936).2. See, e. g., Averbach v. Maryland Cas. Co., 236 N.Y. 247, 140 N.E. 577 (1923);Streat Coal Co. v. Frankfort General Ins. Co., 237 N.Y. 60, 142 N.E. 352 (1923);Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643, 644 (1929) (dictum).3. See, e.g., Davis v. Maryland Cas. Co., 16 La. App. 253 133 So. 769 (1931);Norwood v. Travelers ins. Co., 204 Minn. 595, 284 N.W. 785 (1939).4. Auto Mut. Indemnity Co. v. Shaw, 134 Fla. 815, 184 So. 852 (1938); AmericanFidelity & Casualty Co. v. L. C. Jones Trucking Co., 312 P.2d 685, 687 (Okla. 1958)(The fairest method of balancing the interests is for the insurer to treat the claim as ifhe alone were liable for the entire amount.); G. A. Stowers Furniture Co. v. AmericanIndemnity Co.; 295 S.W. 257 (Tex. Civ. App. 1927).5. Brown v. Guarantee Ins. Co., 319 P.2d 69 (Cal. 1958); Hilker v. WesternAutomobile Ins. Co., 204 Wis. 1, 235 N.W. 413 (1931).6. Abrams v. Factory Mut. Liab. Ins. Co., 298 Mass. 141, 10 N.E.2d 82 (1937).7. New Orleans & C. Ry. Co. v. Maryland Cas. Co., 114 La. 154, 38 So. 89 (1905).8. Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643 (1929); G. A.Stowers Furniture Co. v. American Indemnity Co., 295 S.W. 257 (Tex. Civ. App. 1927).9. Mendota Electric Co. v. New York Indemnity Co., 173 Minn. 440, 211 N.W. 317(1926); Brassil v. Maryland Cas. Co., 210 N.Y. 235, 104 N.E. 622 (1914).10. Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643, 645 (1929)(dictum).1958] RECENT CASESinsured for an amount within the policy limits.'" That liability is measuredby the excess of a judgment recovered against the insured over the amountpayable by the terms'of the policy.'Ordinarily, the question of had faith is within the jury's province, but thevarious higher courts have, held that such bad faith must be clearly andreasonably shown in order to sustain a verdict against the insurer.":Bad faith has been demonstrated to be a complete disregard of the insured'sfinancial interests,' 4 an arbitrary refusal to settle for a reasonable sum whereit is apparent from an honest perusal of the facts and the law that a suitwould result in a verdict in excess of the policy limits,-, or a refusal tocompromise upon grounds which depart from the grant of power to the in-surer to exclusively conduct settlement negotiations.' 6Whether or not the insurer is liable for the difference in a recovery overthe excess of the policy limits depends on the judgment and the good faithof the insurance company and its representatives.DENNIS M. SOBOLIK.INTOXICATING LiQoUtRs - Civii_ DAMAGE LAWS - INJURIES TO PERSON. -In an action tinder the Illinois Dram Shop Act against defendants who alleg-edly sold liquor to'the driver of the car in which plaintiff was injured, a sum-mary judgment was granted for the defendants on the ground that plaintiffwas not an innocent party inasmuch as he participated in the drinking ofliquor with the driver. The Appellate Court, Third Division, of Illinois, heldthat whether or not plaintiff was an innocent party under the law was aquestion of fact for the jury and that the motion for summary judgmentshould have been overruled. Nes~s v. Bilbob Inn, 15 Ill. App. 2d 340, 146N.E.2d 234 (1957).At common law, no legal liability was imposed on a seller of intoxicatingliquor for damages resulting from intoxication.' Many jurisdictions have,however, created such liability by enacting so called "Dram Shop" or "CivilDamage Acts".- These acts have several purposes: they are designed, pur-suant to the police ppwer, to promote the public health, safety, morals andwelfare by affording a remedy for injuries resulting from the wrongful con-duct of intoxicated persons;3 they promote temperance in the use of intoxi-cating beverages; and they provide a necessary check on the liquor traffic.Such acts, in this way, shift the burden of potential loss from the defenselesspublic to the owner of the dram shop who has the choice of bearing the11. Mendota Electric Co. v. New York Indemnity Co., 175 Minn. 181, 221 N.W. 61(1928); Aycock Hosiery Mill v. Maryland Cas. Co., 157 Tenn. 559, 11 S.W.2d 889(1928); Burnham v. Commercial Cas. Ins. Co., 10 Wash.2d 624, 117 P.2d 644 (1941)'(A mistake of judgment is not bad faith).12. Ibid.13. See, e.g., Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643(1929); Mendota Electric Co. v. New York Indemnity Co., 175 Minn. 181, 221 N.W.61 (1928).14. Johnson v. Hardware Mut. Cas. Co., 109 Vt. 481, 1 A.2d 817 (1938).15. Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643, 645 (1929)(dictum).16. Hilker v. Western Automobile Ins. Co:, 204 Wis. 1, 235 N.W. 413 (1931).1. Hyba v. C. A. Horneman lee., 302 Ill. App. 143, 23 N.E.2d 564 (1939); Crusev. Aden, 127 I11. 231, 20 N.E. 73 (1889).2. E.g., Minn., Mich., Iowa, Wis.3. See Gibbons v. Cannaven, 393 111. 376, 66 N.E.2d 370 (1946).

Insurance - Insurer\u27s Duties to Insured - Liability of Insurer for Judgment in Excess of Policy Limits

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Insurance - Insurer\u27s Duties to Insured - Liability of Insurer for Judgment in Excess of Policy Limits

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