133 F. Supp. 3d 1271
D. Kan.2015Background
- July 16, 2009 collision driven by Kaston Hudgins killed driver Teresa Kemp and her daughter; Hudgins was a permissive driver of Ashley Kelley’s car. Dairyland insured Kelley; policy limits were $25,000 per person / $50,000 per accident.
- Dairyland repeatedly offered policy‑limits ($50,000) to settle the wrongful death claims, but conditioned settlement on releases; a key dispute was whether Dairyland could (or should) accept a release of Hudgins only or had to obtain releases for both Hudgins and Kelley.
- Pre‑suit negotiations (late 2009–Jan 2010) included draft settlement papers that misidentified parties; Dairyland asserted concern about a negligent‑entrustment claim against Kelley and declined to settle without releasing both insureds.
- Plaintiff John Kemp (husband/father) ultimately sued Hudgins alone; after suit Dairyland continued to offer policy limits but Kemp pursued and accepted (by judgment) a stipulated judgment far in excess of policy limits; the state court entered an aggregate judgment ≈ $5.76M.
- Kemp, as judgment creditor, garnished Dairyland, alleging Dairyland breached its duty (bad faith/refusal to settle) and thus should be liable for the excess judgment. District court considered whether Dairyland’s conduct constituted bad faith and whether it caused the excess judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dairyland acted in bad faith by refusing to settle for policy limits without releasing Kelley | Kemp: Dairyland could have accepted settlement releasing only Hudgins because negligent‑entrustment claims weren’t necessarily covered; refusal was bad faith | Dairyland: it owed an equal duty to both insureds and reasonably required releases for both given risk of negligent‑entrustment liability | Held: No bad faith — Dairyland reasonably believed it had to protect both insureds and decline a release that preserved exposure to Kelley |
| Whether Kansas law required Dairyland to accept a settlement that released only the driver | Kemp: Upland and related authority limit coverage for negligent‑entrustment and thus Dairyland’s demand was unreasonable | Dairyland: Upland distinctions (different policy language/exclusion and later authority) made it reasonable to doubt coverage; insurer’s view at the time controls | Held: Dairyland’s view was reasonable at the time; insurer need not predict later rulings and may demand full release of all insureds |
| Causation — whether Dairyland’s conduct caused the excess judgment | Kemp: Dairyland’s earlier refusal led to events producing the excess judgment | Dairyland: Kemp manufactured litigation strategy to create a larger recovery; Kemp rejected later policy‑limit offers for strategic reasons | Held: No causation — Kemp rejected later offers aiming for greater recovery; case facts align with insurer‑harvested defenses in Wade/Roberts and preclude causation |
| Standing to assert bad‑faith claim as garnishing judgment creditor | Kemp: As judgment creditor (third‑party beneficiary), he can assert insurer’s bad‑faith breach | Dairyland: challenged but court required briefing | Held: Kemp has standing under Kansas law and Tenth Circuit precedent to assert the claim as garnishee/judgment creditor |
Key Cases Cited
- Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502 (Kan. 1969) (sets factors to evaluate insurer bad‑faith refusal to settle within policy limits)
- Wade v. EMCASCO Ins. Co., 483 F.3d 657 (10th Cir. 2007) (addresses causation and recovery for excess judgment losses directly resulting from insurer breach)
- Roberts v. Printup, 595 F.3d 1181 (10th Cir. 2010) (analyzes insurer delay and whether delay caused insured’s exposure to excess judgment)
- Upland Mut. Ins. Co. v. Noel, 214 Kan. 145, 519 P.2d 737 (Kan. 1974) (construed homeowner policy exclusion and discussed negligent‑entrustment coverage issues)
- Glenn v. Fleming, 247 Kan. 296, 799 P.2d 79 (Kan. 1990) (discusses insurer duty and evaluation of settlement offers)
- Moses v. Halstead, 581 F.3d 1248 (10th Cir. 2009) (third‑party beneficiary/standing of garnishor to assert insurer’s breach)