Gerald BOURGET, Plaintiff-Appellee, and Security Insurance Company of Hartford, Inc., Intervening Plaintiff-Appellee, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant-Appellant.
No. 380, Docket 35507
United States Court of Appeals, Second Circuit
Decided Feb. 22, 1972
456 F.2d 282
Before FRIENDLY, Chief Judge, MOORE and OAKES, Circuit Judges.
Argued Jan. 4, 1972. Oakes, Circuit Judge, dissented and filed opinion. See, also, D.C., 313 F.Supp. 367.
We, therefore, vacate the judgment of the district court and remand the case for further proceedings consistent with this opinion.
Stephen Duke, New Haven, Conn., for appellee.
Peter C. Dorsey, New Haven, Conn. (Flanagan, Dorsey & Flanagan, New Haven, Conn., of counsel), for intervening-appellee.
Curtiss K. Thompson, New Haven Conn. (Thompson, Weir & Barclay, New Haven, Conn., of counsel), for appellant.
In this diversity action we are called upon to predict what result the Supreme Court of Connecticut would reach under a provision in a statute of that state, now Title 38,
This action stems from a collision, in Connecticut, on March 18, 1965, between a tractor-trailer being driven by plaintiff Bourget, a resident of Massachusetts, for his employer, Branch Motor Express Company, and a passenger car owned and operated by Oren Thompson, a resident of Connecticut. Bourget was injured; Thompson was killed and his car was destroyed. There appеars to have been no doubt that Thompson was solely at fault. Thompson was insured by defendant, Government Employees’ Insurance Company (GEICO), a District of Columbia corporation having its principal place of business there, under a standard liability policy with a personal injury limit of $20,000.
On May 27, 1965, an inventory of Thompson‘s estate was filed in a Connecticut probate court. The sole asset was $2,275, representing the proceeds of the insurance оn his car. The administrative account filed on December 6, 1968, and accepted by the court, after public notice, on December 11, 1968, showed the payment of claims of $129.63 and of $947.02 for funeral, probate and legal expenses, the latter of which were entitled to priority, see Bennett v. Ives, 30 Conn. 329, 335 (1862);
On September 20, 1965, Bourget elected to receive workmen‘s compensation benefits, under governing Massachusetts law, from his employer‘s liability insurer, Security Insurance Company of Hartford, Inс. (Security), a Connecticut corporation. The agreement provided for compensation benefits of $53 per week for Bourget and of $36 per week for his dependents. The benefits were to continue as long as Bourget remained partially disabled and, in the case of the latter payments, so long as the dependency continued. Security also agreed to pay the costs of any litigation brought by Bourget.
On October 1, 1965, Bourget filed аn action in the District Court for Connecticut against Mrs. Thompson as administratrix, seeking compensatory damages of $150,000.00 and exemplary damages of $50,000. He was represented by the firm of Lynch & Traub under an arrangement for a contingent fee of 33 1/3% of the gross amount of any recovery. Pursuant to its policy obligations, GEICO retained counsel, Morris Tyler, Esq., to defend the action on the estate‘s behalf and notified Mrs. Thompson that since the complaint was in еxcess of the policy limits, she had the right to hire her own counsel for the estate. She declined to do so. GEICO‘s investigation led it to conclude that Bourget was substantially overstating his injuries from the collision, some of which, in its view, were the result of a 1961 accident and others of which it believed not to exist at all. Although Judge Zampano, who was to preside at the trial, suggested at a pre-trial conference that GEICO would be well advised to settle for the policy limit of $20,000 less a small saving and Bourget‘s counsel was prepared to compromise in that area, the highest settlement offer GEICO‘s counsel ever transmitted was $12,500. The jury rendered a verdict for $94,900; judgment was entered for that sum plus costs of $442.65. GEICO paid Bourget $20,000; up to the time of trial, Security had paid Bourget some $16,225 in benefits and it received $9,606.94 from the payment made by GEICO.
After a demand that the administratrix pay the balance of $75,342.65, which met with the response that might have been anticipated, Bourget brought an action in the District Court for Connecticut against GEICO for that sum, avowedly pursuant to the last sentence of
The basis for judicial imposition on liability insurers of a duty to exercise good faith or due care with respect to opportunities to settle within the policy limits “is that the company has exclusive contrоl over the decision concerning settlement within policy coverage, and company and insured often have conflicting interests as to whether settlement should be made . . . .” Keeton, supra, 67 Harv.L.Rev. at 1138; Harris v. Standard Accident and Ins. Co., 297 F.2d 627, 630 (20 Cir. 1961), cert. denied, 369 U.S. 843, 82 S.Ct. 875, 7 L.Ed 847 (1962). Whether one considers the insured‘s claim to sound in tort, as most of the cases have, see Keeton, supra, 67 Harv.L.Rev. at 1138 n.5, or as based on an expansive reading of the contractual obligation to prоtect up to the agreed limits, see Comunale v. Traders & General Insurance Co., 50 Cal.2d 654, 328 P.2d 198 (1958); Terrell v. Western Casualty & Surety Co., 427 S.W.2d 825 (Ky.1968), what gives rise to the duty and measures its extent is the conflict between the insurer‘s interest to pay less than the policy limits and the insured‘s interest not to suffer liability for any judgment exceeding them. In the rare instance where the insured has no such interest, there can be no conflict and the duty does not arise. Such was our holding in Harris v. Standard Accident and Ins. Co., supra. Contrast Young v. American Casualty Co. of Reading, 416 F.2d 906 (2 Cir. 1969), petition for cert. dismissed pursuant to Rule 60, 396 U.S. 997, 90 S.Ct. 580, 24 L.Ed.2d 490 (1970).
There could scarcely be a case where the insured‘s lack of interest in avoiding a judgment exceeding the policy limits was as clear as this one. Thompson had no assets at all except his car. The insurance proceeds on this were completely consumed by claims to which Connecticut gave priority over Bourget‘s,3 Barnum v. Boughton, 55 Conn. 117, 10 A. 514 (1887) (widow‘s allowance not attachable); Bennett v. Ives, 30 Conn. 329, 335 (1862) (expenses for funeral and settlement of estate rank before other debts of estate); see
We recognize that in Lee v. Nationwide Mutual Ins. Co., 286 F.2d 295, 296 (4 Cir. 1961) (Maryland law), the court spoke of “the utter irrelevance of the death to the insurer‘s tort, which was committed by the insurer long after the insured‘s death, with absolutely no connection between the two.”5 However,
The parties have engaged in extensive debate as to whether the final sentence has any application to claims for failure to exercise good faith with respect to settlеment. GEICO argues with some force that the last sentence of the section deals only with the type of liability described in the first, which obviously is confined to the policy limits. It buttresses this argument with the point that in 1919 there was little law on the insurer‘s duty to settle and it is thus hardly conceivable that the 1919 legislature was directing its mind to this.6 However, for present purposes, we are willing to accept Judge Smith‘s conclusion in Turgeon v. Shelby Mutual Plate Glass & Cas. Co., 112 F.Supp. 355 (1953), that the final sentence of
Little need be written with respect to plaintiffs’ suggestion that, even absent the statute, they are entitled to sue for the excess judgment in their own right or by subrogation to the rights of the insured. The decisions have been practically unanimous in following Professor Keeton‘s statement, supra, 67 Harv.L.Rev. at 1176:
The еxcess liability of company arises out of the relationship between insured and company. Claimant is a stranger to that relationship.
See, e. g., Tabben v. Ohio Casualty Ins. Co., 250 F.Supp. 853 (E.D.Ky.1966) (Kentucky law); Chittick v. State Farm Mutual Auto Ins. Co., 170 F.Supp. 276 (D.Del.1958) (Delaware law); Ammerman v. Farmers Insurance Exchange, 19 Utah 2d 261, 430 P.2d 576, 578 (1967); Biasi v. Allstate Ins. Co., 104 N.J.Super. 155, 249 A.2d 18, 20-21 (1969); Duncan v. Lumbermen‘s Mutual Cas. Co., 91 N.H. 349, 23 A.2d 325, 326 (1941); Yelm v. Country Mutual Ins. Co., 123 Ill.App.2d 401, 259 N.E.2d 83, 84 (1970). The dictum in Bartlett v. Travelers’ Ins. Co., 117 Conn. 147, 167 A. 180, 184 (1933), that an insurer may be under a duty to exercise fairness in settlement of multiple claims within the policy limits is wholly insufficient tо show that Connecticut would set itself against the rule generally recognized in the absence of a statute clearly so providing.9
The judgment is therefore reversed with instructions to dismiss the complaint.
OAKES, Circuit Judge (dissenting):
I dissent. The majority opinion here expands upon and applies to Connecticut a decision that involved only the law of New York,1 that has been sharply limited by this and other courts2 and criticized to some extent by the commentators,3 and that was in my view based
I say that in my view Harris was based on unsound premises, as Judge Smith‘s dissent pointed out, 297 F.2d at 638, not only because the pendency of the action might have affected the assured‘s credit, since the refusal to settle in Harris occurred four months before insolvency, but also because Harris opens the door to using the shaky financial condition of an insured as a device for driving down settlements. I add that Harris‘s premises were insufficient because there is a strong public interest in spreading the burden of caring for the injured, Note, Direct Action Statutes: Their Operational and Conflict-of-Law Problems, 74 Harv.L.Rev. 357 (1960), and a real social and judicial interest in promoting good faith settlement negotiations,5 interests which the majority in Harris and here, it seems to me, overlook.
But we are not here conсerned simply with the underlying rationale of Harris, since it involved New York law—decided, incidentally, when a negligent failure to settle was not actionable and when no New York court had found evidence of bad faith sufficient to impose liability upon an insurer. 30 Fordham L.Rev. 188, 192 (1961). The majority extends Harris to Connecticut, where the statute reads, “. . . such judgment creditor . . . shall have a right of action against the insurer to the same extent that the defendant in such action could have enforced his claim against such insurer had such defendant paid such judgment.” [Emphasis supplied.]
The majority relies upon a quoted excerpt from an article by Professor Robert Keeton, stating that the claimant is “a stranger” to the relationship between an insured and his company. R. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1176 (1954). The inapplicability of the quoted excerpt to this case can be seen, however, only by evaluating the statement in its full context. The second sentence preceding the excerpt reads: “Some policies have contained a provision that claimant, after writ of execution against insured is returned unsatisfied, may recover against company to the same extent as could insured if he had paid the judgment; such provision has been construed as applying to the recovery to which insured would have been entitled under the doctrine of excess liability.” 67 Harv.L.Rev. at 1175.6 The sec-
I fail to see any difference between Professor Keeton‘s policy provision that is his own exception to the rule on which the majority opinion here is based, on the one hand, and the Connecticut statute just above quoted, on the other. Further, I find nothing in the Connecticut cases cited in the majority opinion which calls for any reading of the statute other than that given it by the court below, or that given to it by then District Judge Smith in Turgeon v. Shelby Mutual Plate Glass & Cas. Co., 112 F.Supp. 355 (D.Conn.1953). Indeed, the cases cited by Professor Keeton, note 6 supra, construing the same provision appearing in insurance policies, are further support for this reading of the statute.
The fortuitous and to my mind irrelevant death of the assured is held by the majority to permit an insurer to conduct settlement negotiations in bad faith, on the basis that the assured‘s estate was so small that his widow‘s allowance and funeral expense could have consumed it.
The majority has forged a rule of law that makes the insurer‘s duty turn on the wealth or poverty and the survival of the assured. This rule is further refined—by the decision in Young v. American Casualty Co., supra—so that if the deceased assured had had one dollar over priority items available for his heirs the plaintiff would have been entitled to recover the excess of his judgment over the policy limits, some $75,000. Such a rule might give incentive to insurers to write limited policies for the financially irresponsible, but it appears to me to be an anomaly.
I would affirm the judgment.
JAMES L. OAKES
UNITED STATES CIRCUIT JUDGE