*1 For affirmance—Chief Justice WILENTZ and Justices PASH- MAN, CLIFFORD, SCHREIBER, HANDLER, POLLOCK and O’HERN—7.
For reversal—None. GRIGGS, LITEM, CLINTON AN INFANT BY HIS GUARDIAN AD GRIGGS, INDIVIDUALLY, SUMMER GRIGGS AND SUMMER PLAINTIFFS, BERTRAM, WILLIAM v. DEFENDANT AND PLAINTIFF-RESPONDENT, THIRD PARTY AND BOARD OF TOWNSHIP, EDUCATION OF MONROE AND MONROE TOWN- (POLICE DEPARTMENT), DEFENDANTS, SHIP v. THE COMPANY, FRANKLIN MUTUAL INSURANCE THIRD PARTY DEFENDANT-APPELLANT. Argued September February 1981 Decided 1982. *5 Bernard Boglioli argued F. the cause appellant for (Boglioli & Stein, attorneys; Reynolds, Lawrence brief). S. on the
Edward K. argued Zuckerman the cause respondent (Pin- cus, Zuckerman, Gordon & attorneys). opinion of the Court was delivered
HANDLER, J. Bertram,
William teenaged a boy, became involved in fight a minor, with another Griggs. Clinton Anticipating the possibility claim, aof promptly Bertram notified his insurance carrier of the incident. Some later months such a claim was made and turned over to the carrier. year Over a later personal a injury suit was by Griggs started against Bertram and the formal complaint was referred to the insurance carrier. Only after receiving complaint, did the insurer first advise its insured there was no coverage because the claim involved an intentional tort excluded under the policy. The insurer waited to disclaim despite its earlier awareness injuries that the were sustained in fight and that the resultant claim might not be covered under policy. Bertram then respon- assumed *6 sibility for against his own defense Griggs’ action also filed a third-party insurer, action that asserting estopped carrier was from denying coverage because disclaiming delay liability. Following a settlement of the personal action, injury sought Bertram also recovery from the settled, carrier the amount which the carrier refused. These claims, to relating estoppel and the enforceability of the settle- ment, the major constitute issues on the present appeal.
The are underlying relatively fight facts simple. The be- 4, Griggs tween Bertram and occurred on May 1974while both a attending game were basketball at Township Monroe School leaving No. 4. As were they game, Griggs pushed a friend exchanged of Bertram and two some fighting words and blows. There is no clear from indication the record as to the injuries nature and extent of the Griggs. Shortly after this incident, carrier, gave Bertram his insurance Franklin Mutual (Franklin Company Mutual), Insurance possible notice of a 1974, August During claim. Franklin investiga- Mutual sent an Bertram, tor to interview punched who admitted he that had Thereafter, Griggs Griggs twice. made an actual claim for personal injuries, which claim Bertram forwarded to Franklin Mutual on learning December 1974. At no time after of the witnesses, incident did Franklin Mutual seek or interview other it any nor did make efforts to obtain a physical examination of Moreover, Griggs. gave Franklin any Mutual no indication that potential legal arising claim or action from this incident would not be covered under the it disclaim would coverage in the event such a claim or brought. action were
In January approximately 17 months after Franklin investigated claim, Mutual had first Bertram was served complaint personal with summons and filed Griggs for his injuries.1 Upon receipt, promptly Bertram forwarded the allege alleged 1The did not an intentional complaint specifically tort; damages negligence “by and carelessness of the defendant William Ber- Mutual, which, complaint 23, 1976, February Franklin on coverage, relying disclaimed on the intentional tort exclusion policy. the insurance Bertram hired his own attorney and filed Griggs’ complaint. an answer to Bertram also initiated a third- party action against seeking Franklin Mutual hold carrier responsible policy. under the insurance Thereafter Franklin Mutual sent attorney requesting letters to Bertram’s kept it be original action, informed of the status of the including the scheduling any physical deposition examination or of Griggs. action, personal injury
Before trial of the Griggs and Bertram following negotiations arrived at a settlement in which Franklin Mutual participate. did not provided *7 settlement that a judgment $9,000 in the amount of would be entered in favor of Griggs. Griggs agreed not to enforce judgment against this Bertram, assigned who Griggs to his interest in party the third action, which the agreed pursue latter to against Franklin Mutual as the exclusive means of satisfying judgment. Further, Griggs agreed to furnish a warrant of satisfaction of judgment Bertram, against regardless entered of the out- third-party come of the action. A judgment consent based on agreement this was entered.
At the trial third-party complaint, of the Bertram admitted that he had committed an intentional tort and conceded that his claim by was not covered the terms of the insurance policy. Nevertheless, the trial court held that Franklin Mutual was N.J.Super. (Law liable. 163 1978). 87 Div. The court deter- mined that the carrier’s failure notify to Bertram promptly of its intention estopped to disclaim it from denying coverage. It that, also ruled paying order to avoid the amount of the judgment Bertram, consent against Franklin Mutual had the during altercation,” although, tram complaint the course of an elsewhere the alleged Griggs wrongfully “was assaulted” Bertram. The Monroe Township Township Board of Education and Monroe were also named as They summary defendants. were dismissed from the action on a motion for judgment. burden of showing that the settlement Griggs between and Bertram was unreasonable. After holding another hearing, the trial court found that Franklin Mutual had failed to sustain this proof. burden of Accordingly, the court judgment entered a favor of $9,000, Bertram in the amount of payable Griggs, $2,185 and for counsel fees and costs. Franklin Mutual’s motion for a new trial was denied and it appealed to the Appellate Division, which affirmed substantially for the reasons set forth by the trial court. N.J.Super. (1980). Franklin Mutual then successfully petitioned this Court for certification. 85 N.J. (1980).
I
The principal issue in this case is whether the insurance
carrier, having failed for a substantial period of
notify
time to
its insured of the possibility of noncoverage,
estopped
was
deny coverage of the
claim
its insured.2 The trial court
acknowledged that Franklin
right
Mutual had a
under the policy
coverage,
disclaim
recognized by
as
the case of Burd v. Sussex
Mutual Ins.
(1970). However,
Under certain circumstances an insurance may carrier be estopped asserting from the inapplicability of insurance to a provision policy excluding coverage
2The of the insurance reads as follows: policy apply: Coverage This does not Liability 1. Under E—Personal * * * Coverage Payments bodily F—Medical injury to Others: f. to property damage expected which is either or intended from the stand- point of the Insured. clear contractual despite against its
particular claim
coverage
policy.
of the
claim from the
excluding the
provision
giving rise to such an
frequent situation
and most
strongest
The
to defend a lawsuit
undertakes
a carrier
wherein
estoppel is one
with
insured.
If it does so
its
upon a claim
based
or to a
policy
to a
defense
that are relevant
knowledge of facts
claim, without a valid reservation
noncoverage of the
basis for
time,
estopped from
later
it is
deny coverage at a
rights to
Indemnity Corp.
Eggle
v.
coverage. Merchants
denying
later
114,
(1962); O’Dowd v. United States
ston,
127-129
37 N.J.
444,
(E.
1937);
Co.,
A.
117 N.J.L.
451 — 452 &
Fidelity Guaranty
&
Cleaners, Inc.,
117, 125
75 N.J.
Ins. Co. v. Hala
Mutual
cf. Sussex
well
where insured was
aware of
not raised
(1977) (estoppel
taking legal
notwithstanding insurer’s
coverage
dispute over
itself).
well as
of insured as
for benefit
action
in this context
is that
estoppel
behind
The rationale
assumes con
acknowledged the claim and
insurer has
once the
defense,
justified
relying upon
the insured is
trol of
any
responsible
and to be
it under its
protect
carrier to
Eggleston, supra,
357 litigation before assumption of a defense after litiga- tion—the conduct of the insurer independent paral- forecloses or by lel action the insured to defend itself. In either situation the insured effectively acting precluded from its own interest Hence, under the policy. properly an estoppel bars the carrier from later asserting responsibility protect had no policy. insured under the specific issue in this appeal principles is whether these of
estoppel apply where the insurer has assumed neither actual a control of case nor of. preparation any undertaken the defense insured, on behalf but has failed an instead for unreason- period able of time possibility to inform its insured of the aof coverage, notwithstanding disclaimer of early the insurer’s noti- possible fication of a claim grounds and awareness of for dis- claimer.
Upon the receipt from its insured of a claim or notifica give claim, tion of an may incident that rise to an a insurer is a period entitled to investigate reasonable of time in which to particular whether the incident involves a risk covered Stewart, policy. terms of 287, 296-297 Bonnet v. 68 See N.J. (1975); Casualty Co., Jones v. Continental 123 N.J.Super. (Ch.Div.1973). 357 But once an insurer has had a reasonable opportunity to investigate, grounds or has ques learned tioning coverage, it then duty promptly is under a to inform its coverage intention to disclaim or the possibility coverage questioned. will be Eggleston, denied See 131; Bonnet, 297; 320; Sneed, N.J. at N.J.Super. 68 N.J. at at Balter, (Law Ebert v. 83 N.J.Super. Div.1964). delay disclaiming
Unreasonable
coverage,
giving
or in
disclaimer,
the possibility
notice of
of such a
even before assum
action,
ing actual control of a case
or defense of
can estop
repudiating
an insurer from later
responsibility under the insur
Bonnett,
policy.
(while
supra
spoke
ance
Cf.
the Court
in terms
of insurer’s
investigation
“retention
control of the
and de
claim,”
fense of the negligence
there was no defense actually
*10
undertaken; nonetheless,
Eggleston
the Court held that
princi
estoppel
potentially applicable
were
where there was a
ples of
receiving
after
the
only four months
summons and
disclaimer
insureds).
Security
complaint from
See
Ins. Co. of New Haven
White,
215,
(10
1956);
219
Cir.
Bouchard v. Travelers
v.
236 F.2d
Co.,
122,
(1969);
Conn.Sup.
In this Court stated 37 N.J. at The ingredient” estoppel. of 129. Court an essential however, is when recognized, “prejudice there that inevitable complete right insured is denied the to maintain control of the damage Id. It also observed that the defense of the action.” presumption prejudice, speak “some courts of a ‘conclusive’ because, rerun, they the course cannot be believe doubtless since attempt prove disprove or to that the insured it futile to Reviewing previous on own.” Id. would have fared better his decisions, Jersey Eggleston prejudice New Court found that presumed a matter of law where a carrier has undertaken is as damage to defend a suit. Id. concluded, noted,
As
the trial court in this case
on the authori-
ty
Eggleston,
prejudice
presumed
that “actual
is
and need not
insured,”
Eggleston
was
proven by
be
rule
applicable against
N.J.Super.
Mutual.
at 94.
Franklin
However,
Eggleston
Court itself noted the existence of a
case,
Newspaper
Casualty
Inc. v.
Delivery,
Maryland
Reliable
Co.,
1944), which,
(E.
though
& A.
the carrier
131 N.J.L.
after
and the
had disclaimed some ten months
accident
brought
year
until about one
after the
damage suit was not
disclaimer, a
“there was no
divided court nonetheless found that
prejudice
estoppel.”
and hence no
This as it prejudice, related was considerably narrowed v. Sneed Concord Ins. 98 N.J.Su per. (App.Div.1967). Appellate Division observed that presumption the reasons for a of prejudice when an insurer controls the defense after institution of an action also apply to the control óf a claim before suit filed. The Appellate Division that the believed difference between control before and *11 after an is degree action instituted is “one of of invasion of the rights, not a]ny invasion, insured’s of kind if substan [and tial, particularized should suffice without the need for establish prejudice.” N.J.Super. ment of 98 at 319. It empha further sized that the insurer’s maintenance of control the during period time immediately after the incident is critical since relevant may evidence become by passage faded or lost the of time. Id. question posed The in the instant matter is whether the imputation of prejudice, justified found in to Sneed be an when insurer assumes control of the the policy, claim under is also appropriate in the situation where the actually insurer has not Thus, controlled case. is question prejudice whether can where, here, imputed be as an insurer timely receives notice of claim, the possibility of a is entitled to avail itself of its right contractual to investigate incident, a learns of basis for disclaimer, and does not alert potential its insured as to noncov- erage until a legal actually after brought. action If this kind by of conduct an insurer can be said to a constitute material upon rights encroachment an protect insured to itself handling the claim directly insurer, and independently of the prejudice then rights to presumed. those should be rights invasion of the insured’s in this situation are hypothetical. case, not In this for example, the insured was under a policy duty “cooperate” to with the carrier in the conduct evidence,” of suits and in the “securing giving and [of] and to refrain “voluntarily assuming] any obligation.” from ...
360 which will independent must action
Obviously the insured avoid compliance the policy; the essential terms of any contravene precedent recovery to under provisions is a condition with such coverage. cause a forfeiture of and their breach can Co., 373, 375 Casualty Ins. N.J.L. Kindervater v. Motorists cooperate and not (E. 1938) (breach & A. covenants negoti any any ... or interfere in “voluntarily liability assume operates “as an legal proceedings” or ations settlement liability.”) setting, In this the insurer’s contractual avoidance of steps early any meaningful take toward an insured cannot risking coverage pursu loss of of the claim without settlement voluntarily compromis from provision prohibiting to the ant Further, liability independently settling the claim. Id. ing investigation the incident an insured who undertakes its own potentially to a claim can prepare or endeavors to defense right to paramount interfere the insurer’s control case with charge by insurer of a may thereby exposed be to a later duty cooperate. policy provisions regarding breach of the Corp., v. 130 N.J.L. 580-581 Indemnity Whittle Associated Co., Watts, N.J.Super. (E. 1943); A. Pearl Assur. Ltd. v. & 483, 484, & Ins. Co. (App.Div.1959); Travelers General 490-491 1942). (10 F.2d Cir. v. Rudco Oil & Gas *12 upon insured to turn over claims obligations These the with any might that interfere promptly, to abstain from conduct cooper rights affirmatively of the insurer and to contractual turn, carrier, impose ate with the insurance commensurate upon receiving possible a Upon duties the insurer. notice of insured, investigate duty claim has the to its insurer “[Cjonsiderations good the matter within a reasonable time. * * * dealing require and make faith fair that insurer Fire investigation^] any within a reasonable time.” [of claim] 63, Hartford, 72 N.J. Security man ’s Fund Ins. Co. v. Ins. Co. Balter, (1976). supra. Ebert v. 73 also See to deal in faith also obligation good The insurer’s fair and between the insured “duty includes full disclosure
361
insurer,”
Co.,
and his
Yeomans v. All
Ins.
N.J.Super.
State
121
96,
(Law Div.1972),
N.J.Super.
102
aff’d 130
(App.Div.1974).
48
Keeton,
generally
Rights,”
See
“Insurance Law
83 Harv.L.Rev.
961,
(1970).
duty
965
This
necessarily requires that an insurer
communicate
timely
to
insured in a
fashion the results of
any investigation.
Nuss,
Bollinger
502,
Cf.
v.
449 P.2d
(Kan.1969) (a
imposed
duty is
on
carrier to communicate to
any investigation
insured the results of
indicating liability in
may
excess of
limits so that he
proper steps
take
to
protect
interests).
his own
especially impor
Such disclosure is
tant where
investigation
the results of an
reveal a conflict
between the interests
insured and its insurer. Cf. Board
of Ed. of Bor. of
Co.,
Chatham v. Lumbermens Mut. Cas.
541,
F.Supp.
(D.N.J.1968),
(3
1969)
aff’d
In case a of 18 months elapsed between the possible notice of incident claim and the attempted and by disclaimer the insurance carrier. after Shortly the initial occurrence the carrier was alerted to sufficient facts to cause it question reject or possibly coverage under the policy. Yet it chose say absolutely nothing to its applica insured as to the bility availability protection of insurance policy. under the Clearly the duty promptly insurer failed in its notify investigation insured of the results of its the claim was —that not, be, might not covered the terms of the policy. *13 nothing after has done notifica the insurer Even where of the not otherwise assumed control a claim and has tion of noted, right has the exclusive case, insurer, as we have effectively claim and to deter policy to control the under the any that will interfere with the taking action insured from any In the absence of right control the matter. insurer’s with, is is carrier that inconsistent or by the insurance conduct of, its repudiation rights, contractual of a clearly indicative vigorously justified believing the insurer is exercis insured is fully protect which rights in a manner will ing these itself, The insurance policy. interest under insured’s implied compelling fiduciary duty fairly, to deal with the but insured, effectively good generates and in faith with this expectation. reasonable expectation protection its
The insured’s reasonable of of course, can, by dispelled timely by interests the insurer of be of a of possible from the insurance carrier disclaimer notice however, Where, long lapse there has been a of time coverage. any by the insurance carrier a loss or without indication justifiably rejection coverage, during which the cannot, protected by carrier and at the expects except to be coverage, policy, for itself under the there forfeiting risk of act upon is the insured’s contractual freedom of a realistic restraint upon legitimate, protecta a significant action and incursion speculative, unproductive It would be ble interests. Sneed. try what avenues the insured unfair to to surmise recreate pursued in such a situation if had had a might otherwise have during on its own the time matter clear field act cannot rerun.” preempted the carrier. That “course be justify imputation prej Eggleston. These circumstances estoppel the insurer.3 udice sufficient to raise course, many usually recognize, are that must there variables 3We estoppel upon presumption preju- to raise an conclusive coalesce .based situations, may involving, rights be insured. There other dice to the of the regarding delay example, insurer discloses its intentions a short before the
363 Finally, Franklin Mutual contends that its conduct not the of estoppel should be basis an because in refusing to procedure defend it followed the outlined in Burd v. Sussex Co., 383, (1970).4 Mutual Ins. 56 N.J. 390-394 Burd, suggested In this Court the procedures to be followed involving insurers in cases potentially an intentional tort coverage. excluded from Because an insurer’s interest in de- fending a such suit often conflicts with the interests of the insured, usually and the main action not does resolve the issue of coverage, the Court that the stated carrier could settle the coverage judgment issue in a declaratory action before or after action, 390-391, the main 56 at in proceeding N.J. or a on the insureds, case, policy by however, id. at 394. In this dereliction insurance carrier inheres in its failure to raise coverage question so, promptly. If it had done dispute a over coverage guide- could have been handled under the Burd lines. where, notice,
We therefore timely conclude after claim, adequate opportunity investigate knowledge a and the of a basis for denying questioning coverage, insurance insurance carrier fails for an unreasonable time inform the disclaimer, potential insured of a estopped it is from later may coverage imputation prejudice. which not call the conclusive We note, determination, attempting complete without fashion more a that it. may appropriate impute prejudice be in such other contexts not to conclusive impose presumption prejudice but to rebuttable which insurer must disprove estoppel. in order to overcome bar creating coverage 4Franklin Mutual also intimates that for an admitted public policy against coverage. intentional tort violates the such See Malan Co., ga 220, Casualty (1958). v. Manufacturer’s Ins. 28 N.J. 225 We find no position coverage by estoppel merit this in because of an tort intentional Hence, estoppel arises for reasons not related to the itself. tort these public policy by encouraging circumstances does not violate intentional torts. 571, 577-578, Indemnity v. Canadian Tomerlin 61 Cal.2d P.2d Cal.Rptr. (1964). legal policy the event a denying coverage under insurance brought against is its insured. subsequently action
II remaining responsible Franklin Mutual is issue whether between payment under the for the settlement *15 participate in the settlement Griggs and Bertram since did not negotiations. The “no of the provision action” insurance prohibits recovery unless a settlement entered into with there is an judgment following the insurance carrier’s or a participation actual trial.5
This has stated: Court wrongfully coverage so insured, Where an insurer and a defense to its refused obliged that the to in an action held'to be covered insured is defend himself later judgment the obtained the insurer is liable for the amount the by policy, against the of the made him. The to insured or settlement by only qualifications be that the this rule are that the amount in settlement reasonable and paid good faith. Fund Ins. Co. v. Ins. Co. of be made payment [Fireman’s Security quoting Mfgrs. at Ind. Ins. Co. United Cas. Hartford, 72 N.J. N.J. v. States (App.Div.1966)] 407-408 N.J.Super. Here, although injury action between personal the by Griggs was later found be covered and Bertram not one to policy, equitable grounds that is on from estopped an insurer advantage vis-a denying policy coverage greater have no should directly is under the vis its insured than an insurer that liable terms of that since Mutual policy. We conclude Franklin similarly estopped denying coverage policy, under the it is from with “no action” estopped insisting compliance on from provision policy.
5The stated: provision against Against this Suit suit or action shall lie this a. No Company: (1) full has been unless: as a condition thereto there precedent Company, this and all of the and provisions stipulations policy, with compliance (2) obligation deter- to has been pay finally amount of Insured’s (b) (a) judgment trial; by after mined: the Insured actual by agreement this Insured, Company. written of the the claimant and Franklin Mutual further contends that notwithstanding estoppel against invoking provision the “no action” of the policy, settlement between Bertram and Griggs is unenforce able negotiated because it was unreasonable and in bad faith. The upon principle carrier relies that wrong an insurer who fully only refuses to defend is liable for a reasonable good by E.g., faith settlement made its insured. Fund, Fireman’s N.J. at 73. respect
With
to this contention the trial court held that an
demonstrating
insurer has the
burden
the unreasonable na
ture of a settlement.
Most courts that have considered this issue have held settlement is presumptive liability evidence of the of the insured damages, and the amount of and that the insurer has the burden rebutting of presumption this by showing that the settlement was E.g., unreasonable in bad faith. St. Louis Dressed Beef Maryland Co., & Provision v. Casualty 173, Co. 182, 201 26 U.S. 400, 403, 712, (1906); S.Ct. 50 L.Ed. 717 Boutwell v. Employers’ Liability 597, Corp., (5 1949); Assurance 175 F.2d 601 Cir. Ker Co., v. Maryland 248, shaw Casualty Cal.App.2d 256-257, 172 342 72, (1959); P.2d 78 Missionaries Mary, of Co. Inc. v. Aetna Cas. Co., 104, 21, & (1967); S. 155 Conn. 230 A.2d 26 Elliott v. Casualty America, 282, 782, Association 254 Mich. 236 N. W. (1931); 783-784 Butler v. Co., Brothers Fidelity American 120 157, 355, Minn. (1913); 139 N.W. 359 Brinkman v. Western Association, Automobile Indemnity 71, 205 Mo.App. 218 S.W. 944, (1920); Lindstrom, 813, 945-46 Mitchell v. 12 App.Div.2d
366
923, 927,
appeal den.,
motion for leave to
9 N.Y.2d
209 N.Y.S.2d
(1961).
is
613,
1025,
This rule
In
must be
approaching
inquiry,
the character of
insurance
as a contract of adhesion.
Co.,
86, 94
Cooper
Employees
See
v. Government
Ins.
51 N.J.
Keeton,
Harv.L.Rev.,
(1968);
supra,
Law Rights,”
“Insurance
83
It
equally important
emphasize
at 966-967.
is
that “[a]n
good
contract
preeminently
insurance
one of
utmost
Horizons, Inc., N.J.
Equitable
faith.”
Life Assur.
v. New
28
Soc.
York,
(1958);
Fidelity
307
Casualty
see Bowler v.
&
Co. of New
(1969);
Metropolitan
also Allen
Ins.
N.J.
see
v.
Life
(1965).
dealing
rights
we are
with
that derive
N.J.
Since
*17
adhesion,
insurer,
from
which
as
dominant
a contract
the
the
fiduciary,
entirely
party,
appropriate
must honor as a
is
rest
insurer.
persuasion
the ultimate burden of
should
with the
Cooper,
This does practical not that it fair or the require carrier to assume of producing also the burden evidence. The insured would have had of the control case and the opportunity discovery as to all essential information. surrounding operative circumstances the settlement and the evidential good facts as to its reasonableness and faith are known to the Knowledge insured. of these facts and circum- ordinarily stances possession carrier, would not be in the of the which was participant negotiations. not a in the settlement Thus, insured, undue hardship ineq- without or fundamental can uity, relating best to the marshall the basic facts settlement. Further, requiring the insured initially produce proofs con- cerning gives procedural settlement the insured -the initia- to identify tive issues critical and relevant evidence. It will apprise the insurer nature of the of the insured’s claim and will speculation remove guess or work as will be to what material in of the terms reasonableness and fairness of settlement. To the extent that the relevant issues are established and clarified adduced, and material evidence is stand parties both to benefit. Additionally, placing production the initial burden of on the insured will adequately protect serve to carrier having from pay a settlement reached through collusion between the injured insured and the party third or which is otherwise unrea- product sonable and the of bad faith.
By imposing upon production the insured the burden of going evidence, forward with relevant which settlement by insured has not production proof shown initial to be prima facie in amount by reasonable and untainted bad faith however, would, Since, course, be unenforceable. insurer its unfair dealing imposed upon has the insured the full protecting placed burden of own interests and has it in the predicament attempting difficult own to secure on its benefits of policy, insurance under the the insurer should not be freed of the persuasion question burden of on the of its ultimate *18 therefore, should, to required It be sustain
responsibility pay. to by prepon- a major demonstrating, burden of the ultimate and evidence, liable the settle- that it is not because derance the good in faith.6 nor reached ment neither reasonable be enforced may hold a settlement We therefore that it only if is reasonable in against an in this situation insurer good The initial burden of and into faith. amount entered upon rests the proofs of these elements going forward with as to these persuasion and burden of the ultimate rule reason the insurer. This responsibility is the elements compromises competing the interests of ably and accommodates policy. It will discour public parties the and considerations overreaching upon insurance carriers impositions age collusive or time, and, encouraging will conducive toward at the be same amicably its an insured in efforts to protecting and settlement by having been abandoned a after resolve claim carrier. by that the result reached
In this case cannot be confident we the burden of have obtained had evidential the trial court would with been allocated in accordance our production persuasion and Mutual, Franklin for exam- pointed by It is out determination. physical to a examination of that failed obtain ple, Bertram had incentive argued It is that Bertram little to Griggs. also a reasonable amount where the limit settle for small or $100,000 not had executed a covenant to Griggs was and where Hartford, Security Fund 6Our decision in Fireman’s Ins. Co. v. Ins. Co. (1976), proof indicating as to in dictum that the burden of the N.J. insured, contrary. upon was is not to the reasonableness of a settlement concerning coverage main was whether the There the central issue in the case wrongfully policy limits to in bad faith to contribute its a insurer and refused part primary plaintiff prove, as of its case reasonable settlement. had damages regarding policy, the breach of the insurance and aside from circumstance, issue, that was fact reasonable. In that settlement already determined where the reasonableness of settlement has been evidence, self-defeating preponderance confus of the it would have been and ing place prove, damages phase in the of the burden on insurer to case, that settlement was unreasonable. solely sue Bertram and to look carrier for satisfaction of judgment. congeries This suggests circumstances production the burden of of evidence as to the reasonableness good faith of the properly settlement should on the be *19 though Franklin Mutual bears the ultimate burden of persuasion on this issue. There must therefore be a remand for hearing another upon the enforceability of the settlement accordance with our decision.7
One argument additional made Franklin Mutual that the settlement is unenforceable supported because it is not by any consideration. The absence of consideration is said to agreement derive from the by Griggs to seek solely relief from the carrier under the consent judgment and not to enforce the judgment against Bertram. majority
A of courts permitted have injured plaintiff to recover from despite the insurer a covenant only to seek relief E.g., from the insurer. Coblentz v. Surety American Company York, 1059, of New 416 F.2d (5 (Florida 1969) law); 1063 Cir. Farm State Mutual Auto v. 198, Ins. Co. Paynter, 122 Ariz. 593 948, P.2d 953 (Ct.App.1979); Zander Casualty v. of Ins. Co. California, Cal.App.2d 793, Cal.Rptr. 561, 259 (1968); 66 568 Family Kivela, American Mutual Ins. 805, Co. v. 408 N.E.2d 813 (Ind.App.1980); Co., Metcalf v. Hartford Accident Indemnity & 468, 471, 176 (1964). case, Neb. 126 N.W.2d 476 leading Metcalf, reasoned that the insurance company denying “[w]ith liability, was to entitled use all reasonable means [the insured] * * * avoiding personal of liability repudiated its [The carrier] obligation carry to assume and judgment, the defense to final and, having case, abandoned the it left the liberty assured at to 7Regarding damages, the issue of the fees costs attorney’s and of element subject the Law Division held that “they are course and provable ordinary damages,” of to same rules evidence as other claims any 163 N.J.Super. 97, at and that therefore are from they the burden alloca excluded proof tion established for the issue of the reasonableness of the settlement. None this parties disputes determination.
370 or, judgment, the claim to final and contest up
take the defense possible.” favorable settlement advised, make the most if so to supra, 4690at Appleman, also 7C § at 475-476. See 126N.W.2d 292, Co., N.C.App. v. Peerless Ins. But cf. Huffman 228-231. (1973) 257, 773, 195 S.E.2d certif. den. N.C. 193 S.E.2d execute; incorporated a covenant not to judgment itself (consent the terms of ground that “under not liable on insurer legally obligated were not judgment, consent insureds] [the v. Paul Fire & St. damages plaintiff”); Stubblefield pay (1973) (even Ins. 267 Or. 517 P.2d Marine apart from separate execute existed where covenant not to amount that any was not liable for judgment, consent insurer pay plaintiff). “legally obligated” the insured was not agreement should be able to reach an An insured tortfeasor wrongfully declines to relieving liability when its carrier protection is able to retain the way In this an insured defend. insurance, injured party potential while the obtains *20 remedy against wrongfully the insurer who has removed itself Any possibility from the suit. of fraud or collusion between the reaching agreement proceed insured and the victim in an solely against the insurer is best dealt with as a constituent element of the proof bifurcated burden of allocation now estab- purpose determining lished for the whether the settlement was in unreasonable amount or arrived at in bad faith.
Accordingly, judgment part the below is affirmed in part reversed in and the cause is remanded. Jurisdiction not retained.
CLIFFORD, J., dissenting. generally position
I subscribe to the Court’s on insurance circumstances, which, here, liability carrier under in as Furthermore, carrier casts its insured adrift. on the issue of negotiated by a settlement a forsaken reasonableness of claimant, injured agree going I the burden of with insured, forward with the evidence should be on the with the proof remaining ultimate burden of on the carrier. However, in I this case would hold the settlement entered into
by Griggs and Bertram be no effect as a matter law. it presently The record as stands is incomplete of course on all settlement, the details of the but it is sufficient for me to conclude without hesitation that the settlement was an utter sham, a transparent conjured device up by parties thereto purpose of euchring for sole the insurance company. The recognizes hovering settlement, Court the cloud over the see 368-369, at raising ante simply but views that cloud as a question of fact parties on whether were I cahoots. harbor no doubts on issue. agreed, counsel,
Bertram on the advice of judgment to let for be against taken him. He coverage $9000 had with Franklin $100,000. Company Mutual Insurance for Inasmuch Griggs as promised pursue personally not Bertram promised and indeed to furnish Bertram with a warrant for judgment satisfaction of no matter what the outcome of the claim the insurance company, it not mattered to Bertram whether the settlement $90,000. was for $9000 His indifference regard in this manifested the fact that judgment against he consented to a having depositions him without obtained physical or even a Griggs. (Any adjuster examination of claims paying $9000 physical file, without a report examination on a claim ostensibly involving couple high exuberant school young- having sters at each other after game, a basketball would swiftly join the unemployed.) ranks
Under the circumstances the hardly settlement before us can be deemed to have in good been entered into faith. I would parties shabby therefore just leave to this transaction where law I found them. vote to reverse and judgment enter defendant. *21 part
For part affirmance in and reversal Justice —Chief PASHMAN, SCHREIBER, WILENTZ HANDLER, and Justices POLLOCK and O’HERN —6.
For reversal —Justice CLIFFORD —1.