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Royal Transit Inc. v. Central Surety & Ins. Corporation.

June 1, 1948


Author: Major

Before MAJOR and KERNER, Circuit Judges, and LINDLEY, District Judge.

MAJOR, Circuit Judge.

This is an appeal from a judgment in favor of the plaintiff in the sum of $24,011.37, in a suit to recover from the defendant, predicated on its alleged bad faith in failing and refusing to settle an aciion brought against plaintiff by one Zamecnik to recover damages for personal injuries. Zamecnik, an employee of Allis-Chalmers, was injured by the alleged negligence of an employee of Royal Transit, which was engaged in delivering a truck load of steel plates to Allis-Chalmers. The injuries were suffered as a result of the steel plates falling from the truck upon Zamecnik.

The Zamecnik action commenced in the Circuit Court of Milwaukee County demanded damages in the amount of $100,000. Allis-Chalmers having been required to pay workman's compensation was made a party defendant and cross-complained against the defendant, Central Surety and Insurance Corporation.

In August, 1936, defendant issued to plaintiff its policy of automobile liability insurance, with a limit of $45,000 for the death or bodily injury to a single individual. Such risks were reinsured by the defendant in another insurance company in all amounts in excess of $5,000. The Zamecnik action could have been settled before the trial, but was not, for an amount less than the defendant's maximum liability, and a judgment was secured by Zamecnik against the plaintiff in the amount of $62,500. This judgment on appeal was affirmed by the Supreme Court of Wisconsin, Zamecnik v. Royal Transit, Inc., 239 Wis. 175, 300 N.W. 227.

The case below was tried by the court without a jury, which made detailed findings of fact. Among other things it found:

"That said defendant at all times refused to agree or accede to any such offer of settlement and stubbornly, persistently, unreasonably, unintelligently and in bad faith refused to accept any such offer or any offer by which it could have settled said Zamecnik action within the coverage of said policy and stubbornly, persistently, unintelligently and in bad faith refused to make any counter offer of compromise within the coverage of said policy; and defendant threatened plaintiff for its efforts in seeking a settlement of said cause of action with penalties following non-cooperation provided for in the policy; that defendant could not and did not have a good faith belief that it could successfully defend said action.

"That the conduct of defendant before, during and after the trial of the Zamecnik case as set forth in these findings shows a manner of conduct which was an abuse of its power and betrayal of its duty to the plaintiff, and its decision to litigate the case rather than settle it for less than the policy coverage and its refusal to make a counter offer in an attempt to settle, and its threats to plaintiff when plaintiff urged settlement, was neither intelligent nor honest and such conduct clearly, satisfactorily and convincingly establishes bad faith."

While numerous contentions are advanced by the defendant, the primary issue for our determination is whether the findings of the trial court that the defendant exercised bad faith in refusing to make a settlement of the Zamecnik suit are substantially supported by the record.

Both sides agree that the applicable law is that announced by the Supreme Court of Wisconsin, and four cases are cited and discussed wherein the rights and liabilities of an insurer and insured under circumstances not dissimilar to those of the instant case have been determined. Wisconsin Zinc Co. v. Fidelity & Deposit Co. of Maryland, 162 Wis. 39, 155 N.W. 1081, Ann.Cas.1918C, 399; Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413; Lanferman v. Maryland Casualty Co., 222 Wis. 406, 267 N.W. 300; and Berk v. Milwaukee Automobile Insurance Co., 245 Wis. 597, 15 N.W.2d 834. In the Zinc Company case the question of the insured's good faith was raised on the pleadings.In the other three cases the question before the Supreme Court, as it is here, was whether the findings by a trial court of bad faith on the part of the insurer was sustained by the proof. In the Hilker and Lanferman cases it was held that the proof was sufficient to sustain such af finding, while in the Berk case the evidence was held insufficient.

We think it unnecessary to follow the defendant in its detailed analysis and its effort to distinguish these cases for the reason that they all hold in effect that an insurer is charged with the responsibility of exercising good faith in the defense of a claim against its insured and to exercise good faith in settling or compromising such claim within the limits of its liability where liability is conceded or where there is no reasonable basis for a contrary conclusion. The rule of law thus announced by the Supreme Court is not difficult of ascertainment, but the real problem is its application to the facts of a given case.

In the Berk case, the latest of the Wisconsin Supreme Court cases, while the judgment was reversed because of the insufficiency of the proof to sustain a finding of bad faith, the court nevertheless recognized the duty imposed upon an insurer as announced in its previous decisions. For instance, on page 602 of 245 Wis., on page 836 of 15 N.W.2d, it quoted with approval from its former decision in the Hilker case, as follows:

"'But because it has taken over this duty, and because the contract prohibits the insured from settling, or negotiating for a settlement, or interfering in any manner except upon the request of the insurer, such as assisting in the securing of witnesses, etc., its exercise of this right should be accompanied by considerations of good faith. Its decision not to settle should be an honest decision. It should be the result of the weighing of probabilities in a fair and honest way. * * * It must be honest and intelligent if it be a good-faith conclusion.'"

Notwithstanding the strong reliance which defendant places upon the Berk case, we think it is so clearly distinguishable on the facts as to furnish little if any support for defendant's contention in the instant case. One circumstance alone may be mentioned. There, as pointed out by the court, the insured not only failed to request or suggest that the insurer make a settlement but "clearly indicated that no settlement be made." It is difficult to discern how the insurer in any case could be guilty ...

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