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Bailey v. Prudence Mutual Casualty Co.

June 26, 1970

YVONNE BAILEY, INDIVIDUALLY AND AS GUARDIAN FOR DERRAN E. BAILEY, A MINOR, DELLA ARNETT, GUARDIAN OF JACQUALINE ARNETT, A MINOR AND DELLA ARNETT, ADMINISTRATRIX OF THE ESTATE OF WILMA JEAN ARNETT, DECEASED, PLAINTIFFS-APPELLEES,
v.
PRUDENCE MUTUAL CASUALTY COMPANY, A CORPORATION, DEFENDANT-APPELLANT



Honorable Tom C. Clark, Associate Justice, Supreme Court of the United States, Retired, F. Ryan Duffy, Senior Circuit Judge and Roger J. Kiley, Circuit Judge.

Author: Duffy

DUFFY, Senior Circuit Judge.

Prudence Mutual Casualty Company (Prudence) issued an automobile insurance policy to Donzella Goodall. The policy was in conventional form and provided coverage against legal liability arising from the operation of a designated automobile owned by the named insured.

Uluss Goodall was the husband of Donzella Goodall, and was an additional insured under the policy. By an endorsement, the policy provided uninsured motor coverage to all persons riding in the automobile.

The plaintiffs in this suit are persons who suffered personal injuries as the result of an automobile collision occurring within the State of Indiana in 1964. Uluss Goodall was driving the automobile which collided with an automobile in which the plaintiffs were passengers.

In the original tort action, plaintiffs sued Uluss Goodall for damages. The judgment in that case in favor of the plaintiffs totalled $60,000. The limit of the insurance coverage was $20,000.

Subsequently Goodall who was personally liable for the $40,000 judgment in excess of the policy limits, assigned to the plaintiffs his right of action against defendant Prudence for its alleged negligence and bad faith in the representation and protection of Goodall in the suit for personal injuries.

The instant case was tried before a jury which rendered a verdict favorable to plaintiffs and judgment was entered thereon. Motions by defendant for a judgment n.o.v. and for a new trial were denied.

About one and a half months thereafter, defendant raised, for the first time, the question of jurisdiction, claiming the assignment of the cause of action was a "subterfuge" and was for the sole purpose of providing jurisdiction, pointing out that both Goodall and Prudence were residents of the State of Illinois.

At no time during the lengthy proceedings before and during the trial of this case did Prudence suggest or allege that the purpose of the assignment was to vest jurisdiction in the federal courts.

There is nothing inherently wrong in the assignment of a cause of action. In fact, the assignment technique has frequently been used for prosecuting "bad faith refusal to settle" claims. Witness such cases as: Crisci v. Security Insurance Company, 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (1967); Bench v. State Automobile and Casualty Underwriters Inc., 67 Wash.2d 999, 408 P.2d 899 (1965).

Goodall was in court throughout the first trial until he was told by Prudence's counsel to leave prior to the time the jury returned its verdict. Goodall made several inquiries of Prudence's counsel but was given no information. Finally when he was informed of the amount of the verdict, the time had expired for post-trial proceedings and also the time for filing a notice of appeal had expired. It was then that Goodall employed attorney Shafran to make an investigation.

Attorney Shafran learned that the Goodalls were both employed, and owned a six-flat building which was valued in excess of $60,000. He then contacted plaintiff's counsel to see if something could be worked out. Finally, the assignment of the cause of action was effected. The consideration given was that there would be no proceedings against the Goodalls until after the claim against Prudence would be finalized. Shafran explained to the Goodalls that if they did not agree to the assignment, plaintiffs could levy on their property. Upon Shafran's advice, the Goodalls signed the assignment. An appropriate order suspending an execution of the judgment was entered.

It was understood that any recovery in the Prudence matter would go toward payment of the judgment and any excess ...


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