Summary
In Spitler the trial court held that an action for damages resulting from a judgment in excess of policy limits could not be maintained in contract but could be maintained only in tort, and on that claim bad faith had not been proven.
Summary of this case from Wolfe v. Continental Cas. Co.Opinion
No. 79-535
Decided February 20, 1980.
Insurance — Liability insurance — Action to recover in excess of policy limits — Insured's burden of proof.
In an action by an insured against his insurer to recover an amount in excess of policy limits, an insured must allege and prove bad faith as defined in Wasserman v. Buckeye Union Cas. Co., 32 Ohio St.2d 69, and in Slater v. Motorists Mutual Ins. Co., 174 Ohio St. 148, paragraphs one and two of the syllabus, unless the insurance policy provides for a stricter standard.
APPEAL from the Court of Appeals for Wood County.
This appeal is taken from an action brought by Robert E. Spitler, the administrator of the insolvent estate of Daniel P. Schmeltz (hereinafter "administrator"), against appellee insurance carriers (hereinafter "insurance carriers"), State Auto Mutual, Inc., and Motorists Mutual Insurance Company, to recover an amount in excess of the insurance carriers' policy limits and punitive damages.
On November 1, 1973, Schmeltz died as the result of an automobile accident in which one Bernard Euler was injured. Euler thereupon brought an action for personal injuries against the Schmeltz estate. The estate was opened and the administrator appointed solely for the purpose of bringing this suit.
Motorists Mutual carried liability insurance covering Schmeltz. State Auto carried similar insurance covering the party who owned the automobile Schmeltz was driving at the time of the accident. Because it insured the owner of the vehicle, State Auto was the primary insurance carrier, while Motorists Mutual was the excess carrier. Each of these insurance policies included a $15,000 liability limit for damages to one person, and also included a covenant requiring the insurer to defend related lawsuits.
Pursuant to their above duties to defend, the insurance carriers represented the administrator in the action brought by Euler. After a trial limited solely to the issue of damages, the jury awarded Euler $101,300. No appeal was taken from this verdict. Both insurance carriers paid Euler their full policy limits, i.e., a total of $30,000. Since the estate had no assets, the excess amount, $71,300, was left unpaid.
The insurance carriers conceded liability.
The administrator brought the instant action to recover this excess amount and punitive damages, alleging that the insurance carriers failed to adequately represent and protect the interests of the estate and that such failure constituted both the tort of bad faith representation and a breach of contract. The trial court granted both insurance carriers motions for summary judgment, ruling, inter alia, that their actions did not constitute bad faith as a matter of law; and that such an action could be maintained only in tort, and not in contract.
On appeal, the Court of Appeals affirmed the judgment of the trial court. In doing so, it sustained the trial court's ruling that there was no genuine issue as to the insurance carriers' bad faith. It ruled further that even if an action in contract could be maintained, there was no genuine issue as to a breach thereof.
The cause is now before us pursuant to the allowance of a motion to certify the record.
Messrs. Hayward, Cooper, Straub, Walinski Cramer and Mr. Cary Rodman Cooper, for appellant.
Messrs. Hanna Hanna and Mr. Drew A. Hanna, for appellee State Auto Mutual, Inc.
Messrs. Robison, Curphey O'Connell, Mr. John M. Curphey and Mr. Timothy D. Krugh, for appellee Motorists Mutual Insurance Company.
The issue presented is whether the trial court correctly determined there to be no genuine issue as to the insurance carriers' bad faith representation or breach of contract, justifying judgment for the insurance carriers as a matter of law.
I.
This court's most recent opinion on the requirements for an insured's recovery of damages from a judgment in excess of policy limits, Wasserman v. Buckeye Union Cas. Co. (1972), 32 Ohio St.2d 69, supports the trial court's ruling in connection with the tort claim. In Wasserman, this court, relying on Slater v. Motorists Mutual Ins. Co. (1962), 174 Ohio St. 148, paragraphs one and two of the syllabus, sustained a jury instruction defining bad faith as "embrac[ing] more than bad judgment or negligence," and as equivalent to fraud, deceit, or dishonest purpose, etc. In the instant cause, the administrator's evidence, consisting of (1) the insurance carriers' decision not to appeal the judgment in the action brought by Euler; (2) their failure to notify the administrator of this decision; and (3) a series of allegations concerning the inadequacy of their efforts to settle and defend, is not probative of bad faith as herein defined. Wasserman, supra, at page 73. Thus, there was no genuine issue as to the insurance carriers' tort liability.
The jury instruction in Wasserman quoted verbatim from paragraph two of the syllabus in Slater, which reads:
"A lack of good faith is the equivalent of bad faith, and bad faith, although not susceptible of concrete definition, embraces more than bad judgment or negligence. It imports a dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will partaking of the nature of fraud. It also embraces actual intent to mislead or deceive another."
The insurance carriers contend that they did not appeal the judgment because the award was merely unexpected, and not so excessive that it was likely to be set aside on appeal. Since liability was conceded, there was thus little reason to appeal. Additionally, since the insured herein was a bankrupt estate, the conflict of interest normally attending this situation was absent. See Bourget v. Government Employees Ins. Co. (C.A. 2, 1972), 456 F.2d 282. In any event, the insurance carriers' decision to forego appeal and their failure to notify the administrator of this decision are "no more than negligent conduct which does not constitute `bad faith' under the standards set by this court." Wasserman, supra, at page 73.
The administrator argues in effect that the insurance carriers should have settled because they knew or should have known the damage award would exceed their policy limits, and also argues that they failed to communicate or cooperate in defending the action. These allegations do not raise the issue of bad faith.
II.
The administrator alternatively argues that summary judgment was improper because the insurance carriers had a contractual duty to defend the insolvent estate with due care. He contends that evidence properly before the trial court demonstrated a genuine issue as to whether the insurance carriers' conduct satisfied this stricker standard.
The trial court held that an action for damages resulting from a judgment in excess of policy limits could not be maintained in contract, while the Court of Appeals held that even if such action could be maintained in contract, the bad faith standard, as defined in Wasserman, supra, would nevertheless apply. Thus, both courts granted summary judgment because they ruled that bad faith, as to which there was no genuine issue, was a prerequisite to the insurance carriers' liability.
We sustain the courts' rulings but limit our holding to the covenants with which we are faced. Both insurance policies stipulate merely that the insurer "shall defend any suit," without delineating the applicable standard of conduct. Pursuant to such a covenant an insurer has a mandatory duty to defend, but if such defense is commenced the applicable standard is "bad faith," as defined in Wasserman, supra.
In relevant part, these covenants to defend provide that an insurer "shall defend any suit alleging such bodily injury or property damage which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent* * *."
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
CELEBREZZE, C.J., HERBERT, P. BROWN, SWEENEY, LOCHER and HOLMES, JJ., concur.