Summary
In Bashor, the Colorado Supreme Court held that a contract whereby an insured, following entry of an excess judgment at trial, agrees to prosecute an action against its liability insurer and to assign to the injured party the proceeds, if any, recovered in the action in order to satisfy the judgment was not "champertous, illegal, void, or contrary to public policy."
Summary of this case from Genesis Insurance Co. v. CrowleyOpinion
No. C-67
Decided March 20, 1972. Rehearing denied April 10, 1972.
Action by insured against insurer to recover damages due to alleged failure of insurer to accept third party's offer of settlement within policy limits. District court dismissed the action. Court of Appeals, 29 Colo. App. 81, 480 P.2d 864, reversed and remanded with directions and certiorari was granted.
Affirmed
1. PARTIES — Third-Party — Judgment Creditor — Insured — Sue — Insurer — Negative. A third-party judgment creditor of an insured cannot sue the insurer.
2. INSURANCE — Insured — Insurer — Failure to Settle Claim — Policy Limits — Judgment Creditor — Necessary Party — Negative. In action by insured against insurer for alleged wrongful failure to settle claim, judgment creditor — who had recovered an $18,000 judgment against insured whose liability policy covered only $10,000 and who had entered into an agreement with insured under which insured paid creditor $1500 in cash and agreed to bring suit to collect $8000 from insurer for its failure to settle such creditor's claim within policy limits — was not a necessary party to such action by insured against insurer.
3. JUDGMENT — Insured — Insurer — Failure to Settle Claim — Creditor — Payment — Lesser Sum — Satisfaction — Limitation — Negative. In action by insured against his insurer for alleged wrongful failure to settle claim, where liability policy covered only $10,000 of $18,000 judgment recovered against insured who paid $1500 of $18000 and agreed with judgment creditor to pursue his claim against insurer — based on such failure of insurer to accept judgment creditor's offer of settlement within policy limits — in order to recover full $8000, and where agreement provided that there would be no satisfaction of $8000 judgment until debtor had exhausted his legal remedies against insurer, held, under the circumstances, agreement did not constitute satisfaction of $8000 judgment for $1500, and insured was therefore not limited to recovery of $1500 from insurer.
4. CHAMPERTY AND MAINTENANCE — Contract — Insured — Judgment Creditor — Insurer — Refusal — Offer of Settlement — Proper. Where insured, whose liability policy covered only $10,000, paid judgment creditor $1500 of $8000 in partial settlement of $18,000 judgment and agreed to bring suit against his insurer for its alleged wrongful refusal to accept judgment creditor's offer of settlement within policy limits in an attempt to recover the full $8000, held, such contract between insured (as judgment debtor) and judgment creditor was not champertous, illegal, void, or contrary to public policy.
Certiorari to the Colorado Court of Appeals
Sheldon, Bayer, McLean Glasman, Charles W. Sheldon, Jr., for petitioner.
Daniel S. Hoffman, for respondent.
This case is on certiorari to the Colorado Court of Appeals. We granted the petition on the ground asserted by petitioner that the court had probably decided the issues in a manner not in accord with the decisions of the Colorado Supreme Court. It was asserted that, in arriving at its decision, the Court of Appeals had, in effect, overruled the Colorado Supreme Court decision of Steen v. Aetna Casualty and Surety Co., 157 Colo. 99, 401 P.2d 254. See Bashor v. Northland Insurance Co., 29 Colo. App. 81, 480 P.2d 864, selected for official publication.) We affirm the Court of Appeals.
Bashor had been in an automobile accident in which one Hilda Owens was injured. She sued Bashor and obtained a judgment of $18,000. Northland was the insurer of Bashor by a policy with a limit of $10,000. After the judgment, Northland paid Owens to the limit of the policy, leaving an $8,000 personal judgment against Bashor still unpaid. It was claimed in the suit involved herein against Northern that it negligently failed to settle the claim, as it could have, within the $10,000 coverage.
Prior to institution of the suit against Northland, the judgment creditor, Owens, undertook to obtain collection of the $8,000 judgment from Bashor and, among other things, levied on his home. Thereafter, Bashor and Owens entered into an agreement whereby Bashor paid Owens $1,500 in cash, agreed to bring suit to collect the $8,000 from the insurer for its failure to settle Owens' claim. The agreement provided that the attorney for Bashor was to be selected by Owens with the consent of Bashor. Additionally, if a full recovery resulted, Bashor would receive back his $1,500 and Owens would be paid the remainder. If recovery was for less than $8,000, the amount to Owens was to be prorated. Bashor agreed to fully prosecute the suit, including appeal if he was unsuccessful in the trial court; and in turn if Bashor fully completed the contract, Owens agreed to release all liens on Bashor's property; to refrain from further efforts to collect on the judgment from Bashor's property; and to place in escrow a "satisfaction of judgment" to be delivered to Bashor either after Owens had received payment for any recovery in the Lawsuit against Northland or after Bashor had exhausted all of the legal remedies agreed upon, even if recovery was not successful.
Bashor instituted the suit against Northland. Northland, apprised of the agreement between Bashor and Owens, filed a motion to limit the prayer for recovery to $1,500, on the ground that Bashor, by his agreement, had actually obtained a satisfaction of his personal judgment for that amount, and that, therefore, his claim for damages against Northland would be so limited. The court granted that motion.
On the morning of the trial, Northland moved to dismiss the case, asserting that the contract between Bashor and Owens was champertous, illegal, and void. This motion was denied. Northland then moved for a dismissal of the complaint because the real party in interest, Owens, was not a party to the action. The court ruled that Owens was an indispensable and necessary party and dismissed the suit.
Writ of error was filed in this court to the judgment of the trial court, but under statutory authority, we transferred the case to the Court of Appeals. There in Bashor v. Northland Insurance Co., supra, the judgment of the lower court was reversed. The decision held that Owens was not a real party in interest and was not a necessary party; that the contract between Owens and Bashor did not change the relationship of the parties to the insurer; and that Bashor was still the only person who could and did pursue the claim against the insurer. The action of the trial court in reducing the limit to the amount of recovery to $1,500 was also reversed. On cross-error assigned by Northland to the ruling of the trial court that the contract was not criminal and not in violation of the champerty and maintenance statute, C.R.S. 1963, 40-7-40, the Court of Appeals affirmed.
[1,2] We are fully in accord with the decision of the Court of Appeals. We find that Steen v. Aetna Casualty and Surety Co., supra, was not overruled. In that case it was held that a third-party judgment creditor of an insured cannot sue the insurer. The agreement involved herein with Bashor as the insured party instituting and fully prosecuting the suit is in accord with the holding in Steen.
We also agree with the Court of Appeals that Bashor is not limited to the $1,500 set by the trial court and adopt the reasoning advanced in the opinion.
Concerning the claim that the contract is illegal and void, we hold that the Court of Appeals was correct in holding that the contract was not champertous, illegal, void, or contrary to public policy.
The remand of the Court of Appeals dealing with the evidentiary matters in the new trial is approved.
The judgment of the Court of Appeals is affirmed.
MR. CHIEF JUSTICE PRINGLE not participating.