Decided December 2, 1947.
An insurer against liability is liable to the insured, irrespective of good faith, for negligently failing to accept an offer to settle a claim against the insured within the policy limits where the insured has satisfied the excess judgment. Hence, where the facts involved in the tort action against the insured on the question of liability were such that an ordinary man of average prudence would have accepted the offer of settlement, in view of the seriousness of the injury sustained and the actual disbursements made, the insurer is liable to the insured for failure to do so. The obligation of an insurer to use due care in the settlement of claims against the insured arises out of the policy provisions under the terms of which it retains absolute control over settlements. The duty owed by the insurer, in such case, is to use the care that a reasonably prudent man would exercise in the management of his own affairs and be as willing to compromise and dispose of claims against the insured within the policy limits as if the insurer itself were liable for any excess verdict. Knowledge of the insurer's authorized trial attorney and claims' agent concerning the extent of injuries and the issue of liability involved in the tort action against the insured and of the various offers of settlement by the injured party is chargeable to the insurer. Professional negligence of counsel is imputed to the client when the attorney is acting within the scope of his authority. The fact that an insurer in determining whether or not it should settle a claim against its insured took into consideration the advice of an attorney at law does not excuse it from liability for negligently failing to settle such claim. Such advice is merely one item to be considered in determining the insurer's due care. An insured is not contributorily negligent, in an action against his insurer for negligently failing to settle a claim against him within the policy limits, because he did not pay the difference between what the injured party asked in settlement and what the insurer had offered to pay. Nor is an insured required, upon the rendition of a verdict against him in excess of the policy limits, to seek a compromise from the injured party before satisfying the excess judgment. Expert legal testimony is not indispensable to establish the negligence of an insurer for its failure to settle a claim against the insured within the policy limits.
CASE, for negligence in failing to settle a claim within the limits of an insurance policy. This proceeding arises from the same accident that was the basis of the tort action for personal injuries because of the negligence of an automobile driver reported in Moran v. Dumas, 91 N.H. 336. An action similar in some respects to the present one was brought by this plaintiff, transferred in advance of trial and dismissed without prejudice. Dumas v. Company, 92 N.H. 140.
On July 22, 1937, about noontime Miss Ann Moran while walking on a cross-walk from the east to the west side of Main Street in Nashua was struck by the car of Dr. Dumas, which he was driving northerly on the easterly side of the street. An officer stationed at the center of the roadway was directing traffic. There was evidence from which it could be found that Miss Moran saw the officer give a signal which she reasonably and properly understood to be for her as notice that she might proceed to cross the street. There was evidence that she looked to the south and observed one or two cars stopped on the southerly side of the cross-walk between her and the officer. She was struck while she was 8 to 10 feet from the sidewalk by the doctor's car and while it was passing the stationary car or cars on their right. The evidence was conflicting as to whether the officer gave the doctor a signal to pass over the cross-walk. Even if it were found that a signal was given which he reasonably thought was intended for him to proceed, it could also be found that in the exercise of due care he should have seen Miss Moran in season to stop or swing to his left. The action for personal injuries was tried in February of 1940 and the jury returned a verdict of $12,000 for Miss Moran.
Dr. Dumas was insured against liability for personal injury caused by accident arising out of the ownership, maintenance or use of his automobile in the defendant company. The limit of the policy was the sum of $5,000 for each injured person. No claim is made that the attorney employed was not fully competent or that the tort case was not tried in an entirely correct manner. Dr. Dumas does insist that the defendant company was negligent in failing to settle the claim of Miss Moran for a sum within the policy limit.
The policy provided as follows:
"III. DEFENSE, SETTLEMENT, SUPPLEMENTARY PAYMENTS
"It is further agreed that as respects insurance afforded by this policy under Coverages A and B the company shall:
"(a) defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the company; . . .
"This policy does not apply: . . .
"(d) under Coverages A, B, C-1, C-2 and D, to any liability assumed by the insured under any contract or agreement;
"Assistance and Cooperation of the Insured.
"The insured shall cooperate with the company and, upon the company's request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits and the company shall reimburse the insured for any expense, other than loss of earnings, incurred at the company's request. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others .as shall be imperative at the time of the accident."
After the opinion was handed down in Moran v. Dumas, supra, the defendant company paid to the plaintiff Moran $5,942 in accordance with its contractual obligation under the policy. After Miss Moran brought suit against him for $7,060.70 plus interest, the balance of her judgment, Dr. Dumas settled with her by a check for $7,000.
Other facts appear in the opinion.
Trial by jury with a view. A verdict was returned for the plaintiff Dumas. During the trial, the defendant took exceptions to the admission and the exclusion of evidence, to the denial of certain requests for instructions and to portions of the charge. It also excepted to the denial of its motion to set aside the verdict and for judgment notwithstanding the verdict. The questions of law raised by these exceptions were reserved and transferred by Duncan, J.
McLane, Davis Carleton and Stanley M. Brown (Mr. Brown orally), for the plaintiff.
Wyman, Starr, Booth, Wadleigh Langdell (Mr. Wyman orally), for the defendant.
The authorities are divided concerning the liability of an indemnity company that has final control over settlement for negligence in failing to settle a claim when possible to do so within the policy limits. "According to the old majority rule, the insured could recover the excess of a judgment above the policy limits from the insurer, because of its failure to effect a settlement for a smaller sum, only if the company was guilty of actual fraud or bad faith. It should be noted, however, that this bad faith rule is tending to become the minority rule, being displaced by the rule of negligence, which is discussed hereafter." 8 Appleman, Insurance Law and Practice, s. 4712, pp. 76, 77.
The leading case in this state to the effect that an insurer may be liable for negligence in the failure to make a compromise settlement irrespective of good faith is Douglas v. Company, 81 N.H. 371. "The defendant concedes that Cavanaugh v. Corporation, 79 N.H. 186, permits a recovery for a negligent failure to settle, but it is urged that the decision is contrary to reason and to the authorities elsewhere. . . .
"Our law upon the subject is based upon the broad proposition that in all its dealings with the defense to [the injured party's] claim the defendant was bound to act as a reasonable man might act under the same circumstances." Id., 374, 375. In this case the policy limit was $5,000. The company refused an offer to settle for $1,500 and a verdict was given the plaintiff in the accident case for $13,500. The principle of the Cavanaugh and the Douglas cases has been recognized by dicta in Lumbermen's Casualty Company v. Yeroyan, 90 N.H. 145; Duncan v. Company, 91 N.H. 349, and Dumas v. Company, 92 N.H. 140.
Cases from other jurisdictions that adopt this rule of liability for negligence are collected in 8 Appleman, Insurance Law and Practice, p. 80, n. 30.
The obligation of the defendant to use due care arose out of its policy, under the terms of which it had control over the settlement of claims. "That obligation [to use care] is ordinarily imposed by law upon all who undertake a service. Burnham v. Stillings, 76 N.H. 122, and cases cited." Douglas v. Company, supra, 375. See also, Mehigan v. Sheehan, ante, 274.
The duty of the insurer was not only to pay on behalf of the insured all sums the latter should become obligated to pay because of bodily injury within the policy limit of $5,000, but also to save the insured harmless from any and all liability caused by accident and arising out of the ownership, maintenance or use of his automobile in so far as it could do so by a reasonable performance of its service to settle claims. It is a well-recognized rule in the law of negligence that, when one knows or has reason to anticipate that the person, property, or rights of another are so situated as to him that they may be injured through his conduct, it becomes his duty so to govern his action as not negligently to injure the person, property, or rights of that other. Attleboro Mfg. Company v. Company, 240 Fed. 573, 579. "The whole question of insurance against loss may be laid out of the case, and still the defendant would be accountable for negligence. It had contracted to take charge of the defense of this claim. That contract created a relation out of which grew the duty to use care when action wits taken. The insurer entered upon the conduct of the affair in question. It bad and exercised authority over the matter in every respect, even to negotiating for a settlement. It is difficult to see upon what ground it could escape responsibility when its negligence resulted in damage to the party it had contracted to serve." Douglas v. Company, supra, 367.
The standard of care is at least what a reasonable man would exercise in the management of his own affairs. "Since a liability insurer has absolute control over any negotiations for a settlement or compromise of claims against the insured, some courts have adopted the rule that such insurer will be held to that degree of care and diligence which a man of ordinary care and prudence should exercise in the management of his own business." 8 Appleman, Insurance Law and Practice, s. 4713, p. 80. In other words, in deciding whether or not to settle, the insurer must be as quick to compromise and dispose of the claim as if it itself were liable for any excess verdict. Douglas v. Company, supra, 376. Moreover it follows from the standard of due care that the insurer cannot be too venturesome and speculate with a trial of the issues in the accident case at the risk of the insured. The defendant was obliged reasonably both to consider the risk to Dr. Dumas and to be willing to purchase termination of Miss Moran's claim within the policy limit. Anticipation of loss to the insurer need only be such as a reasonable person would have and would guard against. "Danger consists in the risk of harm as well as the likelihood of it, and a danger calling for anticipation need not be of more probable occurrence than less. If there is some probability of harm sufficiently serious that ordinary men would take precaution to avoid it, then failure so to do is negligence. That the danger will more probably than otherwise not be encountered on a particular occasion does not dispense with the exercise of care." Tullgren v. Company, 82 N.H. 268, 276.
Something more than an act of judgment is involved in the decision of the insurer to stand trial or to settle. A judgment carefully arrived at must be accompanied by conduct consistent therewith. So far as its interest is concerned, there must be a willingness within the policy limit reasonably to spend its money in purchasing immunity for the insured. Due care must be exercised in ascertaining all the facts of the case both as to liability and damages, in learning the law and in appraising the danger to the insured of being obliged to pay the excess portion of a verdict. While the insurer has a reasonable right to try its case in court, it cannot be unduly venturesome at the expense of the insured. The caution of the ordinary person of average prudence should be employed.
In the case at bar there was evidence from which the jury could find negligence on the part of the defendant in failing to settle. It had the opportunity to compromise the claim of Miss Moran. Prior to January of 1938, she offered to accept $4,000 in full settlement; in that month the figure was raised to $4,500. A few days before trial, she was willing to take $4,750 in full for her claim and this offer stood during the trial until the case was submitted to the jury. Within a few days after the accident the attorney in charge of the New Hampshire claim department of the defendant placed a settlement value of $2,000 or $2,500 on the case. This value was not raised above the latter figure until after verdict.
The out-of-pocket expenses of Miss Moran on August 15, 1939, when her deposition was taken amounted to $2,971.50. Her most serious injury was to the left knee. A week after the accident an open reduction of the knee fracture was performed. This disclosed an avulsion fraction of the attachment of both the anterior crucial ligament and the inner lateral ligament, the latter of which was torn off from its attachment and required suture. There were fractures of the tibia and fibula bones in the knee joint, plus a fracture of a spine in the knee process itself. The bone fracture within the joint required drilling and suture. There was cartilage damage. At the time of the trial two and one-half years after the accident Miss Moran still suffered pain. The disability of her left knee was still present and was estimated to be a permanent 33% disability. She used a cane.
While this court said in Moran v. Dumas, supra, 337, that the evidence was much in conflict and in some respects confusing, it could be found by the jury in the present case that the facts relating to the negligence of the driver of the automobile and the contributory negligence of the pedestrian were so close that the ordinary man of average prudence would have accepted the offer of settlement in view of the serious injuries resulting in a permanent disability and the out-of-pocket losses shown.
It is unnecessary to consider the extent of the company's knowledge at the time of the different offers of Miss Moran. During the trial all of the pertinent facts were disclosed and the offer of $4,750 was open until the case was submitted to the jury. The defendant company does not deny that it had full knowledge of the facts in time to accept the offer of $4,750. Nor could it do so. Not only was the defendant's attorney, in charge of the claim department in New Hampshire, who had been admitted to practice in this state, in communication during the trial with both the company's trial attorney and the attorney for Dr. Dumas, which latter attorney sat in during the trial, but also the company was bound by the knowledge of its trial attorney, which became complete. This attorney was employed not only to conduct the trial of the accident case, with which no fault is found, but also to advise concerning settlement. "Notice to the attorney is notice to his client, at least where the attorney receives such notice in the course of the transaction in which he is acting for his client." 5 Am. Jur. 302, and cases cited in note 13. "Notice to the attorney, whether actual or implied, is considered notice to the client, and binds him, when the notice is in the course of the transaction in which the attorney is acting for him." Butler v. Morse, 66 N.H. 429, 431. There is no evidence that the company turned over to the trial attorney control over the matter of settlement.
Also, there is no need of fastening responsibility upon particular agents of the defendant. It is not disputed that the attorney in charge of the claims department was the agent of the company for the purpose of investigation and reporting information and that the trial attorney had the duty to advise. Professional negligence of counsel is imputed to the client when the attorney is acting within the scope of his authority. "He accepted the services of the attorneys furnished him by the indemnity company, and any accident or misfortune he may have suffered through any mistake of theirs was chargeable to them or to the indemnity company . . . ." Hubley v. Goodwin, 91 N.H. 200, 203. See also, Attleboro Mfg. Company v. Company, supra, 581.
The fact that the defendant took into consideration the advice of counsel does not excuse it. Such professional advice is merely one item to be considered in determining the due care of the indemnity company. "The defendant had the exclusive control of the defense, which carried with it the right to employ whomever it chose as its attorney and to direct him in the management of the case as it saw fit. Under such circumstances, [the attorney] was the defendant's agent for whose conduct, while in its service and acting within the scope of his employment, it was responsible. The mere fact that he was also an attorney at law did not excuse the defendant from responsibility in this respect." Attleboro Mfg. Company v. Company, supra, 581.
It was not contributory negligence on the part of the plaintiff Dumas to have failed to pay the $2,250 difference between what Miss Moran asked and what the defendant company had offered to pay. There was no duty on the part of the insured to contribute towards the payment that the company was obligated to make under the policy. This duty was sole, not joint.
The charge that the verdict, if for the plaintiff, should be in the sum of seven thousand dollars was correct. Mitigation of damages did not require that the plaintiff attempt to beat down Miss Moran in what had been established legally as her due.
The argument that such a case as the present one should not be tried without expert legal testimony on the question of negligence as in malpractice cases was decided adversely to the defendant in Douglas v. Company, supra, 374. The accident case was decided by a jury. The risk which that trial involved for the present defendant and its insured could well be understood by a jury with the aid of arguments of counsel and of appropriate instructions from the court. The issue for the jury was not the technical question of whether there was sufficient evidence for the accident case to go to the jury but whether the danger of adverse rulings and verdict was so great that a reasonable man would avoid it.
The various exceptions to the argument, to the denial of certain requests of the defendant and to evidentiary rulings have been considered at length. No reason for a new trial has been discovered.
Judgment on the verdict.
DUNCAN, J., did not sit: the others concurred.