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Hart v. R.M. Ins. Co.

Supreme Court of Ohio
Jul 20, 1949
152 Ohio St. 185 (Ohio 1949)

Summary

holding that there was evidence of lack of good faith on part of insurance company sufficient for allowing issue to go to jury

Summary of this case from Romstadt v. Allstate Ins. Co.

Opinion

No. 31673

Decided July 20, 1949.

Liability insurance — Insurer not liable to insured — For negligence in settling or refusing to settle claim — Insurer liable for failure to act in good faith.

1. A liability insurance company which reserves the right to settle, as it deems expedient, any claim against its insured is not liable to the insured for negligence in settling or refusing to settle such a claim.

2. Such company is liable to respond in damages to its insured if it fails to act in good faith with respect to the settlement of such a claim.

APPEAL from the Court of Appeals for Jefferson county.

On September 30, 1941, the plaintiff, Hutchinson Hart, was the owner of two trucks which he used in his business of transporting property for hire under authority of the Public Utilities Commission of Ohio.

One of the trucks was covered by a public liability insurance policy purchased by the plaintiff from the defendant, the Republic Mutual Insurance Company. The policy contained a bodily injury liability limit of $6,000 for each person and $12,000 for each accident.

On the above date the insured truck was involved in an accident in which a boy, eleven years of age, received serious and permanent injuries. In November of that year the boy's parents offered to settle the matter for the sum of $750 plus medical and hospital expenses of $363 — a total of $1,113. The insurance company, through its counsel, refused the offer. Then in April, 1942, two actions were instituted against Hart — one to recover $25,000 for the boy's injuries and the other to recover $6,000 for loss of services and for medical and hospital expenses.

The trial of the personal injury suit began on July 1, 1942. That day counsel for the injured boy offered to settle both cases for $4,500. The offer was rejected by the insurance company. Then on the second day of the trial a further offer was made to settle both cases — this time for $4,000. Counsel for the company refused this offer, too.

After a mistrial was declared, a second trial resulted in a verdict and judgment for the plaintiff for $19,400 in the personal injury suit. A levy was then made on both of Hart's trucks which were held by the sheriff for a period of eight weeks. Inasmuch as this deprived Hart of his only means of livelihood, he induced counsel for the claimants to make a further offer to settle both suits for $6,000. This was not accepted.

An appeal was then perfected to the Court of Appeals which ordered a remittitur of $7,400. This was accepted, and that court then affirmed the judgment for the reduced amount of $12,000.

The insurance company still refused to pay the amount of its liability under its policy. This resulted in the filing of a supplemental petition against the company, and a judgment was rendered against the company. This was paid. Then Hart settled the excess of the claims by transferring the title to one of his trucks.

Thereafter Hart instituted the instant action against the insurance company to recover $3,600 as damages resulting from the refusal of the company to settle the claims.

At the trial of this case the jury returned a verdict for the full amount asked in the prayer of the petition — $3,600. The defendant company then filed a motion for a new trial and a motion for a judgment non obstante veredicto. The trial court overruled the motion for a new trial and sustained the motion for a judgment. A judgment for the defendant was entered.

On an appeal to the Court of Appeals the judgment of the trial court was affirmed.

The case is in this court for a review by reason of the allowance of the plaintiff's motion to certify the record.

Messrs. Yonkee Murphy and Mr. Lee Van Tilburg, for appellant.

Messrs. Vodrey, Vodrey, Buzzard Shay, for appellee.


Counsel are agreed that this case presents a question of first impression in this court.

Where, as here, a liability insurance company reserves "the right to settle any claim or suit and to make such investigation or negotiation as may be deemed expedient by the company," what duty does it owe in defending the insured? Is it liable for failure to exercise ordinary care in settling or refusing to settle claims? Or is it liable only in the event that it fails to act in good faith?

Counsel are agreed that there is a diversity of authority on the subject and that the majority rule imposes liability only in the event of failure to act in good faith. Numerous cases are cited in American Law Reports, Annotated, as follows: 34 A.L.R., 750; 37 A.L.R., 1484; 43 A.L.R., 329; 71 A.L.R., 1485; and 131 A.L.R., 1500. In the last annotation it is stated that "a majority of the courts passing upon the question hold that the insurer cannot be held liable in tort for mere negligence on its part in failing or refusing to settle or compromise a claim brought against the insured for an amount within the policy limit, but that to be held liable in tort for its failure or refusal in this respect so as to entitle the insured to recover for the excess of the judgment over the policy limit it must have been guilty of fraud or bad faith."

This court is of the opinion that the majority rule is the better reasoned view.

The next question is whether the record discloses evidence tending to show a lack of good faith on the part of the company toward its insured in refusing to accept one of the numerous offers of settlement.

The plaintiff's contention is "that from the time that the defendant undertook the performance of its contractual obligations until final disposition of said suit, it acted without due regard to his rights and in abuse of its exclusive rights under said policy of insurance; that at no time did said defendant consider the plaintiff's interest but preferred to consult its own selfish interest and, in so doing, acted so recklessly and contumaciously that as a direct result thereof the plaintiff sustained the foregoing loss and damage."

The defendant company insists that it was justified in its conduct because it believed there was no liability for the injuries sustained by the boy.

However, such a belief may not be an arbitrary or capricious one. The conduct of the insurer must be based on circumstances that furnish reasonable justification therefor. Here the injuries were serious and permanent. The company had no eyewitness to sustain its claim of nonliability. The first offer of settlement was small. Later offers were but a fraction of the amount of the jury's verdict. The insured made repeated attempts to have the company assist in finding some solution of the matter. In desperation he even made a trip to the main office of the company in Columbus to discuss the difficulty with the president who was also the general counsel. The insured explained that his two trucks were his only means for supporting himself and his large family and that both trucks had been seized by the sheriff. The company's own local agent pleaded with the president to render some assistance, saying that with both trucks in the hands of the sheriff the plaintiff "don't have anything to work with" to support his family. Then, in spite of the fact that both trucks already were in the sheriff's possession, the president is quoted as answering, "Boy, they are just trying to bluff you; they can't sell those trucks, and I will be down on Tuesday next week, I will call and see you." The president not only did not keep the engagement but he did not communicate with the insured who was permitted to suffer the loss of one truck for eight weeks and the other truck permanently.

The cumulative effect of these and other circumstances narrated in the record is such as to preclude a holding that there is no evidence tending to show a lack of good faith on the part of the company. Hence, the ruling of the trial court in this respect was erroneous.

In the instructions to the jury the trial court stated that the plaintiff would be entitled to recover if the defendant acted either negligently or in bad faith. The first part of this instruction was error. No interrogatories were submitted to the jury, and hence it is impossible to determine whether the verdict was based on a finding of negligence or bad faith or both. Consequently the judgments below must be reversed and the cause remanded for a retrial on the claim of bad faith.

Judgment reversed and cause remanded.

MATTHIAS, HART, ZIMMERMAN and TURNER, JJ., concur.

STEWART and TAFT, JJ., concur in the syllabus but dissent from the judgment.


A reading of the petition discloses that plaintiff does not complain about anything which defendant did; that plaintiff's only complaint is based solely on the failure of defendant to settle the Reeder claim against plaintiff.

Even if the defendant's failure to settle that claim did cause a loss to plaintiff, plaintiff should not recover unless defendant owed plaintiff some obligation to settle that claim.

Apart from the insurance contract, defendant obviously had no obligation to settle that claim. Any obligation to do so must arise from the provisions of that contract.

Nowhere in the contract does defendant agree to settle any claim. Defendant does agree to pay within policy limits certain liabilities of plaintiff; and agrees to defend on behalf of the insured certain specified suits. The policy does give defendant the right to settle or negotiate for settlement. However, nothing in the policy provides against or limits the right of plaintiff to compromise the uninsured portion of his liability — that is, the portion above the policy limits.

There are no allegations as to representations by defendant or the concealment of facts which defendant should have disclosed. There are no allegations that defendant did or failed to do anything which prevented plaintiff from compromising, or induced him not to compromise, the uninsured portion of his liability.

Plaintiff paid for a policy giving him the minimum protection against liability which the law required him to carry. He could have purchased greater protection if he had been willing to pay a higher premium.

If, as plaintiff alleges, it appeared that a judgment against him "would probably be in an amount considerably in excess of * * * policy limits," then plaintiff had a probable uninsured liability in a substantial amount. He had not paid for protection against such liability except to the extent that defendant's agreement to defend might provide such protection. It does not appear that plaintiff ever expressed any willingness to pay anything toward compromising this uninsured portion of what he characterizes as "probable" liability until after defendant declined to settle. Now plaintiff seeks to collect from defendant what it cost plaintiff to compromise the uninsured portion of his liability after defendant has paid in full and with interest the insured portion.

STEWART, J., concurs in the foregoing dissenting opinion.


Summaries of

Hart v. R.M. Ins. Co.

Supreme Court of Ohio
Jul 20, 1949
152 Ohio St. 185 (Ohio 1949)

holding that there was evidence of lack of good faith on part of insurance company sufficient for allowing issue to go to jury

Summary of this case from Romstadt v. Allstate Ins. Co.

In Hart v. Republic Mut. Ins. Co., 152 Ohio St. 185, 87 N.E.2d 347 (1949), the Ohio Supreme Court first announced this standard, explaining that in order for a tort action to lie against an insurer for failing or refusing to settle a claim brought against the insured for an amount within the policy limits, "so as to entitle the insured to recover for the excess of the judgment over the policy limit[, the insurer] must have been guilty of fraud or bad faith."

Summary of this case from Romstadt v. Allstate Ins. Co.

In Hart v. Republic Mut. Ins. Co. (1949), 152 Ohio St. 185, 188, 39 O.O. 465, 466, 87 N.E.2d 347, 349, this court addressed the potential tort liability of an insurer for refusing to settle a claim against an insured.

Summary of this case from Staff Builders, Inc. v. Armstrong

In Hart, we recognized a cause of action where the insurer failed to act in good faith in settling a claim brought against its insured.

Summary of this case from Marginian v. Allstate Ins. Co.

In Hart v. Republic Mut. Ins. Co. (1949), 152 Ohio St. 185 [39 O.O. 465], it was established that a liability insurance company has a duty to its insured to act in good faith in the settlement of a third-party claim.

Summary of this case from Suver v. Personal Service Ins. Co.

In Hart, the Ohio Supreme Court declared that when an insurance company refuses to settle a claim because it believes that there is no coverage, "such a belief may not be an arbitrary or capricious one."

Summary of this case from Petrone v. Grange Mutual Casualty Co.

In Hart v. Republc Mut. Ins. Co., supra, the court expressly rejected the negligence test, but noting the insurer's contention that it acted in good faith in rejecting the compromise because it thought there was no liability to the injured party, said that such a belief may not be arbitrary or capricious, but the conduct of the insurer must be based on circumstances furnishing "reasonable justification" for such a belief.

Summary of this case from Netzley v. Nationwide
Case details for

Hart v. R.M. Ins. Co.

Case Details

Full title:HART, APPELLANT v. THE REPUBLIC MUTUAL INS. CO., APPELLEE

Court:Supreme Court of Ohio

Date published: Jul 20, 1949

Citations

152 Ohio St. 185 (Ohio 1949)
87 N.E.2d 347

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