Randolph Carford et al.
Empire Fire & Marine Insurance Co.
Superior Court of Connecticut.
File Date:August 21, 2012
Tyma, Theodore R., J.
MEMORANDUM OF DECISION
The sole issue to be determined in this action tried to the court is whether the defendant is liable to the plaintiffs for negligently failing to settle the plaintiffs’ underlying personal injury claims for the policy limits before a certain date unilaterally and arbitrarily established by counsel for the plaintiffs. The action arises out of a tragic motor vehicle collision that occurred on August 11, 2002 in Tilton, New Hampshire between the plaintiffs and Douglas O. Gamble, the operator of a commercial vehicle owned by Leland S. Sloan, Sr. d/b/a Sloan’s Trucking.
The material facts are undisputed. FN1 The accident involved the tractor trailer truck operated by Gamble crossing the center grassy median on an Interstate 93, entering the opposite lanes of travel and colliding with the driver’s side of the plaintiffs’ motor home. The plaintiffs are husband and wife. Gamble apparently had fallen asleep at the wheel immediately prior to the collision, and he died as a result of the incident. The plaintiffs’ motor home was totally demolished, and they were thrown from the vehicle causing them to suffer serious injuries.
FN1. The parties agreed on the material facts and the exhibits. Therefore, the trial consisted of legal arguments on the issues. As a result of those arguments, the only remaining issue is whether the defendant negligently failed to settle the plaintiffs’ underlying claims. The court commends counsel on the professionalism that they exhibited to the court and each other in this case.
On the date of the incident, the truck owned by Sloan was insured under a commercial insurance policy issued by the defendant. The defendant’s insurance policy provided coverage to Sloan Trucking, and Gamble, its employee.
The defendant was notified of the collision on August 13, 2002, opened a claim file and internally assigned the claim to Bob Reynolds. Reynolds promptly retained the services of Frontier Adjusters, an insurance adjusting company located in New Hampshire. Reynolds’s initial file notes reflect that the defendant’s retention was one million dollars, that he recommended “$250,000 for Randolph Carford and $150,000 for Vidalina Carford,” and that the claim “may need to be reported to the reinsurers FN2 due to the nature of the injuries.” Based on his preliminary analysis, Reynolds set $460,000 in reserve of the claim.
FN2. The reinsurer is responsible for reimbursing the defendant in the amount it may be required to pay over the one million dollars retention amount.
The defendant received the adjusting company’s first report on September 6, 2002. The investigator met with the plaintiffs and found that the husband’s injuries were “far more severe” than those suffered by the wife. He recorded that the husband had a “very serious leg injury” that included three fractures to the left femur requiring the insertion of pins and a metal plate, three fractures to the fibula, four fractures to the tibia that required the insertion of pins, a fractured patella, a fractured ankle and fractured ribs. Based on the severity of the husband’s injuries, the investigator believed that it would be six months before the husband was weight bearing, twenty months until he could walk and three years before he could fully function. The husband was a self-employed landscaper and the investigator acknowledged a loss of earning component to the claim. Concerning the wife, the investigator noted that she suffered three broken ribs and received stitches.
The claim was reassigned to Bob Lemeck, a vice president of the defendant who had more than thirty years of experience in handling claims. He handled “high dollar claims.” On September 12, 2003, Lemeck sent to the reinsurer a report prepared by an internal committee of the defendant that evaluated the claim. The committee concluded that the defendant was “100%” responsible for the claim.
Attorney Melvin Bloomenthal, predecessor counsel to the plaintiffs, sent a letter to the defendant dated January 7, 2003 that included some medical records and bills. At that time, the husband’s bills were in the amount of $94,422 and the wife’s bills were in the amount of $16,542. Shortly thereafter, Lemeck made a note in the file that he was “cautiously optimistic that he would be able to conclude the Carford claims and save something off the policy limits.”
On February 5, 2003, Attorney Robert Adelman, who currently represents the plaintiffs, forwarded a letter to the defendant in which he discussed in detail the physical conditions of the plaintiffs, and he also provided the defendant with two medical notebooks. The defendant responded by requesting that Adelman prepare a “reasonable settlement demand” when it was appropriate to do so.
At the end of March 2003, Adelman sent a letter to the defendant in which he made his first of numerous settlement demands. He provided the defendant with additional documentation, including a report by an economist discussing the husband’s loss of earning capacity and the wife’s loss of earnings. The economist was of the opinion that in the event the husband was unable to return to work his loss of earning capacity based on his 2001 wages would be $513,672. He opined that the wife sustained a loss of earnings of $40,066.20. Adelman also informed the defendant that the husband was to have another significant leg surgery on April 8, 2003. In concluding the letter, Adelman demanded the policy limit of one million dollars conditioned on “a prompt settlement.”
Lemeck submitted the settlement demand to the defendant’s claim committee on April 3, 2003. Six members of the committee met and each valued the claims for the property damage to the motor home, and for the bodily injury suffered by each plaintiff. The general consensus of the committee was that the property damage had a settlement value of $100,000, the husband’s claim a value of $750,000 and the wife’s claim a value of $75,000. The defendant rejected the demand two days later because the husband had not medically achieved maximum improvement and, consequently, it remained unclear as to whether the husband would be able to return to work.
Additionally, the defendant received a subrogation claim letter from USAA, the plaintiff’s insurance company at the time of the accident, demanding that the defendant pay the approximately one hundred thousand dollars in property damage to the plaintiffs’ mobile home. If the defendant paid the subrogation claim, the policy would be reduced to $895,000. The defendants offered to mediate the case.
A few weeks later, Adelman responded to the rejection letter, and made clear that the plaintiffs would not accept $895,000 in settlement. He declined mediation and made a second demand that the claim be settled for the policy limits.
Before receiving any response from the defendant, Adelman sent a third policy demand letter to the defendant. He requested that the defendant respond by the end of May.
The defendant responded promptly after receiving Adelman’s letter. The defendant pointed out that it could not settle for the policy limits of one million dollars when the amount left in the policy was only $895,000 in view of the pending subrogation claim for property damage. A mediation offer was renewed.
Adelman contacted USAA and worked out a settlement of the subrogation claim. USAA reduced its claim to $49,500 in order to financially assist the plaintiffs in attempting to settle their claim with the defendant.
A fourth settlement demand was made by Adelman by way of a letter dated June 11, 2003 in which he offered to resolve the claim for $945,590.57. That amount remained available under the policy after the defendant’s payment of the reduced subrogation claim.
The defendant rejected the claim on June 19th, renewed their offer to mediate and stated that it did not have sufficient information to resolve the matter. In so doing, the defendant encouraged the plaintiffs to file suit and, in the meantime, it could “hopefully obtain the additional information [the defendant believed it] need[ed] to properly evaluate” the claim. FN3
FN3. A prior action was filed by the plaintiffs against the defendant near the end of June 2003 alleging a breach of the covenant of good faith and fair dealing, and that the defendant acted in violation of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act by engaging in unfair acts or practices in the conduct of its business. The court granted the defendant’s motion to strike the claims and rendered judgment for the defendant. Our Appellate Court affirmed the trial court’s judgment. Carford v. Empire Fire and Marine Ins. Co., 94 Conn.App. 41, 891 A.2d 55 (2006).
In his report to the reinsurer dated June 20, 2003, Lemeck stated that he was not convinced that the defendant should pay the policy limit to the plaintiffs “as a large part of the claim on Randolph Carford is for future lost wages, which is speculative in view of the fact that [he] has not reached [m]aximum [m]edical [i]mprovement at this time.” Lemeck believed that additional discovery was necessary and stated that “it is certainly conceivable that this is a policy limit case, however, [he] want[ed] to make certain that it is, in fact, a policy limit case before [the defendant] make[s] the decision, to pay [its] policy limit to conclude the involved claims.”
On July 23, 2003, the plaintiffs filed a fifth offer to settle the claim by filing in the prior action an offer of judgment in the amount of $945,000. The filing of that pleading was followed by a letter from Adelman to counsel for the defendant in which he emphasized that the plaintiffs were willing to settle the claim for $945,000 offer of judgment amount, but if the offer was not timely accepted it would be withdrawn and not renewed. Empire did not accept the offer of judgment or otherwise respond to the letter.
Represented by Vermont counsel, the plaintiffs filed suit in Vermont against the tortfeasors on December 19, 2003. Ten days later, Lemeck noted that the defendant would try to reach a settlement before the answer date and that the company still needed some information before any final evaluation. Based on the information that was available to him at that time, Lemeck believed that the defendant would probably have to pay the policy limit. On January 29, 2004, Lemeck made an entry that the defendant received the additional information and, as a result, offered to settle the matter for the $945,000 remaining on the policy. Because the plaintiffs’ offer to settle the action “expired” on September 22, 2003, they rejected the offer.
The underlying personal injury action was tried to a jury in the United States District Court for the District of Vermont in January 2006. The jury returned a plaintiffs’ verdict in the amount of $1,111,448.40. In response thereto, Empire paid to the plaintiffs the remaining proceeds of the policy in the amount of $995,090.97, from which the plaintiff paid $49,500 to USAA in satisfaction of its property damage subrogation claim. Thereafter, the plaintiffs brought the present subrogation action as judgment creditors of the defendant’s insured pursuant to General Statutes § 38a–321 FN4 directly against the defendant seeking to recover the amount of the judgment in excess of the policy proceeds.
FN4. That statute allows third-party claimants, such as the plaintiffs, to become subrogated to the rights of insureds, such as the tortfeasors, and bring a direct action against an insurance company after a judgment in the underlying case. It provides as follows: “Each insurance company which issues a policy to any person, firm or corporation, insuring against loss or damage on account of the bodily injury or death by accident of any person, or damage to the property of any person, for which loss or damage such person, firm or corporation is legally responsible, shall, whenever a loss occurs under such policy, become absolutely liable, and the payment of such loss shall not depend upon the satisfaction by the assured of a final judgment against him for loss, damage or death occasioned by such casualty. No such contract of insurance shall be cancelled or annulled by any agreement between the insurance company and the assured after the assured has become responsible for such loss or damage, and any such cancellation or annulment shall be void. Upon the recovery of a final judgment against any person, firm or corporation by any person, including administrators or executors, for loss or damage on account of bodily injury or death or damage to property, if the defendant in such action was insured against such loss or damage at the time when the right of action arose and if such judgment is not satisfied within thirty days after the date when it was rendered, such judgment creditor shall be subrogated to all the rights of the defendant and shall have a right of action against the insurer to the same extent that the defendant in such action could have enforced his claim against such insurer had such defendant paid such judgment.”
The plaintiffs claim that the defendant failed in various ways to exercise good faith and due care in considering the plaintiffs’ settlement demands, which omissions resulted in a judgment against the defendant’s insureds in excess of the policy limits. Their cause of action is for negligent failure to settle and not that the defendant is liable for bad faith failure to settle the claims.
Connecticut has long recognized a cause of action for negligent failure to settle a claim. “In situations analogous to that presented by this case courts have applied varying standards by which to determine whether or not an insurer is liable to an insured for failing to settle a claim. These may be generally summarized as a requirement of good faith and honest judgment on the part of the insurer or one that the insurer should use that care and diligence which a person of ordinary prudence would exercise in the management of his own business … The trial court concluded that the defendant had not failed to meet either of these tests. If it was correct as to the more exacting of the two, that is, the requirement of reasonable care, there is no need now for us to decide whether one test or the other should be adopted in this jurisdiction as determinative of the obligations of an insurer in such a case.” (Internal citations omitted.) Hoyt v. Factory Mutual Liability Ins. Co., 120 Conn. 156, 159, 179 A. 842 (1935). See also Capitol Fuel Co, Inc. v. New York Casualty Co., 16 Conn.Sup. 155, 158 (1949) (“From all the pertinent literature enjoyed by the court, it is concluded that the trend of judicial and text opinion favors the more just and modern theory of holding an insurer accountable for want of due care in handling a case against its assured”); Bourget v. Government Employees Insurance Co., 456 F.2d 282, 285 (2nd Cir.1972); Windmill Distributing Company v. Hartford Fire Ins. Co., 742 F.Sup.2d 247, 263 (D.Conn.2010). “The basis for judicial imposition on liability insurers of a duty to exercise good faith or due care with respect to opportunities to settle within the policy limits is that the company has exclusive control over the decision concerning settlement within policy coverage, and company and insured often have conflicting interests as to whether settlement should be made … Whether one considers the insured’s claim to sound in tort, as most of the cases have … or as based on an expansive reading of the contractual obligation to protect up to the agreed limits … what gives rise to the duty and measures its extent is the conflict between the insurer’s interest to pay less than the policy limits and the insured’s interest not to suffer liability for any judgment exceeding them.” (Citations omitted; internal quotation marks omitted.) Bourget v. Government Employees Insurance Co., supra, 456 F.2d 285.
In Hoyt, the plaintiff brought an action against the defendant, her own insurance company, “to recover [the amount of the verdict in] excess [of her policy] upon the ground that the defendant was guilty of a breach of duty in not making a settlement with the [the injured party] instead of proceeding with the trial.” Hoyt v. Factory Mutual Liability Ins. Co., supra, 120 Conn. 156. In the trial of underlying matter, the jury found that plaintiff was responsible for the personal injuries sustained by a child and awarded damages that exceeded the plaintiff’s policy limits. Id., 157. In the subsequent trial court action by the plaintiff against the defendant seeking to recover the excess amount, the court rendered judgment for the defendant. Id. On appeal, our Supreme Court reviewed the facts in the record concerning the defendant’s potential liability for the claim, the amount of damages and the settlement process and concluded that “[t]he record does not present a situation where we can say as matter of law that the defendant failed to use that degree of care and prudence which a person in such a situation as that in which it was placed would have used in the management of a business in which no one other than himself had an interest. The conclusion of the trial court that the defendant was not negligent must stand and this disposes of the case.”
The plaintiffs’ primary claim is that the defendant is responsible to it for unreasonably failing to settle because “[t]he only explanation for [the defendant’s] refusal to settle the [plaintiffs’] claims was that it wanted to save something off the policy.” More particularly, the plaintiffs contend that the evidence establishes that the defendant failed to accept all written offers of settlement, failed to conduct its claim evaluation objectively and impartially, and it has failed to pay the excess amount of the underlying judgment.
The plaintiff’s settlement negotiations with the defendant and the present action proceeded based on the plaintiff’s counsel unilateral setting of an arbitrary “drop dead date.” The collision occurred on August 11, 2002. The defendant received timely notice of the accident, opened a claim file, established a reserve and began an investigation. Counsel presently representing the plaintiffs first contacted the defendant in February 2003, at which time he provided voluminous documentation concerning the plaintiffs. A little more than a month later, counsel presented to the defendant the first of his multiple settlement demands over an approximately five-month period. The final demand was set forth in a letter to counsel for the defendant dated August 15, 2012. Therein, plaintiffs’ counsel stated that the demand would “expire on September 22, 2003. In the event that [the defendant] has not agreed to pay $945,000 on or before that date” the settlement offer would be withdrawn and not renewed. A few months later, the matter was forwarded to counsel in Vermont in order to commence an action against the tortfeasors.
This matter involves a serious motor vehicle accident. The plaintiffs, especially the husband, underwent extensive medical care and treatment that included numerous surgeries. The defendant initially focused on investigating the claim; that is, gathering medical and other documentation, and interviewing the plaintiffs. As would be expected under the circumstances, correspondences were exchanged between the attorney for the plaintiffs and the defendant. In this regard, at the end of March 2003, counsel for the plaintiff provided the defendant with two notebooks full of information about the plaintiffs that included a report by an economist indicating that the husband’s potential loss of earning capacity based on his 2001 wages exceeded half a million dollars. FN5 An issue arose regarding payment of property damage. Approximately eight months after the accident, the defendant convened a committee to discuss the value of the claims. Thereafter, the defendant offered to mediate the matter, which the plaintiffs rejected.
FN5. Plaintiff’s counsel provided this information even though the husband had not reached maximum medical improvement as of that date as evidenced by the fact that he was scheduled for a major surgery on his injured leg less than two weeks after counsel for the plaintiff sent the letter.
The court gives great weight to two facts. The first is that Lemeck’s report to the reinsurer in June 2003 indicated that he did not yet believe that the defendant should pay the policy limits to the plaintiffs because the husband’s large loss of earning capacity claim could not be evaluated until maximum medical improvement was attained. Lemeck commented that he wanted “to make certain” that the case warranted payment of the limits. The second is at that time Lemeck suggested that the plaintiffs file suit while the defendant continued to collect the information it needed “to properly evaluate” the claim. These actions show that the defendant was reasonably and carefully considering its interests and those of the plaintiffs. More particularly, the defendant was balancing its need for time to properly assess the plaintiffs’ injuries and the permanent effects on their lives against the plaintiffs’ need to progress with their claims.
Notwithstanding the defendant’s noting that it needed more information and suggesting to the plaintiffs that they file an action, the plaintiffs forwarded to the defendant two more policy demand letters, in July and August 2003. The latter date represented one year from the date of the accident.
Subsequently, the plaintiffs filed the Vermont action in December 2003. At the end of January 2004, the defendant offered to resolve the matter for the remaining limits of the policy. Because the defendants failed to settle the matter by the September date set by plaintiffs’ counsel, the plaintiffs rejected the offer.
The plaintiff’s claim is that, at least as of June 2003, the defendant had the information to warrant payment of the policy limits, and that “[t]he only explanation for [the defendant’s] refusal to settle the [plaintiffs’] claims was that it wanted to ‘save something off the policy.’ “ The court disagrees.
The court concludes, based on the evidence, that the plaintiffs have failed to prove that the defendant breached its duty FN6 to exercise the reasonable care in processing the plaintiffs’ claim that a person of ordinary prudence would use in the management of his own business affairs. FN7 The defendant tendered the remaining proceeds of the policy approximately seventeen months from the accident date. During that time, the defendant acted reasonably and responsibly in undertaking to investigate and evaluate the claims of the plaintiffs. Those functions were necessarily dependent on the plaintiffs’ medical progress, especially under the circumstances where the husband was making a claim for a loss of earnings capacity that exceeded more than half of the remaining policy limits. That the plaintiffs’ attorney was of the opinion less than six months from the date of the accident that the matter required that the defendant pay the policy limits, and made repeated demands for such payment over the following six months, does not mean that the defendant was negligent in settling the matter less than a year from the initial demand. Neither does the fact that the plaintiffs filed a prior action essentially based on the same facts as in the present action approximately six months after the incident mean that the defendant was negligent in settling the matter about seven months after the filing of that action. Additionally, that the plaintiffs’ attorney believes that the defendant possessed sufficient information in June 2003 to pay the policy limits does not mean that the defendant was negligent in not resolving the matter until six months later. The court finds that the defendant reasonably evaluated the case as requiring payment of the policy limits when, in January 2004, the defendant’s attorney was in possession of additional information that he had been requesting for months relating to the husband’s continued medical treatment during 2003.
FN6. The defendant claims, based on Bourget v. Government Employees Insurance Co., supra, 456 F.2d 282, that as a matter of law it does not owe a duty to the plaintiff. A decision of our Supreme Court stands in stark contradistinction to the defendant’s contention. See Brown v. Employer’s Reinsurance Corp., 206 Conn. 668, 673, 539 A.2d 138 (1988) (“It must also be noted that the insolvency of the insured is irrelevant as far as a plaintiff’s rights of subrogation under 38–175 [now 38–321] are concerned.”). Bourget is also distinguishable because in this case there is no evidence that the estate of the driver of the tractor trailer was insolvent during the relevant period of time.
FN7. The defendant claims that the plaintiffs’ negligence claim fails due to lack of expert testimony. The court concludes that expert testimony is not necessary. The standard of care applicable to the plaintiffs’ claim, which involves the making of a business decision, is a lay standard and is not beyond the understanding of a trier of fact. See Hoyt v. Factory Mutual Liability Ins. Co., supra, 120 Conn. 156 (in action tried to the court, it was held that the trial court did not err in concluding that the defendant insurance company did not negligently fail to settle the action where the evidence failed to establish “that the defendant failed to use that degree of care and prudence which a person in such a situation as that in which it was placed would have used in the management of a business in which on one other than himself had an interest”).
The court additionally finds that the totality of the evidence shows that the defendant did not view this as a case in which they could pay less than the policy limits. A fair reading of the evidence shows that the defendants recognized from the beginning that it possibly would have to pay the policy, but methodically proceeded to obtain the information and evaluate the claim necessary for it to conclude that it would be held probably liable to pay the limits.
In sum, the defendant exercised the care that an ordinarily prudent person would use in handling his own business affairs. This is not a case where the evidence shows that the defendant put its interest above the plaintiffs’. Rather, the defendant fairly and timely considered both interests. See Windmill Distributing Company v. Hartford Fire Ins. Co., supra, 742 F.Sup.2d 263, quoting, United Services Automotive Ass’n v. Glens Falls Ins. Co., 350 F.Sup. 869, 871 (D.Conn.1972) (“[i]n determining whether to accept or reject an offer of compromise, the insurer not only may consider its own interests but also must equally respect the insured’s interests. If it fails to exercise good faith or due care in its consideration of an offer of settlement, the insurer may be held liable under causes of action which sound in tort or contract, or both”). “The mere fact that the case could have been, but was not, settled within policy limits would not impose liability on the defendant.” Knudson v. Hartford Accident & Indemnity Co., 26 Conn.Sup. 325, 327, 222 A.2d 811 (1966). In view of the foregoing, judgment is rendered in favor of the defendant on the first count (negligence) of the plaintiffs’ complaint.