The opinion of the court was delivered by: PORT
Memorandum-Decision and Order
This is a diversity action brought by Harold Bates (the insured), a citizen of Florida, against Merchants Mutual Insurance Company (the carrier), a New York Corporation, to recover the amount by which judgments against the insured, obtained in 1964 in negligence actions in which he admitted liability, exceeded his coverage under an automobile liability policy issued to him by the carrier.
On June 11, 1962, while operating the insured automobile, the insured became involved in an accident with a car operated by Sadie Ryder in which her husband Joseph Ryder, Jr., was a passenger. Sadie Ryder was pronounced dead at the scene of the accident; her husband sustained serious personal injuries, as a result of which he died approximately seventeen months later.
At the time of the accident the insured was covered by a liability policy issued by the carrier with liability limited to $20,000.00 for each person and $40,000.00 for each occurrence. The carrier agreed to defend any claim made against the insured and reserved to itself the right of "settlement of any claim or suit as it deems expedient."
The dispute arises out of carrier's refusal to settle as a "package deal," within policy limits, two claims arising out of a single accident,
where the verdict on one claim was unquestionably expected to exceed the limits applicable to that claim and result in substantial personal liability being imposed upon the insured. No case dealing with this factual situation has been cited by counsel or found by the court.
Shortly after the accident, Daniel Citak was retained to institute suits on the claims for personal injuries to Mr. Ryder and for conscious pain and suffering and wrongful death of Mrs. Ryder. Laurence Wagner was retained by the carrier to represent Mr. Bates on the trial.
Although suits were instituted, there is no evidence of attempts on the part of either the carrier or the Ryders' attorneys to negotiate a settlement of the claims until after Mr. Ryder's death on November 23, 1963.
Thereafter, the cause of action asserted on behalf of his estate was amended to include a claim for wrongful death, as well as conscious pain and suffering.
The first effort to negotiate a settlement occurred at a pretrial conference held before Supreme Court Justice Jasen in Erie County where the suits were pending. At that conference Mr. Citak demanded $37,500.00 as a package settlement of both suits for conscious pain and suffering and wrongful death. The carrier responded to these demands by offering $25,000.00. The case at that juncture was put over the term and negotiations were not renewed until the case got on a trial calendar and was ready for trial before Justice King in Supreme Court, Erie County. Settlement conferences were conducted before and during the trial.
After the jury was drawn but before proof was started, a conference was held in Justice King's chambers regarding a possible settlement. In that conference Mr. Citak demanded a total of $39,000.00 in settlement of both cases. This was subsequently reduced to what was termed as his "absolute rock-bottom figure" of $37,500.00. At this point the carrier was offering $25,000.00 as a total settlement. The attorney negotiating on behalf of the carrier called the carrier for further authorization. He returned to the conference to state that he had additional authority of two or three thousand dollars, but in view of plaintiff's rockbottom demand not much purpose would be served in making a further offer because he was not authorized to meet the $37,500.00 demand.
The insured admitted liability on the trial and the claims were submitted to the jury solely on the issue of damages. At the time of admitting liability, Mr. Wagner made a formal offer of settlement in the Joseph Ryder case in the amount of $20,000.00, the full amount of the coverage for each person.
On the second day of the trial negotiations were renewed in Justice King's chambers. Justice King recommended a settlement of $33,000.00 in both cases. Following this conference the carrier made a firm offer of $30,000.00 to settle both suits.
This same offer was renewed in Justice King's chambers at a further conference after the close of the evidence and before the summations. At the close of the plaintiff's evidence Justice King had dismissed the cause of action for conscious pain and suffering asserted in the complaint with reference to Mrs. Ryder. During the course of the trial Mr. Citak also suffered some setbacks in the submission of his proof as a result of the exclusion of evidence of contributions of Mrs. Ryder to her 31 year old daughter executrix. In spite of these developments, Mr. ...