Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Peterson v. Allcity Ins. Co.

decided: December 29, 1972.


Appeal from a judgment of the District Court for the Eastern District of New York, Orrin G. Judd, Judge, awarding plaintiff damages for breach of defendant-insurer's good faith obligation to settle claim against its insured within policy limits. Affirmed.

Moore, Feinberg and Mulligan, Circuit Judges. Moore, C.j. (dissenting).

Author: Mulligan


This is an appeal from a judgment of the United States District Court for the Eastern District of New York entered on March 19, 1971 awarding $70,000 to the plaintiff-appellee, after a trial before Hon. Orrin G. Judd and a jury. Judgment affirmed.

The judgment appealed from involves an action brought by the assignee of an insured against a liability carrier, Allcity Insurance Company, the appellant, based upon its "bad faith" in failing to settle a claim against its insured within the limits of its liability policy. The insured, Nathaniel Washington, was driving his car with a passenger, appellee Juanita Peterson, in Queens, New York, on June 4, 1967 when the car mounted a road divider and collided with a vehicle driven by Herbert Brown who was proceeding in the opposite direction. Washington was arrested for driving while intoxicated and reckless driving. He pleaded guilty to the reckless driving charge. Washington's Allcity Insurance Company policy contained a $10,000 limitation. His passenger, Juanita Peterson, sustained severe injuries losing the sight of one eye, facial scars and the possibility of losing the sight of the other eye due to sympathetic ophthalmia. The insurer defended the negligence action brought by Juanita Peterson against Washington in the New York Supreme Court, Queens County, before Hon. Abraham J. Multer and a jury. The jury returned a verdict in favor of Miss Peterson in the sum of $80,000 and a judgment for that amount was entered on October 25, 1968. The insurer did not appeal but paid its full coverage of $10,000 plus costs. In May, 1969, Washington assigned to Miss Peterson his cause of action against Allcity for failure to settle in good faith within the policy limits. She commenced an action on the assigned claim in the Eastern District of New York; subject matter jurisdiction was based on diversity of citizenship -- Miss Peterson was alleged to then be a citizen of North Carolina and Allcity "a citizen of New York."


Appellant's first point on appeal is that Miss Peterson's domicile in North Carolina was not bona fide but was spuriously attained for the sole purpose of creating jurisdiction in the Federal Court. The trial court, in denying a motion to set aside the verdict on this ground, found that Miss Peterson had previously lived in North Carolina, had returned there after judgment was entered in the New York negligence action and credited her testimony that she intended to live there. Her father had just died there and the family farm was there. We find nothing in the record at all to suggest that she did not have the intention to make it her home. She was there without dispute at the time of the commencement of this action. The fact that she subsequently returned to Brooklyn, New York where she was living at the time of the trial is of no significance in view of the absence of any proof that the move to North Carolina was not bona fide. Appellant's claim that Miss Peterson moved to North Carolina solely for the purpose of obtaining diversity jurisdiction, even if it could be established, is immaterial. So long as she intended to make North Carolina her home at the time she moved there and had no intention then of moving elsewhere, her motive in moving, even if for jurisdictional purposes, is not our concern. Williamson v. Osenton, 232 U.S. 619, 58 L. Ed. 758, 34 S. Ct. 442 (1914); Morris v. Gilmer, 129 U.S. 315, 32 L. Ed. 690, 9 S. Ct. 289 (1889); C. Wright, Law of Federal Courts, ยง 26 (2d ed. 1970). Since the merits of this case are to be determined by the law of New York in any event it is highly improbable that Miss Peterson's trek was inspired by jurisdictional considerations.*fn1

II. Lack of Cooperation of the Insured

Appellant argues that the complaint below should have been dismissed since Washington's conduct indicated that he was totally unconcerned about the outcome of the lawsuit and that he was totally uncooperative with the insurer. It is urged that the assignee here should be estopped from complaining that the insurer acted in bad faith in failing to settle within the policy limits. The proposition that the lack of concern of the insured excuses the exercise of good faith efforts by the insurer to settle a claim against him, is not supported by authority.*fn2 There is, of course, ample authority that an insurance company can disclaim liability entirely and refuse to defend at all if it can "shoulder the heavy burden" of establishing that the attitude of the insured whose cooperation was sought was one of "willful and avowed obstruction." Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159, 168, 278 N.Y.S.2d 793, 800, 225 N.E.2d 503 (1967), Coleman v. New Amsterdam Cas. Co., 247 N.Y. 271, 276, 160 N.E. 367 (1928). In this case there was never any disclaimer of liability on the part of the insurer which defended the action and paid the judgment.*fn3

We are not persuaded in any case that Washington's lack of cooperation was directed at thwarting the insurance company's defense of the lawsuit. Washington was poorly educated, was living in a basement apartment and was laboring under the illusion apparently that having paid his premiums the insurance company would protect him against any losses. Moreover, the testimony of the insurer that it failed to get his cooperation was countered by his evidence that they failed to advise him of his right to seek independent counsel or of any settlement negotiations. It must also be emphasized that the insurance company's only proposed defense to the action was that Washington was a drunken driver, that Miss Peterson was aware of this when she entered the vehicle and assumed the risk. Washington consistently denied that he had been drinking and his reluctance to acknowledge this could hardly be characterized as a willful and avowed obstruction of the insurance company's defense.*fn4

III. Direction of a Verdict for Appellant

The principal emphasis of the appellant in this court is that under New York law an insurer is under no legal obligation to settle the primary tort action by offering the entire limit of coverage and therefore it was error not to direct judgment in favor of the appellant and to submit the issue to the jury for determination. This in our view is not a proper statement of the law of New York and is not at all supported by the cases in the New York Court of Appeals upon which appellant places reliance. The test, of course, is whether or not the insurer acts in good faith in refusing to settle within the policy limits. The mere fact that a verdict may exceed the policy limits does not mandate an offer of the policy. However, under circumstances indicating bad faith, the insurer may in fact be subject to excess liability if he fails to settle. Normally where the issues are contested as they were bitterly here, the trier of the fact under proper instructions of the court, is charged with this determination. Brochstein v. Nationwide Mut. Ins. Co., 448 F.2d 987, 990 (2d Cir. 1971), cert. denied, 405 U.S. 921, 30 L. Ed. 2d 791, 92 S. Ct. 957 (1972); Brown v. United States Fidelity & Guar. Co., 314 F.2d 675, 680 (2d Cir. 1963).

Appellant relies on four New York Court of Appeals cases for the bald proposition that there is no obligation for an insurer to settle the primary tort liability by offering its entire coverage.*fn5 The first two cases, Auerbach v. Maryland Cas. Co., 236 N.Y. 247, 140 N.E. 577 (1923) and Best Bldg. Co. v. Employers' Liability Assurance Co., 247 N.Y. 451, 160 N.E. 911 (1928), were thoroughly discussed in Judge Kaufman's exhaustive opinion for this court in Brown v. United States Fidelity & Guar. Co., 314 F.2d 675 (2d Cir. 1963). While many of the early New York cases contained language that the company's power over settlement amounted to an almost unlimited discretion, short of fraud or collusion (which appellant would also except), Judge Kaufman concluded, relying on Best, that the "good faith" settlement standard prevailed:

Despite the absence of a clear, recent pronouncement on the subject, we are convinced that the good-faith settlement standard controls in New York in cases of an assured's personal liability resulting from the insurer's failure to settle within policy limits. 314 F.2d at 678.

The two later Court of Appeals decisions upon which appellant relies are not only not helpful to its position but establish quite definitely that Judge Kaufman's determination of New York law was correct. Parisi v. Maryland Cas. Co., 27 N.Y.2d 505, 312 N.Y.S.2d 678, 260 N.E.2d 871 (1970), is a memorandum opinion affirming a decision of the Appellate Division, 32 App. Div. 2d 1030, 303 N.Y.S.2d 496 (2d Dep't 1969), which without opinion affirmed an order of Justice Miles McDonald, Supreme of New York, Kings Co., granting summary judgment for defendant insurance company. An examination of his opinion (160 N.Y.L.J., Nov. 26, 1968, at 18, col. 7) reveals that the insurer not only failed to settle within the policy limits but defaulted in the tort action brought against the insured. Its reason was that the policy holder had provided the carrier with a written statement that he had never been served with process in the pending action. The case does not at all stand for the proposition that the company had no legal obligation to settle within ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.