The opinion of the court was delivered by: COOLAHAN
This matter was tried before the court without a jury. It is an action by the plaintiff, Bertil Kaudern, against the Allstate Insurance Company, seeking damages for Allstate's improper investigation, assessment, and handling of a case arising out of an auto accident in which plaintiff - insured by Allstate - was involved.
It was admitted by the parties that Kaudern was insured by Allstate under a liability insurance policy which was in effect on the date of the accident, June 6, 1959. By the terms of the policy, Allstate contracted to defend in the name of and on behalf of Kaudern any claim for injuries to persons by reason of the operation of a motor vehicle then owned and operated by him. The policy also provided that Allstate would pay any final judgment which might be rendered against Kaudern, not to exceed $10,000 for any one person injured or killed and not to exceed $10,000 for each occurrence.
On June 6, 1959, Kaudern was involved in a multiple automobile collision in East Rutherford, New Jersey. Julia B. Collins was a passenger in a vehicle operated by her husband, Carroll E. Collins, and as a result of the accident she suffered extremely serious injuries, including a fractured skull, concussion of the brain, comminuted fracture of the second vertebrae, transection of the spinal cord, and a complete paralysis of her arms, legs, body, and tongue, resulting in total permanent disability. Her injuries necessitated extensive medical care, requiring hospitalization for over 15 months with constant medical and nursing attention.
On May 29, 1961, complaints were filed by Mrs. Collins and her husband in the Superior Court of New Jersey, Morris County, against Kaudern and the other owners or drivers of the vehicles which were involved in the accident. In the Collins' complaint it was alleged that Mrs. Collins was a passenger in a vehicle, owned and operated by her husband, which had been traveling east on Route 3 on the Hackensack River Bridge in East Rutherford, New Jersey, on June 6, 1959, during rainy weather conditions. The complaint alleged that all of the defendants negligently or recklessly operated their vehicles, resulting in their collision with each other and with the vehicle owned and driven by Collins. The complaint also referred in detail to the injuries suffered by Mrs. Collins, and demanded damages in the sum of $750,000 for the personal injuries suffered by Mrs. Collins and $300,000 for medical expenses and loss of services of his wife by Mr. Collins.
After the accident, Kaudern immediately notified Allstate. Allstate then commenced to make an investigation and an assessment of the case. The initial investigation by Allstate was conducted by Martin Berger, a claims examiner in the Bergenfield, New Jersey, office. Active investigation began some time in June of 1959. After reviewing the file, Berger prepared an inter-office memorandum in which he expressed the opinion that this was a "no-liability" case. He reasoned that the Collins' car had struck the Kaudern car, and that therefore Kaudern would not be liable for any injuries sustained by Mrs. Collins. It appears from the record that Berger formed this opinion without the benefit of any of the depositions which were subsequently taken in this matter,
wherein it appeared to be at least questionable whether the Collins' car struck the Kaudern vehicle, or of police reports, wherein Joseph Lauricella, also involved in the accident, stated that the Kaudern vehicle struck the Collins' vehicle.
Some time in the fall of 1961 the case was transferred to Allstate's Unit III at the Clifton, New Jersey, office. Unit III is the Allstate section where certain files on which investigation has been completed are sent. Its basic function is twofold: to attempt to settle cases where liability was admitted and to prepare "no-liability" cases for trial. Subsequently, Martin Berger, author of the opinion that the Collins' suit was a " no-liability" case, was transferred from Bergenfield to Unit III, where he assumed at least titular control of the Kaudern file.
Under the terms of its policy, Allstate was obligated to provide legal assistance to Kaudern in this matter. Pursuant to this obligation Allstate engaged the law firm of Marley, Winkelried & Hillis to defend Kaudern. Kaudern was advised that the firm would be representing him, but that they would also be representing interests of Allstate, and that if Kaudern so desired he might obtain independent legal counsel to represent him. From June 23, 1959, until August of 1961, while Berger was in charge of the Collins' claim, the Marley firm did not participate in reviewing or evaluating that file. Berger had the responsibility for handling the claim and supervising the investigation. He was also charged with decisions on liability and the possible creation of a reserve fund to cover the expense of the claims, including the cost of any eventual settlement.
When Berger made his initial determination of "no-liability", he inserted a memorandum in the file to that effect. However, he believed at the time that he closed the file that the severity of Mrs. Collins' injuries would adversely affect Kaudern and that such injuries would influence a jury on the liability question. He also noted that in the event the case were to go to a jury the chances were that the verdict would be greatly in excess of the policy limits. As the case continued to develop through further investigation, answers to interrogatories, depositions, and further material evidence, it does not appear that there was undertaken any material review of the file to reassess the question of liability.
In its demand for a statement of damages the Collinses furnished Allstate with a copy of a six page medical report detailing the injuries and expenses involved in the treatment of Mrs. Collins. Further, Allstate was supplied with the names of fourteen doctors who were in attendance at various times and the names of thirty-two private nurses who attended her from time to time during her fifteen months hospitalization. These expenses amounted to $34,843.34, as of August 31, 1961.
In February of 1962 a settlement conference was held before Judge Long of the Morris County Superior Court. This settlement conference occurred after Allstate had received a statement of the damages, medical reports, answers to interrogatories, and transcripts of the depositions. At the conference George Brown, Esq., an employee of Allstate, stated that Allstate would not contribute any amount to the settlement. Judge Long scheduled another settlement conference for March 2, 1962, but it was cancelled at the request of the attorney for the Collinses, when he was advised by Allstate that it still would not contribute anything to a settlement. Kaudern was never informed of the existence of these conferences.
On March 5, 1962, when it appeared that the case might soon reach trial, counsel for Collinses, Frank A. O'Brien, Esq., sent a registered letter to Marley, Winkelried & Hillis, the attorneys of record for Kaudern, offering to settle for $10,000,
which was, incidentally, Allstate's liability limit under its policy with Kaudern. No response was made by either Marley, Winkelried & Hillis or Allstate to this letter, nor did Marley, Winkelried & Hillis or Allstate communicate with Kaudern with respect to the receipt or contents of the letter.
Thereafter, the suits by the Collinses against Kaudern and the other defendants were consolidated for trial and scheduled for June 2, 1962. Just prior to trial the Collinses were offered $5,500 by Allstate, which was rejected. The case actually went to trial on June 14, 1962. Upon submission of the case to the jury, a verdict was rendered in favor of Mrs. Collins against Kaudern and co-defendant Pedro Melendez in the sum of $75,000, and a verdict was rendered in favor of Mr. Collins against Kaudern and Melendez in the sum of $100,000. Judgment was ...