On July 20, 1968 plaintiff Lillian H. Yeomans was the driver of an automobile owned by her husband which collided with a vehicle driven by one Virgin. Arline Klinkenberg, a passenger in the Virgin vehicle, was injured in this accident and subsequently recovered a judgment of $77,000 against the plaintiff herein.
Plaintiff's husband was the holder of an automobile insurance policy issued by defendant All State Insurance Company. This policy provided for a maximum bodily injury benefit of $25,000 per person. Included in this policy was a standard provision that "All State will defend any law suit,
even if groundless, false or fraudulent, against any insured for such damages which are payable under the terms of this policy, but may make such settlement of any claim or suit as it deems expedient."
Plaintiff seeks judgment for the difference between the $25,000 paid by All State at the time of the Klinkenberg judgment and the full sum there awarded, plus costs.
When the action against the Yeomans was brought in Superior Court, Passaic County, All State was faced with an unusual situation as Ms. Klinkenberg also brought suit against another of its insureds, said Virgin. This second assured's coverage had a maximum limit of $100,000. Because of the possibility of a large recovery All State chose not to use their own "house counsel," but instead retained "independent" attorneys for each of their insureds, Mr. Amedeo C. Jacovino for Yeomans and Mr. John J. O'Donnell for Virgin.
All State appears to have conducted a thorough examination of the possibilities of recovery by Ms. Klinkenberg, as a result of which it reserved the full $25,000 of the Yeomans policy to meet what it expected to be a liability of at least that amount. In addition, an "excess letter" was sent to, and received by, the Yeomans informing them that there was a danger of a recovery in excess of the amount of their coverage and a right on their part to retain their own counsel. While the Yeomans had already retained an attorney, Mr. Barry N. Chase, to represent them in a proceeding under the motor vehicle act relevant to this accident, they chose not to use him, or any other attorney, aside from Mr. Jacovino, at the Klinkenberg trial.
From the evidence it appears that, aside from the excess letter, there was no information given to the Yeomans with regard to the following:
1. The danger of a verdict substantially in excess of their coverage;
2. The progress of settlement negotiations, if any;
3. The possibility of their contributing to a settlement beyond the $25,000 limit, or
4. The seriousness of Ms. Klinkenberg's injuries, at least not until after the trial ...