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Estate of Louis Penn v. Amalgamated General Agencies

Decided: March 14, 1977.

ESTATE OF LOUIS PENN, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
AMALGAMATED GENERAL AGENCIES AND RICHARD-LEWIS AGENCY, DEFENDANTS, AND EMPIRE MUTUAL INSURANCE COMPANY, DEFENDANT-RESPONDENT AND CROSS-RESPONDENT, AND WESTERN WORLD INSURANCE COMPANY, DEFENDANT-APPELLANT



Lora, Crane and Michels. The opinion of the court was delivered by Michels, J.A.D.

Michels

[148 NJSuper Page 420] The principal question raised by this appeal is whether a primary carrier owes to an excess carrier the same positive duty to take the initiative and attempt to negotiate a settlement within the policy coverage that it owes to its assured. The trial judge on cross-motions for summary judgment, held that the fiduciary duty imposed upon a carrier with respect to its assured by Rova Farms Resort v. Investors Ins. Co. , 65 N.J. 474, 496 (1974), did not apply as between primary and excess carriers, and that the excess carrier was solely liable for all sums recovered against its assured in excess of the limits of coverage provided by the primary carrier.

This litigation arose as the result of an automobile accident in which a taxicab owned by plaintiff estate of Louis Penn (Penn) struck the rear of another automobile while stopped for a red light. Penn had obtained automobile liability insurance covering the taxicab through defendant Amalgamated General Agencies. The primary coverage was issued by defendant Empire Mutual Insurance Company with limits of $10,000 per person and $20,000 per accident. The excess coverage was issued by defendant Western World Insurance Company with excess limits above the $10,000-$20,000 to $90,000 per person and $280,000 per accident.

Immediately following the accident Penn notified Empire Mutual of the accident and sent it a written report thereof. Empire Mutual sent a copy of the report to Amalgamated which, in turn, sent a copy to Western World. Thereafter Freddie Howard, the owner and operator of the other automobile involved in the accident and his three passengers, Charles Jones, William Jones and Emmet Jones, instituted suit against Penn to recover for the personal injuries they sustained in the accident. Empire Mutual undertook the defense of the action although apparently it did not notify Western World that suit had been instituted.

Settlement negotiations were undertaken prior to trial and the four claimants finally agreed to settle their claims for the aggregate sum of $10,875, which was well within the policy limits of Empire Mutual's primary coverage of $20,000. Howard agreed to accept $1,375, William Jones $1,500, Emmet Jones $5,500 and Charles Jones $2,500. Empire Mutual refused to pay the aggregate amount demanded but offered to settle all of the claims for a total of $9,875. It offered to pay Howard and William Jones the amounts they demanded but were only willing to pay $5,000 to Emmet and $2,000 to Charles Jones. When settlement fell through because all the claims could not be settled as a package, the case was tried to a jury which returned verdicts in favor of all of the claimants, which with interest totalled $29,827.20. Howard was awarded $1,918.74, William Jones

$2,001.43, Emmet Jones $7,875.25 and Charles Jones $18,031.78. Empire Mutual's motions for new trial and remittitur were denied.

Empire Mutual then filed a notice of appeal and notified Western World for the first time that judgments had been recovered in excess of the primary limits and demanded that Western World contribute to the appeal bond. Western World refused, claiming that Empire Mutual as the primary carrier had violated its duty of good faith by failing to settle the claims within its policy limits. As a result of Western World's refusal to contribute to the appeal bond and Empire Mutual's failure to post a bond in excess of the amount of its $20,000 coverage, Penn was forced to deposit with the clerk of the court $9,827.20 to avoid execution upon the judgments by the claimants. The judgments were affirmed on appeal by this court and were paid in full, $6,353.28 of the total payment coming from the funds deposited by Penn with the clerk of the court. The balance of the funds deposited was returned to Penn.

Penn thereupon instituted this action to recover the money it had paid the four claimants over and above the sums paid by Empire Mutual, as well as counsel fees and costs. The complaint against Amalgamated and defendant Richard-Lewis Agency, a cobroker, was dismissed on their motions for summary judgment and no appeal was taken therefrom. Thereafter, on cross-motions for summary judgment by the remaining parties, the trial judge held that since Western World was the excess carrier, it was solely liable for the verdicts in excess of the primary coverage provided by Empire Mutual. The judge also held that, even though its ruling on the law was dispositive of the case, there was no indication of any bad faith on the part of Empire Mutual in failing to settle the claims within its policy limits. Summary judgment was entered in favor of Penn against Western World for the amount of moneys Penn had paid to the claimants, together with counsel fees, costs and interest, and Penn's

complaint against Empire Mutual was dismissed. This appeal followed.

We are convinced that the trial judge erred in holding that the principles enunciated in Rova Farms do not apply as between primary and excess carriers. We are of the view that Western World, as the excess carrier, has precisely the same status as the assured Penn for purposes of this action. This is clearly consistent with the status accorded the plaintiff excess carrier in Fireman's Fund Ins. Co. v. Security Ins. Co. of Hartford , 72 N.J. 63, 68 (1976), as well as the general rule under which the excess carrier is subrogated to the assured's rights against the primary carrier. See United States Fidelity & Guar. Co. v. Tri-State Ins. Co. , 285 F.2d 579 (10 Cir. 1960); St. Paul-Mercury Indemnity Co. v. Martin , 190 F.2d 455, 457-458 (10 Cir. 1951); American Fidelity & Cas. Co. v. All American Bus Lines , 179 F.2d 7, 11 (10 Cir. 1949), 190 F.2d 234, 238 (10 Cir. 1951), cert. den. 342 U.S. 851, 72 S. Ct. 79, 96 L. Ed. 642 (1951); Transport Ins. Co. v. Michigan Mut. Liab. Ins. Co. , 340 F. Supp. 670 (E.D. Mich. 1972); Home Ins. Co. v. Royal Indem. Co. , 68 Misc. 2d 737, 327 N.Y.S. 2d 745 (Sup. Ct. 1972). The reasons underlying this rule are well expressed in Peter v. Travelers Ins. Co. , 375 F. Supp. 1347 (D.C. Cal. 1974), and are worthy of repeating:

Moreover, strong equitable and economic considerations also compel this result in the present case. The primary carrier's duty arises by way of a contract with the insured, and this duty is not reduced merely because of ...


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