IF A BAD FAITH CLAIM EXISTS, CAN THE DEFENDANT ASSIGN HIS RIGHTS WITH THE INSURER TO THE PLAINTIFF AND AVOID LIABILITY?
Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.
Glenn v. Fleming, 799 P.2d 79 (Kan. 1990).
This case addresses the following issue:
If an insurance company (“insurer”) cannot reach a settlement agreement with a plaintiff because of bad faith, can the defendant assign his rights with the insurer to the plaintiff and avoid liability?
This case explored the issue of whether a defendant can assign his rights with the insurer to the plaintiff and avoid liability if the insurer could not reach a settlement agreement because of bad faith. In exploring this issue, the court concluded that an assignment/covenant not to sue may be utilized if the judgment was reasonable in amount and entered into in good faith. Id. at 93.
In this case, the defendant drove his pickup truck to a nearby business to purchase propane gas. Id. at 81. The plaintiff, an employee of the business, filled the propane tank on the vehicle. Id. After the tank was filled, a vapor fire suddenly occurred. Id. The plaintiff was severely injured and required extensive hospitalization and treatment. Id. As a result of the injury, the plaintiff filed a personal injury action against the defendant. Id. The defendant’s insurance company was Aetna and the policy limits for this accident were $25,000. Id. at 82. Both plaintiff and defendant had very little recollection on what occurred prior to the explosion; however, both were insistent that the other was responsible for the explosion. Id. Therefore, the plaintiff offered to settle the case and dismiss the defendant from suit for a payment of $25,000. Id. The defendant’s attorney passed this onto Aetna who rejected the offer and counter offered at $5,500. Id. In response, the plaintiff rejected the counteroffer. Id. After the defendant’s attorney saw how severely burned the plaintiff was, he contacted Aetna. Id. at 83. Thereafter, Aetna offered the plaintiff $25,000 and the plaintiff rejected the offer, informing Aetna that it was too late and that Aetna previously had acted in bad faith. Id. Much back and forth went on between the plaintiff and Aetna and no settlement was agreed upon. Id. Therefore, the case went to trial and the jury found the plaintiff to be 30% at fault and the defendant to be at 70% at fault. Id. at 84. The total verdict for the plaintiff was $1,500,000, which was reduced to $1,050,000 after the court took into consideration the plaintiff’s 30% fault. Id.
After the jury returned a verdict, the defendant found himself in a bit of predicament as a result of Aetna not being able to settle with the plaintiff. Id. So, the defendant signed a covenant not to execute with the plaintiff. Id. In this covenant, the defendant assigned all of his contractual rights with Aetna under his policy to the plaintiff. Id. In return, the plaintiff agreed not to execute upon any property of the defendant, either real or personal. Id. In essence, the defendant thought, “It is not my fault Aetna acted in bad faith and could not reach a settlement agreement with the plaintiff. Therefore, I am going to give all of my rights with Aetna to the plaintiff and let the plaintiff go after them instead of me.” Id. at 92.
The question then became whether the defendant could do this. Id. According to the court, the assignment/covenant not to sue may be utilized if the judgment was reasonable in amount and entered into in good faith. Id. at 93. Additionally, the court specified that a defendant was only able to assign his rights to a plaintiff if the insurance company negligently refused to settle or acted in bad faith. Id. at 91. Further, the court noted that it was the responsibility of the plaintiff to prove to the jury that the insurance company exercised bad faith in refusing to settle within the policy limits. Id. at 93. In sum, the court found that the plaintiff proved the insurance company acted in bad faith and the agreement between the plaintiff and defendant was reasonable and entered in good faith. Id.