Thanks for visiting! Welcome to a new way to research case law. You are viewing a free summary from Descrybe.ai. For citation and good law / bad law checking, legal issue analysis, and other advanced tools, explore our Legal Research Toolkit — not free, but close.
Wade v. Emcasco Insurance
Citations: 483 F.3d 657; 2007 U.S. App. LEXIS 8227; 2007 WL 1054681Docket: 05-3044, 05-3054
Court: Court of Appeals for the Tenth Circuit; April 10, 2007; Federal Appellate Court
Original Court Document: View Document
The Tenth Circuit Court of Appeals addressed a case involving plaintiffs Jerry L. Wade, II and Ninh Nguyen against EM Casco Insurance Company concerning the insurer's duty to act in good faith during the settlement of third-party claims. Under Kansas law, an insurer may be held liable for excess judgments against its insured if it negligently or in bad faith declines a settlement offer within policy limits and proceeds to trial, resulting in a verdict exceeding those limits. In this specific case, the plaintiffs had made a demand for a policy-limits settlement following an automobile accident characterized by disputes over liability and causation. The plaintiff in the tort suit withdrew the settlement offer before providing necessary medical records and subsequently rejected the insurer's policy-limits offer, aiming instead for a larger recovery through a bad-faith claim. The court upheld the district court's summary judgment favoring the insurer, determining that the insurer's actions were appropriate given the circumstances, including the lack of clear evidence of liability and the plaintiff's withdrawal of the settlement offer. The court emphasized that the insurer's duty of good faith was not violated under the unusual, undisputed facts of this case. The accident details revealed conflicting accounts regarding traffic signals and causation, contributing to the complexity of the settlement discussions. Witness testimonies also varied, further complicating the determination of fault. Following the accident, Mr. Wade, Ms. Vu, and Mr. Nguyen received medical treatment at Wesley Medical Center. Mr. Wade and Ms. Vu sustained minor injuries, while Mr. Nguyen was hospitalized for two weeks and subsequently transferred to Wesley Rehabilitation Hospital for five additional weeks, suffering a spinal cord injury that left him tetraplegic. Mr. Wade filed a claim under his EM CASCO insurance policy, which had a total coverage of $100,000 for all claimants. He communicated with adjuster Russ Shreves, providing a claim form asserting he had a green light during the accident. Ms. Vu retained attorney Gary Patterson to represent Mr. Nguyen shortly after the accident. On March 13, 2001, Patterson notified Shreves of his representation, Mr. Nguyen's serious injuries, and indicated potential damages exceeding one million dollars, inquiring about the limits of Mr. Wade's insurance. Shreves assigned outside adjuster Kyle Buck to investigate, who interviewed Mr. Wade and attempted to contact Ms. Schrag for additional statements but was unsuccessful. Patterson obtained a release for Mr. Nguyen's medical information on March 29, 2001, and requested a breakdown of medical expenses from Wesley Medical Center on April 6, 2001. By May 1, 2001, he had forwarded Mr. Nguyen’s medical bills to Shreves and offered to settle all claims for the policy limits, stating he would send the medical records upon receipt. Shreves did not pursue Mr. Nguyen’s records, relying on Patterson’s assurance. Patterson received and reviewed the medical records from Wesley Rehabilitation Hospital and forwarded them to Shreves on May 21, 2001, while also indicating that the settlement offer would be withdrawn on June 15, 2001. However, the records did not include Mr. Nguyen’s medical information from his initial stay at Wesley Medical Center, which Patterson did not obtain until June 28, 2001, after the settlement offer had expired. He delayed forwarding these records to Shreves for four months, past all settlement deadlines. Mr. Patterson's May 21, 2001, letter informed Mr. Shreves that he had contacted Ms. Schrag, who stated that Mr. Wade entered an intersection against a red light. Although Mr. Patterson offered to arrange a meeting with Ms. Schrag and an EM CASCO representative, Mr. Shreves declined, preferring Mr. Buck to make independent arrangements. Despite Mr. Buck's efforts, he could not contact Ms. Schrag before the June 15, 2001, settlement demand deadline. On June 5 or July 5, 2001, Mr. Shreves notified Mr. Wade that Mr. Nguyen had filed a claim exceeding policy limits, stating that the accident was still under investigation and that EM CASCO had not obtained a witness statement. On August 2, 2001, Mr. Patterson sent Mr. Shreves a witness statement from Ms. Schrag dated June 25, 2001. Mr. Shreves instructed Mr. Buck to cease contacting Ms. Schrag since the statement had been received. Mr. Patterson did not explain the five-week delay in forwarding the statement. In the same letter, he offered to settle Mr. Nguyen’s claim for the policy limits. However, on August 20, 2001, before Mr. Cooper, Mr. Wade's defense attorney, could review Mr. Nguyen’s medical records, Mr. Patterson withdrew the second settlement offer, enclosing a copy of the Petition against Mr. Wade and agreeing to delay serving it to allow EM CASCO time for a potential settlement offer. Mr. Shreves relayed this development to Mr. Cooper, emphasizing the urgency due to the risk of excess judgment and bad faith. By August 2001, it appeared likely that Mr. Wade might have run the red light, though questions about the cause of Mr. Nguyen’s injuries arose. Mr. Cooper expressed concern that Mr. Nguyen’s quadriplegia might result from factors unrelated to the accident. Lacking critical medical records, he requested medical releases from Mr. Patterson to obtain necessary documentation. On October 22, 2001, Mr. Cooper reiterated the need to confirm that Mr. Nguyen's injuries were caused by the accident and not by subsequent medical negligence. Mr. Patterson provided a medical release, but it was signed by him, not Mr. Nguyen, leading the hospital to deem it invalid and deny access to the records. Mr. Cooper contacted Mr. Patterson on October 30, 2001, to obtain emergency treatment records from Wesley Hospital, which Mr. Patterson found and agreed to send to EM CASCO. Mr. Cooper informed EM CASCO's supervisor, Joel McFadden, via email that Mr. Patterson would be sending the records, suggesting that the case could have been resolved sooner if Mr. Patterson had acted earlier. Upon receiving the records, Mr. McFadden authorized a settlement offer of the policy limit. Mr. Wade, despite claiming no fault, accepted the settlement, which Mr. Cooper communicated to Mr. Patterson on November 1, 2001. Mr. Cooper interpreted Mr. Patterson’s earlier correspondence as a request for a policy limits offer, expecting acceptance once authorization was given. However, Mr. Nguyen’s attorney was considering a bad faith claim against EM CASCO that could exceed the policy limit of $100,000. Although Mr. Patterson had invited a settlement offer in his August 20 letter, he later stated that he would not have accepted the policy limits at that time, believing EM CASCO had acted in bad faith. He did not respond to the November 1 offer and instead sought new co-counsel, Jacob Graybill, who specialized in bad faith claims. Mr. Graybill rejected the settlement on behalf of Mr. Nguyen, planning to negotiate a higher judgment against Mr. Wade while allowing Mr. Wade to pursue a bad faith claim against EM CASCO. On November 19, 2001, Mr. Graybill sent a letter to Mr. Cooper outlining that a prima facie case suggested EM CASCO had acted negligently and in bad faith by failing to accept Mr. Nguyen’s settlement offers. He criticized EM CASCO for a pattern of delays and disingenuous excuses, concluding that advising Mr. Nguyen to accept the $100,000 offer would constitute malpractice for both himself and Mr. Patterson. Mr. Graybill proposed that EM CASCO, Mr. Wade, and Mr. Nguyen negotiate a settlement of $3 million, regardless of payment responsibility and policy limits, allowing Mr. Wade to confess judgment and assign rights to Mr. Nguyen. Mr. Wade had minimal assets, primarily a home valued at $49,300 with a $45,400 mortgage, following a bankruptcy five years prior. Mr. Cooper, unable to negotiate on EM CASCO's behalf, prepared for trial. On June 20, 2002, based on Mr. Cooper's advice, Mr. Wade confessed a judgment of $3,150,000 and assigned his rights against EM CASCO to Mr. Nguyen in exchange for a covenant not to execute the judgment. EM CASCO subsequently paid its policy limit of $100,000, distributed as $25,000 to Ms. Vu and $75,000 to Mr. Nguyen, who then sued EM CASCO for bad faith, alleging it failed to properly investigate and settle Mr. Nguyen’s claim, leading to the excess judgment against Mr. Wade. Mr. Wade hired Mr. William Graybill and joined Mr. Nguyen’s suit, claiming EM CASCO breached its contract by not adequately investigating claims, failing to keep him informed, and not providing a proper defense. He also alleged negligence in responding to settlement offers, fraud due to a conflict of interest involving Mr. Cooper, and tortious interference with his attorney-client relationship. Despite having no direct financial loss, Mr. Wade argued the judgment harmed his credit and caused emotional distress. EM CASCO moved for summary judgment, which the district court granted, finding no negligence or bad faith in its settlement delay and dismissing Mr. Wade's tort claims based on Kansas law prohibiting such actions for contractual breaches. Mr. Wade's claims for breach of contract and breach of the implied covenant of good faith were rejected by the court on the basis that he is not the real party in interest, having assigned those claims to Mr. Nguyen. Both parties are appealing the district court's ruling. Under Kansas law, in diversity jurisdiction cases, federal courts must apply state law as determined by the state's highest court and predict its decisions when no controlling case exists. Guidance can be drawn from lower court rulings, appellate decisions from other states, and the general trend of authority. The district court's interpretation of state law is reviewed de novo. The leading case on insurance bad faith in Kansas is Bollinger v. Nuss, which establishes that when an insured faces a claim exceeding policy limits, a conflict arises for the insurer between minimizing payments and adequately defending the insured’s interests. The insurer must balance its own interests with those of the insured, particularly when a settlement offer nears policy limits. The court concluded that insurers must act with the care expected of a prudent business, considering both parties' interests fairly, and that bad faith requires more than simple error in judgment. The court established that insurers must act in good faith and without negligence, noting that the distinctions between these terms are largely semantic. The insurer's duty extends solely to its insured and not to third parties; however, the insured can assign claims against the insurer to another party, as affirmed by the Kansas Supreme Court in Glenn v. Fleming. In this case, Jerry Wade assigned his rights to Ninh Nguyen, a third-party plaintiff, in exchange for a covenant not to execute any judgment. The court emphasized that liability depends on specific case circumstances, considering various factors to determine if an insurer breached its good faith duty. The factors include: 1) the claimant's case strength regarding liability and damages; 2) the insurer's attempts to involve the insured in settlement; 3) proper investigation by the insurer; 4) adherence to legal advice; 5) informing the insured of settlement offers; 6) financial risk exposure for each party; 7) the insured's fault in misleading the insurer; and 8) any other relevant factors. The case at hand involved the insurer's delay in accepting a settlement offer, distinguishing it from the Bollinger case, which focused on refusal to settle. After Nguyen's settlement offer expired, EM CASCO eventually offered to settle for policy limits, which Nguyen declined. While the first seven Bollinger factors are applicable to cases of delayed acceptance, they also raise additional factors relevant to establishing or negating bad faith. In Glenn, the insurer's rejection of an early settlement offer led to a substantial trial verdict, resulting in the insured assigning his bad faith claim to the plaintiff, ultimately leading to the Kansas Supreme Court affirming summary judgment for the insurer. The trial court determined there was no bad faith in rejecting a settlement offer, deeming the offer unreasonable due to its premature nature, attached conditions, and a short acceptance window of two weeks. In Covill v. Phillips, the court found an insurance company not liable for bad faith for refusing an early settlement offer, as the insurer had legitimate concerns about the extent of damages and had not received promised medical records from the plaintiff's attorneys. The court concluded that the insurer's initial refusal did not breach its duty to the insured. However, the insurer's later actions did raise a bad faith claim, as it failed to pursue settlement despite growing awareness of the plaintiff's severe injuries and continued to offer less than the policy limits, even after recognizing the claim's potential value exceeded those limits. In Williams v. American Family Mutual Insurance Co., the court granted summary judgment to the insurer on a bad faith claim when the insurer's request for additional documentation was unmet by the plaintiff's attorney. Similar findings occurred in other jurisdictions, such as in Miel v. State Farm, where the Arizona Court of Appeals reversed a decision against an insurer for delaying settlement acceptance. The court ruled that evidence regarding the plaintiff's motives for imposing a deadline on the settlement offer was pertinent to evaluating the insurer's reasonableness, emphasizing that insurer conduct must be judged by the circumstances surrounding the demand for settlement. In Adduci v. Vigilant Insurance Co., the Illinois Court of Appeals upheld the dismissal of a bad faith claim against an insurer that attempted to accept a settlement offer after its expiration. The court noted insufficient evidence from the claimants to justify why they could not accept the offer at the time, indicating that the failure to settle could not be solely blamed on the insurer. The district court emphasized caution in cases where the complaint centers on delays in accepting offers rather than outright refusals, warning against creating incentives for claimants to manufacture bad faith claims by imposing arbitrary deadlines. The First Circuit articulated that bad faith claims exist to protect the insured’s interests, not to serve the claimants' objectives. Courts must avoid allowing claimants to manipulate the settlement process, which could lead to insurers being pressured into hasty settlements that undermine their right to a comprehensive investigation. Additionally, while an insurer's attempt to accept an expired offer does not absolve them of prior bad faith actions, any evaluation of the insurer's good faith must consider all relevant factors, including the conduct of the third-party plaintiff and their role in the lack of information available to the insurer regarding settlement. The discussion transitions to the specific facts of EM CASCO's delay in responding to Mr. Nguyen's policy-limits settlement offer. The analysis is divided into two segments: the first covering May 1 to August 20, 2001, during which Mr. Nguyen kept a policy-limits settlement offer open, and the second from August 20 to November 19, 2001, when Mr. Nguyen rejected EM CASCO's offer. The district court’s judgment in favor of EM CASCO for the first period is affirmed, as the Kansas Supreme Court indicates that the strength of the plaintiff's case should be evaluated at the time the offer was refused. During this timeframe, EM CASCO did not breach its duty, as factors such as the good faith dispute over liability and damages, reliance on the opposing counsel's promise to provide medical records, and the absence of contrary legal advice supported its position. The plaintiff's counsel contributed to the lack of information regarding Mr. Nguyen's injuries by failing to provide complete medical records as promised. An exception noted was EM CASCO's failure to inform Mr. Wade of the settlement offer; however, this did not appear to impact the litigation's course, especially after Mr. Wade secured legal representation on August 7. After August 20, the situation remained largely unchanged, with the plaintiff's attorney making it difficult for the defense to obtain relevant medical records. Although Mr. Patterson, Mr. Nguyen's lawyer, received Mr. Nguyen’s medical records from a hospital stay, he delayed providing them to the defense until after settlement offers expired, breaching an earlier assurance to supply all records. Additionally, records regarding the ambulance service were not provided, which were crucial for establishing a connection between the accident and Mr. Nguyen's paraplegia. The excerpt addresses potential claims for negligence or malpractice against emergency care providers, both in an ambulance and at the hospital. Mr. Cooper sought medical releases from Mr. Patterson to obtain records directly from healthcare institutions, emphasizing the importance of these records in evaluating the case and adhering to an agreement to delay service on Mr. Wade until the records were reviewed. Initially, Mr. Patterson provided a release signed by himself, which was rejected by Wesley Hospital. After repeated requests, Mr. Patterson sent the promised records four months later. Following this, EM CASCO authorized a policy-limits settlement, which Mr. Cooper believed would be accepted. The focus of the case shifted from determining liability in the accident—where an eyewitness claimed Mr. Wade ran a red light—to assessing the medical causes of the injuries, including the possibility of preexisting conditions or negligence by medical personnel. As Mr. Nguyen's injuries became clearer, there were concerns that damages could exceed policy limits, prompting EM CASCO to act quickly to avoid potential bad faith claims. The excerpt also highlights that Kansas law mandates insurers to conduct prompt and reasonable investigations of claims. It critiques EM CASCO's reliance on Mr. Patterson’s promises to provide medical records, suggesting that a more proactive investigation could have revealed the risk of excessive judgments sooner. The excerpt raises questions about whether the Kansas Supreme Court would support plaintiffs who induce insurers to depend on unfulfilled promises, as it may encourage gamesmanship in legal proceedings. Mr. Cooper, upon engaging with the case, sought medical records directly from the hospital instead of relying on Plaintiff’s counsel, who provided legally defective medical releases. The court expresses hesitation in holding EM CASCO liable under these circumstances. However, the Appellant argues that the situation post-August 20 warranted jury consideration for a negligence claim. The court disagrees, stating that the Kansas Supreme Court would likely find that no reasonable jury could attribute the failure to reach a policy-limits settlement to EM CASCO's delay, particularly given the Plaintiff's manipulation of the settlement deadline. EM CASCO had no reason to suspect that Plaintiff’s counsel would reject a settlement offer due to the delay from August 20 to November 1, as prior offers had been extended without incident. Mr. Patterson indicated in a deposition he would not have accepted a policy-limits offer post-August 20; however, he had previously agreed to allow time for EM CASCO to make a settlement offer. Mr. Cooper interpreted this as an invitation for a policy-limits offer, and there was no evidence to doubt the sincerity of that belief. Crucially, the record indicates that the sole reason for the rejection of EM CASCO's November 1 offer was Plaintiff's counsel's intention to pursue a bad faith claim against the insurer, which Mr. Patterson acknowledged had been part of his strategy from the start. He stated that by August 20, he was convinced of EM CASCO's bad faith, asserting that a policy-limits settlement would not have sufficed. He also admitted to not having uncovered any new information regarding Mr. Nguyen's claim between August and November. The court notes that the Appellant has failed to provide any legitimate justification for why the August 20 offer would no longer be valid by November 1. The court upheld the dismissal of a bad-faith claim against EM CASCO, noting that the plaintiff, Mr. Nguyen, had no valid reason for rejecting a settlement offer made forty days past the deadline. Mr. Graybill, a specialist in bad faith claims, indicated that the refusal was strategic, aiming to establish a bad faith claim rather than accept the settlement. The court emphasized that a duty of good faith arises from the contract, necessitating proof of causation and damages. Citing Kansas case law, it underscored the requirement of a causal link between the insurer's actions and any excess judgment against the insured. A claimant’s arbitrary withdrawal from a settlement offer could legally cause the failure to settle, shifting blame away from the insurer. Ultimately, the plaintiff's conduct, driven by a desire to build a bad faith case, precluded recovery for excess judgment losses related to the insurer's negotiation actions, as this would contradict the principles governing bad faith claims. The cause of action for failure to settle is intended to safeguard the insured's interests by obligating the insurer to handle litigation and settlement negotiations without regard to policy limits. It aims to prevent third-party claimants from rejecting reasonable settlement offers within policy limits solely to initiate bad-faith lawsuits against insurers. Mr. Wade appeals the district court's summary judgment in favor of EM CASCO regarding his claims for breach of contract, breach of the duty of good faith, and fraud. Under Kansas law, only the real party in interest can prosecute a legal action arising from a contract, meaning only parties involved in the contract can enforce it. Although an injured party can assign their right to recovery to a third party, once Mr. Wade assigned his rights under his insurance policy to Mr. Nguyen, he lost the ability to enforce the contract against EM CASCO. Consequently, he is not the real party in interest for the breach of contract and good faith claims. However, because tort claims are unassignable in Kansas, Mr. Wade retains his standing as the real party in interest for the fraud claim. The fraud claim brought by Mr. Wade is dismissed under Kansas law as it improperly attempts to recharacterize a breach of contract claim and fails to present an independent tort. Kansas law requires that a fraud claim must be based on conduct distinct from that forming the basis of a breach of contract claim. In Wade's case, the alleged fraud—misrepresentations by EM CASCO regarding the defense of Wade against a claim—merely reflects a breach of EM CASCO’s contractual obligation to defend him under his insurance policy. The damages claimed by Wade for both the breach of contract and fraud are identical, primarily involving a judgment over $3 million against him and the inability to leverage his real estate for loans. The only additional claim in the fraud context relates to being deprived of insurance benefits, which is inherently linked to the contract and is thus recoverable under the breach of contract claim. Consequently, because Wade did not establish an independent tort of fraud and failed to show distinct damages, the court affirms the summary judgment in favor of EM CASCO regarding Wade's claims. The concurrence and dissent by Judge Ebel agrees with the affirmation on tort claims but suggests that material disputes exist regarding the contract claims, warranting further examination.