J & N Logging Co., Inc., Georgia-Pacific Corporation v. Rockwood Insurance Co.

Citations: 848 F.2d 1438; 11 Fed. R. Serv. 3d 819; 1988 U.S. App. LEXIS 7995; 1988 WL 59353Docket: 87-2223

Court: Court of Appeals for the Eighth Circuit; June 14, 1988; Federal Appellate Court

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Georgia-Pacific Corporation (GP) appeals the district court's denial of its motion to intervene as a matter of right in the lawsuit of J. N Logging Co. Inc. v. Rockwood Insurance Co. The court found that J. N Logging adequately represented GP's interests. GP was held jointly and severally liable for over $5 million in damages resulting from a motor vehicle accident, with its liability being derivative of the negligence of J. N Logging's employees. Rockwood Insurance had issued a policy to J. N Logging with a coverage limit of $500,000, which J. N Logging sought to have Rockwood pay in full, alleging bad faith and negligence for refusing to settle within policy limits.

GP moved to intervene under Rule 24(a), arguing that the alleged misconduct by Rockwood affected its interests, which were unprotected and at risk. The district court denied the motion, leading to the appeal focused on whether GP has a sufficient interest in the case to warrant intervention. During oral arguments, GP highlighted policy language suggesting it may be considered an insured under Rockwood's coverage, as it could be liable for the actions of an insured party. This possibility, coupled with GP's vicarious liability, indicates it may have a valid stake in the outcome of the litigation, prompting the appellate court to remand the case for further consideration of GP's request to intervene.

Rockwood Insurance asserts that GP, despite being an insured under subsection (3), cannot recover beyond the policy limit of $500,000. Rockwood argues that GP lacks a cause of action for bad faith and negligent failure to settle within these limits. However, it is established that an insured can pursue a claim if the insurer acts in bad faith by failing to settle a claim within policy limits, as noted in Long v. McAllister and Kranzush v. Badger State Mutual Co. If GP is deemed an insured, it should be allowed to seek damages for bad faith. Insurers can be liable for judgments against insureds that exceed policy limits if bad faith is proven.

Kranzush illustrates the standing required for a bad faith claim, emphasizing that a tort victim lacks a cause of action against the tortfeasor's insurer due to conflicting interests. The relationship between an insured and insurer is built on trust, which only becomes adversarial when the insurer fails to settle, exposing the insured to excess liability. In contrast, the tort victim's relationship is inherently adversarial.

GP and J. N Logging share aligned interests regarding Rockwood's settlement within policy limits. A settlement would prevent GP from facing excess liability due to J. N Logging's employee's negligence. Both parties became adversarial only after the alleged bad faith by Rockwood.

Additionally, GP must demonstrate to the district court that it cannot adequately protect its interests without intervention. Concerns were raised regarding the representation of J. N Logging by the accident plaintiffs' attorney, which could affect GP's interests. This representation stems from an agreement holding J. N Logging harmless for amounts exceeding any settlement from the bad faith claim, necessitating further court consideration.

GP's interests may be compromised if J. N Logging accepts a settlement below the $5 million judgment, allowing accident plaintiffs to potentially pursue GP for the balance. Thus, the district court is instructed to reconsider GP's intervention in light of the evolving dynamics between J. N Logging, the plaintiffs, and Rockwood. The matter is remanded for further consideration based on these developments.