Court: District Court, D. Kansas; September 22, 2015; Federal District Court
In the garnishment action initiated by Judgment Creditor John Kemp against Dairyland Insurance Company, the court addresses Kemp's attempt to collect a $5,700,000 judgment against Dairyland's insured, Kaston Hudgins. Kemp claims Dairyland is liable for the full judgment due to bad faith in refusing to settle the underlying claim, despite a policy limit of $50,000. The court reviews Dairyland's Motion for Summary Judgment and Kemp's Motion for Leave to File Surreply, ultimately granting Kemp's motion to file a surreply and Dairyland's motion for summary judgment.
The court explains that summary judgment is appropriate when no genuine dispute exists regarding material facts and that the evidence must be viewed in the light most favorable to the nonmoving party. To succeed, the moving party must demonstrate the absence of genuine issues and entitlement to judgment as a matter of law, while the nonmoving party must present specific facts showing a genuine issue for trial, backed by admissible evidence. The court reprimands the parties for presenting an excessive amount of largely undisputed facts and outlines the main objections to the remaining facts, which include evidentiary issues, document completeness, and the inclusion of legal conclusions.
Kemp submitted 218 statements of additional facts in response to Dairyland's admissions related to his requests, highlighting that many of these facts were undisputed, suggesting that the motion could have been based on stipulated facts to conserve resources. The Court reviewed the evidence, focusing on uncontroverted facts or those favoring Kemp as the non-moving party, and disregarded legal arguments from both sides. Among the evidence was an affidavit from attorney Steve R. Fabert, stating that Dairyland breached its duties to Kaston Hudgins, which the Court dismissed as it constituted an inappropriate legal opinion on the case's critical issue regarding the insurance company's standard of care and its role in the judgment against Hudgins.
The incident in question occurred on July 16, 2009, when Kaston Hudgins collided with a vehicle driven by Teresa Kemp, resulting in the death of her daughter, Taylor, and later, Teresa herself. John Kemp, the plaintiff, is the husband of Teresa and father of Taylor. At the time of the accident, Hudgins was driving a Nissan Maxima owned by his girlfriend, Ashley Kelley, who reported that Hudgins had taken the car without permission after a dispute about his drinking. Hudgins was fleeing from police at high speed during the incident. Although not a named insured, Hudgins was covered under Dairyland's policy for permissive users, which provided liability coverage for bodily injury and property damage up to $25,000 per person and $50,000 per accident.
Dairyland was notified of an accident involving Hudgins on July 21, 2009, and by July 24, it became aware that potential claims exceeded Hudgins' bodily injury policy limits. On August 10, 2009, Dairyland informed Kemp that it was the insurance carrier for the at-fault party. Hudgins was arrested on August 13, 2009, for murder related to the collision. Kemp retained attorney Greg Carter, who contacted Dairyland's adjuster, Brian Morris, on August 17, requesting policy details. Morris confirmed Hudgins' murder charges in a subsequent call on August 19, and requested medical bills for the victims, which Carter provided on August 26. On September 23, Morris communicated Dairyland's intention to pay its policy limits of $25,000 for the claims and discussed the need for pleadings to be filed in Kansas, without addressing any claims involving Kelley. Morris later sent a letter to attorney Bob Wulff, offering the policy limits for the wrongful death claims. Following this, on October 26, 2009, attorney Brian Groh from Evans, Dixon officially engaged on the case, indicating plans to file a friendly suit for settlement approval. Between October 26, 2009, and February 10, 2010, Evans, Dixon represented Hudgins. On November 11, 2009, Beever of Evans, Dixon emailed Carter with a settlement petition containing several errors regarding county identification and the parties involved. Carter noted these errors during a December 2, 2009, call with Beever, where he requested necessary documentation from Dairyland, including a release and a confirmation of its willingness to pay the policy limits.
On December 17, 2009, Beever, representing Dairyland Insurance, offered a settlement of $50,000 ($25,000 per deceased individual) to Carter for his client. The offer included a draft Settlement Agreement and Release, which incorrectly identified Kelley as the driver in a collision, misdated the incident as July 15, 2009, and only released Kelley from liability while omitting Hudgins. The document defined "Respondent" as Kelley and "Insurer" as Sentry, with no mention of Hudgins.
Carter informed Beever on January 14, 2010, about errors in the documents, including the driver's identity, and subsequently sent revised documents on January 20 and 25, 2010, identifying Hudgins as the driver and proposing a release for Hudgins and Dairyland but not for Kelley. The revised agreement also preserved Kemp's claims against other entities in Kansas and did not set a deadline for acceptance.
Dairyland transferred the claim to Scottsdale, Arizona, on January 21, 2010, and reassigned the case to Dennis Rubenstein. During a call on January 27, 2010, Groh informed Rubenstein that the claimant's attorney wanted to withhold a release for Kelley due to a potential negligent entrustment claim. Rubenstein insisted that Dairyland would require a release of Kelley as part of the settlement, which Groh communicated to Carter, who responded that they would not release Kelley without compensation. Groh confirmed that Dairyland was unwilling to pay for Kelley's release and did not believe a limited release would be acceptable.
Carter informed Groh that his client intended to adhere to the initial settlement understanding, which involved a payment of policy limits in exchange for releasing only Hudgins. On January 29, Groh communicated to Carter that Dairyland would not settle unless Kelley was also released, and this conversation was not documented in writing. Groh subsequently sent a letter to Rubenstein detailing that Kemp’s attorney had not yet filed a lawsuit and that the previous agreement to pay policy limits had been rescinded because opposing counsel only agreed to release Hudgins, not Kelley, against whom Kemp wanted to pursue a negligent entrustment claim. Groh anticipated that Kemp would file a wrongful death action against both Hudgins and Kelley in Kansas and indicated that further actions would await the lawsuit unless a new settlement proposal arose.
Neither Dairyland nor Evans, Dixon informed Hudgins of the negotiations regarding the settlement nor provided him with advice before rejecting Kemp's settlement proposal. After the January 29 call, Carter referred Kemp to attorney Bruce Copeland, with Kemp signing a Contingency Fee Contract on February 4, 2010, agreeing to pay Copeland 40% of any recovery, excluding the first $50,000 from Dairyland, while also covering litigation expenses. Kemp incurred $7,917.80 in expenses by July 7, 2010, which were fully paid. On February 5, 2010, Copeland filed a wrongful death petition against Hudgins in Kansas, excluding Kelley and the negligent entrustment claim.
Carter attempted to document his conversations with Groh in a letter sent on February 8, stating he referred Kemp to Copeland after Dairyland rejected the settlement offer. Groh forwarded this letter to Rubenstein, and on February 11, 2010, they discussed the case via email, including whether Sentry would provide a defense for the driver. Rubenstein confirmed that Sentry would insure the driver in the negligent entrustment case, but Groh raised concerns about potential conflicts regarding the driver's permission from the vehicle owner.
Dairyland Insurance Company, represented by Groh, is considering filing an interpleader action to include the owner in a legal dispute. Rubenstein instructed Groh to inform Copeland that the settlement would release both the named insured and the asserted permissive driver, with a request for documentation of the suit. On February 17, 2010, Groh sent Rubenstein the Petition, and on February 24, Kemp filed a motion for a guardian ad litem for Hudgins due to potential incapacity, a motion that Dairyland or Evans, Dixon did not support, and there is no record of it being granted.
On March 4, 2010, Groh notified Copeland that Dairyland had retained his firm to defend Hudgins and authorized a settlement offer of $50,000, contingent on a release for Hudgins and Kelley, the named insured. This letter was not shared with Hudgins or Kelley. On June 21, 2010, Copeland proposed a settlement for Hudgins, stipulating judgments against him totaling $5,260,000, including court costs and interest, and requiring Hudgins to assign all claims against Dairyland and Sentry Insurance, while also securing a covenant not to execute against his assets. This offer, valid until July 12, 2010, is contingent on court approval and aims to ensure Hudgins incurs no financial obligation or risk from the lawsuit.
On June 22, Groh communicated with Rubenstein regarding Copeland's settlement offer. The following day, he sent letters to both Rubenstein and Hudgins, including Copeland’s June 21 letter. In his correspondence with Hudgins, Groh encouraged him to contact him if interested in the settlement and informed him of his right to seek other counsel. Groh's letter to Rubenstein noted Hudgins’ recent transfer from a mental health institution to Cherokee County Jail, indicating uncertainty about Hudgins' acceptance of the settlement due to his financial situation and potential prison time. Groh anticipated a possible acceptance of the offer and a future bad faith claim against Dairyland, suggesting the filing of an interpleader action that would necessitate Kelley’s involvement. He advised Rubenstein to inform him if Dairyland would secure counsel for this action.
On June 29, Hudgins' criminal defense attorney, Samuel J. Marsh, indicated he would not advise Hudgins on the wrongful death action and recommended appointing a guardian ad litem or independent counsel. Marsh expressed concern about the potential bad faith claim against the insurance company and speculated that Hudgins and Kelley likely lacked the resources to cover a judgment exceeding $5 million. By the July 12 deadline, neither Hudgins nor Dairyland accepted Copeland's proposal, nor did they appoint a guardian ad litem as suggested by Marsh. On July 8, James Foland from FWERH informed Copeland that his firm was representing Dairyland in the claims against Hudgins. Foland stated that Dairyland had evaluated the claims and offered to settle for the policy limits—$25,000 for each death—conditional on a release of Mr. Hudgins.
Copeland replied to Foland's letter, expressing his assumption that either Mr. Hudgins or his attorneys shared a prior settlement offer and materials with Sentry Insurance. He clarified that his settlement offer, directed solely to Mr. Hudgins, remains valid until 5:00 p.m. on July 12, 2010, and emphasized that accepting the offer incurs no cost and mitigates Mr. Hudgins' financial risks. Copeland suggested that failing to accept could lead to significant liability for Hudgins.
On July 12, 2010, James Maloney of FWERH wrote to Copeland confirming that they represent Sentry Insurance concerning claims against Mr. Hudgins. He clarified that Sentry's offer, made on July 8, was to settle claims for $25,000 each for the deaths of Teresa and Taylor Kemp, contingent upon a release of Mr. Hudgins. Maloney expressed a desire for an amicable resolution.
Notably, neither Foland nor Maloney consulted with Mr. Hudgins before sending their letters. In a subsequent correspondence on July 18, 2010, Copeland inquired about Hudgins' representation, to which Maloney responded that his firm represents Sentry Insurance.
On July 22, 2010, Copeland sent Groh a letter including a handwritten note from Hudgins acknowledging the missed deadline but expressing a willingness to accept Kemp's proposal. Copeland advised Groh to instruct Hudgins to communicate through counsel and mentioned awaiting a letter from Groh regarding negotiations.
On July 30, Copeland communicated with Groh and Maloney regarding settlement negotiations. In his letter to Groh, he expressed gratitude for Groh's patience and indicated that after reviewing Groh's request to renew the June 21 settlement offer to Kaston Hudgins and consulting with Mr. Kemp, they concluded that the claims could no longer be settled under the previous terms due to Sentry Insurance's stance as conveyed by their attorneys. In his letter to Maloney, Copeland apologized for the delayed response to Sentry's July 12 counteroffer and stated that Mr. Kemp rejected Sentry’s offer, asserting that his claims hold significantly higher value than what was proposed. Subsequently, on August 4, Foland acknowledged Copeland's letter and re-offered a settlement for Mr. Hudgins. Sentry proposed to pay $25,000 for each of the deaths of Teresa and Taylor Kemp, contingent upon receiving a release of Mr. Hudgins from liability.
On August 15, 2010, Beever and Groh filed a Motion for Leave to File a Third Party Petition in the case of Kemp v. Hudgins, seeking to include Deputy Dean Kidd from the Cherokee County Sheriff's office as a defendant. The attorneys did not consult Hudgins prior to filing this motion. On August 20, 2010, Copeland proposed a settlement to Hudgins, mirroring amounts from a previous June 21 letter, which included a $50,000 payment from Dairyland/Sentry Insurance Company to Mr. Kemp, the policy limits for Hudgins. The proposal involved several assignments of rights from Hudgins to Kemp, including claims against the insurance companies and future lottery winnings or royalties from any related publications. Additionally, it required a covenant not to execute against Hudgins' assets beyond those specified and consent from Dairyland/Sentry regarding the settlement's validity. The offer was valid until September 3, 2010. On August 23, Foland expressed confusion about whether Copeland could accept a response from Dairyland/Sentry on behalf of Hudgins, given prior communications indicating that Dairyland's attorneys did not represent Hudgins. Foland reiterated that Dairyland's $50,000 offer remained open for Hudgins in exchange for a release. Copeland replied on August 26, confirming that a response from Foland would be considered a reply to his August 20 offer. On September 3, Foland, representing Sentry/Dairyland, declined Kemp's offer while reiterating their own reduced offer of $25,000 for each of the two claims against Hudgins, contingent upon a release, and noted uncertainty regarding Hudgins' status as a permissive user of the vehicle involved.
Foland expressed that his client, Kaston Hudgins, found Kemp's proposed settlement sums unfair and anticipated a lower jury award. Groh faxed Copeland indicating Hudgins was willing to settle, but noted Sentry/Dairyland Insurance Company declined to participate, thereby terminating the settlement offer. On September 24, 2010, Dairyland sent Hudgins a reservation of rights letter, stating it believed the matter could be resolved by paying policy limits, but now had to reserve its right to deny coverage based on Hudgins' lack of permission to use Kelley’s vehicle. Groh responded on January 11, 2011, demanding the withdrawal of the reservation of rights letter, asserting that it falsely claimed Hudgins was charged with stealing the vehicle. Groh also demanded Dairyland settle the case to avoid potential punitive damages. In February 2011, Kemp amended the petition to include a survival claim, and the parties agreed to a court trial without a jury. On March 1, 2011, Copeland sent a settlement proposal similar to earlier terms, including a stipulated judgment on the claims, with Kemp agreeing to dismiss his punitive damages claim. The settlement was deemed fair and reasonable by Dairyland, which agreed not to contest the reasonableness of the judgments in any subsequent bad faith or negligence claims. The letter also addressed concerns regarding the permissive use issue, stating that it had been withdrawn by Dairyland.
Foland contends that the damage amount assessed is unreasonable, while Copeland asserts that the potential verdict aligns with his demand and notes that the Kansas Supreme Court will address the constitutionality of applicable statutory damages caps. Copeland's offer remained valid until March 16, 2011. On March 11, 2011, Groh sent a letter to Rubenstein analyzing damages for Hudgins and urged Dairyland to settle to mitigate Hudgins' financial exposure. Foland responded to Copeland on March 16, characterizing Kemp’s demand as unreasonable and reiterating Dairyland's commitment to defend Hudgins without reservation while offering policy limits to settle. Copeland rejected this settlement offer in a letter dated March 23, claiming the plaintiffs would likely secure a seven-digit judgment and criticizing Dairyland’s refusal to consent to a judgment or offer more than $50,000. Kemp, in his responses to interrogatories, indicated he believed his claims exceeded the $50,000 limit, leading to ongoing disputes between Copeland and Foland regarding Dairyland's control over settlement negotiations and the adequacy of their settlement offers. Groh wrote to Foland again on March 24, urging a settlement. On April 1, Foland initiated broader settlement discussions with Copeland, including claims against Dairyland. Dairyland offered more than policy limits to settle both the lawsuit and claims handling, but Kemp found this offer unacceptable and refused to release Kelley as demanded. Dairyland did not involve Hudgins in these discussions. The trial began on April 6, 2011, and concluded on April 8, 2011. Dairyland paid its $50,000 coverage limit into court on May 11, 2011. On August 23, 2011, the court awarded Kemp a total of $5,761,309.01, including punitive damages, which were later amended. Hudgins' appeal was affirmed by the Kansas Court of Appeals, and the Kansas Supreme Court denied further review.
Plaintiff filed a Request for Garnishment on October 18, 2012, identifying Hudgins as the Judgment Debtor and Dairyland as the Garnishee. The court issued an Order of Garnishment, and Dairyland responded, stating it owed no money to Hudgins. In reply, Plaintiff claimed Dairyland was indebted to Hudgins, alleging negligence and/or bad faith in settling the underlying claim, and sought a judgment of $5,766,715.01, plus interest, costs, and attorneys’ fees. Dairyland subsequently filed a Notice of Removal to the court.
In this diversity case, the court must apply Kansas state law and predict how the Kansas Supreme Court would rule in the absence of clear authority. Under Kansas law, an insurance company may breach contract and incur liability for exceeding policy limits if it negligently or in bad faith rejects a settlement offer within those limits. This situation creates a conflict of interest for the insured, necessitating equal consideration of the insured’s interests during negotiations. While the insurer’s duties stem from contract law, Kansas courts apply tort standards to define the duty of care.
Key factors for determining bad faith include the strength of the claimant’s case, attempts to involve the insured in settlement, adequacy of the insurer's investigation, and the insurer's communication with the insured regarding settlement offers, among others. The court will also consider the conduct of the third-party plaintiff and any responsibilities they have regarding the insurer's information. Dairyland has moved for summary judgment on the bad faith claim.
Dairyland appropriately refused to settle for policy limits without a release of Hudgins, as doing so would violate its duty of good faith to Kelley, its other insured. Kemp is unable to prove that Dairyland’s refusal to settle in January 2010 caused the settlement failure, as he fabricated a bad faith claim. Kemp argues that Dairyland could have accepted the initial settlement offer without releasing Kelley since negligent entrustment claims were not covered by the policy. He further contends that Dairyland’s assertion of needing a release from Kelley to settle does not meet the legal standard to refute bad faith. Additionally, Kemp incurred litigation expenses between the January and March offers, justifying his rejection of the later offer due to changing circumstances. The Court is urged to consider the entire settlement negotiation process through the Bollinger factors, which favor Kemp’s bad faith claim.
The Court examines Dairyland’s conduct in two phases: prior to January 29, 2010, and after the lawsuit was filed. Initial negotiations were relatively straightforward, with Dairyland quickly agreeing in principle to settle for policy limits, acknowledging Hudgins as the at-fault party. However, there were inaccuracies in the settlement drafts, such as incorrect court venue and misidentifying Kelley as the driver. Discussion regarding potential claims against Kelley only arose after the second draft was circulated, leading Dairyland to assert a requirement for a release based on a possible negligent entrustment claim. Dairyland maintains that accepting Kemp’s initial demand without a release would breach its duty to Kelley. Conversely, Kemp argues that settling without a release would not violate any duty, as the policy did not cover negligent entrustment claims, and suggests that Dairyland later recognized the non-requirement of Kelley’s release under Kansas law.
Dairyland's rejection of Kemp’s initial settlement offer without a release for both insured parties, Hudgins and Kelley, was deemed not to be in bad faith, as Dairyland had a reasonable belief that it owed a duty of good faith to both insureds. The court referenced *Brummett v. American Standard Insurance Co.*, where a similar bad faith claim was dismissed because the insurer was willing to pay policy limits but refused to settle in a way that would not exhaust those limits while preserving the claimant's right to pursue further claims. The court noted that no Kansas case supports bad faith liability based solely on an insurer's refusal to settle for all insureds, emphasizing that an insurer’s duty extends to all its insureds and it may reject partial settlement offers in good faith.
In this case, Dairyland promptly offered to pay its policy limits to settle with Kemp, but the disagreement was over whether the settlement would cover a release for both insureds. Kemp's failure to explicitly reserve his right to pursue a claim against Kelley was deemed inconsequential, as his refusal to release Kelley would leave her exposed to liability after Dairyland settled the claims against Hudgins. The court concluded that Dairyland acted within good faith bounds by rejecting the initial offer that lacked a full release.
Kemp argued that, under Kansas law, coverage for vehicle-related claims did not extend to negligent entrustment, suggesting Dairyland's demand for a release of Kelley was unreasonable. However, the court found that the precedent cited by Kemp did not support a claim of bad faith against Dairyland. The referenced case, *Upland Mutual Insurance, Inc. v. Noel*, dealt with a different policy exclusion and concluded that negligent entrustment claims were not excluded from coverage under that specific policy. The court highlighted key distinctions between the provisions in Upland and those applicable in the current matter.
The policy language in question does not constitute an exclusion, thus the narrow construction rule from the Upland case is not applicable. This situation pertains to a coverage provision in an automobile policy rather than an exclusion clause in a homeowner’s liability policy. The Kansas Court of Appeals has indicated that the Upland decision is not intended to extend to uninsured motorist cases. In assessing claims for wrongful failure to settle, the court must evaluate the offer and the strength of the plaintiff's case as perceived by the insurer at the time the offer was declined, rather than determining if the negligent entrustment claim was covered by the policy as a matter of law.
Given these distinctions, Dairyland could not have clearly understood that the Upland ruling applied to its obligation to defend a negligent entrustment claim against Kelley. Although a later unpublished decision indicated that Upland could apply to automobile coverage clauses, this occurred after Dairyland's refusal to settle. The court emphasizes that it cannot judge the insurer's conduct retrospectively. Both Kelley and Hudgins were recognized as “insureds” under the policy, and there is no evidence suggesting Dairyland lacked a good faith belief in its duty to defend Kelley.
Correspondence between the insurer’s representatives indicated concern over a negligent entrustment claim, particularly due to Kelley’s knowledge of Hudgins' drinking and her report to police about his intoxicated driving. The fact that Kemp requested additional consideration from Dairyland for releasing Kelley implies that he believed the negligent entrustment claim would be covered. The potential liability significantly exceeded the policy limits, regardless of whether one or both insureds were pursued. Dairyland admitted it did not inform Hudgins of the policy limits offer or its refusal to settle without a release of Kelley. Prior to January 2010, Hudgins was in custody and possibly in a mental health institution, lacking adequate representation. Once Groh took over his case, he worked to safeguard Hudgins' interests regarding settlement negotiations. Ultimately, Dairyland was prepared to pay the policy limits for a complete release of both insureds, and Kemp could not demonstrate how Hudgins could have better protected his interests had he been aware of the settlement offers. Thus, there is no genuine issue of material fact regarding Dairyland's balanced consideration of Hudgins' interests alongside its own.
Kemp contends that Dairyland's July settlement offer for its policy limit in exchange for releasing Hudgins indicates that it lacked a reasonable belief in January regarding the necessity of a release for Kelley. However, this interpretation does not establish that Dairyland acted in bad faith when it demanded a release for both insureds in January 2010. The Court must assess Dairyland's perspective at the time of rejecting the January offer, where no evidence suggests it lacked a good faith belief in its duty to protect Kelley prior to the lawsuit. The subsequent offer to release Hudgins occurred only after Kemp had filed suit against Hudgins alone, with no prior negligent entrustment claim against Kelley, leaving Dairyland with no reason to anticipate such a claim.
Additionally, an insurance company fulfilling its obligations based on reasonable information cannot be deemed liable for failing to predict outcomes, and a mere error in judgment does not equate to bad faith. Dairyland's offer of policy limits complied with its duty to negotiate in good faith, with no Kansas case law mandating more than policy limits for a good faith settlement prior to the lawsuit. After the initial settlement talks failed, Kemp filed suit against Hudgins only, and Dairyland continued to offer its policy limits. Kemp's subsequent proposal involved a consent judgment exceeding $5 million, which was noted by Dairyland's representative, Groh, who anticipated Kemp would file a bad faith claim. Following this, Groh shifted his focus from representing Dairyland to Hudgins. Subsequently, Dairyland was represented by different attorneys, and neither Dairyland nor Hudgins responded to Kemp's June 21 offer by the July 12 deadline.
Four days prior to a settlement deadline, Foland proposed a settlement to Kemp for policy limits, contingent upon a release for Hudgins only—similar to an offer made by Carter in January, which Dairyland rejected due to its duty of good faith to pursue a release for both insured parties. Correspondence between Dairyland and Kemp occurred on July 8 and July 12, and it is undisputed that Dairyland’s attorneys did not consult or obtain Hudgins’ approval before the July settlement offer. On July 30, Copeland acknowledged receiving letters that indicated correspondence with Groh. Hudgins attempted to accept a prior settlement offer after the deadline, but Groh subsequently asked Copeland to renew that offer, which Kemp declined.
By August 2010, Hudgins expressed willingness to accept Kemp's settlement offer, which included immunity from personal liability, but Dairyland's attorneys were unwilling to agree to this condition. Dairyland continued to propose settlement offers for the policy limits along with a release of Hudgins, which Kemp rejected, asserting that his claim was worth more than $50,000. Dairyland later offered to settle above policy limits to resolve any potential bad faith claims from Kemp, which Kemp also declined, deeming the amounts unacceptable.
The legal principle established in Bollinger emphasizes that an insurer's rejection or delay in accepting a settlement within policy limits constitutes bad faith. The Kansas Supreme Court clarified that an insured's interest is in keeping recovery within policy limits to avoid personal financial loss. After January 2010, neither party sought to expose Hudgins to personal liability, with Dairyland consistently offering settlements at policy limits and Kemp proposing amounts well above that, with conditions for Hudgins' immunity and assignment of bad faith claims.
Post-January 29, 2010, Dairyland did not refuse or delay acceptance of any policy limits offer, leading the Court to conclude that the bad faith doctrine does not apply to Dairyland’s actions during this period. Although Kemp’s situation changed due to litigation expenses, his settlement offers increased from $50,000 to a multi-million dollar judgment without reasonable justification, especially since his total expenses were under $8,000. Additionally, the bad faith doctrine is only pertinent to refusals or delays in settling policy limit offers, so any failure to inform Hudgins about the settlement offers is not considered actionable.
The duty to communicate regarding settlement offers is triggered only when there is a refusal or delay by the insurer in accepting a settlement offer for policy limits. Dairyland did not refuse or delay acceptance of such an offer after initial settlement discussions failed, thus the bad faith doctrine is inapplicable to its conduct post-lawsuit filing. Even if there were questions about Dairyland's negligence or bad faith in failing to settle, no reasonable jury could find that its actions caused an excess judgment.
Two Tenth Circuit cases, Wade v. EMCASCO Insurance Co. and Roberts v. Printup, guide the causation analysis. In Wade, the court noted that excess judgment losses must result directly from an insurer's breach. A claimant might reject a policy-limits settlement offer due to perceived inadequate compensation for trial preparation costs, but if the claimant later withdraws an offer and rejects a similar proposal, their conduct may be the cause of the failure to settle. The Wade court determined the claimant rejected the offer to create a bad faith claim, concluding that holding the insurer liable would invert the cause of action.
In Roberts, the court addressed a scenario where a claimant's policy limits offer was mishandled by the insurer, causing it to be accepted after a critical deadline. The court found that the claimant's deadline was reasonable and the insurer's negligence in processing the offer led to excess judgment exposure, as the delay forced the claimant to file a lawsuit.
Dairyland argues similarly to Wade, claiming that Kemp rejected its policy limits offers solely to manufacture a bad faith claim. The court agrees, citing uncontroverted evidence that Kemp rejected the offers after the lawsuit was filed because he believed the policy limits did not adequately cover his claim.
The fee agreement between Kemp and Copeland indicates that Copeland aimed to recover under a bad faith theory, as he would only be compensated if he secured more than the policy limits for Kemp. Kemp’s multi-million dollar stipulated judgment offer further demonstrated his unwillingness to settle for the policy limit. Despite changes in Kemp’s litigation expenses post-January 2010, he would not have incurred attorneys' fees had he accepted Dairyland’s offers at that time. The case differs from Roberts, where the insurer failed to meet a settlement deadline; Kemp did not propose a policy limits settlement after January 2010, while Dairyland consistently offered to settle at its policy limit. Therefore, no reasonable jury could determine that Dairyland’s actions post-January 2010 caused the excess judgment. Kemp's settlement proposals suggest that even had Dairyland accepted, an excess judgment would still have been entered, and Kemp would have pursued a bad faith claim against Dairyland for that amount. Consequently, Dairyland’s Motion for Summary Judgment is granted, and Kemp’s Motion for Leave to File Surreply is also granted. Additionally, objections by Dairyland regarding statements of facts based on admissions by Hudgins are sustained, as such admissions cannot bind a co-party. The Scheduling Order had limited the parties to 25 requests for admissions, and Plaintiff's excessive requests led to delays in the briefing process regarding the summary judgment motion.
Dairyland Insurance is represented in related litigation involving Sentry Insurance, which encompasses a group of insurance companies, including Dairyland. There is an objection from Dairyland regarding the admissibility of evidence related to a phone conversation, citing an unauthenticated letter from Carter and a lack of opportunity to depose him. However, Carter's affidavit is submitted and deemed admissible for summary judgment purposes. The timing of the defendant's summary judgment motion was within its control, filed before discovery closed and before any deadlines for dispositive motions.
Local counsel for Dairyland in a wrongful death case was Prauser. The court noted that the parties did not clarify whether Hudgins assigned his bad faith claim against Dairyland to Kemp. To establish standing for the bad faith claim, the court required the parties to address this issue, which they did. While Hudgins did not formally assign the claim, Kansas law allows a third-party beneficiary of an insurance contract to assert a breach of duty claim without an assignment. The court confirmed Kemp's standing to pursue the bad faith refusal to settle claim and decided against remanding the case to state court. The excerpt references various legal precedents and cases related to insurance claims and bad faith actions.
To establish a wrongful refusal to settle claim against an insurer in California, the insured must demonstrate that the settlement offer includes a full release of all insured parties, as clarified in *Graciano v. Mercury Gen. Corp.* The court rejected Kemp's argument that *Dairyland Insurance Co. v. Herman* should alter this requirement, noting that the latter case interpreted New Mexico law concerning the insurer's duty to minimize liability and involved a different context of settlement terms.
Under Kansas law, exclusions and limitations in insurance agreements must be construed narrowly, with insurers obligated to clearly define any limitations. Kansas precedent establishes that an exclusion for automobile-related injuries does not apply to claims of negligent supervision. The court reaffirmed this principle by citing multiple cases, including *State Farm Mut. Auto. Ins. Co. v. Cummings* and *Marrero v. Corporacion de Renovacion Urbana y Vivienda*, which discuss the application of negligent entrustment.
The *Upland* doctrine, which has faced criticism for its minority view, primarily arises where defendants lack alternative insurance. The determination of whether an insurer acted negligently or in bad faith when rejecting a settlement offer within policy limits is a factual question for the jury. Insurers must have a genuine belief that they can successfully defend against claims or keep judgments within policy limits when declining settlement offers. Dairyland's reservation of rights was issued significantly later, impacting the case's dynamics.
The settlement insisted upon by Brummett was unfeasible due to American Standard's obligation to uphold its duty of good faith to both insured parties, leading to a summary judgment in favor of the insurer. The case is distinguished by this dual duty. An insurer that improperly declines to defend or unreasonably refuses a settlement within policy limits breaches its duty of good faith and is liable for the full judgment against the insured, even if it exceeds policy limits. Relevant cases highlight that this liability arises from the insurer's failure to accept reasonable policy-limit settlements or its decision to proceed to trial instead. Under the existing fee agreement, Kemp would incur no attorneys’ fees had a policy limits settlement been achieved. The Brummett case and subsequent rulings clarify the application of the relevant legal standards concerning insurers' settlement practices and the consequences of their refusals or delays.
