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Gainsco Insurance Co. v. Amoco Production Co.8/19/2002
art the claimant's subsequent third-party bad faith suit. In granting summary judgment to the insurer, the United States Court of Appeals for the Sixth Circuit concluded that, under Ohio law, a non-adjudicated confessed judgment coupled with no risk to the insured under that judgment does not create a viable cause of action for third- party bad faith. Id. at 611-15.
[ ] A similar situation occurred in Willcox v. American Home Assur. Co., 900 F.Supp. 850 (S.D.Tex. 1995), with the main difference being a covenant not to execute against the insured rather than a release and satisfaction of judgment. Applying Texas law, the district court held that the claimant's covenant not to execute against the insured precluded the claimant, as assignee of the insured's third-party bad faith claim, from recovering amounts in excess of the policy limits. Id. at 856-57. The court's rationale was as follows:
"To recover more than the policy limits from the insurer, the judgment creditor must assert the insured's injury . If the judgment cannot be enforced against the insured, no such injury exists. The insured may assign to his judgment creditor any claim he has against his insurer for payment of the excess award, but such assigned claim is actionable only as long as the insured remains liable for the excess damages. To allow the creditor to release the insured from liability for such excess damages without effecting the release of the insurer would give the creditor and insured the power unilaterally to extend the insurer's liability. This would defeat, not serve, public policy." Id. at 857 (quoting Whatley v. City of Dallas, 758 S.W.2d 301, 310 (Tex.App. 1988)).
The court went on to hold, however, that neither a covenant not to execute nor a covenant not to enforce a settlement agreement will excuse the insurer from its obligation to pay covered claims up to the policy limits. Willcox, 900 F.Supp. at 857.
[ ] In its appellate reply brief, Gainsco contends that a newly published case is dispositive of this issue. Marathon Ashland Pipe Line LLC v. Maryland Cas. Co., 243 F.3d 1232 (10 th Cir. 2001), arose in Wyoming and was decided under Wyoming law. In a factual situation quite similar to the one now before this Court, the United States Court of Appeals for the Tenth Circuit noted that a third-party bad faith cause of action is based upon an insurer's refusal to settle a third-party claim against the insured within policy limits. Id. at 1250. The court then went on to say:
The Wyoming Supreme Court has held that such a claim will not accrue until after a judgment has been entered against the insured in excess of the policy limits. See [Jarvis, 948 P.2d] at 902. Because it is undisputed that the judgment against [the insured] has not been enforced against it, we agree with the district court that [the insurer] was entitled to summary judgment on this claim . . .. Marathon Ashland Pipe Line LLC, 243 F.3d at 1250.
[ ] In response to Gainsco's argument on this first issue, Amoco concedes that some courts have, indeed, held that the existence of a covenant not to execute in this situation means that the insured has suffered no damage and, therefore, has no third-party bad faith cause of action to assign to the claimant. Amoco contends, however, that the majority of courts do not take that position.
[ ] Amoco refers us first to Insurance Co. of North America v. Spangler, 881 F.Supp. 539 (D.Wyo. 1995). In Spangler, the insurer defended a wrongful death action under a reservation of rights as to coverage, and also brought a separate declaratory judgment action to test coverage. The claimant and the insured then settled the wrongful death action for an amo
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