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Gainsco Insurance Co. v. Amoco Production Co.8/19/2002
Estate of Ravenstein's Estate, 326 F.Supp. 830, 836 (S.D.Iowa 1971). The courts that follow this line of reasoning do so out of fear of collusion between the insured and the claimant or by simple reliance on the policy language. Freeman, 755 F.2d at 138-39; Bendall v. White, 511 F.Supp. 793, 795 (N.D.Ala. 1981); Steil v. Florida Physicians' Ins. Reciprocal, 448 So.2d 589, 592 (Fla.App. 1984); American Cas. Co. of Reading, Pa. v. Griffith, 107 Ga.App. 224, 227, 129 S.E.2d 549, 551-52 (1963); Huffman v. Peerless Ins. Co., 17 N.C.App. 292, 293, 193 S.E.2d 773, 774, cert. denied, 283 N.C. 257, 195 S.E.2d 689 (1973); Stubblefield v. St. Paul Fire & Marine Ins. Co. , 267 Or. 397, 400, 517 P.2d 262, 264 (1973).
[ ] We agree with the rationale of Spangler and those cases that find that the inclusion of a covenant not to execute in the settlement agreement between an insured and a claimant, under the circumstances of the case now before us, does not act to negate the fact that a judgment has been entered against the insured and, therefore, does not bar the claimant, as assignee of the insured, from pursuing a claim against the insurer for third- party bad faith. The existence of the judgment, with or without a covenant not to execute, is a detriment to the insured sufficient to support an assignable tort claim. Public policy favors this result in that it allows an insured to reach a reasonable settlement of a case being defended under a reservation of rights and it discourages an insurer from rejecting a reasonable settlement offer. The insurer is adequately protected by the requirement that such settlements be reasonable and by its ability to raise the issues of fraud and collusion.
Issue No. 2: Did the district court err as a matter of law when it held that Gainsco's rejection of Amoco's settlement offers amounted to third-party bad faith, because, under Western Cas. & Sur. Co. v. Fowler, 390 P.2d 602 (Wyo. 1964), there could be no bad faith because Amoco's recovery against Andrews could not, as a matter of law, exceed the limits of Andrews' policy with Gainsco?
[ ] Gainsco's second argument is similar to its first in that it is premised on the contention that Andrews' third-party bad faith claim, as assigned to Amoco, must fail for a lack of damages. The argument here is that Amoco could never have recovered from Andrews more than the policy limits, so there was no risk to Andrews of an excess judgment.
[ ] An insurer's rejection of a settlement offer within policy limits does not constitute third-party bad faith when the insurer has a bona fide belief that the claimant's recovery will not exceed policy limits. Fowler, 390 P.2d at 606. Gainsco argues that, under the contract, Amoco's indemnity claim was expressly limited to the amount of insurance coverage:
10. . . . The liability assumed by [Andrews] pursuant to this clause shall be limited to the amounts carried by [Andrews'] current liability insurance . . ..
[ ] We must keep in mind that we "do not look to an insurance company's subjective belief about the claim . . . at its actions objectively at the time it decide d to reject the offer of settlement within policy limits." Winsor, 5 F.Supp.2d at 1266. In that light, the question is whether Gainsco acted in objective good faith when, with a policy limit of $300,000.00, and with its insurer exposed to a maximum risk of $300,000.00, it rejected a settlement offer of $297,000.00.
[ ] Amoco's response to Gainsco's argument on this issue is not convincing. Amoco contends that Gainsco did not have a bona fide belief that Amoco's recovery would not exceed policy limits because (1) the judgment did, in fact, exceed policy limi
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