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Stateline Steel Erectors12/9/2003
k of collusion when an insured is protected from liability by a covenant not to execute or a release before entry of judgment. See id.
In our view, the benefits of such settlement agreements outweigh the risks. We believe it preferable to uphold assignments under these circumstances than to allow a negligent party to escape liability. See McLellan, 912 P.2d at 565. That Stateline never had to pay the stipulated judgment out of its own pocket is immaterial. But for the defendants' alleged negligence, Stateline would not have had to enter into the settlement agreement. See Steinmetz, 741 P.2d at 1056.
Like other courts, we believe that the risk of collusion can be diminished by requiring the contractors to bear the burden of proof on the assigned claims and by recognizing that the defendants, who were not parties to the settlement agreement, cannot be bound by its terms. See Campione, 661 N.E.2d at 663. The defendants remain free to raise collusion or fraud as a defense. See id.; Kobbeman, 574 N.W.2d at 636.
To recover against the defendants, the contractors must prove the essential elements of their negligence and breach of contract claims and will have to establish that Stateline's damages exceeded its insurance coverage. Neither the settlement agreement between the contractors and the employee nor that between the contractors and Stateline is conclusive on this point, however. See Campione, 661 N.E.2d at 663; cf. Red Giant Oil, 528 N.W.2d at 534 (holding that judgment not adjudicated on merits is not binding on insurer in claim against insurer for failure to defend).
We note that the risk of collusion in this case is particularly low. In the typical case, the settlement agreement is between the insured, who is the tortfeasor, and the injured party. See Campione, 661 N.E.2d at 662. In that case, there is a real risk of collusion between the tortfeasor and the injured party when they enter into a prejudgment release and a covenant not to execute in favor of the tortfeasor. See id. at 663. The amount of the judgment is determined solely by agreement of the parties. See id.
By contrast, in this case, the injured party, the employee, is not a party to the agreement at issue. The agreement is between the insured, Stateline, and the parties Stateline is contractually obligated to indemnify, the contractors. Presumably, the stipulated judgment in this case represents the amount the contractors actually spent to defend against and settle the employee's lawsuit.
Today's decision is consistent with New Hampshire law governing assignments generally. In New Hampshire, "an assignee obtains the rights of the assignor at the time of the assignment." YYY Corp. v. Gazda, 145 N.H. 53, 61 (2000). The assignee's rights are the same as those of the assignor at the time of the assignment. See id.; accord Steinmetz, 741 P.2d at 1056.
When Stateline entered into the settlement agreement, it had claims against the defendants for damages owed to the contractors because of the defendants' alleged failure to procure adequate insurance. When Stateline assigned these claims to the contractors, the contractors obtained the right to pursue them. See Steinmetz, 741 P.2d at 1056. "We fail to see why legally it should make any difference who sues the [insurance agent] – the insured or the insured's assignee." Kobbeman, 547 N.W.2d at 636 (quotation omitted).
Our decision today is also consistent with our other decisions regarding the assignment of insurance claims -- Dumas v. State Mutual Auto Insurance Co., 111 N.H. 43 (1971), and Allstate Insurance Co. v. Reserve Insurance Co., 116 N.H. 806 (1976). The issue in Dumas, 111 N.H. at 44-45, was wheth
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