F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAR 26 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
MICHELLE WILLIAMS,
Plaintiff-Appellant,
v. No. 00-3167
(D.C. No. 99-CV-1486-JTM)
AMERICAN FAMILY MUTUAL (D. Kan.)
INSURANCE COMPANY,
Defendant-Appellee.
ORDER AND JUDGMENT*
Before BRISCOE, ANDERSON, and MURPHY, Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore ordered
submitted without oral argument.
In this diversity case, plaintiff is appealing the district court’s entry of summary
judgment in favor of defendant on her claim of negligence and bad faith under Kansas
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
law.1 Our jurisdiction arises under 28 U.S.C. § 1291. We affirm.
I.
Plaintiff was involved in an automobile accident on May 17, 1997, when a car
driven by defendant’s insured pulled out from a stop sign and collided with the truck in
which plaintiff was riding. Defendant’s insured was killed in the accident. It is
undisputed that the accident was caused by the negligence of defendant’s insured.
Defendant’s policy limits for the accident were $100,000.
Plaintiff complained to her doctor of back pain following the accident. She had no
significant complaints about her back in the two years prior to the accident, but had
suffered temporary back pain two years prior to the accident and had suffered from a
bulging disc in her back eight years prior to the accident. Dr. James A. Rodgers
concluded that plaintiff was suffering from an “internally disrupted disc with an annular
tear at L5-S1” dating back to the accident. Aplt. App. at 193. Upon his recommendation,
plaintiff underwent a lumbar laminectomy, bilateral discectomy, interbody fusion,
posterolateral fusion, and instrumentation at L5-S1 with pedicle screws and rods on April
22, 1998. She underwent a second surgery to remove the screws and rods in mid-
November. Records of these medical expenses reflect a total cost of $50,400.
At the time of the accident, plaintiff was employed as an office manager at a gross
1
The district court granted summary judgment in a published memorandum order
dated June 5, 2000. See Williams v. American Family Mut. Ins. Co., 101 F. Supp. 2d
1337 (D. Kan. 2000).
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weekly wage of $340. Because of her injury, she was unable to work full-time between
May 19, 1997, and July 13, 1998. She estimated her loss of wages at $30,846.65. The
record contains an itemized list by plaintiff, but no records from her employer.
Plaintiff and defendant engaged in the following settlement efforts before plaintiff
filed suit:
• Between June 1998 and January 1999, plaintiff provided defendant
with itemized lists of her alleged economic losses. Plaintiff claimed she
had medical expenses in the approximate amount of $50,000-$55,000, lost
wages in the approximate amount of $30,000 and other losses in the
approximate amount of $13,000, for a total economic loss in the
approximate range of $95,000 to $100,000.
• On September 24, 1998, defendant offered plaintiff $66,000 to
settle her claims against its insured. Plaintiff rejected this offer and
demanded the policy limits of $100,000.
• On January 15, 1999, defendant offered plaintiff $81,000 to settle
her claims. Plaintiff rejected this offer and again demanded policy limits.
• On February 8, 1999, plaintiff’s first attorney, Jack Goree, wrote a
letter to defendant offering to settle for policy limits. In his letter, Goree
claimed that plaintiff’s “medical specials are now $96,263.15 and there will
be a claim for lost wages as well.” Aplt. App. at 116. In a letter dated
February 11, 1999, defendant responded to Goree’s letter by requesting that
he provide copies of the medical bills which supported the alleged increase
in plaintiff’s medical expenses. Defendant also stated that it was unable to
offer policy limits and that its offer would stand at $81,000.
• In a letter dated March 19, 1999, plaintiff’s second attorney,
William J. Fitzpatrick, made a “final” offer to settle for policy limits. Id. at
120. Although Fitzpatrick noted defendant’s prior letter dated February 11,
1999, he made no reference to defendant’s request for additional medical
bills. In a letter dated March 25, 1999, defendant informed Fitzpatrick that
its prior offer of $81,000 “still stands” and that it would not offer policy
limits “at this time.” Id. at 122.
Plaintiff filed suit against the estate of defendant’s insured on April 7, 1999, and
defendant subsequently retained counsel to defend the estate. After reviewing the file and
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obtaining authority from defendant to offer policy limits, counsel for the estate sent a
letter to Fitzpatrick offering to settle plaintiff’s claims for the policy limits of $100,000.2
The offer was rejected.
Fitzpatrick subsequently proposed that the estate agree to settle plaintiff’s claims
by entering into a consent judgment in the amount of $350,000. Under the proposed
settlement, plaintiff would agree not to execute any portion of the judgment against the
estate in exchange for an assignment of the estate’s rights under the insurance policy
issued by defendant. After obtaining authority from defendant to proceed with the
settlement, counsel for the estate agreed to the settlement proposal and a consent
judgment in the amount of $350,000 was entered against the estate on September 24,
1999. Following the entry of the consent judgment, defendant paid plaintiff its policy
limits of $100,000 but refused to pay the balance of the consent judgment.
In her capacity as the assignee of the insured’s estate, plaintiff filed the present
diversity action against defendant to recover the $250,000 balance of the consent
judgment. Plaintiff claims that defendant was negligent and acted in bad faith in refusing
to settle for policy limits prior to the filing of her personal injury action. The district
2
In evaluating plaintiff’s claim that defendant was negligent and acted in bad faith
in refusing to pay policy limits before she filed suit, it is immaterial that defendant made
an offer to settle for policy limits after plaintiff filed suit. See Smith v. Blackwell, 791
P.2d 1343, 1347 (Kan. App. 1989) (fact that insurer follows advice of counsel and makes
offer for policy limits after suit is filed does not cure a pre-suit failure to offer policy
limits).
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court granted defendant summary judgment on plaintiff’s negligence and bad faith claim.
The district court found that defendant did not breach any duty to its insured under
Kansas law by refusing to pay plaintiff policy limits prior to April 1999. According to the
district court, defendant acted properly because: (1) it made a reasonable request for
additional documentation to substantiate the alleged increase in plaintiff’s medical
expenses, but plaintiff’s attorneys failed to respond to the request; and (2) it offered
$81,000, or 81% of the policy limits, to settle plaintiff’s claims.3
II.
We review the grant of summary judgment de novo, applying the same legal
standard as the district court. Kaul v. Stephan, 83 F. 3d 1208, 1212 (10th Cir. 1996).
Summary judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. Id.; see Fed. R. Civ. P. 56(c). We view the facts in the light
3
The district court did not make an express finding that plaintiff precipitously filed
suit. This was apparently a factor in the district court’s analysis, however, as it noted that
“plaintiff did not institute her [personal injury case] because of the statute of
limitations. . . .” Williams, 101 F. Supp. 2d at 1342. Plaintiff made her initial demand for
policy limits in September 1998 and defendant had obtained plaintiff’s medical records
and general wage loss information by October 1998. Defendant therefore had ample time
to investigate plaintiff’s claims before she filed suit in April 1999, and this is not a case
where plaintiff abruptly broke off settlement negotiations in midstream before defendant
was able to evaluate her claim. See Smith, 791 P.2d at 1347 (no precipitous filing where
insurer had ample time to conduct complete investigation after plaintiff made policy
limits offer).
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most favorable to the party opposing summary judgment. Id.
III.
Under Kansas law, “[a]n insurance company may become liable for an amount in
excess of its policy limits if it fails to act in good faith and without negligence when
defending and settling claims against its insured.” Glenn v. Fleming, 799 P.2d 79, 85
(Kan. 1990). “Whether an insurer in defending a claim and refusing an offer of
settlement within policy limits was negligent or acted in bad faith is a question for the
trier of fact in each case.” Bollinger v. Nuss, 449 P.2d 502, 514 (Kan. 1969).
The Kansas Supreme Court has recognized an inherent conflict of interest when an
insurer is faced with a claim against its insured for an amount in excess of the policy
limits:
When a claim is made against the insured for an amount in excess of the
policy coverage, the insurer’s obligation to defend creates a conflict of
interest on its part. On the one hand, its interests lie in minimizing the
amount to be paid; on the other, the insured’s interests, which the insurer is
supposedly defending, lie in keeping recovery within policy limits, so that
he will suffer no personal financial loss. The conflict becomes particularly
acute where there is an offer of settlement approximating policy limits. The
insured’s desire to avoid the risk of a large judgment by settling within the
limits of the policy, regardless of the merits of the claim, would compel
him, were he in charge of settlement negotiations, to accept the offer. The
insurer’s interests, on the other hand, are prompted by its own evaluation of
the liability aspects of the litigation and a desire not to expose itself to
payments which do not adequately reflect the dangers that might be
involved in pursuing the case to trial. When the settlement offer approaches
policy limits, the insurer has a great deal less to risk from going to trial than
does the insured, because the extent of its potential liability is fixed.
Id. at 510. To protect insureds from this inherent conflict of interest, the Kansas Supreme
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Court has adopted the “rule of equal consideration,” which requires that “[w]hen an
insurer determines whether to accept or reject an offer of settlement, it must give at least
the same consideration to the interests of its insured as it does to its own interests.”
Glenn, 799 P.2d at 85. “This rule of equal consideration means the claim should be
evaluated by the insurer without looking to the policy limits and as though it alone would
be responsible for the payment of any judgment rendered on the claim.” Rector v.
Husted, 519 P.2d 634, 641 (Kan. 1974). In following the rule of equal consideration, the
insured’s ability to pay any judgment in excess of the policy limits is not to be taken into
consideration. See Farmers Ins. Exchange v. Schropp, 567 P.2d 1359, 1369 (Kan. 1977).
The district court awarded summary judgment to defendant on the claim of bad
faith or negligence in refusing to settle because there was no evidence to support that
claim. Williams, 101 F. Supp. 2d at 1341. The district court found that defendant made a
reasonable request for additional documentation to substantiate the alleged increase in
medical expenses, and defendant offered $81,000, or 81% of the policy limits, to settle
plaintiff’s claims.
Plaintiff argues the district court erred because there was evidence to show that
defendant acted negligently or in bad faith in failing to settle the case for the policy limits
prior to the filing of this action. In evaluating plaintiff’s claim, we consider the following
factors:
(1) the strength of the injured claimant’s case on the issues of liability and
damages; (2) attempts by the insurer to induce the insured to contribute to a
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settlement; (3) failure of the insurer to properly investigate the
circumstances so as to ascertain the evidence against the insured; (4) the
insurer’s rejection of advice of its own attorney or agent; (5) failure of the
insurer to inform the insured of a compromise offer; (6) the amount of
financial risk to which each party is exposed in the event of a refusal to
settle; (7) the fault of the insured in inducing the insurer’s rejection of the
compromise offer by misleading it as to the facts; and (8) any other factors
tending to establish or negate bad faith on the part of the insurer.
Bollinger, 449 P.2d at 512. These factors are evaluated as the facts looked to the insurer
at the time it made the decision not to settle. Glenn, 799 P.2d at 85. “Where the
insurance company acts honestly and in good faith upon adequate information, it should
not be held liable because it failed to prophesy the result. Something more than mere
error of judgment is necessary to constitute bad faith.” Id.
There is no dispute that the insured was completely liable so plaintiff’s case is
strong in terms of liability. However, her damages claim is strong only with respect to
those expenses for which there is evidence. The evidence provided to defendant showed
that plaintiff’s medical expenses totaled only $50,400. Plaintiff failed to provide
additional documentation to defendant. Plaintiff’s itemized list of lost wages totaled
$30,846.65 and there is no corroborating evidence from her employer. Defendant
suspected plaintiff’s lost wages amount was inflated because her weekly salary was $340.
There was no evidence regarding future lost wages or pain and suffering. Therefore,
defendant’s conclusion that damages of $81,000 were owed was consistent with the
evidence at the time defendant refused plaintiff’s offer to settle for the policy limits.
There is no evidence that defendant sought to induce its insured to contribute to a
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settlement. As the insured was without assets, defendant was not required to seek such
contribution. There is also no evidence that the insured induced defendant not to accept
the settlement offer.
Plaintiff argues that defendant failed to investigate her medical expenses and
wages and arbitrarily estimated her lost wages at $6,000. Defendant relied on the medical
records provided by plaintiff. With regard to lost wages, defendant multiplied plaintiff’s
weekly wage by the number of weeks it understood that she missed work. That is not an
arbitrary assessment of lost wages. Further, even if defendant accepted the potentially
inflated amount of $30,846.65, its offer of $81,000 was reasonable.
There is no evidence that defendant rejected any advice of its agent or counsel
prior to this action being filed. The fact that defendant later followed the advice of
counsel in offering to settle for policy limits is irrelevant to this analysis as that advice
came after this action was filed.
Plaintiff argues that defendant failed to inform the deceased’s family about offers
of settlement. Defendant argues it was not required to inform the estate because the
estate was insolvent. While it is true that defendant is not to consider the estate’s
insolvency in evaluating whether to accept settlement within the policy, see Farmers Ins.
Exchange, 567 P.2d at 1369, plaintiff cites no authority requiring the insurer to inform an
insolvent estate about a settlement offer. The purpose of requiring the insurer to inform
the insured about settlement offers and the insured’s potential liability in excess of the
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policy limits is so that the insured may take proper steps to protect his own interests.
Levier v. Koppenheffer, 879 P.2d 40, 46 (Kan. App. 1994). Here, where the insured is
deceased and her estate is insolvent, there are no steps that the insured needs to take to
protect her interest so there was no need for defendant to inform the estate about
settlement offers.
In considering the financial risk involved, defendant was exposed for $19,000 (the
difference between its offer and the maximum of the policy). The estate was not exposed
to any risk because it was insolvent. Additionally, there was no evidence presented to
defendant to suggest that plaintiff could prove damages beyond the policy limits so
defendant reasonably could conclude the estate was not at risk, even if it had money.
Finally, plaintiff argues the other factors showing bad faith were defendant’s
awareness that plaintiff lacked an attorney and its tendency to keep track of the statute of
limitations. There is no indication that defendant took advantage of the fact that plaintiff
had no attorney. Defendant had a legal obligation to keep track of the statute of
limitations. Defendant argues that Goree’s misstatement regarding the amount of
plaintiff’s medical specials claim is a factor tending to negate bad faith on the part of
defendant. However, while Goree’s statement might suggest bad faith on his part, it does
not affect whether defendant acted in bad faith.
Consideration of the Bollinger factors shows the district court did not err in
granting summary judgment to defendant. “The company cannot be required to predict
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with exactitude the results of a trial; nor does the company act in bad faith where it
honestly believes, and has cause to believe, that any probable liability will be less than
policy limits.” Bollinger, 449 P.2d at 514.
AFFIRMED.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
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