(dissenting):
Because I agree with so much in the careful opinion of Chief Judge Lumbard, it is with reluctance that my dissent from the decision is noted.
In this type of situation, however, it seems to me that the core of the actionable wrong is the failure or refusal of the insurance carrier to settle when settlement within the policy limit could have been, and should have been, effected. Thus, it is an essential element of the case for the insured that the claim could have been settled within the policy limit. There was a complete failure of proof of this essential element.
For present purposes it is not necessary to consider whether a carrier maybe liable for refusal to settle for an amount in excess of the policy if the insured proves that he could have, and would have, paid the excess. It has been suggested that there may be such liability, the only precedent cited having been decided on a pleading point. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1148-50 (1954).
The judgment here on appeal was entered after submission to the jury of a single issue, “bad faith,” and an instruction by the Court that if there was bad faith, then there should be a verdict for plaintiffs for the excess above the policy limit ($20,000) of the judgment on the Flynn claim against the insureds. This represents in substance a finding of fact by the trial court that the Flynn claim could have been settled for not more than $20,000. There is no evidence to support the finding and in any event it was an invasion of the jury’s province.
It seems génerally to have been assumed that plaintiffs in this type of case must establish that the claim could have been settled within the policy limit; usually the proof is that an offer of settlement within the policy limit had in fact been made and been rejected by the carrier.
In his discussion of the matter in Brown v. United States Fidelity and Guaranty Co., 314 F.2d 675 (2d Cir. 1963), Judge Irving R. Kaufman assumes that a prerequisite to liability is an offer of settlement within the policy limit and rejection by the carrier. He puts an example “for purposes of illustration” in which
“an insurance company issues a liability policy with a limit of $20,000, that an action is brought against the assured for $45,000, and that the claimant has offered to compromise its claim for $15,000.” (314 F.2d at 678; emphasis supplied)
Judge Kaufman then concludes that the carrier under some circumstances *913would be reckless “if it failed to accept the compromise offer” and he continues (314 F.2d at 679):
“Recklessness in such circumstances is tantamount to bad faith when we assume that the policy limit is only $20,000 and that the assured is personally responsible for any excess liability. In such a case, the risk to the company in going to trial is $5,000; the risk to the assured is $25,000.”
The necessity for a showing that the claim could have been settled within policy limits is demonstrated in General Casualty Co. v. Whipple, 328 F.2d 353 (7th Cir. 1964). A jury verdict against the carrier had been set aside by the District Court and judgment entered for the carrier. The Court of Appeals affirmed. The policy limit was $50,000. The recovery sought on the insured claims was “far in excess of * * * policy limits” (328 F.2d at 354). The carrier defended and judgment resulted against the insured for $76,500. The insured asserted a claim against the carrier for the excess above the policy limit (which had been paid). It appeared that claimants had offered to settle for about $190,000, that they had “never offered to settle for the maximum limits of the policy” (328 F.2d at 356), and that the carrier “never received or made an offer to settle within the policy limits” (328 F.2d at 356). In finding for the carrier, the Court of Appeals stated (328 F.2d at 357):
“The determination in this class of cases is one of fact and the result in each ease depends upon its own peculiar facts. Unlike the .above eases, in the instant ease the occupants’ attorneys made no offer to settle within the policy limits or for any amount reasonably close thereto. Plaintiff’s attorneys reasonably believed there was no probability of affecting such a settlement and that they had a strong defense. The matter was further influenced by other pending suits arising out of the same collision.
“We hold that under the facts of this case, no reasonable person, after equal consideration of the interests of the insurer and the insured, would decide that the insurer had an affirmative duty to attempt to settle the case within the policy limits.”
The Ninth Circuit has stated the principle in National Farmers, etc. Casualty Co. v. O’Daniel, 329 F.2d 60 at 64-65 (9th Cir. 1964; emphasis supplied):
“It has been held that a policy of this type places a fiduciary duty on the insurance company to look after the interests of the insured as well as its own, thus requiring it to consider fairly the insured’s liability for the excess when evaluating an offer of settlement within the policy limits. Failure to do so is bad faith and renders the company liable for its breach of fiduciary duty in the amount of any judgment over the policy limits.”
One of the leading eases is Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198, 68 A.L.R.2d 883 (1958). The Court there stated (at 201; emphasis supplied):
“When there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing of the claim is a settlement which can he made within those limits, a consideration in good faith of the insured’s interest requires the insurer to settle the claim. Its unwarranted refusal to do so constitutes a breach of the implied covenant of good faith and fair dealing.”
Where the carrier wrongfully refuses to defend against the claim and a judgment is taken against the insured for an amount in excess of the policy limit, the carrier is liable if, but only if, there had been an offer of settlement within the policy limit and refusal by the carrier. Seward v. State Farm etc. Insurance Co., 392 F.2d 723 (5th Cir. 1968).
*914In the ease at bar plaintiffs appear to have accepted this principle. Their complaint averred that “defendant could have effected a reasonable settlement within the limits of the Liability Policy.” This was denied in the answer and so the issue stood when the case was submitted to the jury.
There was no evidence that the Flynn claim could have been settled for any amount except (possibly) $40,000 (as against a policy limit of $20,000). The only evidence submitted for plaintiffs were writings of the carrier showing that at or just before the commencement of trial of the Flynn claim, her lawyer made a “demand” for $40,000 and the carrier made no counter offer.
In my view, therefore, the plaintiffs failed to prove a case and a verdict for defendant should have been directed.
The charge of the trial court submitted only one issue to the jury — whether the carrier acted in bad faith or not. The jury was told that if there was bad faith, then the “measure of damage is precisely fixed. It is the difference between $20,000 and $90,000, $70,000.” This is in substance a finding of fact by the Court that the Flynn claim could have been settled for $20,000 or less.
The jury had some difficulty about the amount of damages and while deliberating sent a note to the Court, asking “what the monetary damages are here.” The trial judge gave the jury —apparently by writing on the jury’s note — “the correct figure” of $70,330.25, which amount was later returned as the jury’s verdict.
Whether my view that there was a failure of proof by plaintiffs be correct or not, it was plainly for the jury to decide, under proper instructions, whether or not the Flynn claim could have been settled for $20,000. The issue was not submitted to the jury, however, but was decided by the trial court. This to me seems error.
I would reverse the judgment and remand with a direction to dismiss the action on the merits.