(dissenting).
I respectfully dissent.
Judgment should be granted defendant because: (A) There was no insurance coverage. (B) Defendant conducted its defense under a reservation of rights. (C) Defendant was entitled to a directed verdict.
(A) There was no insurance coverage.
On April 13, 1972, in chambers, before the beginning of trial, in a discussion between court and counsel, the trial court stated:
So, I take it that it is for me to determine and that I must put my shoes in the cement on that question at this stage, and hold, as a matter of law, the exclusionary clause does apply. There was no primary coverage. [Emphasis added].
This holding is unchallenged. “The burden of proving that there was an insurance policy in force at the time of the collision was upon the plaintiffs and they failed to sustain this burden.” Bourne v. Seal, 53 Ill.App.2d 155, 203 N.E.2d 12, 17 (1964).
The importance of non-coverage was determined in State Farm Mutual Automobile Insurance Company v. Gonzales, 83 N.M. 296, 491 P.2d 513 (1971). Insurer, by a declaratory judgment suit, sought to determine the question of its coverage under the policy. The trial court granted insurer summary judgment on this issue and no appeal was taken therefrom. However, the court permitted the case to be tried to a jury on the defenses of waiver and estoppel. The jury returned a verdict for defendants. The Supreme Court reversed and said:
* * * As above stated, it has been judicially determined that he had no permission to take the automobile and was not covered under the policy. Thus, at no time were there any rights and duties existing between him and plaintiff under this contract.
Insofar as waiver is concerned, it is apparent the “right of plaintiff to deny coverage to Gonzales” is not a right arising under the contract of insurance, and the rights and duties with which we are here concerned are those of plaintiff under the policy. * * *
In the instant case, the insurance policy, at the time of the collision, did not afford coverage to the plaintiff for injuries to Woolett.
(B) Defendant conducted its defense under a reservation of rights.
In Apex Mutual Ins. Co. v. Christner, 99 Ill.App.2d 153, 240 N.E.2d 742, 747 (111. App. 1968), the court quoted the following:
However, all authorities agree that quite often an insurer is faced with a dilemma as to whether to defend or to refuse to defend. In cases of doubt the answer is simple. It can (1) seek a declaratory judgment as to its obligations and rights or (2) defend under a reservation of rights.
The defendant insurance company defended under a reservation of rights.
On July 28, 1967, plaintiff and defendant entered into a Reservation of Rights Agreement. It provided in part that Woolett had filed suit against plaintiff and others for personal injuries arising out of an automobile accident which occurred May 31, 1966, in the State of California; that plaintiff desired to have defendant continue its investigation, possibly negotiate for a settlement and furnish plaintiff a full and complete defense; that the defendant desired to continue to investigate and furnish plaintiff with a full and complete defense, with the understanding that such matters “shall not in any way change, waive, invalidate or forfeit any of the terms, conditions or requirements of the subject insurance policy or any of the rights of any of the parties hereto under said policy * * * ”; that nothing it shall do “shall in any way constitute a waiver of any rights, which the Company may have under the terms of its policy to escape diability from any judgment that may be rendered against the said Insured in the above described litigation.” [Emphasis added].
This Reservation of Rights Agreement did affect the rights and duties of the defendant under its policy.
Plaintiff contends:
The fact of non-coverage was not determined until after the California case was tried. All of the omissions of defendant in this respect were before that time and, therefore, the fact that it was later determined that no coverage was afforded is of no moment.
This contention throws the Reservation of Rights Agreement into the waste paper basket. Defendant notified plaintiff of non-coverage after the California trial. The purpose of the agreement was to protect defendant if non-coverage was determined before the present trial which took place in Roswell, New Mexico.
In Apex Mutual, supra, the court said (p. 747):
The reservation of rights is a means by which, prior to determination of the liability of the insured, the insurer seeks to suspend the operation of the estoppel doctrines through a non-waiver agreement. When coverage is iri doubt, the insurer will offer to defend the insured under such an agreement, reserving to the insurer all of its policy defenses in case the insured is found liable. [Emphasis added].
When the insurer undertakes the defense without a reservation of rights agreement or other disclaimer of liability, it waives its defense of non-coverage. Pendleton v. Pan American Fire and Cas. Co., 317 F.2d 96 (10th Cir. N.M. 1963).
An insurance company can protect its rights and declare its duties under its insurance policy with the consent of the insured. If the insured refuses to consent to the terms of the Reservation of Rights Agreement, he can undertake the defense himself. Mundry v. Great American Ins. Co., 369 F.2d 678 (2nd Cir. 1966). He has ultimate control of the litigation. Reynolds v. Maramorosch, 208 Mise. 626, 144 N.Y.S.2d 900 (1955). He can force the insurance company to gamble its liability under the policy.
Plaintiff’s contention that non-coverage was determined after the California trial has no merit.
(C) Defendant was entitled to a directed verdict.
At the close of all the evidence, the trial court characterized the specific issues left in the case: (1) defendant’s alleged failure to use good faith in handling the settlement negotiations; (2) defendant’s failure to make a timely and adequate disclosure to plaintiff of defendant’s position on the question of coverage; and (3) defendant’s failure to make a timely resolution of the coverage questions with the plaintiff.
Defendant moved for a directed verdict which the court denied. The trial court erred. The law and the record does not support plaintiff’s claims. Garcia v. Universal Constructors, Inc., 82 N.M. 70, 475 P.2d 464 (Ct.App.1970).
(1) Settlement negotiations are nol an issue of fact.
In its motion, defendant stated: “ * * • * There is no duty to settle where there is no coverage.” This is the law. The failure to handle settlement negotiations did not constitute any breach of duty by defendant to the plaintiff. Prickett v. Hawkeye-Security Ins. Co., 282 F.2d 294, 300 (10th Cir. 1960) ; Panizzi v. State Farm Mutual Automobile Ins. Co., 386 F.2d 600, 607 (3rd Cir.1967); Bourne v. Seal, supra.
Plaintiff relies on Ging v. American Liberty Ins. Co., 423 F.2d 115 (5th Cir. 1970); Western Casualty and Surety Co. v. Herman, 405 F.2d 121 (8th Cir. 1968) ; Radcliffe v. Franklin National Ins. Co. of N.Y., 208 Or. 1, 298 P.2d 1002 (1956); Foundation Reserve Ins. Co. v. Kelly, 388 F.2d 528 (10th Cir. N.M.1968).
In Western, Radcliffe, and Foundation, insurance coverage existed. In Ging, the insurance company undertook the defense of a suit seeking both compensatory and punitive damages. There was no coverage for punitive damages. However, the insurance company obtained no reservation of rights to protect itself against liability for non-coverage of punitive damages. It proceeded to defend against the claim of punitive damages. Settlement negotiations were not an issue.
In the absence of coverage, there was no duty of defendant “to lay $100,000 on the table as the price of settlement.”
(2) There was no failure to make a timely and adequate disclosure of defendant’s position on coverage.
The second matter which the trial court held to be an issue of fact was the bad faith or negligence of the defendant in failing to make a timely and adequate disclosure to, plaintiff of defendant’s position on the question of coverage.
Defendant’s position on the question of coverage was set forth in the Reservation of Rights Agreement.
The accident occurred May 31, 1966. The second amended complaint by Woolett against Crawford was filed on October 20, 1967. The answer to the second amended complaint is dated January 8, 1968, but the date of filing does not appear. Trial began March 31, 1970. The Reservation of Rights Agreement was executed July 28, 1967. This date preceded the filing of the second amended complaint, the answer thereto and trial.
Under the record in this case, defendant made a timely disclosure. Stillwell v. Iowa National Mutual Ins. Co., 205 Va. 588, 139 S.E.2d 72 (1964); State Farm Mutual Ins. Co. v. Anderson, 104 Ga.App. 815, 123 S.E. 2d 191 (1961); United States Cas. Co. v. Home Ins. Co., 79 N.J.Super. 493, 192 A. 2d 169 (1963); State Farm Mutual Auto Ins. Co. v. MFA Mutual Ins. Co., 485 S. W.2d 397 (Mo.1972) ; Inghram v. Dairy-land Mutual Ins. Co., 178 N.W.2d 299 (Iowa 1970); 45 C.J.S. Insurance § 714. Disclosure is not timely where a reservation of rights is delayed until almost a year and a half after filing an answer. Allstate Ins. Co. v. Keller, 17 Ill.App.2d 44, 149 N. E.2d 482 (1958).
The disclosure was adequate. It speaks for itself. American Surety Co. of N.Y. v. Gold, 375 F.2d 523, 528 (10th Cir. 1967); Gallaway v. Schied, 73 Ill.App.2d 116, 219 N.E.2d 718, 723 (1966); State Farm Mutual v. Anderson, supra; United States Cas. Co. v. Home Ins. Co., supra; Hardware Mut. Casualty Co. v. Higgason, 175 Tenn. 357, 134 S.W.2d 169 (1939). Compare Henry v. Johnson, 191 Kan. 369, 381 P.2d 538 (1963); Popovich v. Gonzales, 4 Ill.App.3d 227, 280 N.E.2d 757 (1972).
Plaintiff testified that on July 28, 1967, he understood the instrument to mean “ * * * it would in no way affect their liability under anything that might exist * * *.” He testified that he read the first page and that portion of the instrument which states:
The intent and purpose of this agreement is to permit a full and impartial investigation, explore settlement possibilities and a full and complete defense of all claims brought against insured as a result of the hereinabove described automobile accident without in any way incurring any admission of liability on the part of the company or impairing or waiving any of the rights of any party hereto except that insured waives the right to insist that such handling of the claim by the company will constitute any admission of liability on the part of the company. * * *
This reading he later denied. But whether he read it or not, he was bound by the agreement. He had a duty to read the agreement before he signed it. If he could not understand it, he had a duty to have it explained to him. Morstad v. A. T. & S. F. Ry. Co., 23 N.M. 663, 170 P. 886 (1918). With a $3,000,000 claim staring him in the face, and a RESERVATION OF RIGHTS AGREEMENT placed in his hands, it challenges the veracity of plaintiff that he did not read it without explanation or legal advice, and yet understood the meaning of it, and signed it. “As you make your bed, so you must lie on it.”
As a matter of law, the defendant did not fail to give timely and adequate disclosure of defendant’s position on coverage.
(3) There was no failure on the part of defendant to make a timely resolution of the coverage questions ■with plaintiff.
The third matter the trial court held to be an issue of fact was the failure of defendant to make a timely resolution of the coverage questions with the plaintiff.
Plaintiff testified that Mr. Mann explained to him that his insurance did not coyer a claim for punitive damages.
Plaintiff offered in evidence the deposition of Robert E. Friedrich, attorney for Penrose in the California law suit.
Mr. Friedrich testified:
Mr. Crawford was told by me the afternoon before his deposition was taken in Mr. Mann’s office that the company-had expressed on more than one occasion their intention to deny coverage on the employee exclusion, and I explained my position to him in full on that situation.
And this was done again that evening in his home and it was done the following afternoon when he and Mr. Mann and his wife took me to the airport. This was when the deposition was taken. These were times this was discussed with him.
This was subsequently affirmed by Mr. Friedrich in his testimony as a witness for the defendant. Mr. Mann’s testimony also confirmed the defendant’s intention to deny coverage.
There was no failure on the part of defendant to make a timely resolution of the coverage questions with plaintiff.
Defendant was entitled to a directed verdict. The majority holding otherwise, I dissent. o