GRAY v. GRAIN DEALERS MUT. INS. CO. Civ. A. No. 86-1782.
684 F.Supp. 1108 (1988)
Vernon GRAY, Plaintiff, v. GRAIN DEALERS MUTUAL INSURANCE COMPANY, and R.W. Parker Associates, Inc., Defendants.
United States District Court, District of Columbia.
May 13, 1988.
Howard L. Siegel, Rockville, Md., for plaintiff.
Ralph Boccarosse, Jr., Fairfax, Va., for defendants.
MEMORANDUM AND ORDER
JACKSON, District Judge.
On August 10, 1985, plaintiff Vernon Gray was seriously injured when he was struck by an automobile driven by one Wendell Speed in the District of Columbia. Speed's automobile liability coverage was written by defendant Grain Dealers Mutual Insurance Company ("Grain Dealers"), an Indiana insurer. Speed, since deceased, was, at the time the policy was issued, a resident of North Carolina. The applicable monetary liability limit on Speed's policy was $25,000.
Grain Dealers was timely notified of the accident and placed the claim with R.W. Parker Associates, Inc. ("Parker"), an adjuster located in the Virginia suburbs of Washington, D.C., for appropriate handling. On September 25, 1985, Gray sued Speed in the U.S. District Court for the District of Columbia.
Having heard nothing definitive from Parker in the meantime, on January 7, 1986, Gray's attorney wrote Parker to advise, inter alia, that Gray would accept "policy limits" to settle the case (assuming Speed's coverage was less than $100,000), and that the extension of time to respond to the complaint would be withdrawn on January 27th.
Apparently through oversight alone Parker failed either to respond to the offer to settle or to cause answer to be made to the complaint. Accordingly, on January 30, 1986, Gray had default entered against Speed, and on February 26th, following an ex parte hearing on damages, the Court entered judgment for Gray against Speed in the amount of $334,000.
On June 13, 1986, Gray and Speed entered into a written agreement, entitled "Assignment of Chose in Action and Release From Judgment," whereby Speed assigned his rights against Parker and "Grain Buyers" [sic] to Gray, and Gray, in consideration, "released" Speed from the judgment. The document was then filed with the Court in Civil Action No. 85-3056.
On June 25th Gray filed this action against Grain Dealers and Parker alleging, as Speed's assignee, claims of breach of contract, negligence, and "bad faith" in failing to defend or settle.
On July 10th Grain Dealers answered the complaint, and it also filed a "motion for relief from judgment" in its own name in Civil Action No. 85-3056, which, of course, Gray promptly moved to strike on the ground that Grain Dealers was not a party to the case, and that Speed had already been "relieved" of the judgment by the release. (Grain Dealers, in effect, abandoned its own motion upon its realization that any "relief" it might obtain for itself would come at the expense of its insured.)
On August 30, 1986, Wendell Speed died (aged 30) in the District of Columbia.
On September 5, 1986, the Court granted Gray's motion in Civil Action No. 85-3056 to strike Grain Dealers' motion for relief from a judgment in a case to which it was not named, and had never been admitted as, a party.
The case is presently before the Court on cross-motions for summary judgment by Gray and Grain Dealers against one another.
The case thus presents three discrete issues for resolution: (1) a choice of the state law to be applied to govern the latter two issues; (2) the effect to be given the instrument by which Speed purported to transfer his rights against Grain Dealers to Gray; and (3) the measure of his recovery, if any, thereon.
Because choice of law is a substantive issue under the Erie doctrine,
Grain Dealers does not dispute the validity of Speed's "assignment" of his rights against it to Gray, but it contends that the "release" portion of the instrument simultaneously relieved it of its contractual duty to, in the language of its policy, "pay damages for bodily injury ... for which [the insured] becomes legally responsible because of an automobile accident." Once Speed was no longer "legally responsible" to Gray, it says, neither was it. And, having found what it believes to be favorable case law from the state of North Carolina, Grain Dealers urges that North Carolina law applies to govern the significance of the Speed-Gray transaction.
The factors to be considered in choosing the applicable rule of law include the relative interests of the several jurisdictions in a determination of the particular issue in accordance with its public policy, the protection of justified expectations of interested parties, the basic policies underlying the particular field of law, and certainty and uniformity of result. See Restatement (Second) Conflict of Laws § 6 (1971). The "contacts" to be taken into account in applying these principles to a contractual agreement include: the place of contracting; the place of negotiation of the contract; the place of performance; the location of the subject matter; and the residence
Here, the accident, the Gray-Speed lawsuit and ensuing default judgment all occurred in the District of Columbia. Thereafter, the conveyance of rights was negotiated and executed in the District of Columbia. The subject matter of the contract was a judgment enforceable, at the time, only in the District of Columbia. Gray is a resident of the District of Columbia, and Speed was as well between August, 1985, and August, 1986. The District of Columbia, of course, has a fundamental interest in seeing its law of contracts applied to agreements undertaken in the jurisdiction, particularly when the contract pertains to compensation for an injured citizen. Both parties to the agreement could have expected, with justification, that local law would apply to this particular assignment and release, if, indeed, they had any expectations about it at all. Thus, the District of Columbia is the jurisdiction having the more substantial contacts with all aspects of the transaction. See Fox-Greenwald, 452 F.2d at 1353-54; Young v. State Farm Mut. Auto Ins. Co., 213 A.2d 890, 891 (D.C.App.1965); Gagnon v. Wright, 200 A.2d 196, 198 (D.C.App.1964). The Court concludes that, to the extent there may be a conflict between the law of the District of Columbia and that of North Carolina, District of Columbia law should control the effect to be given the Speed-Gray "assignment/release."
While there appear to be no District of Columbia cases directly on point, the District of Columbia long ago abandoned the distinction between "releases" and "covenants not to sue" in determining whether third parties can claim the benefit of the former when called upon for payment of a shared obligation. See McKenna v. Austin, 134 F.2d 659, 664-65, (D.C.Cir.1943). And the District of Columbia has always followed the rule that contractual undertakings are to be construed so as to give effect to the expressed intent of the parties. See Flack v. Laster, 417 A.2d 393, 397 (D.C.App.1980).
The purpose of the instrument could not be clearer. Speed wished to rid himself of a liability he had paid Grain Dealers a premium to assume; Gray was looking to satisfy that liability from a solvent source. Both expected and intended that Gray would sue Grain Dealers for what he could get. The transaction would have been altogether pointless otherwise. The Court concludes that a District of Columbia court would hold, as most other courts have done in analagous contexts, that the purported "release" of Speed did not operate to nullify a perfected legal obligation to pay a money judgment, in the absence of fraud or collusion. See Coblentz v. American Sur. Co. of New York, 416 F.2d 1059, 1063 (5th Cir.1969); Employers Mut. Liability Insurance Co. of Wisconsin v. Hendrix, 199 F.2d 53 (4th Cir.1952); Hodges v. State Farm Mut. Auto. Ins. Co., 488 F.Supp. 1057 (D.S.C.1980).
Were there a conflict between the law of the District of Columbia and of North Carolina with respect to the measure of Gray's recovery against Grain Dealers on the policy rights assigned to him, it is likely that an "interest analysis" would favor North Carolina, the jurisdiction in which Grain Dealers expected Speed would do most of his driving, i.e., the principal location of the insured risk. See Nat. Union Fire Ins. Co. of Pittsburgh v. Binker, 665 F.Supp. 35, 39-40 (D.D.C.1987). No such analysis is necessary, however, for, in fact, the law of the two jurisdictions is compatible. See Muller v. Massachusetts Mut. Life Ins. Co., 644 F.Supp. 916, 918 (D.D.C.1986).
In the era in which it was the local court of last resort for the District of Columbia, the Court of Appeals for this Circuit stated:
Siegel v. William E. Bookhultz & Sons, 419 F.2d 720, 723 (D.C.Cir.1969) (footnote omitted).
The cases from elsewhere in the country are in no wise uniform or consistent. Some, as did Siegel, proceed on a theory that a liability insurer's failure to defend or settle a claim against its insured is a breach of contract. Others treat it as a tort. Still others find the nature of the action immaterial. Some courts allow recovery in excess of policy limits upon a showing of fault on the part of the insurer no greater than simple negligence. Others require proof of up to the equivalent of malice, i.e., dishonesty, fraud or concealment, or self-dealing. Some courts will permit no recovery in excess of policy limits unless the wronged insured is sufficiently solvent to satisfy an excess judgment himself. Others allow it on the ground the insolvency of an insured judgment debtor represents a windfall for a defaulting insurer if it operates to confine the insurer's liability to policy limits in circumstances in which it would be liable for the excess to an insured who could pay the judgment. Some courts require an insured to make actual expenditures to recover them as consequential damages in excess of policy limits. Others find the entry of a judgment alone to be sufficient consequential damage to subject the insurer to liability for it.
It is neither possible nor politic for this Court to attempt to predict the rule most likely to evolve in the courts of the District of Columbia (or North Carolina) with respect to an insurer's liability, generally, for judgments in excess of its insured's policy limits when the judgment results, in whole or part, from some culpable act or omission of the carrier. The range of choices is too
For present purposes the Court will regard itself bound by the Siegel (and Sherman) cases to treat Grain Dealers' inadvertent, but unjustified, failure to defend or settle Gray's lawsuit against Speed as a breach of contract, and nothing more.
It is, therefore, this 13th day of May, 1988,
ORDERED, upon an express determination that there is no just reason for delay and an express direction therefor, that final judgment be entered in favor of Vernon Gray against Grain Dealers Mutual Insurance Company in the amount of Three Hundred and Thirty-four Thousand Dollars ($334,000.00); and it is
FURTHER ORDERED, that execution on the judgment is stayed pending completion of proceedings upon a timely appeal;
FURTHER ORDERED, that all further proceedings herein are stayed pending further order of this Court.
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