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June 28, 1957


Appeal, No. 194, March T., 1955, from judgment of Court of Common Pleas of Allegheny County, July T., 1953, No. 2322, in case of John R. Cowden v. The Aetna Casualty and Surety Company. Judgment affirmed.


Earl F. Reed, with him Joseph E. Madva, Earl F. Reed, Jr. and Thorp, Reed & Armstrong, for appellant.

Charles E. Kenworthey, with him Gilbert J. Helwig and Reed, Smith, Shaw & McClay, for appellee.

Before Stern, C.j., Stearne, Jones, Musmanno and Arnold, JJ.

Author: Jones

[ 389 Pa. Page 462]


This appeal grows out of an action in trespass by the plaintiff for the recovery of damages from the liability-insurer of his automobile trucks because of the insurer's refusal to participate in a proposed settlement of a law suit against the insured and another jointly for personal injuries sustained by a third person in a collision between one of the insured's trucks and a passenger automobile of the other alleged tort-feasor. The suggested settlement contemplated payment by the defendant insurer of full coverage under its policy and was designed to effect a saving to the insured in the quantum of the excess liability he would otherwise be required to pay if the ultimate verdict was greater than the amount of the proposed settlement which is what later happened. In his suit against The Aetna Caualty and Surety Company, his insurer, Cowden, as plaintiff in the instant action, alleged that the insurance company was guilty of "negligent, willful, reckless and fraudulent disregard ... of its fiduciary obligations and duties to plaintiff" whereby the plaintiff suffered the damages claimed.

At trial, the plaintiff rested his case solely on the charge of bad faith. The jury returned a verdict for the plaintiff for the full amount of his claim. The court en banc (one judge dissenting) entered judgment for the defendant n.o.v. on the ground that the evidence was insufficient to justify a finding by the jury that the defendant was guilty of bad faith in refusing to pay voluntarily full coverage under its policy in order to obtain settlement of the law suit against its insured. The propriety of the action of the court below in the premises is the question which the plaintiff's present appeal brings up for review.

[ 389 Pa. Page 463]

The tort action out of which the present controversy arose was instituted by Walter Phillips against John R. Cowden (the present defendant's insured) and Gilbert H. Latham jointly to recover damages for injuries suffered by Phillips when Latham, in whose automobile Phillips was a passenger, drove his vehicle into a truck of Cowden which was stopped on the highway. The accident occurred on a clear, dry morning in February, less than an hour before sunrise. Latham was proceeding in his automobile, with his passenger Philips, along the concrete highway at a speed of thirty-five to forty miles per hour when Phillips noticed a "ball of smoke" on the right-hand side of the road, some three or four hundred feet ahead. Phillips called to Latham to look out and cautioned that he had better stop, but Latham nevertheless continued to drive on into the smoke and crashed into the rear of Cowden's truck with consequent serious injury to Phillips. The driver of the truck had stopped it, at least partially on the highway, after smelling smoke and noticing a light beneath the floor boards of the truck. At the time of the impact from Latham's car, the driver of the truck was under it, using an extinguisher on a fire around the emergency brake. The smoke, which Phillips had seen and which evidently obscured the truck from Latham's view, was caused by the action of the fire extinguisher on the flame.

Cowden carried insurance on his truck against public liability in the maximum sum of $25,000 under a policy issued by the defendant company which provided, with respect to the settlement or defense of claims or suits against the insured for liability for injury caused by the insured vehicle, as follows: "It is further agreed that as respects insurance afforded by this policy the Company shall (a) defend in his name and behalf any suit against the Insured alleging such injury or destruction

[ 389 Pa. Page 464]

    and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Company shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the Company."

When Phillips instituted suit against Latham and Cowden jointly in Washington County to recover damages for his injuries, Aetna promptly assumed the defense of its policy holder, Cowden, and referred the case for such purpose to H. Gilmore Schmidt, Esq., of Washington County, as counsel. At the same time, by letter, Aetna suggested to Cowden that, in view of the fact that the damages sought by Phillips (viz., $75,000) exceeded the maximum limits of its policy's coverage (viz., $25,000), Cowden might wish to employ private counsel at his own expense to protect his personal interest above the limit of the insurance. Cowden did not, however, engage private counsel, and the case proceeded to trial. Latham was insured by another company for liability for personal injury by automobile in the maximum sum of $10,000 per person per accident.

The case was tried three times. It first terminated in a mistrial before the defendants' case had been completed. The second trial resulted in a $100,000 verdict for the plaintiff against Latham and Cowden jointly. Immediately following rendition of this verdict, Cowden engaged the law firm of Thorp, Reed and Armstrong of Pittsburgh to represent his personal interest. Aetna engaged John M. Reed, Esq., of Pittsburgh, as consulting counsel. He, with J. Roland Johnston, of the Thorp, Reed and Armstrong firm, and Schmidt, defendant's trial counsel, working together, presented motions on behalf of Cowden for a new trial and for judgment n.o.v. The court refused the motion for judgment n.o.v. but awarded the defendant a new trial on the ground that the great weight of the evidence indicated

[ 389 Pa. Page 465]

    that there was no liability on the part of Cowden. Judge CUMMINGS, the trial judge, speaking for the court en banc in disposing of the after-verdict motions, said, - "The great weight of the evidence points to the conclusion that the driver of the Cowden truck was not negligent .... We also think that in any future trial, under the peculiar circumstances if the same are as developed in this case, serious consideration must be given to the question of proximate cause ... We are in agreement that the amount of the verdict is excessive." Latham's insurer then paid into court the maximum limit of its liability, namely, $10,000. ...

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