No. 1347 Philadelphia 1981, Appeal from Judgment entered May 19, 1981, in the Court of Common Pleas, Trial Division, Law, Philadelphia County at No. 4988 October Term, 1972.
Lewis Weinstock, Philadelphia, for appellant.
Stephen M. Feldman, Philadelphia, for appellees.
Johnson, Watkins and Lipez, JJ. Lipez, J., concurred in the result. Johnson, J., files a dissenting opinion.
[ 314 Pa. Super. Page 48]
The appellant, Security Mutual Casualty Company [Security] appeals from the judgment entered in favor of Durant Reid [Reid] in the amount of $96,687.75 plus interest, recovered pursuant to Reid's garnishment action.
The facts indicate that an automobile accident occurred on July 24, 1972 involving appellee Reid and Carrington Ruffin. Ruffin's vehicle hit Reid's vehicle, causing Reid severe and permanent physical injuries. Reid was unable to work for a period of five months. At the time of the accident, Ruffin was insured by Granite Mutual Insurance Company [Granite] in the amount of $10,000 per person and $20,000 per accident. Granite had entered into a contract for reinsurance with Security for the last $2,500 of Granite's $10,000 coverage, prior to the accident.
Ruffin immediately reported the accident to Granite which then assigned the case to an independent claims adjuster. In October of 1972, a doctor examined Reid on behalf of Granite and determined that the injuries to his right arm were serious, involving partial permanent loss of use of the hand and arm, numbness and the inability to extend the wrist or abduct the thumb. The claims adjuster interviewed Ruffin, and was told by Ruffin of the existence of two eyewitnesses to the accident whose testimony might be unfavorable to Ruffin. This information was forwarded by letter to Granite on December 8, 1982.
On November 1, 1972, Reid had filed his complaint in arbitration against Ruffin. On December 20, 1972, Granite's house counsel sent Security a letter stating (1) that it was possible that Security's portion of the insurance coverage would be involved, (2) that there existed two eyewitnesses whose testimony would be unfavorable to Ruffin, (3) a summary of the report of Granite's doctor on the injuries to Reid and (4) the following statement:
"While we have some defense on the liability in view of the serious permanent injury sustained by the driver I
[ 314 Pa. Super. Page 49]
felt your company should be advised although I do not suggest you carry any reserve at this time."
Security acknowledged receipt of this letter by reply on January 3, 1973 and requested Granite to keep Security advised of developments. Security did not request any further specific information in its reply letter, despite the fact that the reply information contained pre-printed form provisions that could be marked to request additional specific information from Granite.
During the following few months, Reid's counsel sent wage loss information, signed statements of the witnesses adverse to Ruffin and, on April 19, 1973, a settlement offer of $10,000 to Granite, open for 30 days. On May 3, 1973, house counsel for Granite again wrote to Security stating that the names of the eyewitnesses had been provided but failed to mention the offer of $10,000. Reid petitioned to transfer the suit from arbitration to major case listing on May 21, 1973, and informed Granite of this fact. On May 30, 1973, a counter offer of $9,000 was made by Granite's claims representative, which counter offer was rejected by Reid.
On June 13, 1973, Granite's claim representative sent a copy of Reid's transfer petition to Security and stated in an accompanying letter:
Please note that the attorney has withdrawn the Certificate of Readiness and has filed a petition to make this a Major case. The attorney has made a demand of $10,000 and we made him an offer of $9,000, but he is not willing to budge from his demand of $10,000.
Suggest you carry a reserve of $2,000 and will keep you advised of any further developments.
On the same date, the claims representative offered $9,500 to Reid and sent Ruffin a letter indicating his liability for any judgment in excess of $10,000. The letter to Ruffin, their insured, failed to disclose the settlement offers. Security responded on August 16, 1973, inquiring whether an excess letter had been sent to Ruffin and what the ad damnum clause of plaintiff's complaint specified.
[ 314 Pa. Super. Page 50]
After the taking of depositions, Granite finally made an offer of $10,000 to Reid on September 24, 1973, which was rejected. A jury found in favor of Reid after trial in October 1973 in the amount of $80,000 against Ruffin.
Reid then proceeded to commence a garnishment proceeding against both Granite and Security, charging both with bad faith refusal to settle. Following a jury trial, a verdict was rendered for Reid against both insurers on November 23, 1976 in the amount of $70,000 plus interest. Post-trial motions filed by Granite were denied. Granite was subsequently determined to be insolvent. Post-trial motions filed by Security were heard and a new trial for Security granted, which resulted in a verdict again in favor of Reid against Security in the amount of $80,000. The trial court then molded the verdict to $96,687.75. Post-trial motions for judgment n.o.v. or a new trial were denied and this appeal taken.
Appellant Security raises four issues on appeal, namely: (1) whether the reinsurer of an automobile insurance company owes any duty to the insured to participate actively in the defense by the insurer of claims against the insured, (2) whether the reinsurance agreement makes the insurer its agent, so as to render the reinsurer liable, despite a lack of knowledge of the insurer's bad faith in conducting the defense, (3) whether the issue of bad faith of the reinsurer should be submitted to the jury, in absence of any evidence of acts or omissions which violated any duty it owed the insured, and (4) whether the trial court erred in its evidentiary rulings and jury charge with respect to the reinsurance agreement, the reinsurer's duties and related matters.
Reinsurance refers to an "undertaking whereby one insurer agrees to protect another insurer, known as the reinsured, either wholly or partially from a risk which it has undertaken, both policies being in effect at the same time, and the original insured having no interest in the reinsurance." 13A Appleman, Insurance Law & Practice 7681, at 484-85 (1976). When an insurer has the subject of insurance reinsured to him by another, there is "no privity
[ 314 Pa. Super. Page 51]
between the original insured and the reinsurer; the latter is in no respect liable to the former as a surety or otherwise; the contract of insurance and of reinsurance being totally distinct and disconnected." Appeal of Goodrich, 109 Pa. 523, 529, 2 A. 209, 211 (1885). The insolvency of the original insurer does not change the nature of the reinsurer's obligation so as to permit the insurer to pursue it directly." 19 Couch on Insurance, 80:66 at 959 (R.A. Anderson ed., 2d ed. (1959)). The insured may, however, bring a direct action against the reinsurer where a proper third-party beneficiary contract to that effect may be found or where the reinsurer is a successor which has assumed the original insurer's liabilities." 19 Couch on Insurance, supra, 80:67 at 959.
Security did not have the right to control the settlement negotiations nor did it participate in same. In fact, it did nothing in exercise of its rights under the contract, as was its option. There was no third party beneficiary contract between the companies, and the reinsuring contract did not create a principal-agent relationship with Granite as the contract spells out the rights and obligations of each of the parties. An agency relationship was neither contemplated nor intended by the parties.
Ruffin was not privy to the reinsurance contract nor was he owed any duty by Security as a result of it.
Judgment reversed and judgment non-obstante verdicts is entered for the appellant, Security Mutual Casualty Company.
JOHNSON, Judge, dissenting:
I respectfully dissent. I view the central issue as whether an automobile accident victim may recover damages from the "reinsurer" of a party liable for a victim's injuries when said "reinsurer" and/or the liable party's original insurer engage in a bad faith refusal to settle a claim. The trial
[ 314 Pa. Super. Page 52]
court answered this question in the affirmative. I would affirm.
Appellant Security raises four specific issues on appeal, namely: (1) whether the reinsurer of an automobile insurance company owes any duty to the insured to participate actively in the defense by the insurer of claims against the insured, (2) whether the reinsurance agreement makes the insurer its agent, so as to render the reinsurer liable, despite a lack of knowledge of the insurer's bad faith in conducting the defense, (3) whether the issue of bad faith of the reinsurer should be submitted to the jury, in absence of any evidence of acts or omissions which violated any duty it owed the insured, and (4) ...