Bad Faith - Kansas Supreme Court Holds That A Claim For Failure To Settle May Not Be Brought Against An Insurer Until The Insured’s Liability Is Established
Last Friday, the Kansas Supreme Court held in Nungesser v. Bryant, Nos. 94 and 176 (March 23, 2007) that an insured may not pursue an action against its insurer for negligence or bad faith failure to settle until liability
against the insured is established in the underlying case.
In Nungesser, the insured, Bryant, was involved in an automobile accident resulting in serious injuries to Nungesser. Nungesser was hospitalized and, following his release, the hospital filed a lien against him for $45,000.
Subsequently, Bryant’s insurer, EMCASCO, offered to settle for policy limits of $300,000, to be paid jointly to Nungesser and the hospital. Nungesser refused the offer, insisting that any payment be made in his name alone.
EMCASCO refused and Nungesser filed suit against Bryant, seeking $10 million in damages. Two weeks after filing suit, Nungesser’s attorney terminated any negotiations to settle for policy limits and indicated that Nungesser
might settle for $2 million. Bryant then filed a third party petition against EMCASCO, claiming that the insurer negligently or in bad faith failed to settle the claim for policy limits before suit was filed.
EMCASCO moved to dismiss Bryant’s third party claims, arguing that a direct action against an auto insurer was prohibited and that it should not be a party to Nungesser’s tort action unless and until judgment was entered.
The trial court denied EMCASCO’s motion. The parties eventually engaged in mediation that resulted in two agreements: (1) the entry of a confessed judgment by Bryant for $2 million, in which Bryant agreed to pursue his claim
against EMCASCO and gave Nungesser a partial assignment of his rights against EMCASCO to recover the judgment; and (2) EMCASCO’s consent to the confession of judgment. The parties retained the right, however, to appeal
any adverse motion rulings once a final judgment on all issues was entered. Following trial, the jury found that EMCASCO had acted negligently but not in bad faith in failing to settle before suit was filed and entered judgment against
EMCASCO for $2 million and awarded attorneys’ fees to Bryant for more than $700,000. EMCASCO appealed.
Addressing EMCASCO’s initial motion to dismiss Bryant’s third-party claims, the Kansas Supreme Court held that the lower court erred when it denied the motion because, “[s]imply put, an insured’s action
against his or her insurer for negligence or bad faith failure to settle a case must wait for the liability of the insured to be decided.” The court added that it did not “intend to be the first and only court in the
country” to allow an insured to implead an insurer for negligence or bad faith while the liability of the insured was unresolved. Based on its holding, and noting that there was no way to know how much the presence of EMCASCO
in the case altered the proceedings, the court reversed the jury’s verdict, vacated the $2 million judgment and award of attorneys’ fees and remanded the case back to the trial court.