Bad Faith - West Virginia Supreme Court Holds That No Claim For Excess Judgment Exists Where Insured Entered Into Assignment And Covenant Not To Execute Prior To Trial
Last week, the West Virginia Supreme Court of Appeals held that in order for an insured or an insured’s assignee to recover a verdict in excess of policy limits, the insured must actually be exposed to personal liability at
the time the excess verdict is rendered. On this basis, in Strahin v. Sullivan, No. 33091 (Feb. 21, 2007), the court by a 3-2 vote rejected an excess verdict claim because the insured had entered into an assignment and covenant
not to execute prior to trial.
Strahin arose from a personal injury action involving a shooting incident in Barbour County, West Virginia. The defendant was insured and defended by Farmers & Mechanics Mutual Insurance under a homeowners’ policy
with a $100,000 policy limit. The plaintiffs made demands for the policy limits in exchange for a full release of the insured, but Farmers & Mechanics declined those demands. Prior to trial, the insured entered into an assignment
and covenant not to execute with the plaintiffs. The case thereafter went to trial and the jury returned a verdict in plaintiffs’ favor in the amount of $1,060,556.
Plaintiffs then pursued claims against Farmers & Mechanics for, among other things, recovery of the excess verdict pursuant to Shamblin v. Nationwide Mutual Insurance Co., 396 S.E.2d 766 (W. Va. 1990). When Farmers &
Mechanics moved for summary judgment, the trial court granted the insurer’s motion.
On appeal, the West Virginia Supreme Court found no error in the trial court’s ruling. Justice Elliott Maynard’s opinion for the court stated that “to recover under Shamblin, there must not only be a
negligent refusal to accept a settlement offer by the insurer, but also subsequent harm to the insured. In other words, the insured’s personal assets must be at risk.” The opinion noted that, under the agreement entered
into by the insured, the plaintiffs agreed prior to the verdict that they would neither execute upon the insured’s personal assets nor record any judgment against him. In those circumstances, the Supreme Court affirmed the
trial court’s determination that no Shamblin claim could be made.
The Strahin court distinguished out-of-state authority cited by the insured where injured third parties were allowed to proceed by way of an assignment/covenant not to execute and recover excess judgments. Those cases, the
court pointed out, all involved a post-verdict assignment of rights where “at some point prior to the insured’s assignment, the insured was faced with the harsh reality that it was financially accountable to the judgment
creditor for an outstanding verdict in excess of policy limits.” The Strahin court also rejected the insured’s argument that precluding the assignment of Shamblin claims prior to trial would deprive
policyholders of the ability to protect their assets. It reasoned that “holding an insurer liable for a judgment even when the insured is not legally liable for the same only encourages collusion between the insured and the
plaintiff to raid the insurance proceeds.”