Supreme Court looking ahead in insurance opinion, attorney says
CHARLESTON - A recent opinion by the state Supreme Court will help avoid future attempts at collusion by plaintiff's and insured parties, an attorney involved in the case said Monday.
Tiffany Durst of McNeer, Highland, McMunn & Varner in Clarksburg said she was happy with the foresight displayed by three of the Court's five justices in a case that claimed her client, Farmers and Mechanics Mutual Insurance Co., was responsible for a jury award that exceeded its policy limits.
She also said the case was the first in the state to deal with the specific issues.
In the case, plaintiff Daniel Strahin, who was shot in the arm on the property of Earl Sullivan by another man, agreed with Sullivan to sign a Covenant Not to Execute. The covenant stipulated that Strahin would receive from Sullivan any rights to make a bad faith claim if a settlement was not reached. In return, Strahin could not seek Sullivan's personal property as compensation for a jury award.
"The potential is there, and in the opinion Justice (Elliott) Maynard talks about the potential for collusion if the insured is already protected," Durst said. "Then it is less likely he or she will help vigorously oppose the claims against them.
"There, in no part, are any allegation of that in this particular case ... but the concern is there."
Maynard wrote the opinion, released Feb. 21, for the Court, and Chief Justice Robin Davis and Justice Brent Benjamin concurred. The decision upheld Barbour Circut Court Judge Alan Moats' ruling.
A 2002 award of more than $1 million greatly exceeded Sullivan's homeowners policy limit of $100,000, and Strahin contended that the insurance company still had to pay the remainder. He was unable to collect it from Sullivan because of the covenant agreement.
"We believe 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," Maynard wrote.
"Obviously, an insured who is protected by a Covenant Not to Execute loses the incentive to contest his or her ability."
In essence, Strahin cost himself a little more than $900,000 of his jury award ($1,060,556). He claimed he was entitled to all of it from the insurance company because of the 1990 Shamblin v. Nationwide Mutual Insurance Co. decision.
That case decided that if an insurance company did not settle a claim for an amount under the policy limit, it was responsible to pay all of any jury award that exceeded the policy limit.
However, Maynard, Davis and Benjamin decided that since the insured (Sullivan) had no property rights at risk, Shamblin did not apply.
"We now hold that in order for an insured or an assignee of an insured to recover the amount of a verdict in excess of the applicable insurance policy limits from an insurer pursuant to this Court's decision in Shamblin, the insured must be actually exposed to personal liability in excess of the policy limits at the time the excess verdict is rendered," Maynard wrote.
Justices Larry Starcher and Joseph Albright dissented, and neither has filed a dissenting opinion.