Recht too harsh on insurer, Justices rule
Steve Korris Feb. 29, 2008, 1:50am
CHARLESTON – Circuit Judge Arthur Recht hammered California insurer TIG with too much force, the West Virginia Supreme Court of Appeals decided.
The Justices on Feb. 19 didn't reverse an order that exposed TIG to a million dollar judgment in Hancock County circuit court, but they declared that the order would not bind jurors when a bad faith claim against TIG goes to trial.
They also ruled that Recht improperly awarded $50,804 in legal fees to plaintiff Jeffrey Horkulic, because Recht did not hold a hearing before making the award.
TIG stands for Transamerica Insurance Group.
Recht put the insurer in a tight spot by taking testimony against it from an attorney it hired at a hearing where he wouldn't let TIG defend itself.
The case highlighted the tricky situation than can arise when an insurer retains a lawyer who directly represents a policyholder while indirectly representing the insurer.
TIG retained William Wilmoth of Wheeling to defend lawyer William Galloway of Weirton against plaintiff Jeffrey Horkulic, who sued Galloway for letting the statute of limitations run out on an injury claim.
Wilmoth and Horkulic's lawyer, Robert Fitzsimmons of Wheeling, negotiated a settlement in which Galloway confessed that Horkulic and his wife suffered $1,500,000 in damages.
The settlement exhausted Galloway's $500,000 policy limit, protected him from further liability to Horkulic, and prevented TIG from seeking to recover from Galloway.
That left TIG on the hook for $1 million in Horkulic's bad faith claim, with Recht's order possibly binding a jury to hold TIG liable.
TIG refused to go along with the settlement, and Horkulic moved to enforce it.
At a hearing, Fitzsimmons called TIG "interlopers" and said, "This does not have anything to do with insurance companies."
Recht ruled that TIG could not participate expect to record an objection.
Wilmoth testified that TIG agreed to the settlement. No one else testified.
Recht ordered TIG to honor the settlement, and he awarded legal fees to Horkulic for preparing and arguing the motion to enforce the settlement.
On appeal, Thomas Flaherty of Charleston argued that Recht deprived TIG of property without due process.
"TIG not only never consented to the purported settlement, but has a well documented history of objection to the proposed settlement," Flaherty wrote.
Fitzsimmons answered that the settlement was between the Horkulics and Galloway only, and TIG tried to sabotage it.
When the case reached the Court for oral arguments Jan. 8, a coincidence heightened the drama. Fitzsimmons and Flaherty had teamed up to represent West Virginia University in its contract suit against former football coach Rich Rodriguez.
Flaherty told the Justices that Recht's order would give a jury no choice but to hold TIG liable. "They kill TIG in the third party bad faith case," he said.
Justice Joseph Albright said, "I sense it's worth what it says and no more. You can contest that at any point along the line."
Justice Robin Davis disagreed, telling Flaherty plaintiffs would take Recht's order and "beat you to death."
Fitzsimmons said Flaherty didn't know the effect of the order. "I don't know either," he said. "It sounds pretty good and I like it."
Albright asked how Recht could award legal fees without giving TIG an opportunity to be heard.
Fitzsimmons said, "They are an insurance company."
Albright said, "That doesn't mean they can't be heard."
When the Justices reached a decision, they affirmed Recht in enforcing the settlement but they eased TIG's pain.
Albright wrote, "Mr. Wilmoth, as counsel for Mr. Galloway hired through TIG, was not protecting the interests of the insurance company, TIG, while the settlement negotiation matters were being litigated in the lower court."
Galloway's $1.5 million confession might constitute evidence against TIG, Albright wrote, but it does not foreclose TIG from challenging the evidence.
He wrote, "... we hold that a consent or confessed judgment against an insured party is not binding on that party's insurer in subsequent litigation against the insurer where the insurer was not a party to the proceeding in which the consent or confessed judgment was entered, unless the insurer expressly agreed to be bound by the judgment."
He instructed Recht to hold a hearing on Horkulic's request for attorney fees.
He wrote that Recht made a mistake by comparing the case to one where a defendant refused to honor a clear settlement agreement.
He wrote, "... the present case is littered with examples of uncertainty with regard to the precise parameters of the settlement, its terms, and the consent of the integral parties."
Although the Justices reached a unanimous decision, they reached it from four different directions. Davis and Justices Brent Benjamin and Spike Maynard reserved the right to file concurring opinions.