Opinion
Civil Action No. 96-2708 (RMU/JMF).
March 2, 2001.
MEMORANDUM OPINION
I. Background
This is the final phase of a case which began with a horrible accident when Jorge Iglesias ("Jorge") and Thomas Athridge ("Tommy") played a game of "chicken" which ended when the car Jorge was driving struck Tommy and caused him significant injuries.
This event generated a brace of lawsuits. Central to all of them was that Jorge was an underage, unlicenced driver who, after mowing his aunt and uncle's lawn while they were away, took their car when he found the keys in the house. Jorge was an impecunious, high school dropout and the only hope the Athridge family had to recover from him for their son Tommy's injuries was the proceeds of the insurance policy on the car he was driving when he struck Tommy. That policy, however, excluded from coverage any liability premised on a person's driving that car without a reasonable belief that he had permission to drive the car. Jorge has told any one who asks him that he took the car on impulse and he had no reason whatsoever to believe that he had any right to take it.
I will refer to Jorge's aunt and uncle as the Rivases. They owned the Jetta Jorge was driving when he hit Tommy.
For a more detailed analysis of the facts of the accident, the lawsuits it generated and their disposition, see the Court of Appeals' decision, Athridge v. Iglesias, 141 F.3d 357 (D.C. Cir. 1998) and my earlier opinions in this case: Athridge v. Iglesias, No. Civ. A. 89-1222, 2000 Wl. 1780273 (D.D.C. Nov. 14, 2000); Athridge v.Aetna Cas Sur. Co., 184 F.R.D. 200 (D.D.C., 1998); Athridge v.Aetna Cas Sur. Co., 184 F.R.D. 181 (D.D.C. 1998); Athridge v.Aetna Cas Sur. Co., No. Civil A. 96-2708, 1997 WL 732430 (D.D.C. Sept. 23, 1997).
One of the many cases generated by Jorge's striking Tommy was the action by Tommy and his family against Jorge. The late Judge Harold Greene tried that case without a jury and returned a multi-million dollar verdict against Jorge. Unfortunately, for the Athridges and their son, that judgment has proved a meaningless piece of paper because Jorge has no money whatsoever. In fact, Irving Starr, who was paid by Jorge's parents to defend their son, had advised counsel in this case of his intention to put Jorge into bankruptcy if Judge Greene's decision survived appeal. It did, and Jorge filed for bankruptcy in North Carolina where Jorge now lives. Thus, the Athridges's attempt to collect from Jorge seems to have run its course and ended with nothing for them.
The Athridges are trying to prevent Jorge's discharge by another action filed in this Court. That matter has been referred to me by the District Court judge to whom it was assigned.
When the Athridges learned of Jorge's intention to seek bankruptcy, they asked Judge Greene to order Jorge to assign to them whatever rights he might have against Aetna as Jorge's insured. Judge Greene granted that application.
Thereafter, pursuant to the compulsion of that order, Jorge assigned those rights to the Athridges and they filed the complaint against Aetna premised on those rights. In the complaint they have filed in this case, they, as Jorge's assignees, seek to recover from Aetna for its alleged derelictions in the manner in which Aetna dealt with Jorge. Standing in his shoes as his assignee, the Athridges seek to recover what they claim Jorge would have recovered from Aetna had he sued Aetna even though Jorge, discharged from the judgment, would have no motivation whatsoever to sue Aetna.
While it seems odd that the person harmed has taken the place of the person who harmed him and asserted his rights, assignments like this have become common. Under these assignments, the insured assigns to the plaintiff all of the insured's rights against the insured's carrier with the understanding that the plaintiff will agree not to execute the judgment secured by verdict or settlement upon the insured's assets. The insured frees himself from any real financial liability and plaintiff gets what may be the only hope she has to satisfy the judgment from the carrier's deep pockets. The assignment here is of this type, but Jorge's bankruptcy eliminated any need for him to secure an assurance that the Athridges would not seek to execute on his assets.
II. Insured's Assignee v. Insurer
The assignment compels consideration of the validity of such assignments and, assuming their validity, the consequences for Aetna of now facing its opponent in the guise of its insured.
Courts have quarreled about the validity of such insurance assignments, particularly in anticipation of the insured being found liable. But, assuming their validity, the doctrinal troubles truly begin. An insurance policy is nothing more than a contract, and, if the insurance company wrongly refuses to defend the insured, an action on that contract will lie. But, if the insured prevails in that action, and damages are limited, as they must be, to only those that will put the insured in the position she would have been had the insurance contract been complied with, there is little motivation for the insurance company to resolve questionable coverage questions in favor of providing a defense. If the insured's lawsuit only succeeds in securing what she had paid for in the first place, the insurance company has every reason to resist providing coverage until it is forced to by a court order to provide it. What it spends in legal fees defending its non-coverage position will usually be less than what it would have to spend if it defended the action against its insured.
For a particularly thorough and insightful discussion of the problems such assignments raise, see State Farm Fire and Cas. Co. v. Gandy, 925 S.W.2d 696 (Tx. 1996).
An equally powerful inducement to purchasing insurance is the right to be indemnified if held liable. More practically, the availability of the insurance proceeds may induce the party suing the insured to settle the case for those proceeds. If those proceeds are not made available to the insured and the matter proceeds to trial, the insured may have to satisfy a judgment from her own resources that is well in excess of the proceeds. If in a subsequent lawsuit against the insurance company, the insured establishes that the refusal of the insurance company to defend and then indemnify her was a violation of the insurance contract, but recovers only the insurance proceeds as the contractual consideration due her, she may have a legitimate claim that the damages are much less than the harm actually done to her. Once again, if the insurance company evades having to pay anything more than the policy limits, it has little motivation to construe questionable coverage decisions in its insured's favor.
These considerations have induced some courts to create an independent tort action premised on a bad faith refusal of an insurance company to defend or indemnify its insured. By substituting a tort action for a contract action, the doctrinal difficulties in permitting recovery on the contract are overcome. In tort, the proximate cause theory of damages, based on foreseeability, is substituted for limiting damages to the contractual contemplated benefit of the bargain. Thus, in a given case, if the insured can show that but for the insurance company's refusal to defend and indemnify him, he would not have been subjected to the judgment, which exceeds the policy limits, he may be able to recover the entire judgment.
Such an action sounds in tort. While motive is irrelevant to a breach of contract action, it is central to the tort action and recovery has been inevitably conditioned upon a showing of "bad faith." While those words defy a lapidary definition, it can be said with enough assurance to make the point that the insured is obliged to establish that the insurance company's actions were unfair and unreasonable.
This summary inaccurately suggests a much more universal agreement among the courts than the case law reflects. Actually, authority can be found in support of and against propositions of law that are central to the doctrinal development of such a bad faith action. Understandably, the parties in this case have briefed the questions presented by drawing on cases from all over the country. But, that is not right. This is a diversity case and the true question presented is whether the District of Columbia recognizes such an action and, if it does, how have its courts defined the nature of the insurance company's liability in such an action and the measure and scope of the damages.
III. District of Columbia Insurance Law
Unfortunately, District of Columbia law is immature. It has not grappled with the broad issues involved. It consists of a handful of cases which give limited guidance in cases involving narrow sets of facts.
We know, for example, that when, prior to court reorganization, the Court of Appeals for this Circuit was defining local law, it ruled that an insurer's faulty decision to quit the insured's defense, based on an inadequate investigation, which resulted in its abandonment of an obviously helpless insured, justified the awarding to the insured of the costs it incurred in establishing the insurer's obligation to defend it.Siegel v. William E. Bookhultz Sons, Inc., 419 F.2d 720 (D.C. Cir. 1969). An earlier case from that court stands only for the self-evident proposition that an erroneous determination that a claim was not within a policy will render the insurer liable for breach of contract. James v. Pennsylvania General Ins. Co., 349 F.2d 228, 230 n. 1 (D.C. Cir. 1965). Cf. Boyle v. National Cas. Co., 84 A.2d 614 (D.C. Mun. App. 1951) (standing for the equally self evident proposition that insurer is not obliged to defend against complaint that is clearly beyond the coverage of the policy invoked). Finally, the D.C. Court of Appeals, in one instance, refused to find that an insurer's behavior was in bad faith, justifying an award of attorney's fees against it. Cont'l Ins. Co. v. Lynham, 293 A.2d 481 (D.C. 1971)
Post court reorganization, there is very little indeed. In Potomac Residence Club v. Western World Ins. Co, 711 A.2d 1228 (D.C. 1997), the Court of Appeals with one dissent held that the insured was entitled to legal fees incurred as a result of the insurer's breach of the duty to defend. But, this relatively narrow exception to the American Rule, which ordinarily requires each party to a law suit to bear its own costs and attorney fees, was deemed a sufficient potential break from existing precedent to compel that court to vacate its decision and consider the matter en banc. But, before it could, the case was settled, a development which convinced Judge Lamberth of this court that it was wise to decline "to recognize an exception to the American Rule that has not yet been adopted by the local courts". Harris v. Howard Univ., Inc., 48 F.2d Supp. 43, 45 (D.D.C. 1999). Thus, on even this narrow question, there is no guidance whatsoever.
What guidance there is pertains to whether the insurance company waives its right to claim that the event upon which its insured predicates her demand for a defense and indemnification is not within the coverage of the policy. The District of Columbia Court of Appeals has indicated that an insurance company waives its right to claim that the event was not covered by the policy by engaging in conduct which reasonably leads the insured to believe that the company will not be asserting such a claim. The insurance company's conduct may also lead to a waiver of the company's assertion that the insured's breach of some obligation imposed upon it by the insurance contract relieves it of liability. Diamond Service Co. Inc. v. Utica Mutual Ins. Co., 476 A.2d 648, 650 (D.C. 1984).
If waiver does not apply, estoppel might. The D.C. Court of Appeals has defined estoppel in the following way:
In this jurisdiction a liability insurer assuming and conducting the defense of an action brought against the insured, with knowledge of a ground of forfeiture and without disclaiming liability and giving notice of its reservation of rights, is thereafter precluded, in an action upon the policy, from setting up such ground of forfeiture. Walker v. American Ice Co., supra note 15, 254 F. Supp. at 741;M.A.P. v. Ryan, 285 A.2d 310 (D.C. 1971)Diamond Service Co. Inc, 476 A.2d at 655.
Thus, in the District of Columbia, the only well defined concepts in this area are (1) that an insurance company which abandons its client because of a misapprehension of its obligations under the insurance contract is liable for the costs and attorney fees its insured incurs to establish the company's obligation, and (2) an insurance company may be liable in contract for an honest, albeit erroneous, denial of coverage, and (3) the insurance company's right to claim that the insured has no coverage may be waived or an estoppel created by certain actions.
After that, there is only more disagreement as to meaning of District of Columbia insurance law. Messina v. Nationwide Mut. Ins. Co., 998 F.2d 2, 4 (D.C. Cir. 1993). As the Court of Appeals noted, two judges of this Court have specifically disagreed with each other as to whether there is a bad faith tort claim available against an insurance company. A third found that deference to the D.C. Court of Appeals' ability to first determine whether such a tort existed justified the dismissal of a law suit predicated on such a claim so that the District of Columbia courts could determine this issue in the first place. 3307 M Street Partners v. Commonwealth Land Title Ins. Co., 782 F. Supp. 4 (D.D.C. 1992). Another judge concluded that the negligent failure to defend an insured, resulting in the award of damages by default against the insured, permitted the insured's assignee to recover the damages awarded. In reaching that conclusion, however, Judge Jackson criticized the unfairness of the result. An opportunity to seek guidance from the D.C. Court of Appeals as to this question was then lost when the Court of Appeals concluded that the case was controlled by North Carolina rather than District of Columbia law. Gray v. Grain Dealers Mutual Ins. Co., 684 F. Supp. 1108 (D.D.C. 1988), aff'd on other grounds, 871 F.2d 1128 (D.C. Cir. 1989).
The D.C. Court of Appeals has not squarely addressed the question whether bad faith denial of an insurance claim constitutes an independent tort under D.C. law. The district court has considered the issue in two separate reported cases, but these cases are directly in conflict. Compare GEICO, 769 F. Supp. at 387 ("District of Columbia law does not recognize the tort of bad faith denial of an insurance claim.") with Washington v. Group Hospitalization, Inc., 585 F. Supp. 517, 520 (D.D.C. 1984) (holding that the District of Columbia is among the "[m]any jurisdictions [that] have recognized a cause of action in tort for the bad faith refusal of an insurer to pay").998 F.2d at 4.
Finally, to add more confusion and uncertainty, the parties differ as to the fundamental coverage question. Aetna insists that the exclusion of coverage applied to anyone driving the car without a reasonable belief that he had authority to do so. The Athridges insist that the exclusion does not apply to family members whose driving of the car is covered whether or not they have a reasonable belief they have authority to drive. Again, the parties marshal authority from all over the country in support of their positions, and, again, the District of Columbia courts are silent as to a provision which seems to be in general use in Aetna policies throughout the country.
Confronted with such hopeless uncertainty, and with such an immature case law, a court can avoid resurrecting the "federal common law" which Justice Brandeis put mercifully to death in Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) by refusing to impute to the District of Columbia controlling legal principles from other jurisdictions which the District of Columbia Court of Appeals may or may not someday accept. Instead, I will use two different principles of analysis.
The legal relationship between Jorge and Aetna is first grounded in the contract. Therefore, I will first ascertain whether Aetna's behavior to which the Athridges take exception violated the insurance contract between Jorge and Aetna by focusing on whether Aetna's behavior breached the insurance contract because it defeated any expectation that the purchaser of insurance would have when she purchases the insurance contract.
Second, with respect to the tort claim alleged, since the District of Columbia has not yet seen fit to create a bad faith tort, I will not create one. Instead, I will determine if Aetna's behavior would be deemed in bad faith, warranting recovery in tort, in the jurisdictions in which the tort exists and on whose case law the Athridges rely.
IV. The Expectations of the Insured and the Insurer's Seeking a Declaratory Judgment
The first expectation an insured has is that she will be defended against law suits brought against the insured that arguably fall within the coverage of the policy. Confronted with a lawsuit that the insurer believes in not within the coverage, the insurer may provide a defense while clearly and unequivocally reserving its rights to claim that the event is not covered by the policy. Diamond Service Co., 476 A.2d at 654. Instead, the insurer may bring a declaratory judgment against its insured substituting for its judgment that the event is not covered a judicial declaration which resolves the uncertainty. Doing so has been said by one judge of this Court to be the preferred course of action.Central Armature Works, Inc. v. American Motorists Ins. Co., 520 F. Supp. 283, 287-288 (D.D.C. 1981).
There is universal agreement that filing an insurance company's filing an action for a declaratory judgment is not in itself bad faith.Timberlake Const. Co., v. U.S. Fidelty Guar. Co., 71 F.3d 335, 340 (10th Cir. 1995); Int'l Surplus Lines Ins. Co. v. Univ. of Wyoming Research Corp., 850 F. Supp. 1509, 1527 (D.Wyo. 1994) aff'd on other grounds, 52 F.3d 901 (10th Cir. 1995).
A. Aetna's Seeking a Declaratory Judgment
It is first clear that seeking a declaratory judgment that an event is not covered cannot possibly be a breach of a contract. A breach of a contract occurs when a party fails to perform an obligation the contract imposes. An anticipatory repudiation occurs when the party by words or deed gives notice that it will not perform its contractual obligation.Keefe Co. v. Americable Int'l, Inc., 755 A.2d 469, 479 (D.C. 2000). Filing a complaint for a declaratory judgment is neither. Seeking judicial guidance as to the scope of one's obligation cannot simultaneously be a breach of that obligation because explicit to the application for a declaratory judgment is an insurance company's concession that it will provide a defense if the court concludes that it must. It is impossible therefore for the act of seeking judicial guidance as to the scope of one's responsibility to be an assertion that one has no responsibility, and it is only such an assertion that can possibly be a breach.Without citing any authority in District of Columbia law, the Athridges nevertheless insist that Aetna's seeking the declaratory judgment was improper because "the issue of [Jorge] Iglesias's authority to use the Rivas vehicle" would necessarily be decided in the pending court action, 89cv1222." See Plaintiff's Memorandum in Support of Motion for Partial Summary Judgment at 18. ("Pl. Memo.) They cite a Maryland case, Aetna Cas. Surety Co. v. Kuhl, 463 A.2d 822 (Md. 1983), for the proposition that seeking a declaratory judgment may be inappropriate where the issue to be resolved by the declaratory judgment is the same issue which is pending in the underlying proceeding. See id. at 499, n. 1 (citing Brohawn v. Transamerican Insur. Co., 347 A.2d 842 (Md. 1975)).
The Athridges make no showing whatsoever of any reason to believe that the District of Columbia courts would apply this rule. Indeed, it is startling that throughout their pleadings, the Athridges simply cite case authority in support of their position from any jurisdiction and demand its acceptance by this Court. Doing so would be an utter violation of this Court's responsibility to apply the law of the District of Columbia. The Athridges's consistent failure to explain what reason there is to believe that the District of Columbia courts would accept the principle they assert might be grounds in itself to grant Aetna's motion.
In any event, their reliance on these two Maryland cases is misplaced. Both cases involved situations where the issue to be decided in the declaratory judgment action was also the ultimate issue to be decided in the personal injury action between the injured party and the insured. InAetna Cas., 463 A.2d at 822, the driver insisted that he did not intend to strike the victims with his car. Since there was an exclusion from insurance coverage for intentional acts, the insurance company's action, seeking a declaratory judgment, that the driver's action were intentional, could have a preclusive effect on the driver when the victims sued him. The situation was the same in Brohawn, 347 A.2d 842. In both cases, the declaratory action sought to determine coverage, which necessarily turned on deciding whether the insured's conduct constituted negligence or an intentional act, the same issue to be resolved in the underlying tort action. The Maryland Court of Appeals therefore deemed the declaratory action improper since it would necessarily resolve questions to be fully decided in the pending tort action and would therefore have an issue preclusive effect.
This rationale does not apply here. The issue resolved in the declaratory judgment action was not whether Jorge was negligent in striking Tommy but whether Jorge had a reasonable belief that he had permission to drive the Rivases's car. See Athridge v. Iglesias, 2000 WL 1780273, at * 1 (D.D.C. 2000). Therefore, unlike the situations in the two Maryland cases, where a decision in the declaratory action that the insured's conduct came within the coverage of the policy might be binding on the insured in the personal injury action, and therefore determinative of the issue of liability in that suit, the decision in the declaratory judgement action as to permission did not resolve the question of liability between Jorge and Tommy. Jorge, and therefore, the Athridges as his assignee, were therefore in no way prejudiced by the resolution of the permissive use question in the declaratory judgment action.
B. Starr's Alleged Incompetence
The Athridges would protest that Jorge was defenseless because of the alleged incompetence of Irving Starr, who represented Jorge in the Superior Court and this Court and who was paid by Jorge's parents. The Athridges have explicitly accused Starr of malpractice. But, the Athridges have to remember what Starr was facing. I permitted Starr's deposition to be taken and he has testified under oath in this case that Jorge always told him that he took the car on impulse and that he never had any reason to believe that he had permission from his aunt and uncle to do so. Starr, confronted with such statements by his client and an exclusion from coverage for anyone driving the car without a reasonable belief that the driver had any authority to do so, literally had not a single argument to make against Aetna's demand for declaratory judgment.
In any event, Starr's supposed incompetence can hardly be attributed to Aetna. The Athridges would have to argue that Aetna, seeing minimal resistance from Starr, had the obligation to pay a lawyer to represent Jorge to ensure that there would be adequate resistance to its motion for summary judgment. But, there is no court on earth, let alone, in the District of Columbia, which has ever indicated that it is appropriate, let alone necessary, that an insurance company, as a party in litigation, displace the attorney representing the other party when that other party has retained him.
Finally, if one supposes that Aetna could have hired a more aggressive lawyer, what would he have argued? Like Starr, he would have been confronted with a client who admitted he took the car on impulse and no lawyer, no matter how gifted, can turn a sow's ear into a silk purse. The Athridges would counter that a more competent lawyer would have advanced its interpretation of the exclusion, i.e., that it covers family members whether or not they have reasonable cause to believe that they have authority to drive the car. But, they have to admit that no court in the District of Columbia has ever construed this provision in this matter and there is authority to the precise contrary matching the authorities they cite. Hence, there is no reason to conclude that Judge Wolf, who ruled in Aetna's favor, would have reached a contrary conclusion had this divergent authority been brought to his attention. The theoretical possibility that Judge Wolf might have reached this conclusion is all that supports the Athridges's position, even if one could figure how Aetna was supposed to replace Starr with another lawyer.
C. Starr's Alleged Conflict of Interest
The Athridges also claim that Starr's representation of Jorge while his parents, the Iglesias's, were paying his bills created a conflict between Starr's loyalty to Jorge and to his parents.
The Rivases have always had counsel, paid by their insurer, GEICO, to defend their interests in the suit the Athridges brought against the Rivases.
But, Jorge, impecunious then and now, had no interest whatsoever in establishing coverage under his parents' insurance policy with Aetna. Mr. Starr was defending him, and, whether the judgment was a dollar or several million, no one was ever going to be able to collect it from Jorge. Jorge would therefore have no interest whatsoever in establishing that Aetna was obliged to defend or indemnify him by proving that, contrary to what he told everyone one who asked him, he did have a reasonable belief that he had authority to drive the Rivases's car. His parents also had no interest in establishing coverage under the Aetna policy by having a court establish that Jorge in fact had permission to drive the Rivases's car. To the contrary, they had an interest in a court concluding that there was no coverage under the Aetna policy because Jorge could not have had a reasonable belief that he had permission to use the Rivases's car. If, as they have also always contended, their son had no permission to drive the Rivases's car, and used it without any authority when he took it for a joy ride, there would be no legal theory upon which Tommy could predicate a cause of action against Jorge's parents. Thus, Jorge was, at best, indifferent to coverage while his parents had an interest in making sure that no court held that Jorge had a reasonable belief Jorge had permission to drive the Rivases's car. Starr's representation of Jorge while his parents were paying Starr's bill was therefore proper.
Nor is the result any different because the Athridges had an interest in establishing coverage and are now Jorge's assignees. Starr's representation of Jorge and his parents does not retroactively become improper merely because the Athridges are Jorge's assignees and have an interest in coverage which Jorge never had.
Once again roaming all over the country for case support for their position, the Athridges cite Allstate Ins. Co. v, Fisher, 107 Cal.Rptr. 251 (Cal.Ct.App. 1973) for the proposition that a liability insurer may be required to appoint counsel for the insured in a declaratory action where there is a conflict of interest, or else any judgment against the insured in the declaratory action is void. The Athridges misread Fisher. The court in Fisher held that the insurer was obligated to provide the driver of the vehicle with separate counsel in the underlying tort suit because the driver's interest conflicted with the interests of the owner of the vehicle, the primary insured. But, Fisher does not stand for the proposition that an insurance company is required to appoint independent counsel for the insurer in a declaratory action or else the action is void. Rather, the court in Fisher held that the insurer's refusal to provide representation in the declaratory action compounded an action that was already improper, the bringing of a action for a declaratory judgment. The court set aside the declaratory judgment, obtained by default, because the issue to be determined in the declaratory action was the same as the underlying tort suit. As I have already indicated, an insurance company's use of a declaratory judgment action which has the effect of precluding the insured's defense in the lawsuit brought against the insured by the victim is inappropriate. While that was the situation in Fisher, it is not the situation here.
The Athridges also rely on Village Management, Inc. v. Hartford Accident Indem. Co, 662 F. Supp. 1366, 1372-1373 (N.D.Ill. 1987) (Illinois law) for the broad proposition that an insurer in a conflict of interest situation may be required to appoint an independent counsel for its insured. Pl. Memo at 22. They insist therefore that Aetna should have appointed independent counsel for Jorge in the lawsuit Tommy and his family brought against him, 89 cv 1222, which resulted in the judgment against Jorge which Tommy has never been able to collect. Assuming that Aetna could have displaced Starr, who had been retained to represent Jorge, the teaching of cases like Village Management does not apply here.
Village Management involves a situation where the insured's conduct was potentially excluded from coverage because it might have involved an intentional act. The insurance company in the underlying tort action therefore has an interest in establishing intent, while the insured has an interest in asserting negligent conduct, which is covered by the policy. Id. at 1373. Because there is a direct conflict between the insurer's and the insured's interest in such a situation, the court held that the insured has right to be represented by independent counsel.
Plaintiffs rely on Thorton v. Paul, 74 Ill.2d 132, 23 Ill. Dec. 541 (1979), aff'd in part and rev'd in part, 384 N.E.2d 335 (Ill. 1979) cited in Village Management, which is to the same effect.
The conflict of interest situation described in Village Management is easily distinguishable from the present case. Aetna was not obliged to appoint independent counsel for Jorge in the lawsuit brought against Jorge by Tommy and his parents. Jorge had no interest in coverage since he was judgment proof. Further, the insurer had no interest in whether or not Jorge was found liable to the Athridges. It already had secured a declaratory judgment denying coverage. Thus, neither Jorge nor Aetna had any interest, let alone conflicting ones, in the resolution of the Athridges' suit against Jorge. Unlike the situation in Village Management, Aetna's interest (if it had one) did not align with the victim (Tommy and his parents) against Jorge, the insured.
Finally, I do not see how the declaratory judgement action in Superior Court action could have possibly prejudiced Jorge in the case against him in this Court. As I have pointed out in a previous opinion in this case, it is the law of this Circuit that a declaratory judgment cannot have a claim preclusive effect. Instead, it merely bars the parties to the declaratory judgment from re-litigating the issue determined in the declaratory judgment action. Athridge v. Iglesias, No. Civ. A. 89-1222, 2000 WL 1780273, at *2 (D.D.C. Nov. 14, 2000). Since the issue determined in the Superior Court was coverage and the issue determined in this Court was liability, the Superior Court judgment had no effect whatsoever on the defense Jorge presented in this Court.
Because I find that Aetna did not breach the contractual duties to Jorge by seeking the declaratory judgment or failing to appoint independent counsel, the Athridges cannot establish that Aetna breached any contractual obligation they had to Jorge, their assignor.
V. Aetna's Alleged Tortious Conduct
By its nature, tortious behavior speaks of a party's undertaking a task and performing it negligently. Discovery in this case has revealed that Aetna paid a lawyer for services he rendered to Jorge at the trial before Judge Greene. The Athridges, as Jorge's assignees, might be able to press any claim Jorge had against Aetna for any alleged malpractice of the lawyer Aetna paid.
A. Aetna's Paying Pearson to Represent Jorge
Starr has testified that, a few days before the trial before the late Judge Greene, he ran into a lawyer named Paul Pearson on "motion day" in an Arlington court. Pearson had been retained by Aetna to represent Jorge's parents in 89cv1222. The Athridges had sued Jorge's parents for their negligent supervision of their son and Pearson ultimately secured the dismissal of that action by Judge Jackson.When Starr told Pearson of the upcoming trial and his concern that he would be confronting a substantial and well financed opponent, represented by a large and prominent law firm, Pearson volunteered to help Starr on what Starr thought was a pro bono basis. Discovery in this case revealed, however, that Pearson convinced Aetna that paying him was in its interest and Aetna ultimately paid Pearson for the services he provided Jorge by helping Starr at the trial before the late Judge Greene. Lest its doing so be deemed a waiver of Aetna's insistence that it had no responsibility to defend or indemnify Jorge, Aetna had Jorge sign a document in which he acknowledged that Pearson's assistance to Jorge at trial was not a waiver of Aetna's position that it had no responsibility to Jorge.
Judge Jackson's dismissal of the case against Jorge's parents was affirmed. Athridge v. Iglesias, 141 F.3d at 357.
From these facts, the Athridges claim that Aetna should now pay to them, as Jorge's assignee, the judgment rendered although it is many times the policy amount.
B. Aetna's Alleged Breach of the Duty of Due Care
As I have just indicated, the first premise of a tort claim by the Athridges is Pearson's malpractice.
The Athridges, once Pearson's opponent, insist that he and Starr were unprepared for the trial before Judge Greene and should have hired expert witnesses to meet their case. The Athridges called, for example, an accident reconstruction specialist to establish liability and economic specialists to establish damages and insist that Pearson and Starr should have called opposing witnesses. They also accuse Pearson (and Aetna) of abandoning Jorge because Aetna decided not to pay Pearson to work on the appeal.
I have given the Athridges every opportunity to establish as best they can why Pearson's and Starr's failures can be deemed a breach of any responsibility it had to Jorge. I have, for example, requested supplemental briefing on the breach question and during oral argument pressed the Athridges to identity the deficiencies in Pearson's performance and how they prejudiced Jorge. I am afraid that the response is more significant in what it lacks then in what it contains.
In order to make out a prima facie case of legal malpractice, the plaintiff must present expert testimony establishing the standard of care by which the defendant-attorney's conduct can be measured. The requirement to produce an expert is excused only where the attorney's lack of care and skill is so obvious that the trier of fact can find negligence as a matter of common knowledge. Mills v. Cooter, 647 A.2d 1118, 1123 (D.C. 1994); Hamilton v. Needham, 519 A.2d 172, 174 (D.C. 1986);O'Neil v. Bergan, 452 A.2d 337, 341(D.C. 1982). "As with any tort action, legal malpractice liability is predicated on a finding that the injury was proximately caused by the breach of duty." Dalo v. Kivitz, 596 A.2d 35, 41 (D.C. 1991).
The Athridges do not provide any declaration by any attorney who, having reviewed Pearson's work during the trial, opines that it was beneath the standard of care. They make no showing whatsoever that there were any arguments available on appeal that would have prevented the Court of Appeals's summary affirmance of Judge Greene's decision. There are no declarations from any experts whatsoever stating that they are of the view that, for example, Judge Greene's conclusion that Jorge had the least clear chance to avoid hitting Tommy is contradicted by the physical and scientific evidence of the accident or that, as a matter of economics, the damage award is clearly excessive and could have been prevented by more able lawyering. Finally, there is not even an attempt to establish that Pearson's supposed derelictions were the proximate cause of Judge Greene's "erroneous" decision. Note also how awkwardly the Athridges have had to argue that the decision by Judge Greene for which they fought so hard and which they defended so successfully on appeal was actually the product of opposing counsel's malpractice. No one ever accused the late Judge Greene of not having an independent mind. His opinion makes clear that the determination in this case that Jorge had the last clear chance not to hit Tommy was the product of his own mathematical analysis of the physical evidence. The notion that Judge Greene was mislead by a lawyer's incompetence to find in Tommy's favor borders on the fatuous. Therefore, the Athridges's claim of Aetna's breach of a duty of due care is unavailing.
C. Aetna's "Bad Faith" and Strict Liability
There is still another arrow in the Athridges's quiver. They insist that they do not have to establish any malpractice because courts, in other states, have entered judgment against insurance companies when their insured has been liable in excess of the policy limits upon a showing of that they refused to defend their insured or settle his case in "bad faith."
This assertion sends us back to where we started, i.e., the District of Columbia courts have yet to hold that the tort of bad faith conduct by an insurance company exists, let alone that it justifies an award of damages that is several times the policy limit. To create one for the purposes of this case is to engage in judicial legislating at its worst. Indeed, recently, the Maryland Court of Appeals held that such a tort does not exist. Mesmer v. Maryland Auto. Ins. Fund, 725 A.2d 1053 (Md. 1999). This thoughtful decision analyzes the complicated legal questions that have to be resolved before such a tort is created. There are, of course, equally significant policy considerations which are always present when one deals with risk allocation between insurance companies and their insureds. For a federal court to create the tort the Athridges want is surely to run where angels fear to tread.
In any event, even if I were to do what I should not do, import from an amalgamation of case authority from other jurisdictions their principles as to the tort of bad faith by an insurance company, the Athridges would still not prevail.
As I explained earlier, an insured has several expectations when she purchases an insurance contract, that the insurance company will defend her and indemnify her if she is held liable. A related expectation is that the insurance company may be able to have the victim accept an amount within the policy limits and in consideration dismiss its case against the insured.
If the insured is subject to a liability greater than the policy limits and the insurance company in fact provides a defense, the only possible theory on which the insured could recover is that the insurance company lawyers who represented him did so negligently. As I have just pointed out, however, the Athridges cannot possibly establish that Pearson's representation of Jorge at trial was negligent and the proximate cause of the judgment rendered. Thus, assuming that what Pearson did constitutes providing Jorge with a defense under the Aetna policy, its doing so cannot be the premise of liability in negligence for the judgment Judge Greene rendered.
If, on the other hand, one views Aetna's action from the declaratory judgment as a refusal to provide a defense, the cases uniformly require a showing that the refusal to defend the client and to either settle or litigate the case on his behalf was tortious, i.e., a legal wrong because it was in "bad faith." E.g., Liberty Mutual Fire Ins. Co. v. Canal Ins. Co., 177 F.3d 326, 335 (5th Cir. 1999); Green v. J.C. Penny Auto Ins. Co., Inc, 806 F.2d 759, 761-762 (7th Cir. 1986); Field v. Transcontinental Ins. Co., 219 B.R. 115, 122-123 (E.D. Va. 1998).
There can, of course, be no other rule. Can it be seriously suggested that an insurance company is liable for a judgment several times the policy limits because it refused to settle with the victim when the victim's settlement demands were unreasonable to the point of being outrageous or when its determination that there is no coverage is premised, let us say, upon an evaluation by independent counsel which is nevertheless found to be mistaken by a court? If liability is imposed in these circumstances, a court has not merely created a tort of bad faith. It is imposing strict liability for an insurance company's not defending and not settling a case, no matter how reasonable its position, and then awarding damages in excess of policy limits, to boot.
In any event, Aetna did not refuse to defend Jorge in "bad faith". It went to court to establish that it was not obliged to defend Jorge and Jorge had counsel of his own choosing to defend his interests in that action. A court then ruled in Aetna's favor and the Athridges would have to admit that, although they disagree with them, many courts have concluded, as Judge Wolf did, there was no coverage under the Aetna policy if a family member did not have a reasonable belief that he had permission to drive the car. No court has ever ruled that an insurance company which secures a declaratory judgment that there is no coverage in an action in which its insured has his own counsel acts in bad faith, when consonant with that declaration, it refuses to defend its insured.
As to Aetna's obligation to settle, I have never seen a hint, let alone a declaration under oath, that the Athridges would have accepted the policy limits in exchange for releasing Jorge from all liability. I do not understand how Aetna can possibly be held strictly liable for not settling a case when no one ever made an offer to settle and no one pretends that the Athridges would have settled for the policy limits.
VI. Conclusion
There is no principled basis for the imposition of liability upon Aetna for its securing a declaratory judgment or for the actions of Pearson at trial. Count 2 of the complaint must therefore be dismissed.
There remain three other counts. If, as seems likely, Aetna intends to move for summary judgment upon them, relying in part on this decision, I wish to provide the following guidance by defining the issues which remain as I see them. I do so in the hopes of conserving the resources that the parties will expend, given that litigation concerning the accident is entering its second decade.
As to Count One, can Aetna be required by District of Columbia law to indemnify the Athridges as Jorge's assignee, up to the policy limits if, as appears to be true, Jorge himself has never paid any portion of the judgment and will never pay any portion of it?
As to Count Three, can Aetna be held responsible under District of Columbia law for intentional infliction of emotional distress or abuse of process in light of my decision that Aetna violated no duty it owed Jorge in the manner in which it secured a declaratory judgment that there was no coverage?
As to Count Four, can the Athridges, as Jorge's assignee, press a claim cognizable under the D.C. Consumer Protection Procedures Act and District of Columbia law if Jorge did not buy the Aetna policy?
I have emphasized by repetition that these issues must be resolved in accordance with District of Columbia law. Throughout this opinion, I have expressed my dismay that the Athridges all but ignore that in this diversity case I am bound to apply the law of the District of Columbia. As a wag has pointed out, if one looks hard enough, one can find a judge in this country who will say anything. Citations to the law of other jurisdictions is useless if there is District of Columbia law on point. Even if there is not, I expect a cogent argument why, in light of existing precedents, it is likely that the District of Columbia Court of Appeals would adopt the rule being pressed upon me.
The Athridges have moved for summary judgment as to Counts Two and Four and I have postponed Aetna's obligation to answer that motion until now. In light of my decision, I see no reason to have Aetna oppose that motion as to Count Two and I will deny the Athridges' motion as to Count 2 without further briefing. If Aetna wishes to file a motion for summary judgment as to the remaining counts, it shall do so within 30 days of this memorandum. The Athridges may file an opposition 30 days thereafter. Aetna may file a reply 15 days thereafter.
An Order will accompany this Memorandum Opinion.