Petition for Writ of Certiorari — Awrey v. Progressive Casualty Insurance

Supreme Court, U.S,

FILED

85-402-

AUG 30 198S

No. | JOSEPH A SPANIOL, me.

jn The

Supreme Court of the United States

ee

@ctober Term, 1985

a

NORMAN EUGENE AWREY,

Petitioner,

oys-

PROGRESSIVE CASUALTY

INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

—- AND APPENDIX -

LOPATIN, MILLER, FREEDMAN, BLUESTONE,

ERLICH, ROSEN & BARTNICK

By: RICHARD E. SHAW (P33521)

Counsel of Record

511 E. Larned

Detroit, Michigan 48226

(313) 961-1800

Attorneys for Petitioner

Interstate Brief & Record Co., Suite 731, David Whitney Building, Detroit, MI 48226

(313) 962-8745

i

QUESTION PRESENTED FOR REVIEW

DID THE UNITED STATES COURT OF APPEALS FOR THE

SIXTH CIRCUIT COMMIT SUCH MANIFEST ERROR THAT

ITS DECISION SHOULD BE REVERSED, WHERE IT EXPLI-

CITLY RELIED ON A CASE FROM THE MICHIGAN COURT

OF APPEALS WHICH HAD NO PRECEDENTIAL VALUE,

BECAUSE:

(A) THE MICHIGAN SUPREME COURT HAD

(B)

(C)

GRANTED LEAVE TO APPEAL THAT CASE;

UNDER MICHIGAN LAW, ONCE LEAVE IS

GRANTED, THE MICHIGAN COURT OF

APPEALS’ OPINION IS WITHOUT PRECEDEN-

TIAL AUTHORITY UNTIL THE MICHIGAN

SUPREME COURT AFFIRMS OR OTHERWISE

APPROVES THE LOWER COURT DECISION;

AND

THE STIPULATED DISMISSAL OF THE

APPEAL PRECLUDED THE AFFIRMANCE

OR ANY ALTERNATIVE APPROVAL OF THE

LOWER COURT OPINION ?

li

LIST OF PARTIES

All parties to this cause of action are named in the

caption. The parties are represented as follows:

1. NORMAN EUGENE AWREY.

Lawfirm: Lopatin, Miller, Freedman, Bluestone,

Erlich, Rosen & Bartnick.

By: Richard E. Shaw (P33521).

2. PROGRESSIVE CASUALTY INSURANCE COMPANY.

Lawfirm: Plunkett, Cooney, Rutt, Watters,

Stanczyk & Pedersen, P.C.

By: D.J. Watters (P22042)

& John P. Jacobs (P 15400).

ili

TABLE OF CONTENTS

Question Presented for Review ..............

dg EL ee AA a meat ne I Pie PRS

a ne hoi W 5 6 4 ca 8 ee oa

eS

Constitutional Provisions, Treaties, Statutes,

Ordinances, and Regulations .............

re

ee

EE A tee er et a eee Foe

Appendix:

JUDGMENT

— US Court of Appeals, Sixth Circuit .......

ORDER Denying Petition for Rehearing

— US Court of Appeals, Sixth Circuit .......

OPINION — US Court of Appeals, Sixth Circuit;

ee a ee re eer

ORDER Denying Defendant’s Motion for Judgment

Notwithstanding the Verdict or for New Trial

— US District Court, ED MichSD .........

OPINION (re: Defendant’s Motion for Judgment

Notwithstanding the Verdict or for New Trial)

— US District Court, ED Mich SD .........

ORDER OF JUDGMENT

— US District Court, ED MichSD .........

A-14

A-15

iv

TABLE OF AUTHORITIES

Page

Cases:

Commercial Union Insurance Co. v. Liberty Mutual

Insurance Co., 137 Mich. App. 381, 357 N.W.2d

DT AS eeis Careers ane ek es 4,6,7

Eric R. Co. v. Tompkins, 304 U.S. 64 (1938) ..... 5,6

Gusler v. Fairview Tubular Products, 412 Mich. 270,

cB Re Ff: | ere 9

Medley v. Canady, 126 Mich. App. 739, 337

N.W.2d 909 (1983), lv granted 419 Mich. 870

Oo Brae ee er rr ee ee 3, 4, 5, 7-10

People v. George, 399 Mich. 638, 250 N.W.2d 491

RPA ere ear er ae ara eee a er eer 7, 8

People v. Phillips, 416 Mich. 63, 330 N.W.2d 366

2 ar ee ee ee ee ee er 8,9

Riley v. Northland Geriatric Center, 140 Mich. App.

7é, Soa N.W.2d G94 (4965) ............. 9, 10

Statutes:

ee I 5 dk os Wied 2 bao eS we be 2

M.C.L. 500.2006(4), M.S.A. 24.12006(4) ..... 3,4,7

No.

In The

Supreme Court of the Gnited States

pe

@ctober Term, 1985

pee

NORMAN EUGENE AWREY,

Petitioner,

- vs -

PROGRESSIVE CASUALTY

INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

REPORTS BELOW

1. Awrey v. Progressive Casualty Co, 728 F.2d 352 (CA 6,

1984) (Appendix, A-2).

2. Opinion (of the trial court re: Defendant’s Motion for

Judgment Notwithstanding the Verdict or for New

Trial) (Appendix, A-15).

GROUNDS FOR JURISDICTION

The United States Court of Appeals for the Sixth Cir-

cuit decided and filed its Opinion on February 28, 1984.

A Motion for Rehearing and/or Certification to the

Michigan Supreme Court was filed on March 20, 1984. A

Motion to File Instanter was also filed on March 20, 1984.

2

The U.S. Court of Appeals granted the Motion to File

Instanter on February 7, 1985.

On June 3, 1985, the Motion for Rehearing and/or Cer-

tification to the Michigan Supreme Court was denied.

The mandate was issued on June 11, 1985. An order

denying motion to recall mandate was entered on June

26, 1985.

Petitioner invokes this Court's jurisdiction pursuant to

28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS, TREATIES,

STATUTES, ORDINANCES, AND REGULATIONS

No constitutional provisions, treaties, statutes, ordi-

nances or regulations are applicable to this petition.

STATEMENT OF THE CASE

Petitioner, Mr. Norman Eugene Awrey, was involved

in an automobile accident. Thereafter, he was named as

a defendant in an automobile negligence action. Mr.

Awrey was insured by respondent, Progressive Casualty

Insurance Company, with policy limits of $20,000.

There was no settlement of the aforementioned auto-

mobile negligence action. The jury returned a verdict

against Mr. Awrey for $175,000.

This appeal concerns Mr. Awrey’s action against Prog-

ressive Casualty, based upon Mr. Awrey’s contention

that Progressive Casualty acted in “bad faith” in failing

to settle the underlying case in a timely manner for

policy limits.

Mr. Awrey filed a complaint in the Circuit Court for

Wayne County, State of Michigan. Progressive Casualty

een, Spm eer or

3

filed a petition for removal in the United States District

Court, Eastern District of Michigan, Southern Division,

on the basis of diversity jurisdiction, pursuant to 28

U.S.C. § 1332.

Upon trial, a jury returned a verdict in favor of Mr.

Awrey, and a judgment to that effect was entered on

March 23, 1982. Progressive Casualty filed and the trial

court denied a Motion for Judgment Notwithstanding

the Verdict or for New Trial. An order to that effect was

entered on April 21, 1982.

A Notice of Appeal was filed on May 17, 1982.

Progressive Casualty filed its Brief on Appeal on

approximately February 21, 1983. It contended, iter alia,

that the trial court’s judgment should be reversed on the

basis that Progressive Casualty’s conduct did not consti-

tute “bad faith”.

On July 6, 1983, the Michigan Court of Appeals re-

leased Medley v. Canady, 126 Mich App 739, 337 N.W.2d

909 (1983), lv granted 419 Mich 870 (1984).

On July 22, 1983, an Application for Leave to Appeal

was filed in Medley v. Canady, supra, with the Michigan

Supreme Court.

On approximately October 25, 1983, Progressive Casu-

alty called Medley v. Canady, supra, to the U.S. Court of

Appeals’ attention.

On February 28, 1984, the U.S. Court of Appeals

decided and filed its Opinion in this case, relying on

Medley v. Canady, supra. The Court held that Michigan

law requires that “bad faith” be defined as “a dishonest

purpose or moral obliquity.” Opinion at A-8. The Court

noted that Medley involved the definition of bad faith in

the context of Michigan’s Uniform Trade Practices Act,

M.C.L. 500.2006(4); M.S.A. 24.12006(4). The Court con-

4

cluded that “bad faith” bearg_the same definition,

whether in the statutory context or in a common law

“failure to settle” context. Footnote 2, Opinion at A-8.

On March 20, 1984, Mr. Awrey filed a Motion for

Rehearing and/or Certification to the Michigan Supreme

Court, together with a Motion to File Instanter. The

Motion to File Instanter was granted. On May 17, 1984,

the Michigan Supreme Court granted leave to appeal

Medley, supra. The U.S. Court of Appeals was so

informed.

On September 10, 1984, the Michigan Court of Appeais

released Commercial Union Insurance Co. v. Liberty Mutual

Insurance Co., 137 Mich App 381, 357 N.W.2d 861 (1984).

The Michigan Court of Appeals explicitly restricted Med-

ley, supra, to its facts, holding that Medley’s definition of

bad faith applies only in the context of M.C.L. 500.

2006(4); M.S.A. 24.12006(4). This case was made known

to the U.S. Court of Appeals.

The appeal in Medley, supra, was dismissed, by stipu-

lation of the parties, on December 18, 1984, that case

having been settled. The U.S. Court of Appeals was so

informed.

The U.S. Court of Appeals denied the motion for

reconsideration on June 3, 1985.

Mr. Awrey’s case has been resolved on the basis of

Medley, supra. However, at the time the U.S. Court of

Appeals wrote its opinion, Medley was of no preceden-

tial weight in Michigan. At the time the U.S. Court of

Appeals issued its order denying a rehearing, Medley

continued to have no precedential authority and had

been so limited as to have no applicability to this case.

Petitioner submits that the U.S. Court of Appeals’ error

is manifest, and that its opinion should be reversed.

en

5

REASONS FOR GRANTING WRIT

The U.S. Court of Appeals is, of course, mandated to

follow state law in a diversity action. Erie R. Co. v.

Tompkins, 304 U.S. 64 (1938). In this action, the Court of

Appeals entirely neglected fundamental Michigan law,

regarding the nature of precedential authority. Thus, the

Court of Appeals’ opinion, which purportedly reflects

Michigan law, demonstrates an unconscionable failure

to follow that most fundamenial rule of law regarding

diversity cases, that the state law must govern. Erie,

supra. Petitioner submits that this petition presents an

issue of the utmost significance. The lower federal courts

must be alerted to the necessity of strictly iollowing state

law regarding the precedential value of published cases.

Without such an exhortation, there is the very real

danger of lower federal courts paying lip service to the

principles of Erie, while failing to follow state law, based

on a failure to carefully inquire into the sources of prece-

dential authority in the relevant local jurisdiction. This

petition presents a dramatic example of a lower court's

failure to scrutinize Michigan’s law regarding preceden-

tial authority. The lower court decision distorts Michigan

law. Reversing that decision will accomplish the goal of

alerting the federal bar of the requirement that it care-

fully adhere to local law regarding precedential author-

ity.

In reversing the trial court, the Court of Appeals

explicitly determined that the trial court committed no

error. The Court of Appeals relied on the newly-released

Michigan Court of Appeals’ decision, Medley v. Canady,

126 Mich. App. 739, 337 N.W.2d 909 (1983), lv granted

419 Mich. 870 (1984). The Court of Appeals stated,

Opinion at A-7, A-8:

“In reversing the District Court, we do not

hold that the trial judge committed error in

6

denying Progressive a judgment notwithstanding

the verdict. After the District Court’s decision

was entered, the Michigan Court of Appeals

decided the case of Medley v. Canady, 126 Mich.

App. 739, 337 N.W.2d 909 (1983), clarifying what

is required to prove an insurer’s bad faith. We

must apply Michigan law in this diversity action,

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); more-

over, we must apply the law of Michigan as it

now stands, rather than as it stood at the time

this case was decided in the District Court. Van-

denbark v. Owens-Illinois Glass Co., 311 U.S. 538

(1941). We believe that under Medley Progressive

cannot on the evidence presented be held liable

for bad faith in its failure to settle.

+ + +

Medley goes beyond previous cases in _ its

requirements to establish an insurer’s bad faith.

+ £ *

The Michigan Court of Appeals reversed the

trial court’s judgment of bad faith. The court heid

that ‘bad faith’ under M.C.L.A. § 500.2006(4) is

‘not simply negligence or bad judgment but

rather the conscious doing of a wrong because of

4, on

dishonest purpose or moral obliquity’.

Accordingly, the Court of Appeals reversed the trial

court’s judgment on the basis that Mr. Awrey was re-

quired to and did not demonstrate dishonest purpose or

moral obliquity in his case against Progressive Casualty.

Intriguingly, the Court of Appeals anticipated an

objection to its opinion, which was manifested in Com-

mercial Union Insurance Co. v. Liberty Mutual Insurance

Co., 137 Mich. App. 381, 357 N.W.2d 861 (1984). The

7

Court of Appeals noted, Opinion at A-8, fn2, that

Medley was decided in the context of M.C.L. 500.2006(4);

M.S.A. 24.12006(4), but the Court was persuaded that

the specific context was immaterial. However, in Com-

mercial Union, supra, 137 Mich. App. at 391, the

Michigan Court of Appeals explicitly limited the holding

in Medley to cases arising under M.C.L. 500.2006(4);

M.S.A. 24.12006(4). Thus, the Court of Appeals clearly

erred in applying Medley to this case. However, there is

a far more fundamental flaw in the Court of Appeals’

decision.

The most fundamental flaw in the Court of Appeals’

decision is that the Court relied on a case without pre-

cedential weight. At the time the Court released its

opinion relying on Medley, an application for leave to

appeal had been filed with the Michigan Supreme Court.

Thus, Medley had no precedential weight. In People v.

George, 399 Mich. 638, 250 N.W.2d 491 (1977), the

Michigan Supreme Court explained that a Michigan

Court of Appeals decision is not a final adjudication, if

a party files a timely application with the Michigan

Supreme Court. The Court noted, 399 Mich at 639-640:

“The application to this Court was timely, having

been filed within 20 days of the issuance of the

Court of Appeals opinion. See GCR 1963, 853.2(1).

That application to this Court has been neither

denied nor granted and therefore remains pending

before this Court.

+ + +

The clerk of the Court of Appeals was also

obliged to send notice to counsel for each party of

entry of that order of the Court of Appeals. GCR

1963, 853.2(1). That judgment order has not been

issued because a timely application for leave to

8

appeal from the judgment order of the Court of

Appeals was filed with this Court by the plaintiff-

appellant and has not yet been resolved by this

Court.

+ + *

If this Court denies the pending application for

leave to appeal, the Court of Appeals judgment

then becomes the final adjudication of this case

and may be enforced in accordance with its

terms, under GCR 1963, 853.2(2). To restate, if

this Court denies leave to appeal, jurisdiction will

then be revested in the circuit court by issuance of

the Court of Appeals judgment order under GCR

1963, 812.11. If, on the other hand, this Court

grants the pending application for leave to appeal,

‘all jurisdiction over the cause shall thereafter be

vested in the Supreme Court’, GCR 1963, 853.

2(2). If this Court grants leave to appeal, jurisdic-

tion of this case will be revested in the Court of

Appeals or the circuit court on the issuance of

and in accordance with the terms of any final

order or judgment issued by this Court pursuant

to its decision on the appeal granted.”

Five years later, the Michigan Supreme Court con-

firmed the vitality of its earlier decision. People v. Phil-

lips, 416 Mich. 63, 330 N.W.2d 366 (1982). The Court

noted, 416 Mich. at 74-75:

“It is only after application for leave to appeal

to this Court is denied, or dispositive action is

taken effectively approving the Court of Appeals

decision, that it becomes a ‘final adjudication’ of

that Court.”

Based upon the preceding, it is clear that the Michigan

Court of Appeals’ decision in Medley had no precedential

9

weight, inasmuch as an application for leave to appeal

had been timely filed. Moreover, the Medley decision

never became a valid precedent. After the Michigan

Supreme Court granted leave, the Court of Appeals’

decision was not a final adjudication unless the Michigan

Supreme Court took some “dispositive action * * * effec-

tively approving the Court of Appeals decision * * *.”

People v. Phillips, supra, 416 Mich. at 74-75. The Michigan

Supreme Court never affirmed the Michigan Court of

Appeals; it did not take any other dispositive action to

effectively approve the Court of Appeals’ decision.

Accordingly, the Michigan Court of Appeals’ decision

was and is entirely without precedential authority.

In a slightly different context, Riley v. Northland

Geriatric Center, 140 Mich. App. 72, 362 N.W.2d 894

(1985), establishes that a stipulated dismissal — as in

this case — does not reinstate a previous opinion. In

Riley, the Michigan Court of Appeals was required to

determine whether the Michigan Supreme Court deci-

sion, Gusler v. Fairview Tubular Products, 412 Mich. 270,

315 N.W.2d 388 (1981), was a precedential ruling. After

the Michigan Supreme Court had released Gusler, the

Michigan Supreme Court granted a motion for rehear-

ing. Prior to the rehearing, however, the parties stipu-

lated to a dismissal of the appeal. The Michigan Court

of Appeals, in Riley, held that Gusler had no precedential

value. The Court explained, Riley, supra, 140 Mich. App.

at 76-77:

“In other words, if a motion for rehearing is

timely filed, the order or judgment previously

entered by the clerk does not ‘issue’ or become

effective until after the motion is decided one

way or the other. Here, as a motion for rehearing

was filed within 20 days of the filing or ‘entry’ of

the Supreme Court’s Gusler opinion, GCR 1963,

10

864.4(a), and as the motion was subsequently

granted, the Gusler opinion was never ‘issued’ in

conformity with the court rules.

The subsequent dismissal of the appeal by the

Court upon stipulation of the parties does not

somehow work to ‘issue’ the Court’s order or

judgment.”

Riley further establishes that the Court of Appeals

erroneously relied on Medley. Leave having been

granted, the lower appellate court’s opinion had no pre-

cedential authority without the imprimatur of the

Michigan Supreme Court. This rule is not obviated by a

stipulated dismissal of the appeal. Rather, the dismissal

of the appeal negates the possibility that the lower

court’s opinion will be authoritative. After the dismissal,

the Michigan Supreme Court will not issue an order affir-

ming or reversing the lower court. The lower court's

opinion cannot issue, because the Michigan Supreme

Court will not have issued an order revesting the

Michigan Court of Appeals with jurisdiction, the case

having been dismissed. This procedure is unequivocal.

Thus, Medley, upon which the Court of Appeals

relied, was no precedent. Since the Court of Appeals

unambiguously stated that the trial court committed no

error, given the state of the law prior to Medley, the

reversal of the trial court is manifest error. That error

transcends the facts of this case. That error reflects a

total failure to carefully scrutinize Michigan’s law on

what constitutes precedential authority. That error can

and should be corrected, thereby giving direction to the

federal bench, that the lower courts must be sensitive to

this issue.

11

RELIEF

Petitioner respectfully requests that this Honorable

Court grant this Petition for Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit.

Respectfully submitted,

LOPATIN, MILLER, FREEDMAN, BLUESTONE,

ERLICH, ROSEN & BARTNICK

By: /s/ RICHARD E. SHAW (P33521)

Counsel of Record

511 E. Larned

Detroit, Michigan 48226

(313) 961-1800

Attorneys for Petitioner

Dated: August 28, 1985

A-1

APPENDIX

JUDGMENT

(United States Court of Appeals for the Sixth Circuit)

(Filed February 28, 1984)

(NORMAN EUGENE AWREY, Plaintiff-Appellee, v. PRO-

GRESSIVE CASUALTY INSURANCE COMPANY, Defendant-

Appellant — No. 82-1363)

Before: KEITH and KENNEDY, Circuit Judges;

and GIBSON, Senior Circuit Judge.

ON APPEAL from the United States District Court for

the Eastern District of Michigan.

THIS CAUSE came on to be heard on the record from

the said District Court and was argued by counsel.

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this court that the judgment

of the said District Court in this case be and the same is

hereby reversed as to the denial of Progressive’s motion

for judgment notwithstanding the verdict and it is

further held that the evidence was insufficient as a

matter of law for the jury to conclude that Progressive

acted in bad faith.

It is further ordered that Defendant-Appellant recover

from Plaintiff-Appellee the costs on appeal, as itemized

below, and that execution therefor issue out of said Dis-

trict Court, if necessary.

ENTERED BY ORDER OF THE COURT

/s/ John P. Hehman, Clerk

Issued as Mandate: June 11, 1985 Costs: None

(Certification Omitted)

A-2

ORDER

(United States Court of Appeals for the Sixth Circuit)

(Filed June 3, 1985)

(NORMAN EUGENE AWREY, Plaintiff-Appellee, v. PRO-

GRESSIVE CASUALTY INSURANCE COMPANY, Defendant-

Appellant — No. 82-1363)

Before: KEITH and KENNEDY, Circuit Judges;

and GIBSON, Senior Circuit Judge.

Upon consideration of the petition for rehearing filed

herein by appellee, the Court concludes that all of the

questions addressed in the petition for rehearing were

fully considered upon the original submission and deci-

sion of this case.

It is therefore ORDERED, that the petition for

rehearing be and it hereby is DENIED.

ENTERED BY ORDER OF THE COURT

/s/ John P. Hehman, Clerk

* Honorable Floyd R. Gibson, United States Court of Appeals for

the Eighth Circuit, sitting by designation.

A-3

OPINION

RECOMMENDED FOR FULL TEXT PUBLICATION

See, Sixth Circuit Rule 24

(United States Court of Appeals for the Sixth Circuit)

(Decided and Filed February 28, 1984)

(NORMAN EUGENE AWREY, Plaintiff-Appellee, v. PRO-

GRESSIVE CASUALTY INSURANCE COMPANY, Defendant-

Appellant — No. 82-1363; ON APPEAL from the United

States District Court for the Eastern District of Michigan,

Southern Division.)

Before: KEITH and KENNEDY, Circuit Judges;

GIBSON, Senior Circuit Judge.*'

KENNEDY, Circuit Judge.

Defendant-Appellant Progressive Casualty Insurance

Company (Progressive) appeals from a verdict in favor

of plaintiff-appellee Norman Awrey (Awrey). Awrey had

alleged that Progressive had acted in bad faith in failing

to offer policy limits to settle a tort action against Awrey

at a time when it could have been settled for that

amount, and consequently had exposed him to liability

in excess of his insurance policy limits. Progressive

denied acting in bad faith. It is argued that its failure to

settle was based on an honest belief that the tort action

was not worth policy limits and that the claim could

have been settled for less than policy limits.

Progressive did offer policy limits plus interest and

costs during trial of that earlier tort action. This offer

was refused by the injured party and a verdict of

$175,000.00 was returned against Awrey. Progressive paid

* Honorable Floyd R. Gibson, Senior Judge, United States Court

of Appeals for the Eighth Circuit, sitting by designation.

\

A-4

the policy limits of $20,000.00, plus interest on that

amount and costs. Awrey has a judgment outstanding

against him for the excess. Awrey has no assets, no

house, no car, no bank account, and no job.

Awrey instituted this suit against Progressive for the

amount of the excess liability in the prior litigation,

alleging bad faith in Progressive’s failure to settle. The

jury returned a verdict for Awrey. On March 23, 1982,

the District Court entered a judgment for Awrey in the

amount of $213,358.24, the amount of the excess liability

with interest. Progressive moved for a directed verdict

and a judgment notwithstanding the verdict, which

were denied.

Progressive makes three arguments on appeal. First,

Progressive argues that the record does not support the

jury’s verdict of bad faith and that judgment notwith-

standing the verdict should have been granted. We

agree, and consequently do not reach Progressive’s other

arguments, which address the measure of damages recov-

erable under Michigan law by an indigent plaintiff in a

“bad faith failure to settle” case, and challenge the Dis-

trict Court judge’s charge to the jury.’ Briefly, the evi-

dence presented to the jury on the question of bad faith

was as follows.

Awrey was insured for automobile liability through

Progressive with policy limits of $20,000.00. On Novem-

ber 2, 1975, he was involved in an automobile accident

with one Roger Huston. Huston sustained injuries to his

hip, knee and ankle. He sued Awrey for damages in the

Ogemaw County, Michigan, Circuit Court in October of

' Awrey argues that Progressive had not preserved these issues

for appeal. Because we hold that there was insufficient evidence of

Progressive’s bad faith we do not decide whether they were pre-

served for review.

A-5

1977. Progressive retained Robert Hetzler, an attorney in

Bay City, Michigan, to represent Awrey. Progressive at

that time advised Awrey, by letter, of his right to hire

his own attorney, and Awrey declined to do so. On

November 4, 1977, Hetzler received a file on the

Huston-Awrey litigation. From this file he learned that

Awrey had consumed a number of Valium pills, that he

had been drinking, and that before the accident he had

said that he was going to “pile his car up.” Hetzler also

received a police report which indicated that Awrey had

crossed the center line before the accident occurred.

Hetzler took Houston’s deposition in August, 1978, and

learned that Huston would attempt to relate a heart con-

dition to the accident. In October, 1978, Hetzler received

Huston’s hospital records and reviewed depositions of

several doctors who had examined Huston. Based on

these documents Hetzler concluded that Huston did not

have sufficient evidence to link the heart condition to

the accident.

Hetzler requested a settlement demand from Huston’s

attorney, Sheldon Miller, on November 1, 1978. Miller

replied on November 10, that he would accept the limits

of Awrey’s policy with Progressive, i.e., $20,000.00, but

that this offer would remain open for only thirty days.

Miller withdrew his offer in a letter to Hetzler dated

December 27, 1978.

In early January, 1979, Hetzler recommended to Prog-

ressive that it offer Huston the policy limits of $20,000.00.

Progressive wrote to the Awreys in January 1979, noti-

fying them that Huston had demanded policy limits, but

that Progressive planned to offer less than policy limits.

Progressive did not disclose to the Awreys that Hetzler

had recommended offering policy limits. The Awreys

testified that they did not receive this letter. Progressive

claims that it did not offer Huston the policy limits

A-6

because a senior partner in Hetzler’s firm and four attor-

neys at Progressive believed the suit was not worth

$20,000.00 because Huston’s heart condition could not

be related to the accident.

Progressive extended settlement authority to Hetzler

for up to $15,000.00. On January 30, 1979, Hetzler made

a settlement offer of $12,000.00 to an attorney at Miller’s

firm. On February 13, 1979, the attorney from Miller's

firm called Hetzler to tell him that the case could still be

settled for the policy limits.

The case was tried in March, 1979. After opening

statements at trial Hetzler offered $20,000.00, the policy

limits, plus interest and costs. Huston’s attorney

responded with a demand for $25,000.00, which

Progressive refused without communicating it to Awrey.

Progressive says that it refused this counteroffer because

it knew that Awrey himself had no assets with which

to pay the difference between the $20,000.00 policy

limits plus interest (approximately $23,000.00) and the

$25,000.00. Awrey on Hetzler’s advice then admitted lia-

bility, as a trial tactic to avoid having the jury hear evi-

dence of Awrey’s consumption of alcohol and Valium

prior to the accident. The only issue for trial was the

amount of Huston’s damages. The jury returned an

award of $175,000.00. A motion for a new trial alleging

that the verdict was excessive was denied. No appeal

was taken.

Awrey then brought this action against Progressive,

alleging Progressive’s bad faith in failing to settle the

Huston litigation. We conclude that the evidence was

insufficient to sustain the jury’s verdict of bad faith and

a judgment notwithstanding the verdict should have

been granted.

A-7

In reversing the District Court, we do not hold that

the trial judge committed error in denying Progressive a

judgment notwithstanding the verdict. After the District

Court’s decision was entered, the Michigan Court of

Appeals decided the case of Medley v. Canady, 126 Mich.

App. 739, 337 N.W.2d 909 (1983), clarifying what is

required to prove an insurer’s bad faith. We must apply

Michigan law in this diversity action, Erie R. Co. v.

Tompkins, 304 U.S. 64 (1938); moreover we must apply

the law of Michigan as it now stands, rather than as it

stood at the time this case was decided in the District

Court. Vandenbark v. Owens-Illinois Glass Co., 311 U.S.

538 (1941). We believe that under Medley Progressive

cannot on the evidence presented be held liable for bad

faith in its failure to settle.

The seminal case in Michigan law on an insurer's lia-

bility for failure to settle is City of Wakefield v. Globe Inde-

mnity Co., 246 Mich. 645, 225 N.W. 643 (1929). The court

in Wakefield held that an insurer is liable to its insured

for a judgment in excess of liability if the insurer acted

in bad faith in failing to settle the case against the

insured. Since Wakefield, courts have had the task of

determining what constitutes “bad faith” on the part of

an insurer. See Valentine v. Liberty Mutual Insurance Co.,

620 F.2d 583 (6th Cir. 1980); Transport Insurance Co. v.

Michigan Mutual Liability Insurance Co., 496 F.2d 265 (6th

Cir. 1974); Jackson v. St. Paul-Mercury Indemnity Co., 339

F.2d 40 (6th Cir. 1964); McCoy v. Zurich Insurance Co.,

509 F. Supp. 1106 (E.D. Mich. 1981), affd, 703 F.2d 564

(6th Cir. 1982); Jones v. National Emblem Insurance Co., 436

F. Supp. 1119 (E.D. Mich. 1977); Perlmutter v. Whitney,

60 Mich. App. 268 (1975).

Medley goes beyond previous cases in its requirements

to establish an insurer's bad faith. Medley involved a suit

by an insured against his insurer for bad faith failure to

A-8

pay an undisputed claim under M.C.L.A. § 500.2006(4).?

The trial judge in Medley had held that the actions of the

insurer “were a classic example of what bad faith refusal

to pay amounts to in its most rudimentary definition.”

337 N.W.2d at 912. The court had cited the following

acts which it believed supported a finding of bad faith:

(1) failure to properly evaluate the seriousness of the

police report; (2) failure to determine the extent of plain-

tiffs injuries; (3) conducting no further investigation

after receiving the complaint; (4) failing to send for hos-

pital records after notice of the claimed injury; (5) not

offering to pay policy limits after receiving plaintiff's

interrogatories; (6) failing to respond to plaintiff's

demand letter; (7) misplacing the files; and (8) failing to

consult with its in-home committee for approval of pay-

ment of plaintiff's demand. Id.

The Michigan Court of Appeals reversed the trial

court’s judgment of bad faith. The court held that “bad

faith” under M.C.L.A. § 500.2006(4) is “not simply negli-

gence or bad judgment but rather the conscious doing

of a wrong because of dishonest purpose or moral

obliquity.” 337 N.W.2d at 913. The court stated:

We fail to find a bad faith refusal to pay on the

part of [the insurer] on these stipulated facts.

They demonstrate that [the insurer] may have

been negligent in failing to promptly respond [to

the demand letter]. However, there is no evi-

dence of conscious doing of wrong to plaintiff as

a result of dishonest purpose or moral obliquity.

Id.

2 We recognize that Medley is not a case of bad faith in failure to

settle, as the instant case is. However, we see no basis for a distinc-

tion between the standard of proof for an insurer's bad faith in the

context of failure to settle, and failure to pay an uncontested claim

under M.C.L.A. § 500.2006(4). The Michigan Court of Appeals

appears to have considered them the same.

A-9

The evidence of the insurer’s bad faith in Medley and

in the instant case is quite similar. In its opinion

denying Progressive’s motion for a directed verdict the

District Court gave the following examples of evidence

which it said could substantiate a verdict of Progres-

sive’s bad faith.

(1) Hetzler had evidence that Awrey had been

drinking and had taken Valium before the accident with

Huston and was on the wrong side of the road when

the accident occurred. Hetzler did not meet with Awrey

before trial to discuss his position that he was not

responsible for the accident. Hetzler knew that Awrey

based this claim solely on his failure to remember the

accident. These facts, said the judge, could lead the jury

to the conclusion that Progressive “ignored completely”

Awrey’s interests in failing to persuade Awrey to admit

liability prior to trial.

(2) Progressive rejected a settlement offer of $25,000.00

at trial, $5,000.00 over limits, because, according to

Progressive, it knew that Awrey had no assets to pay

the approximately $2,000.00 excess over the $20,000.00

policy limits plus interest. Progressive did not inform

Awrey of this offer. Other evidence in the record indi-

cated that Awrey had paid off a prior judgment by

making monthly installments. The judge found that

these facts supported an inference that Progressive “did

not consider plaintiff's position when an offer in excess

of policy limits was made.”

(3) Progressive wrote Awrey two letters describing the

progress of the tort suit and telling him that he had the

right to hire his own attorney. Progressive never

informed Awrey of the specifics of any settlement

A-10

offers, and Hetzler had Progressive communicate

directly with Awrey because Hetzler disagreed with the

course of action that Progressive was taking. Progressive

did not tell Awrey that Hetzler had recommended

settling with Huston for policy limits. The court found

that this evidence supported an inference that Progres-

sive purposely withheld information that Awrey needed

to protect his rights.

The evidence the trial judge described in his example

(1) closely parallels the failure of the insurer in Medley

to evaluate properly the seriousness of the police report,

to determine the extent of the plaintiff's injuries, and to

conduct further investigation after receiving the com-

plaint. Under Medley, these actions alone do not support

a finding of bad faith. Further, Mr. Hetzler explained

that he hoped to make something of Mrs. Awrey’s pre-

vious statement that Huston had his lights on bright.

That he exercised poor judgment in delaying the admis-

sion of liability until after opening statements in view of

the very prejudicial evidence of Awrey’s drinking, etc.

does not rise to bad faith.

In the second example, the trial court concludes that

the evidence supported an inference that Progressive did

not consider Awrey’s position when it did not inform

Awrey of the $25,000.00 offer to which he would have

been required to contribute. Mr. Hetzler testified that he

3 This was a contested issue at trial. A letter of January 29, 1979

appears in the record in which Progressive informed the Awreys of

Huston’s initial settlement demand of policy limits and of plaintiff's

intention to offer less than policy limits. Awrey testified that he

never received this letter. Transcript Vol. II at 497. Huston’s attorney

continued to insist on policy limits for settlement until trial, when he

asked for $5,000.00 above policy limits. Thus, Huston’s attorney

apparently made two settlement offers, one for policy limits, of

which Progressive insists that it informed Awrey, and one for over

policy limits made at trial, covered in the trial judge’s example (2).

A-11

did not convey the offer to Awrey because he knew he

was unempleyed and had no assets. Awrey’s circum-

stances had changed since he had paid off the earlier

judgment. Awrey had previously been employed and

had owned a car. It was uncontested that Awrey had no

job and no assets with which to pay off a judgment at

the time of trial. Moreover, there was no evidence that

Hetzler knew of the earlier claim which was paid in

installments. It may well be that Hetzler ought to have

thought of periodic payments as an alternative method

of making up the shortfall but he did not. His failure to

do so is not bad faith as defined in Medley. We cannot

find anything in the record indicating that Progressive’s

failure to inform Awrey of the $25,000.00 offer was due

to any conscious doing of wrong. Progressive did not

benefit from the failure to make up the difference in

periodic payments. Rather, it incurred additional legal

fees by completing the trial.

In its third example the trial court apparently found

that the failure to communicate the difference of opinion

as to the value of the claim was evidence that Progres-

sive acted in bad faith. We do not understand the trial

court to have found that the failure to follow Hetzler’s

advice could be found by the jury to be bad faith. In

view of Progressive’s explanation that it relied upon its

in-house counsel, as well as Hetzler’s senior partner's

evaluations, there is no basis for such a finding. That

those evaluations were erroneous has been established

by the jury’s verdict against Awrey. That they were

done in a negligent manner may also have been shown,

but negligence is not bad faith.

The District Court’s focus appears to be on the failure

to advise Awrey that there was a difference of opinion

between the attorney handling his case and other agents

of the insurance company. We do not believe an

A-12

insurance company has the obligation to advise an

insured of differences of opinion among its agents or

representatives. As a corporation, it acts through

numerous persons and reaches a collective decision.

Would a law firm be required to advise its client that

one or more of its associates disagree with the advice

the firm has given? We have been cited to no authority

for such an obligation by either insurance company or

law firm and decline to create one.* We do not pass

4 In Wakefield, trial counsel for the City of Wakefield had recom-

mended acceptance of a settlement offer. He had come to the conclu-

sion during the trial that the case was hopeless and tentatively

agreed on a figure. One, Campbell, in the home office of the insur-

ance company, instructed trial counsel to decline the settlement. A

verdict was returned over policy limits. The minority would have

permitted the insurance company’s bad faith to go to the jury when

Campbell gave no reason for refusing the settlement.

Conceding that the record indicates that he could have had

just cause for not approving the compromise, it is mere

speculation, not evidence, to guess his probable reasons

when having had full opportunity to disclose them on the

trial, he failed to do so. Whatever of good faith may be attri-

buted to him by such speculation is more than offset by the

fact that the jury was entitled to draw the inference that, if

his action had been due to unjustifiable reasons, he would

have said so on the stand, and that, failing to state the

reasons, he had no legitimate excuse for his action.

The only evidence of the state of mind of any of

defendants’ agents was that of Mr. Burritt [trial attorney],

whose opinion it was that Mr. Borski would surely recover,

would obtain a large verdict, and that settlement was advisi-

able and the amount reasonable.

246 Mich. 654-55 (1929).

The majority of the court, however, held that a directed verdict for

defendant insurance company was proper. It held that until the

insured submitted proof of bad faith no obligation rested on

Campbell to deny that he acted in bad faith. Campbell had been

required to make a quick decision on whether to accept the settle-

ment. The majority held that in view of possible reasonable bases for

his decision the jury were not entitled to draw the inference that he

did not exercise an honest judgment or act in good faith in refusing

to accept the offer made. Disagreement with trial counsel was not

sufficient to permit the jury to find bad faith.

A-13

upon whether there is a personal obligation on the part

of insured’s counsel which arises out of his dual! role as

attorney for the insured as well as for the insurance

company, to advise his client of his opinion. That was

not a basis of the instant action for bad faith on the part

of Progressive.

With respect to the trial judge’s example (3), we fail

to see how Progressive’s action of advising Awrey of his

right to hire his own attorney supports an inference that

Progressive purposely withheld information that Awrey

needed to protect his rights. Progressive rather exhorted

Awrey to protect his rights. Progressive failed to tell —

Awrey that Hetzler had recommended paying policy

limits. This may have been negligent, it may have been

poor judgment, but we cannot say that under Medley

this supports a finding of bad faith.

Under Medley, it is not enough to show that the

insurer “ignored completely” and “did not consider” the

insured’s position in order to prove bad faith on the part

of the insurer. Medley requires a showing that the

insured engaged in the “conscious doing of wrong

because of dishonest purpose or moral obliquity” for a

finding of bad faith. 337 N.W.2d at 912. We find, com-

paring the evidence in Medley and in this case, that the

evidence presented here — while it may support a claim

of negligence against Progressive — is not sufficient to

show a dishonest purpose or moral obliquity.

Accordingly, we reverse the judgment of the District

Court denying Progressive’s motion for a judgment not-

withstanding the verdict and hold that the evidence was

insufficient as a matter of law for the jury to conclude

that Progressive acted in bad faith.

A-14

ORDER DENYING DEFENDANT'S MOTION FOR

JUDGMENT NOTWITHSTANDING THE

VERDICT OR FOR NEW TRIAL

(United States District Court —

Eastern District of Michigan —

Southern Division)

(Dated April 21, 1982)

(NORMAN EUGENE AWREY, Plaintiff, vs. PROGRESSIVE

CASUALTY INSURANCE COMPANY, a foreign corporation,

Defendant — CIVIL NO. 80-72252)

This matter is before the court on defendant’s motion

for judgment notwithstanding the verdict or for a new

trial. The court has reviewed the motion and brief filed

in support thereof and, in accordance with the Opinion

issued this date,

IT IS ORDERED that Defendant’s Motion for Judgment

Notwithstanding the Verdict or For New Trial be, and

hereby is, DENIED.

/s/ Ralph B. Guy, Jr.

United States District Judge

Dated: April 21, 1982

(Certification Omitted)

A-15

OPINION

(United States District Court —

Eastern District of Michigan —

Southern Division)

(Dated April 21, 1982)

(NORMAN EUGENE AWREY, Plaintiff, vs. PROGRESSIVE

CASUALTY INSURANCE COMPANY, a foreign corporation,

Defendant — CIVIL NO. 80-72252)

Defendant’s motion for a judgment notwithstanding

the verdict or, in the alternative, for a new trial arises

out of a jury verdict in favor of the plaintiff. In his com-

plaint, plaintiff alleged that defendant insurance com-

pany had exposed plaintiff to liability in a prior tort

action, in which case plaintiff was the defendant,

because of defendant's bad faith refusal to settle the tort

action at policy limits. Defendant responded that its

refusal to settle was not made in bad faith but on the

basis of its honest belief that the underlying suit was not

worth policy limits. Following the court’s denial of cross

motions for summary judgment, the parties proceeded

to trial and the case was ultimately submitted to a jury

for resolution. Because the parties agreed that the

amount of damages was equal to the difference between

the verdict in the underlying action and the amount of

the policy limits, only the question of liability was sub-

mitted. After seven days of deliberation, the jury

returned a verdict in favor of plaintiff.

The issue raised by a motion of a judgment n.o.v. is

whether there is sufficient evidence to raise a question

of fact for the jury. O'Neill v. Kiledjian, 511 F.2d 511, 513

(6th Cir. 1975). Because the grant of the motion would

deprive a litigant of the opportunity to have factual

A-16

disputes resolved by a jury, the motion must be cauti-

ously and sparingly granted. Lee v. Joseph E. Seagram &

Sons, Inc., 413 F. Supp. 693 (S.D. N.Y. 1976), affd, 552

F.2d 447 (2nd Cir. 1977). Accordingly, the standard to be

applied in determining the propriety of granting or

denying a judgment n.o.v. is whether the evidence is

such, without weighing the credibility of the witnesses

or considering the weight of the evidence, that reason-

able men could come to but one conclusion. Coffy v.

Multi-County Narcotics Bureau, 600 F.2d 570 (6th Cir.

1979); Morelock v. NCR Corp., 586 F.2d 1096 (6th Cir.

1978). Moreover, the evidence must be viewed in the

light most favorable to the party against whom the

motion is made, drawing from that evidence all reason-

able inferences in his favor. Id.

Applying that standard to the present action, the court

concludes that the question of bad faith was properly

submitted to the jury. To illustrate the basis of its con-

clusion, the court need only review the evidence relied

on by defendant in the present motion. In its motion for

judgment n.o.v., the defendant lists approximately six-

teen acts or documents which it contends conclusively

establish that the defendant did not act in bad faith. For

example, defendant contends that the reason for the trial

attorney’s refusal to admit liability in the underlying

action was Mr. Awrey’s refusal to admit same prior to

trial. Also in the record, however, was evidence indi-

cating that the trial attorney had police reports which

noted that plaintiff had been drinking and taking pills

prior to the accident as well as being on the wrong side

of the road when the collision occurred, that the trial

attorney failed to meet with the plaintiff prior to trial to

discuss plaintiff's claim of no liability, and that the trial

attorney knew that plaintiff based his denial of liability

solely on an inability to remember the accident or the

events leading to same. Such facts could lead a reasonable

A-17

man to conclude either that the defendant relied com-

pletely on plaintiff's statements in refusing to admit lia-

bility for the accident or ignored completely the plain-

tiff’s interests in failing to persuade plaintiff to admit

same prior to trial.

As another example, defendant contends that it

_ Tefused to accept a settlement offer that exceeded the

policy limits by $5,000.00 because it knew that plaintiff

had no funds to contribute towards a settlement. Other

evidence in the record, however, indicates that plaintiff

had in fact paid off a prior judgment by making monthly

installments, that defendant knew that plaintiff's poten-

tial exposure for liability above its policy limits was sig-

nificant, and that defendant did not inform plaintiff of

this offer. Such evidence again could lead a reasonable

man to conclude either that the defendant refused the

offer only after considering the plaintiff's economic con-

dition or because it did not consider plaintiff's position

when an offer in excess of policy limits was made.

As a final example, defendant produces two letters

which were directed to plaintiff indicating the progress

of the tort action and informing plaintiff that he had the

right to hire his own attorney. Such documents, how-

ever, also corroborate the trial attorney’s testimony that

he requested that defendant communicate directly with

plaintiff as he refused to do so because he did not agree

with the cause of action being followed by the insurance

company. Further, plaintiff was never informed of the

specifics of any settlement offer, and that the plaintiff

was never informed that the trial attorney prior to trial

had recommended that defendant settle the case at

policy limits. Such evidence again supports two infer-

ences. Those being that the letters were intended to

avoid informing plaintiff of the specific information that

he needed to adequately protect his rights.

A-18

Without reviewing the remainder of the record, the

court believes that the above examples adequately ilius-

trate the nature of the proofs offered at trial. In short,

the evidence presented two theories which could explain

the defendant's actions in the underlying suit. Defen-

dant’s theory was that it acted in the honest belief that

the tort claim was worth less than the policy limits, that

plaintiff was adamant about not admitting liability, and

that plaintiff was unable to contribute to any settlement

of the action. Plaintiff's theory was that the defendant

acted in bad faith as was illustrated by the defendant's

rejection of the trial attorney's recommendation that it

offer policy limits prior to trial, the trial attorney's failure

to meet with plaintiff, and the defendant's failure to

communicate the substance of any settlement offers to

plaintiff. Because the court concludes that a reasonable

man could accept either of these theories, it must deny

defendant’s motion for a judgment notwithstanding the

verdict.

The issue raised by a motion for a new trial is essen-

tially one of judicial discretion. Mooney v. Henderson Por-

tion Pack Co., 339 F.2d 64 (6th Cir. 1964). The judge’s

duty is primarily to see that there is no miscarriage of

justice. Bevevino v. Saydjari, 574 F.2d 676 (2nd Cir. 1978).

Defendant’s motion for a new trial is based on three

grounds. First, defendant contends that there was judi-

cial error in the admission of evidence of activity which

was not and could not be construed as evidence of bad

faith. Second, defendant contends that there was judicial

error in the instructions to the jury defining bad faith.

Third, defendant contends that the verdict was against

the weight of evidence.

Cfendant’s first argument is that it was prejudiced by

the introduction of evidence that could not be construed

as evidence of bad faith. Although not explicit in

A-19

defendant’s motion, defendant apparently contends that

it was prejudiced by the introduction of evidence con-

cerning the tactics of the trial attorney in the underlying

tort action. In considering this argument, the court

would initially note that defendant did not object to the

introduction of this evidence at trial. Even where the

admission of evidence is erroneous, courts have gener-

ally refused to allow a new trial where counsel did not

seasonably object to the allegedly improper ruling. See,

e.g., Peterson v. Calmar Steamship Corp., 296 F. Supp. 8

(E.D. Pa. 1969).

Assuming that an appropriate objection had been

made, the court’s conclusion that a new trial is unneces-

sary would be unchanged. In essence, defendant con-

tends that the evidence concerning the tactics employed

by the trial attorney was irrelevant to a determination of

bad faith. Because defendant is a corporation, however,

the defendant's good or bad {faith could only be deter-

mined by examining both the actions and the states of

mind of its various agents. Wakefield v. Globe Indemnity

Co., 246 Mich. 645 (1929). One such agent was the trial

attorney hired by the defendant to defend the insured

in the underlying tort action. Because the actions and

motives behind the actions of the trial attorney would

have a substantial tendency to make the existence of bad

faith on the part of the defendant more or less probable,

Fed.R.Evid. 401, the court finds that such evidence was

relevant to the jury’s ultimate determination in this

action. In addition, even if the admission of such evi-

dence was improper, the court further concludes that

such error would not be grounds for a new trial as

defendant was not prejudiced by the introduction of

such evidence because there was no testimony that the

trial attorney’s conduct was in violation of the standard

practice for a trial attorney. Fed.R.Civ.P. 61.

A-20

Defendant's next argument is that there was judicial

error in the instructions to the jury defining bad faith.

In this regard, defendant contends that the court

implied to the jury that it believed that the defendant

acted in bad faith when it instructed the jury that an

insurance company “should not abuse the power vested

in it and recklessly and contumaciously refuse to settle

if it is apparent that in all reasonable probability its con-

duct would not only result in damage to its insured but

also in loss to itself.”

To explain the genesis of this instruction, it is neces-

sary to begin with the parties’ requested instructions

relative to bad faith. In his request, plaintiff requested

an instruciion enumerating the duties adopted by the

court in Jones v. National Emblem Insurance Co., 436 F.

Supp. 1119 (E.D. Mich. 1977). Based on a Second Circuit

decision, the court in Jones listed four factors which

could support a finding of bad faith on the part of an

insurer. Defendant objected to the use of a list of factors

indicating bad faith and suggested that the court give

the definition of bad faith provided by the Michigan

Supreme Court in Wakefield v. Globe Indemnity Co., supra.

In the alternative, defendant suggested that any list of

factors for the jury’s consideration of bad faith should be

rephrased to state factors indicating that the defendant

acted in good faith.

Although the court initially indicated that it intended

to use a list approach similar to that used by the court

in Jones, the court subsequently reversed its position and

gave the instruction to which defendant now objects. It

reached this decision for several reasons. First, it was

concerned with the potential prejudice which arises any

time a jury is given a list of factors to consider in

making a determination. Even where a jury is cautioned

to consider the enumerated factors along with all other

A-21

evidence presented at trial, there is always the danger

that a jury will consider only those factors listed by the

judge. Second, the manner of phrasing such a list is

fraught with danger. If the court follows the Jones case

and phrases the list in terms of bad faith, then the

defendant may be prejudiced by the court’s failure to

indicate factors showing good faith. If the court phrases

the list in terms of good faith, then the defendant may

also be prejudiced as the jury might interpret such

instructions as placing the burden on the defendant to

establish good faith which is contrary to the law. Third,

the rationale of Jones was drawn into question by the

subsequent decision of the Sixth Circuit in Valentine v.

Liberty Mutual Insurance Co., 620 F.2d 583 (6th Cir. 1980).

Although the court in Valentine cited the Jones decision,

it did not consider the Jones list when it ruled that the

insurance company had not acted in bad faith when it

failed to inform the excess insurer of increases in its

insured’s ad damnum clauses.

Because of the court’s decision not to use a list

approach, the court was left with only one means of

instructing the jury on the concept of bad faith. That

means was the manner initially requested by the

defendant which defined bad faith with the exact lan-

guage used by the Michigan Supreme Court in Wakefield

v. Globe Indemnity Co., supra, — the very case recognized

as the leading Michigan case by the Sixth Circuit in

Valentine v. Liberty Mutual Insurance Co., supra. In addi-

tion, to avoid any possible prejudice resulting from the

listing of factors to consider in determining bad faith in

the Wakefield quotation or the attorneys’ use of duties or

non-duties of an insurance company in their closing

arguments, the court twice cautioned the jury to con-

sider the entire record in determining whether the

defendant acted in bad faith. First, it noted: “[iJ]n your

A-22

consideration of this question of bad faith, you are not

to single out any one act or alleged duty or non-duty

standing alone, but you are to consider the conduct of

the parties as a whole in reaching your determination on

this question of bad faith.” Second, the court cautioned:

The foregoing examples are not intended to be

all inclusive and are meant to be suggestive only.

There is no intent by these illustrations to limit

your consideration of all relevant evidence. None

of the above examples or considerations, either in-

dividually or collectively, is necessarily determina-

tive of the issue of bad faith but may be considered

by you in making your own determination.

Because the court finds that the above instructions to the

jury did not imply that the court had previously deter-

mined that defendant had acted in bad faith and that no

miscarriage of justice occurred as a result of the giving

of those instructions, the court concludes that the giving

of such instructions, when read as a whole, does not

provide a ground for the granting of defendant’s motion

for a new trial.*

* Defendant also objects to the fact that the instructions do not

inform the jury that bad faith is like fraud. The initial answer to this

objection is that all the cases cited by defendant speak of bad faith

and fraud in the disjunctive. Thus, the court interprets the language

of these cases to indicate two separate motives which could make an

insurance company liable for failing to settle a case. Moreover, the

definition of bad faith was taken directly from Wakefield v. Globe Inde-

mnity Co., 246 Mich. 645 (1929). Therefore, the court concludes that

the jury was given a proper definition of bad faith when it was

instructed that mere bad judgment or negligence does not amount

to bad faith. In this regard, it is interesting to note that at least one

author suggests that negligence is sufficient to find liability in Michi-

gan. See, Torpey, Liability Beyond Policy Limits, Michigan Bar Journal

(Feb. 1982).

A-23

Defendant's final argument is that the jury’s finding of

bad faith was contrary to the weight of the evidence.

Unlike a motion for judgment n.o.v., a motion for a new

trial because a verdict is against the weight of the evi-

dence requires a court to consider not only whether a

factual question was presented for the jury but whether

the jury’s verdict was erroneous. Bevevino v. Saydjari,

supra. Because the decision of whether to grant a new

trial is essentially left to the discretion of the trial court,

it is not surprising that different courts have adopted

varying standards to be applied by a trial court in

passing on such a motion. Wright & Miller, Federal Prac-

tice and Procedure § 2806 at 45. In this regard, the court

believes that the standard set forth in 6A Moore’s Federal

Practice § 59.08[5] at 59-160 to 59-161, and adopted by

the Secorid Circuit in Bevevino v. Saydjari, supra, properly

indicates those factors which a trial court should con-

sider in ruling on a motion for new trial because the ver-

dict is contrary to the weight of the evidence. That stan-

dard provides:

The trial judge, exercising a mature judicial dis-

cretion, should view the verdict in the overall set-

ting of the trial; consider the character of the evi-

dence and the complexity or simplicity of the

legal principles which the jury was bound to

apply to the facts; and abstain from interfering

with the verdict unless it is quite clear that the

jury has reached a seriously erroneous result.

The judge’s duty is essentially to see that there

is no miscarriage of justice. If convinced that

there has been, then it is his duty to set the ver-

dict aside; otherwise not.

Applying that standard to the present case, the court

initially notes that the question of bad faith generally is

one for the jury to decide. Wakefield v. Globe Indemnity

A-24

Co., supra. Moreover, the evidence presented at trial was

not complex and for the most part was uncontradicted.

In essence, the jury was asked to determine whether the

defendant's refusal to settle the case prior to trial was

based upon an honest belief that the suit was not worth

policy limits or upon an indifference to the effect of the

refusal on the insured. Given that the jury deliberated

on this question for seven days, the court does not

believe that the jury reached a clearly erroneous result.

Therefore, the court must abstain from interfering

with the verdict and deny the defendant's motion for

new trial because the verdict was against the weight of

the evidence.

/s/ Ralph B. Guy, Jr.

United States District Judge

Dated: April 21, 1982

(Certification Omitted)

A-25

ORDER OF JUDGMENT

(United States District Court —

Eastern District of Michigan —

Southern Division)

(Dated March 23, 1982)

(NORMAN EUGENE AWREY, Plaintiff, vs. PROGRESSIVE

CASUALTY INSURANCE COMPANY, a foreign corporation,

Defendant — C. A. No. 80-72252; Hon. Ralph B. Guy, Jr.)

At a session of said Court held in the Courtrooms of the

United States District Court, in the City of Detroit,

County of Wayne, and State of Michigan, on Mar. 23,

1982.

Present: Ralph B. Guy, Jr., U.S. District Judge

This matter having come on for trial on the Courts’

regular scheduled trial docket, and the matter having

been heard before a Court and Jury and the Jury having

deliberated and rendered its verdict in favor of Plaintiff,

NORMAN EUGENE AWREY, and against the Defendant,

PROGRESSIVE CASUALTY INSURANCE COMPANY, on

February 5, 1982;

IT IS HEREBY ORDERED that judgment be and the

same is hereby entered in favor of the Plaintiff,

NORMAN EUGENE AWREY, and against Defendant,

PROGRESSIVE CASUALTY INSURANCE COMPANY, in the

amount of TWO HUNDRED THIRTEEN THOUSAND FIVE

[three] HUNDRED FIFTY-EIGHT and 2400 DOLLARS

($213,358.24), which sum includes unpaid Judgment and

costs and statutory interest computed through March 1,

1982, as agreed to between the parties herein;

A-26

IT IS FURTHER ORDERED that the within Judgment

shall accrue no additional interest pursuant to MCLA

600.6013 from the date of filing of the within Complaint

until March 1, 1982 because the Judgment amount of

$213,358.24 includes all applicable interest to the date of

March 1, 1982;

IT IS FURTHER ORDERED that the Plaintiff will be sub-

mitting a Taxed Bill of Costs and will argue before this

Court, said costs when approved, will be incorporated

in this Judgment at the time they are approved by this

Court, without the necessity of an Amendment to this

Judgment by stipulation of the parties.

/s/ Ralph B. Guy, Jr.

United States District Court Judge

Approved as to form only:

By: /s/ Samuel A. Meklir

Attorney for Plaintiff

And:

By: D.J. Watters

Attorney for Defendant

(Certification Omitted)