Insurance Law – Recovery – Action for Wrongful Refusal to Settle Claim Precluded by Bankruptcy of Insured
The plaintiff, as trustee in bankruptcy of the insured, sued the defendant insurer to recover damages resulting from a judgment entered against the insured in a personal injury suit. This judgment subjected the insured to a liability of 89,000 dollars in excess of the 10,000 dollar automobile liability_ coverage carried with the insurer. The insurer, pursuant to its policy, had undertaken the insured’s defense and had failed, allegedly in bad faith, to settle the suit for an amount within the limits of its coverage. Before judgment was entered in the personal injury suit the insured was insolvent; six months following the entry of judgment he was adjudicated bankrupt. At no time had the excess judgment been paid. The trial court awarded the trustee 89,000 dollars in damages. On appeal, held, reversed, one judge dissenting. Proof of payment of the excess judgment is a condition precedent to recovery of damages from an insurer for tortious failure to settle a claim within the limits of its coverage when it has undertaken the insured’s defense. Harris v. Standard Acc. b Ins. Co., 297 F.2d 627 (2d Cir. 1961) cert. denied, 82 Sup. Ct. 875 (1962) .