*fn1 REPORTER'S NOTE: This case was argued by the parties and
decided in conference by the Supreme Court prior to the
retirement of Chief Justice Miller and the appointment of Justice
The opinion of the court was delivered by
This case, arising from a claim of an insurer's bad faith
refusal to settle a personal injury lawsuit, is before us on
petitions for review of the judgment of the Court of Appeals.
Glenn v. Fleming, 14 Kan. App. 2d 62, 781 P.2d 1107 (1989).
Everett Glenn appeals from a summary judgment entered against him
in his garnishment action against Aetna Casualty & Surety Company
(Aetna). Glenn attempted to collect a judgment in excess of
defendant Dale Fleming's automobile liability insurance policy
limits. Fleming was insured by Aetna. The action is grounded on
Glenn's claim of Aetna's bad faith in failing to discharge its
duty to policyholder Fleming.
We shall consider: (1) summary judgment; (2) the measure for
accrued interest running on Glenn's judgment; and (3)
insurer-insured relationships arising from an insurer's alleged
breach of its duty to settle.
Our consideration of these areas requires us to revisit the
question of the validity of an assignment of an insured's rights
in a liability insurance policy recently discussed in Heinson v.
Porter, 244 Kan. 667, 772 P.2d 778 (1989).
Glenn urges us on review of the Court of Appeals' decision: (1)
to alter the impact of Heinson on his right to garnish Aetna;
(2) to rectify asserted error by the Court of Appeals in
affirming the trial court's ruling on Aetna's motion for summary
judgment; and (3) to correct alleged error in the Court of
that the running of interest on Glenn's judgment against Fleming
terminated when Aetna paid the sum of $25,000 into court.
Aetna petitions for review to reverse the Court of Appeals
decision regarding accrued interest, contending Glenn is
asserting a new contract claim. Aetna argues the claim was not
raised in the trial court and, consequently, it may not be
considered for the first time on appeal.
We have three questions for resolution:
(1) Whether the trial court erred in granting Aetna's motion for
(2) whether the trial court erred in its ruling as to the amount
of interest owing to Glenn; and
(3) whether the Court of Appeals' reliance upon Heinson v.
Porter, 244 Kan. 667, should be affirmed.
We affirm the trial court in granting Aetna's motion for
summary judgment. The Court of Appeals did not reach this issue
in view of its reliance on Heinson.
We reverse the trial court and the Court of Appeals regarding
the amount of interest owing to Glenn.
We overrule Syllabus ¶ 4 and the corresponding portions of
Heinson that characterize an assignment of a bad faith claim by
a defendant insured to a personal injury plaintiff as the
assignment of a tort and, consequently, invalid. We approve the
settlement practice use of a covenant not to execute, as more
fully set out in the opinion.
Dale Fleming drove his El Camino pickup to the Garden City
Co-op to purchase propane gas. Everett Glenn, an employee of the
Co-op, filled the propane tank on the vehicle. After the tank was
filled, a vapor fire suddenly occurred. Glenn was severely
injured. He required extensive hospitalization and treatment.
Fleming did not report this incident to Aetna. The
investigations carried out by Farmland Industries, Inc., (the
parent company of the Garden City Co-op) through an independent
adjusting agency and an accident investigation firm determined
that Glenn had overfilled the tank and that there were no defects
in the tank. The independent adjusting agency concluded that the
Co-op was solely liable for the accident. The insurance company
the Co-op paid Fleming's medical expenses, lost wages, and
Glenn filed a personal injury action against Fleming, the
Co-op, and the two manufacturers of the clothing he had been
wearing. The petition was amended to include products liability
claims against the alleged valve manufacturer.
Fleming contacted attorney Randy Weller. Weller contacted
Aetna, informing it that Fleming wanted Weller as his attorney.
Aetna hired Weller to investigate and defend the suit. The policy
limits for this accident were $25,000.
Fleming gave a statement to Aetna reporting that the tank had
been overfilled and that maybe static electricity had caused the
fire. Fleming mentioned that his propane tank had been checked
and that there was nothing wrong with it. He also stated that he
did not feel he was in any way responsible for the accident. This
information was included in Aetna's first internal report on the
lawsuit. The internal report indicated that Fleming would be an
average witness because he had difficulty in remembering the
details of the incident. The report stated he was very honest and
this would help the case.
Glenn's attorney, Jerry Palmer, told Weller and representatives
of Aetna that he and Glenn were not really going after Fleming,
but wanted to recover a substantial judgment from the
"deep-pocket" defendants the Co-op's insurer and the clothing
companies. In August and September of 1982, Glenn and Aetna
agreed to proceed informally with discovery, to work together on
some of the investigation, and to share information and some
costs. This understanding is reflected in various letters and in
Aetna's intermediate internal report on the lawsuit.
Glenn's counsel made a November 3, 1982, settlement offer to
Weller. The settlement letter stated that Reverend Reith had
visited Glenn while Glenn was in the hospital. Reith had heard
Glenn, at a time when Glenn was lucid, state that Fleming had
struck the propane tank with a wrench, causing the spark which
started the fire. Glenn offered to settle the case and dismiss
Fleming from the suit for a payment of $25,000, receipt of the
valves from the propane tank, and an opportunity to talk to
Fleming informally. The offer was open for a period of two weeks.
A copy of an affidavit by Reverend Reith was attached.
Weller discussed this letter with Aetna and Fleming. Fleming
denied having had a wrench or hitting the tank. Weller advised
Aetna that he had questions about the condition of Glenn, who was
hospitalized in intensive care, when the statement was allegedly
made. Weller reported that nothing he had discovered so far would
open the door to the possibility of Fleming's liability.
On November 8, 1982, Weller informed Glenn's counsel that the
offer had been passed on to Aetna. Weller stated that Fleming
emphatically denied having had a wrench. Weller had no doubt that
the tank had been overfilled and that the gas had escaped from a
certain valve on the tank. The letter discusses the valves and
how best to have them tested.
A representative of Aetna telephoned Glenn's attorney on
November 18, 1982, to reject the $25,000 offer and to
counteroffer $5,500. A counteroffer confirmation letter noted
that Glenn's counsel had not yet had an opportunity to review the
photographs of the pickup and propane tank, but that he should
have the photographs through the normal course of discovery in
mid-December. The $5,500 offer was held open until January 1,
The counteroffer was rejected by Glenn on December 6, 1982.
Palmer stated that he thought Fleming had exposure and believed
the initial offer had been fair. The letter also stated Aetna was
now in line to pay the entirety of any excess verdict because it
had rejected the opportunity to settle the case within its policy
Discovery proceeded on the case. Glenn and Fleming responded to
interrogatories. Glenn stated he had no recollection of the facts
surrounding the accident, but that the action was initiated
because his wife and his minister stated that he had said Fleming
struck the tank or valve with a metal tool. Fleming stated that
Glenn overfilled the tank and that the released gas ignited.
On January 30, 1984, a consulting engineer reported that he had
examined the valves from Fleming's propane tank and discovered
that one of them allowed substantial leakage.
Fleming was deposed. His story of the events surrounding the
accident had not changed. He insisted that he had not been near
the tank and had not touched the vehicle. He disagreed with the
report that the valve leaked because he had continued to use the
tank with those valves for some time after the accident and had
never had any problems with it.
Glenn's deposition was also taken. When Weller saw how severely
burned Glenn was, he contacted Aetna. Aetna offered the $25,000
policy limits. Glenn rejected this offer, informing Aetna that it
was too late and that Aetna previously had acted in bad faith.
On March 4, 1985, Weller sent Palmer a letter offering $25,000.
The letter stated that the case had again been analyzed and that
the testimony thus far made it clear that Fleming had done
nothing whatsoever to cause Glenn's injuries. The policy limits
were offered to avoid the expense and unpredictability of a
Another offer was made by Aetna in June of 1985. The June offer
was withdrawn after Brenda Ashmore, the passenger who had been in
the El Camino, was located and interviewed. Fleming had not known
her last name. Locating her had been difficult. Brenda told
Weller that she remembered the incident. In her deposition, she
testified that she remembered seeing Glenn take a wrench from
Fleming and hit the tank. She also stated that Fleming had not
hit the tank. Weller's letters to Fleming noted that Brenda's
testimony was going to be very good for them and that he wished
that Fleming's memory was as good.
On August 30, 1985, Aetna wrote Palmer again offering the
$25,000. The letter stated that Weller and Aetna did not
understand how Palmer could believe that there was a bad faith
claim because even at this date it was not clear that Fleming had
been at fault.
On October 29, 1985, Palmer called Weller and told him that
settlements had been reached with the valve company and all of
the other defendants except Fleming. He again indicated that he
believed Aetna would be liable for any judgment in excess of the
policy limits because it had negotiated in bad faith. The total
amount of the settlements was $695,000.
On November 14, 1985, Weller wrote to Palmer stating that
Weller and Aetna's legal department had researched the bad faith
allegation and had concluded that there was no basis for it.
However, Aetna was again offering the $25,000.
The case was tried to a jury with Fleming as the sole defendant
in May of 1986. Fleming did not allege the comparative fault of
the defendants who had settled.
Reverend Reith testified that he had visited Glenn in the
intensive care ward and that Glenn had said that he wished the
"young man had not hit the valve with a wrench."
Brenda Ashmore testified that Glenn took a wrench from Fleming
and tapped the valve, causing the fire. On cross-examination, she
became confused. She contradicted her own story.
Fleming's testimony followed Brenda's. He told the jury that
Glenn hit the valve with something, although he denied ever
having had a wrench or having given one to Glenn. His testimony
was different from his previous statements. He was impeached
during cross-examination through comparisons of his earlier
statements and deposition with his testimony at trial. It was
evident that Fleming did not remember many of the details of the
incident. He was also asked if he was trying to conform his
testimony to what Brenda had said earlier at trial.
During the closing argument, Glenn's counsel attacked the
credibility of Brenda and Fleming. He pointed out that Glenn was
a cautious man with a family and that Fleming was young and
careless and did not even know the last name of his girlfriend.
He focused on the many discrepancies and gaps in Fleming's
statements and argued that Fleming was unconcerned about this
case and had not told the truth.
The jury found Glenn to be 30% and Fleming to be 70% at fault
for the accident. The total verdict was $1,500,000. The verdict
reduced by 30% was $1,050,000. The case was appealed to this
court on the questions of whether the fault of the defendants who
had settled should have been compared and whether the trial court
should have reduced the judgment by the $695,000 settlement. This
court held that the fault of the settling defendants could not be
compared because their fault had not been alleged and that the
judgment should not be reduced by the settlement amount. Glenn
v. Fleming, 240 Kan. 724, 732 P.2d 750 (1987) (Fleming I).
In May of 1986, Fleming signed a covenant not to execute with
Glenn. In this covenant, Fleming assigned all of his contractual
rights with Aetna under his policy to Glenn. Glenn agreed
not to execute upon or impose liens on any other property of
Fleming, either real or personal, tangible or intangible, or
presently owned or after acquired.
In June of 1986, Glenn filed a praecipe for garnishment against
Aetna. Aetna admitted to owing the $25,000, its maximum coverage,
plus applicable costs through its policy, but denied liability
for any judgment in excess of that. Aetna's amended answer stated
it would "hold the above-described monies or other items in its
possession until further order of the court." Glenn responded
that Aetna was liable for the entire judgment because it had
acted in bad faith and negligently during investigation and
The dispute over bad faith continued for the next two years.
Numerous motions were made and hearings were held. Voluminous
pleadings were filed. Expert witnesses were consulted and