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September 28, 1990.


*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 Abbott.

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).

  The Issues on Appeal

  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 Appeals' ruling

[247 Kan. 298]

      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 summary judgment;
(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 for

[247 Kan. 299]

      the Co-op paid Fleming's medical expenses, lost wages, and property damage.

  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.

[247 Kan. 300]


  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, 1983.

  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 limits.

  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

[247 Kan. 301]

      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 trial.

  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.

[247 Kan. 302]


  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

[247 Kan. 303]

      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 settlement negotiations.

  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 depositions ...

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