Bashor Agreements Page 5
Finally, in Ross v. Old Republic Ins. Co., the court of appeals purported to apply Colorado law to a pre-judgment agreement. As noted earlier, the Colorado Supreme Court has granted certiorari review of the case, and one of the issues under consideration is whether the agreement comported with the Bashor decision. Given the peculiar facts involved in Ross, however, the Court may end up resolving the case without deciding the enforceability question.
The Ross case arose out of an October 10, 1995 airplane crash in which the pilot and two passengers, Colt. H. Ross and John Dirk Ross, were killed. A wrongful death action was subsequently filed by the heirs of the two passengers against the pilots estate, the company that owned the airplane and employed the pilot, Durango Air Service, Inc. (DAS), and the president of DAS, Donley E. Watkins. At the time of the accident, DAS was listed as the named insured on two separate liability insurance policies issued by Old Republic Insurance Company (Old Republic): an aviation policy with limits of $700,000 and a commercial general liability (CGL) policy with limits of $1.0 million. Watkins and the pilots estate were also insured under the policies issued to DAS.
Old Republic acknowledged coverage for the accident under the aviation policy and agreed to defend the insured’s under a reservation of rights. Old Republic claimed that no coverage existed under the CGL policy, however, on account of a so-called Airport Exclusion. In addition, Old Republic asserted that the limits of coverage under the aviation policy were capped at $100,000 per passenger killed, for a total of $200,000.
Old Republic maintained throughout the litigation that its exposure under the policy was $200,000 and refused to offer more than that amount toward a settlement. Facing exposure to a judgment well in excess of their insurance policy limits, be they $200,000 or $1.7 million, the insured’s attempted to protect themselves through a pre-judgment agreement with the decedents heirs. While not mentioned in any of the written opinions that have been generated in connection with this dispute, the heirs stated in their cross-petition for certiorari that the pre-judgment agreement was proposed approximately one month prior to the liability trial, by Watkins retained defense counsel, who was selected and paid for by Old Republic. The heirs claim that six days after the pre-judgment agreement was suggested, they offered to settle for $800,000, or, in the alternative, to enter into a pre-judgment agreement in which Watkins and DAS would confess judgment in the amount of $4.0 million and assign to the heirs their rights to pursue collection of the judgment from Old Republic. In exchange, the heirs would agree not to pursue collection of the judgment from Watkins or DAS.
According to the heirs, Watkins counsel faxed a letter to Old Republic ten days prior to trial requesting permission to allow Watkins and DAS to confess judgment in the amount of $2.0 million each. In response to this inquiry, counsel for Old Republic faxed a letter to Watkins counsel stating, in part:
On behalf of Old Republic, we can assure you and your clients that, if your clients wish to resolve the litigation as you suggested, Old Republic has no objection to that and will agree to indemnify your insured’s, but only to the extent of the determined insurance coverage.
The trial was vacated and shortly thereafter Old Republic filed a declaratory judgment action in federal court seeking a determination that its coverage was limited to $200,000, and the heirs filed a counterclaim for bad faith breach of insurance contract. While the federal court action was pending, the pre-judgment agreement was finalized on the following terms: (1) Watkins and DAS agreed to confess judgment of $2.0 million each, plus interest; (2) Watkins agreed to sign a promissory note in the amount of $50,000, for which he would be reimbursed if the heirs recovered more than the amount of the consent judgment; (3) Watkins and DAS agreed to prosecute claims against Old Republic fully; (4) Watkins and DAS agreed to be represented by the heirs lawyers and to waive any potential conflicts of interest; (5) the heirs reserved the right to approve any settlement reached with Old Republic; (6) the parties agreed to share any compensatory or punitive damages recovered beyond the amount of the consent judgment; and (7) the heirs agreed not to execute on the judgment provided Watkins and DAS faithfully performed their obligations under the pre-judgment agreement. The trial court subsequently entered judgment against Watkins and DAS in the wrongful death case in the amount of $4.0 million, plus interest. Old Republic then paid $200,000 to the heirs in partial satisfaction of the judgment, and proceeded to litigate the coverage issues in the declaratory judgment action.
After being presented with cross-motions for summary judgment on the coverage issues, the federal district court concluded that the Old Republic insurance policies provided coverage for the accident in the total amount of $1.7 million. Old Republic appealed.
During oral argument, the Tenth Circuit panel questioned whether it had jurisdiction to resolve the controversy because the trial courts order had not disposed of the insurance bad faith counterclaims that were filed in the declaratory judgment action. Confronted with the possibility of further appellate delay, Watkins and DAS, at the heirs request, decided to dismiss the bad faith counterclaims and to look solely to the available insurance policy limits to satisfy the judgment. After the formality of dismissing the counterclaims was completed, the Tenth Circuit affirmed the trial courts order, concluding that Watkins and DAS were entitled to $700,000 in coverage under the aviation policy and $1.0 million under the CGL policy. Old Republic subsequently paid $1.5 million to the heirs, taking a credit for the $200,000 it had previously paid.
A dispute then arose between Old Republic and the heirs as to whether Old Republic was required to pay interest over and above the $1.5 million. Under the heading Supplementary Payments, the CGL policy provided that Old Republic would pay, in addition to the applicable limit of liability: . . . all interest on the entire amount of any judgment therein which accrues after entry of judgment and before the company has paid or tendered or deposited in court that part of the judgment which does not exceed the limits of the company’s liability thereon. Thus, the heirs argued that Old Republic was contractually obligated to pay post-judgment interest on the amount of the consent judgment from the date it was entered until Old Republic, years later, paid the remaining $1.5 million owing under the policy. When Old Republic refused to pay the interest, the heirs filed writs of garnishment in state court to collect the unpaid interest.
In the garnishment action, the trial court concluded that Old Republic was indeed required to pay interest because Old Republic had agreed to the consent judgment and was barred by the doctrine of res judicata from challenging the judgment. In fact, the trial court awarded attorneys fees to the heirs based on its conclusion that Old Republics challenge to the enforceability of the judgment was groundless. Against this backdrop, the case made its way to the Colorado Court of Appeals.