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Hartford unit not liable for bad faith in dispute with Fireman's Fund unit

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A Hartford Financial Services Group Inc. unit is not liable for bad faith in a dispute with a Fireman's Fund Insurance Co. unit in a case in which the Fireman's Fund unit paid a $4.9 million judgment as an excess insurer, says an appellate court.

The case of National Surety Corp. v. Hartford Casualty Insurance Co. has a long history, according to Tuesday's ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati.

According to the ruling, Hartford had provided a $1 million primary policy to Largo, Fla.-based Sufix USA Inc., which manufactures weed trimmer heads, while Novato, Calif.-based National Surety provided the firm with a $10 million excess liability policy.

In 1998, Tommy Cook was operating a weed trimmer fitted with a Sufix-made trimmer head when the head allegedly shattered and severely lacerated Mr. Cook's leg.

Mr. Cook filed suit against Sufix in 1999, and Hartford hired an attorney to defend the firm. During settlement negotiations, Mr. Cook offered to settle his claim for $1 million, the amount of Hartford's policy limit. But Hartford refused, and Mr. Cook's case proceeded to trial.

Sufix's excess liability policy with National included a provision requiring Sufix to alert National when claims or suits are filed, or when it learned of any occurrence that could precipitate a claim but failed to do so, according to the ruling. National learned of the claim through a third party just weeks before the May 2002 trial date, said the ruling.

The jury returned a $5.8 million verdict against Sufix, including $44,000 for past medical expenses, $250,000 for future medical expenses, $464,000 for past and future lost earnings, $2.1 million for pain and suffering and $3 million in punitive damages.

Hartford paid its $1 million policy limit, while National paid the remaining $4.8 million. National then sued Hartford in the Louisville, Ky.-based Federal District for the Western District of Kentucky in a subrogation action, claiming Hartford had breached its primary insurer's duty to avoid excessive judgments against an insured.

In a 2007 ruling, the 6th Circuit circumscribed the nature of subrogation rights but ruled National could press the bad faith claims Sufix could bring against Hartford.

In the remanded subrogation action, the district court ruled in Hartford's favor on the bad faith claim and granted summary judgment to Hartford. National appealed, and in its ruling Tuesday, the appellate court agreed with the lower court.

Hartford did not satisfy Kentucky's bad faith standard, said the appellate court. “National points to no evidence that Hartford 'low-balled' Cook because of evil motives or an indifference to Sufix,” said the three judge panel's unanimous ruling.

“In hindsight, settling Cook's case for less than 20% of the final judgment appears wise. But National fails to provide evidence that an 'evil design' or an indifference to Sufix's rights motivated Hartford's failure to settle for Sufix's policy limits during initial settlement negotiations,” said the appellate ruling, in affirming the district court's ruling.