Merritt

In 1961 a truck driven by Merritt and owned by Sterling Transit collided with a truck driven by Bernal and owned by J. A. Stafford Co., a California corporation. Merritt sued Bernal and Stafford Co. for personal injuries, and Sterling Transit sued them for property damages. In 1964 judgment was obtained by Merritt for $434,000 and by Sterling Transit for $21,000, and this judgment was affirmed on appeal in 1965.

Reserve Insurance Company, the liability insurance carrier for Stafford Co., paid $100,000 to Merritt, the full amount of its personal injury coverage, and paid $21,000 to Sterling Transit. There remained unsatisfied $334,000 of Merritt’s judgment against Stafford Co. and Bernal. Stafford Co., in exchange for a covenant not to execute against it on the unsatisfied judgment, paid Merritt $20,000 and assigned to him its claims for damages as an assured against Reserve Insurance and the latter’s agents. As Stafford Co.’s assignee Merritt then filed the present suit in 1966 on Stafford Co.’s claims for damages against its carrier, Reserve, for the latter’s bad faith and negligent defense of Stafford Co. against Merritt’s action for personal injuries. In 1966 the…