Employers Casualty Co. v. Transport Insurance Co. , 12 Tex. Sup. Ct. J. 560 ( 1969 )

CALVERT, Chief Justice.

Petitioner, Employers Casualty Company, and Respondent, Transport Insurance Company, were the respective public liability insurance carriers of Prior Products, Inc., and Hunsaker Truck Lease, Inc. Prior Products leased a truck from Hunsaker that was involved in a collision with an automobile being occupied by Peter and Hazel Sie-gel who suffered personal injuries. The Siegels sued Prior Products. Transport denied that Prior Products was an insured under the policy issued to Hunsaker and refused a tender to defend the suit. Employers assumed defense of the suit and negotiated a settlement under which it paid the Siegels, on behalf of Prior Products, the sum of $6,750.00, and paid a fee to its own attorney in the sum of $607.50. It is not questioned that the settlement was fair and reasonable. Employers’ liability limit was $300,000; that of Transport was $500,-000. Each policy had this provision, commonly called a “pro rata” or “other insurance” clause:

“Other Insurance. If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; * * * ”

Employers sued Transport for contribution and, in response to its motion for summary judgment in the trial court, was awarded a judgment for $4,598.44, or five-eighths of the total sum of the settlement with the Siegels and its attorney’s fee. Transport appealed from the summary judgment, and the court of civil appeals asserted the controlling force of Traders & General Ins. Co. v. Hicks Rubber Co., 140 Tex. 586, 169 S.W.2d 142 (1943), under a single point of error reading as follows:

“The trial court erred in granting Employers’ Motion for Summary Judgment against Transport because, under the policies involved, Employers did not have any right to contribution from Transport and could not recover any excess payment from Transport.”

On the authority of Hicks, the court of civil appeals reversed the judgment of the trial court and remanded the cause for trial. 434 S.W.2d 704. We affirm.

There is a difference in the facts of Hicks and this case in that the claim for contribution of which the court was speaking in Hicks was only for a pro rata part of expenses incurred in defending a suit against the insured, whereas the claim here is for a pro rata part of the sums paid in settlement of the suit against the insured and as expenses in defending the suit. This difference in the facts is not, however, material to our decision, and we agree with the holding of the court of civil appeals that, in its present posture, this case is controlled by our decision in Hicks.

The rule relied upon by this court in deciding Hicks was taken from 29 AM.JUR. 998, Insurance § 1333, and the authorities there cited, and was announced in this language (169 S.W.2d 142, at 148):

“It is the general rule that, if two or more insurers bind themselves to pay the entire loss insured against, and one insurer pays the whole loss, the one so paying has a right of action against his co-insurer, or coinsurers, for a ratable proportion of the amount paid by him, because he has paid a debt which is equally and concurrently due by the other insurers. On the other hand, it is also the general rule that, if each of several insurers contracts to pay such proportion of the loss as results from the destruction of the thing insured, as the amount insured by such insurer bears to the whole insurance effected on the thing insured, none of such insurers has any right to contribution from the others, nor will the payment of the whole loss by any of them discharge the liability of the others. This is because in such a case the contracts are several, and independent of each other> * * * ”

Employers Casualty argues that the rule of Hicks is not a sound rule of decision, is contrary to the current trend of authority, and should be disapproved. We disagree.

The rule followed in Hicks is almost universally recognized as the proper rule of decision in strictly contribution cases. See 44 AM.JUR.2d 742-743, Insurance § 1818; 7 AM.JUR.2d 546, Automobile Insurance § 203; 21 A.L.R.2d 611, at 612-613; 46 C.J.S. Insurance § 1207, pp. 150-152; 8 Appleman, Insurance Law & Practice 397, § 4913; 16 Couch on Insurance 2d 568, § 62:157. The rule as stated in Couch, reads:

“Where there are two insurers and the policies of each contains a pro rata or co-insurer clause, each insurer is liable to the insured to its proportion of the loss, and payment by one of a larger amount in no way affects the liability of the others, and gives the one so paying no right to recover the excess paid from the other insurers.”

However, after stating that there is a division of authority, Couch continues (16 2d 569):

“On the other hand, some courts refuse to follow the view stated in the preceding paragraph, on the basis that the excess part of the payment made by the prorata insurer was in effect the payment of part of the sum which the other insurer was required to pay under its policy, that by making such excess payment, the other insurer has been relieved of its liability to the extent of such payment, and that to refuse to allow contribution on the behalf of the overpaying insurer would allow the other insurer to be unjustly enriched.”

Three cases are cited in support of the latter statement: Commercial Standard Ins. Co. v. American Employers Ins. Co., 209 F.2d 60 (CA 6th Cir. 1954); Continental Casualty Co. v. American Fidelity & Cas. Co., 275 F.2d 381 (CA 7th Cir. 1960), and United States Guarantee Co. v. Liberty Mut. Ins. Co., 244 Wis. 317, 12 N.W.2d 59, 150 A.L.R. 632 (1943). With due respect for the author of the Couch treatise, none of the cited cases supports the statement. All three are cases in which the paying and suing insurer was seeking recovery from a non-paying insurer in the right of the insured through contractual or conventional subrogation, and not in its own right to contribution, as is self-evident from the following quotations from the three opinions: “In the instant case, we are not concerned with legal or equitable subrogation, but with conventional subrogation, which arises from the express insurance contract entered into between the insured, Dodd, and appellant insurer, Commercial Standard Insurance Company.” 209 F.2d 65. “The short answer to all of this [voluntary payment] is that Continental’s action in the instant case is not for contribution but is in subrogation under the terms of its policy. * * * This is an action governed by contractual subrogation in favor of an excess insurer against the primary insurer.” 275 F.2d 385. “By the terms of its policy plaintiff was subrogated to the rights of the assured which, under the decisions, is a substitution of one person in the place of another with reference to a lawful claim or right.” 12 N.W.2d 61. These three cases are also cited to us by Employers Casualty.

Other cases are cited by Employers Casualty in support of its position. As with the cases cited by Couch, none of the cited cases, decided by appellate courts, is strictly a contribution case. One, like those cited by Couch, is a contractual or conventional subrogation case. See Detroit Auto. Inter-Ins. Exch. v. Detroit Mut. Auto. Ins. Co., 337 Mich. 50, 59 N.W.2d 80 (1953). Two, are equitable subrogation cases. Continental Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455 (1961); Employers Mut. Liab. Ins. Co. of Wis. v. Pacific Ind. Co., 167 Cal.App.2d 369, 334 P.2d 658 (1959). There is a lot of writing about contribution in Clow v. National Indemnity Co., 54 Wash.2d 198, 339 P.2d 82 (1959), but the actual holding rests on anything but contribution. The paying insurer took an agreement from the insured acknowledging payment above its pro rata part to be a loan, and suit was brought against the nonpaying insurer in the name of the insured. Recovery was allowed. The court concluded:

“We conclude that the loan agreement is entitled to be given its intended effect, to the extent of the defendant’s pro rata share of the liability. Payment to Clow, of course, will extinguish Farmers’ [the insurer’s] right to contribution and relegate it to its contractual claim against Clow.”

Our research has led us to only one case in which one pro rata insurer, paying the entire loss, was permitted to recover from another insurer strictly on a plea for contribution. See Carolina Casualty Ins. Co. v. Oregon Auto. Ins. Co., 242 Or. 407, 408 P.2d 198 (1965). Just as “one swallow does not a summer make,” so one case does not a current trend of authority establish. We reject the suggestion that Hicks should be overruled, and we adhere to the rule there followed. The obligations of Employers Casualty and Transport were separate and independent, and they did not share a common liability. If both were liable to the insured, each was liable for only its pro rata part of the loss, and neither was liable for the other’s pro rata part. The facts do not present a case for contribution. The general contribution rule is announced in 18 AM.JUR.2d 16, Contribution § 7, in this language:

“The primary requisites of the equitable right to contribution and the obligation to contribute, and the corresponding right and obligation at law, are (1) a situation wherein the parties are in aequali jure under some common obligation or burden, and (2) compulsory payment or other discharge, by the party seeking contribution, of more than his fair share of the common obligation or burden.”

Not only were Employers Casualty and Transport not under a common burden, obligation or liability, but neither was the payment by Employers Casualty of the entire loss compulsory within the requirements of the rule. This requirement is stated in 18 AM.JUR.2d 24-25, Contribution § 11, as follows:

“To entitle one co-obligor to contribution from the others, it is the general rule that the payment made by him must have been compulsory in the sense that he must have been under legal obligation to pay. A voluntary payment which he is not under legal obligation to make does not give a right of action against his co-obligors for contribution', but it is sufficient if the payment is made under a legal and fixed obligation. A payment is deemed in law to be compulsory when the party making it cannot legally resist it. * * * ” ¹

Employers Casualty was not, and is not, without a remedy. Its remedy for recovery from Transport of a pro rata part of the payment to the Siegels, as clearly indicated by the many cases listed above from other jurisdictions, lies in a suit asserting its right to payment through contractual or conventional subrogation to the right of the insured. See also, Southwestern Indemnity Co. v. National Surety Corp., 277 F.2d 545 (CA 5th Cir. 1960). Its policy contains the following provision:

“Subrogation. In the event of any payment under this policy, the company shall be subrogated to all the insured’s rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights.”

When its claim is asserted in virtue of its right of subrogation, whether its payment of more than its pro rata part of the loss was compulsory or voluntary is immaterial. This is the holding in Commercial Standard Ins. Co. v. American Employers Ins. Co., 209 F.2d 60, at 66 (CA 6th Cir. 1956) where the court said:

“Whether the payment of the debt of another is for the purpose of protecting an interest of the one who pays the debt; whether it is paid because of a moral obligation; whether it is a payment by a volunteer — all of these considerations are irrelevant in a case of conventional sub-rogation.”

And, if the subrogation provision in its policy does not authorize recovery by Employers Casualty from Transport of a pro rata part of the sum paid as an attorney’s fee in defense of the Siegel suit, equitable subrogation does. See Continental Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455 (1961); Restatement of the Law of Restitution, § 162.

Employers Casualty advances two other arguments for reversing the judgment of the court of civil appeals and affirming the trial court’s judgment: (1) the holding in Hicks was dicta and should be disregarded, and (2) its petition in this case adequately alleged a right of recovery in subrogation, particularly in light of the fact that a copy of its policy containing the subrogation provision was attached. The arguments are rej ected.

The argument that the holding in Hicks was dicta rests on a contention that an examination of the record in Hicks discloses that the question was not properly preserved for review by the court. It is sufficient answer to the argument to say that, once this court’s ruling on a question becomes final, we will not look back to the record to see if the question was properly preserved for review.

The second argument is based on those provisions of Rule 59, Texas Rules of Civil Procedure, that, when certain written instruments or copies thereof are attached to, filed with, or copied in a pleading, and are made a part thereof, “[sjuch pleadings shall not be deemed defective because of the lack of any allegations which can be supplied from said exhibit.” There is no disposition to deem Employers Casualty’s trial petition “defective”. The fact is, however, that the petition did not allege a right of action in subrogation; and neither it nor the attached copy of its policy gave Transport a semblance of notice that recovery in subrogation was being sought. To the contrary, the petition alleged only a right to a “recoupment” of a pro rata part of the payment made and defense expense in accordance with the “other insurance” clauses in the policies. If Employers Casualty intended to assert a claim as subrogee of its insured, the petition did not, as required by Rule 47, Texas Rules of Civil Procedure, give Transport “fair notice of the claim involved.” As to the necessity for pleaded notice of a subrogation claim, see American Surety Co. v. First Nat. Bank, 27 S.W.2d 890, at 891 (Tex.Civ.App.—Waco, 1930, no writ); Sherk v. First Nat. Bank, 152 S.W. 832, at 836 (Tex.Civ.App.—Amarillo, 1913) reversed on other grounds, 206 S.W. 507 (Tex.Com.App.1918).

The judgment of the court of civil appeals is affirmed.

STEAKLEY, GREENHILL and REAVLEY, JJ., dissent.

1 . Emphasis ours throughout unless otherwise indicated.