Berg v. Associated Employers Etc. Exch.

Louis E. Blandy was injured, on January 22, 1918, while in the employ of the Modern Box Manufacturing Company. The Box Company previously had entered into a contract with the Illinois Indemnity Exchange under the terms of which the exchange agreed to indemnify the Box Company "against legal liability up to the amounts set forth in the attached schedule for damages by reason of bodily injuries accidentally sustained, . . . . which may be suffered or alleged to have been suffered by any employee or employees of the assured. . . . ." The following clause was also contained in the contract:

"Provided, always, that the indemnity herein provided for is and shall be subject to the following conditions:

"2. Upon the occurrence of any contingency covered by this contract, the assured shall give immediate written notice thereof to the attorney, and shall forward to the attorney forthwith after receipt thereof, every written communication, or information as to any verbal communication, and every process, pleading and paper of any kind relating to any and all claims and proceedings."

Blandy instituted an action against the Box Company, in the district court of the eighth judicial district, claiming damages on account of his injuries. At this time all the officers of the Box Company had left the state of Idaho, and summons was served upon the auditor of the county in which the Box Company had its principal place of business, as authorized by C. S., sec. 6676. After default of the Box Company, judgment was entered in favor of Blandy, which was paid with money borrowed by the receiver for the Box Company, as authorized by the court. Some time thereafter, motions were made to set aside the judgment obtained by Blandy and to vacate an order appointing a receiver for the Box Company. These motions were granted, but upon appeal to this court were reversed. (Blandy v. Modern Box Mfg. Co., 40 Idaho 356, 232 P. 1095.) The present action was commenced by the receiver for the Box Company to recover over from appellants under the indemnity contract on account of the judgment recovered by Blandy. After trial of the cause to court and jury, verdict was returned in favor of the receiver, and the insurers have prosecuted this appeal from the judgment entered on the verdict.

As we view the case, the court erred in the denial of appellants' motion for nonsuit, made at the conclusion of respondent's introduction of evidence and renewed after all the evidence had been presented. As bearing on a compliance by the insured with the provisions of the indemnity contract set out above, it is sufficiently established by the record that the Illinois Indemnity Exchange had notice of the injuries sustained by Blandy, but not of the pendency of his action against the Box Company. There was no compliance by the Box Company with the provision regarding the forwarding to the attorney of "every process, pleading and paper of any kind relating to any and all claims and proceedings." That is to say, the summons and complaint in the action of Blandy against the Modern Box Manufacturing Company were not forwarded to the attorney for the insurer as required under the terms of the indemnity contract, and it had no notice whatever of the pendency of that action. And while it appears that the process served upon the county auditor was not forwarded by the latter to any of the officers of the Box Company, the service as made upon the auditor was valid and effectual as to the Box Company, and failure by it to comply with the terms of the indemnity contract in regard to forwarding all process, pleadings, etc., to the attorney for the indemnitor cannot be excused by reason of none of its officers receiving personal service. C. S., sec. 6676, provides that when the president, secretary, cashier or managing agent of a domestic corporation are absent from the state, service of summons in a suit against the corporation may be made by delivering a copy of the summons and a copy of the complaint to the auditor of the county in which the principal place of business of such corporation is located, in the manner and "with the same effect as though such service had been madeupon any of the above officers or agents of such company"; and though the statute makes it the duty of such auditor to forward a copy of any such summons so served on him to such corporation at its principal place of business in such county, it provides in this respect that "no failure on the part of the auditor to mailsuch summons shall affect the validity of such servicethereof." There can be no question, therefore, but that the Modern Box Manufacturing Company must be held to have received service of summons to all intents and purposes. The statute makes the county auditor its agent for the service of summons upon it when its officers are absent from the state, and the corporation is charged with the knowledge of its agent in such circumstances, and likewise chargeable with the neglect to forward the process, pleadings, etc., to the attorney for the indemnitor. (3 British Ruling Cases, p. 730; Woolverton v.Fidelity C. Co., 190 N.Y. 41, 82 N.E. 745, 16 L.R.A., N. S., 400.) This is not, therefore, a case calling for the application of the principle that ignorance by the insured of a claim or proceeding against it will excuse delay in presentation to the insurer of the information required under the terms of the policy or contract. Under such circumstances it is incumbent upon the insured to exercise ordinary care in acquiring knowledge, in order that the insurer may be promptly notified. (Heller v. Standard Accident Ins. Co., 118 Ohio, 237,160 N.E. 707, affirming same case in Ohio court of appeals,27 Ohio App. 405, 161 N.E. 360; Woolverton v. Fidelity C. Co.,supra; Mandell v. Fidelity Cas. Co., 170 Mass. 173, 64 Am. St. 291, 49 N.E. 110; 7 Cooley's Briefs on Insurance, 2d ed., p. 6087.) If this were relevant, it would follow that the withdrawal from the state of all of the officers of the Box Company upon whom service of process might be had, as a result of which they could not be served with summons in the Blandy action, constituted a want of exercise of due diligence and ordinary care required in such cases. See authorities citedsupra. It will be noted that many of the authorities indicating that delay in serving notice upon the insurer may be excused in some circumstances go no further than to say that strict compliance with the requirement may be excused. In the instant case there was not only delay in giving notice to the insurer of the pendency of the action against the Box Company, by the forwarding of the process, pleadings, etc., but the insurer had no knowledge whatever of that action having been instituted until after Blandy had obtained judgment against the Box Company, and it was of course entirely prevented from making timely or any defense to that action, as was its right. Blandy's action against the Box Company was commenced January 22, 1918, he recovered judgment against it May 13, 1918, and the first knowledge the indemnitor had of the action was in August, 1918. At least a reasonable or substantial compliance with the provisions of the contract relating to the furnishing of the information therein required is a condition precedent to the maintenance of any action under a contract of the kind involved. (National Paper Box Co. v. Aetna Life Ins. Co.,170 Mo. App. 361, 156 S.W. 740, 743; 7 Cooley's Briefs on Insurance, 2d ed., pp. 6078, 6079, and cases cited; 14 Rawle C. L., p. 47; Easton v. Boston Inv. Co., 51 Cal. App. 246,196 P. 796; Jefferson Realty Co. v. Employers' Liability Assur.Corp., 149 Ky. 741, 149 S.W. 1011.) As stated in Union Cent.etc. Co. v. United States Fidelity Co., 99 Md. 423, 105 Am. St. 313, 58 A. 437:

"The liability of an indemnitor is measured by the contract into which he enters, and it is never enlarged by mere construction to include a term specifically excluded. Inasmuch as an indemnitor's liability is one dependent wholly upon contract, it would be anomalous to hold that he is answerable under conditions directly contrary to the express stipulations of his undertaking. When he covenants to be bound provided certain antecedent conditions are complied with by the party indemnified, in the very nature of things, if those conditions are not fulfilled his liability never becomes fixed. This is so elementary that we do not pause to cite authority in support of it."

From what has been said it follows that the judgment must be reversed, and it is so ordered, with directions to the trial court to dismiss the action. Costs awarded to appellants.

Givens, J., and Hartson, D.J., concur.

Wm. E. Lee, J., dissents.

ON REHEARING. (July 31, 1929.)