Zieman v. United States Fidelity & Guaranty Co.

The case was submitted to the trial court on demurrer to plaintiff's petition, which so far as material alleges, in substance, that defendant is a Maryland corporation authorized to do business in Iowa by Subdivisions 2, 5, 7 and 8, Section 8940, and Subdivision 5, Section 8941, Code, 1924; that defendant issued to the World Amusement Service Association a policy of insurance (the material provisions of which are later set out); that plaintiff was injured by the negligence of the World Amusement Service Association of South Dakota by the operation of its automobile racing exhibition; that plaintiff brought suit for such injuries against the World Amusement Service Association, and that at all times after the suit was brought, and in all proceedings, The Amusement Association was represented by the attorneys and representatives of the defendant United States Fidelity Guaranty Company; that plaintiff obtained judgment against the World Amusement Service Association on which execution was issued and returned partly unsatisfied; that such association is a South Dakota corporation, has no property within the State and is insolvent. The policy of insurance contains the following provisions:

"Statement 5: The company's liability for loss from an accident resulting in bodily injuries to or in the death of one person is limited to Five Thousand Dollars * * * Statement 13: The minimum premium for this policy is Four Thousand Dollars * * * United States Fidelity Guaranty Company Baltimore, Maryland, * * * does hereby agree (1) To indemnify the assured against loss arising or resulting from claims made upon the assured for damages on account of bodily injuries, including death, at any time resulting therefrom, suffered or alleged to have been suffered as the result of an accident occurring while this policy is in force. * * * (2) To serve the assured by the investigation of accidents, adjustments of claims and in the name and on behalf of the assured the defense of suits which may be brought against him as the result of such accidents or alleged accidents whether groundless or not. Also by providing inspections and accident prevention service, all at the expense of the company in addition to the limits of liability stated in Statement 5 of the Schedule of Statements.

"Bankruptcy.

"Condition 1. If the business of the assured is placed in the hands of a receiver, assignee or trustee, whether by the voluntary act of the assured or otherwise, this policy shall immediately terminate; but such termination shall not affect the liability of the company as to any accidents heretofore (theretofore?) occurring. * * * When Company May be Sued. Condition J. No action shall lie against the company under the Indemnity Clause herein, unless brought by and in the name of the assured for loss actually sustained and paid in money by the assured in satisfaction of a judgment after trial of the issue. No action shall lie against the company under any other agreement herein, unless brought by and in the name of the assured for money actually paid by him. In no event shall any action lie against the company, unless brought within two years after the right of action accrues. The company does not prejudice by this condition any defense to any such action in which it may be entitled.

"Special Statutes.

"Condition K. If any limitation set forth in the preceding conditions is prohibited by the statutes of the State in which this policy is issued, the said limitation shall be considered to be amended to agree with the minimum period of limitation permitted by such statutes. * * *

"Limits of Liability. Condition Q. The company's liability for loss under this policy shall be as set forth under Statement 5 of the Schedule of Statements. The expense incurred by the company in defending any suit including all interest accruing after entry of judgment upon such part thereof as shall not be in excess of the company's liability as therein expressed, and any costs taxed against the assured, will be paid by the company irrespective of the policy limits therein stated. * * *

"Report of Accident. Condition A. Upon the occurrence of an accident the assured shall give written notice as soon as he has knowledge thereof, with the fullest information obtainable at the time, to the company at its home office or to an agent of the company. If a claim is made on account of such accident the assured shall give like notice thereof with full particulars. If thereafter any suit is brought against the assured to enforce such a claim, the assured shall immediately forward to the company every summons or other process as soon as the same shall have been served on him. The company reserves the right to settle any claim or suit. Whenever requested by the company, the assured shall aid in securing information, evidence, and the attendance of witnesses; in effecting settlements; and in prosecuting appeals. The assured shall at all times render to the company, except in a pecuniary way, all co-operation and assistance within his power.

"Assumption of Liability. Condition D. The assured shall not voluntarily assume any liability; nor interfere in any negotiations or legal proceedings conducted by the company on account of any claim; nor, except at his own cost, settle any claim; nor, without the written consent of the company previously given, incur any expense except that he may provide at the time of the accident, and at the cost of the company, such immediate surgical relief as is imperative."

While defendant makes the point (not further argued) "(3) This was a policy of general indemnity insurance and not a policy of automobile insurance. Iowa Code, Section 3940 (8940) Sub. 5e," we understand from the cases cited that defendant's meaning is that the insurance merely provided indemnity against loss to the Amusement Service Association and gave no cause of action to the person injured. Defendant points to no statute authorizing the policy unless it be Section 8940, Sub. 5e. The defendant turns his whole argument on the proposition that the insurance is against loss only, not against liability for loss, and for that reason is not within Section 8940, Sub. 5e, which declared:

"Any company * * * authorized to do business in this state may: 5. * * * e. Insure against liability for loss or expense arising or resulting from accidents occurring by reason of the ownership, maintenance, or use of automobiles * * * or damage to property belonging to others, or both, and for damages to assured's own automobile when sustained through collision with another object; provided, that should an execution on a judgment against the insured be returned unsatisfied in an action by a person who is injured * * * when such owner or operator has insured his liability for such personal injury or damage, the judgment creditor shall have a right of action against the insurer to the same extent that such owner or operator could have enforced his claim against such insurer had such owner or operator paid such judgment."

One of the grounds of demurrer is that the petition shows that the contract was entered into in Illinois between a Maryland corporation and a South Dakota corporation and that the statutes of Iowa have no bearing upon it. The place of delivery of the completed policy is the place of the contract. Born v. Home Ins. Co., 120 Iowa 299. The petition does not show, and it cannot be assumed, that the contract is not one made and to be performed within the jurisdiction of this state. But assuming that the place of the contract is inferentially shown by the policy and riders to be in Illinois, nevertheless this Court does not take judicial notice of the laws of that state. If defendant claims the benefit of those laws as differing from the laws of the forum, it is for defendant to plead and prove such laws as a fact. The presumption is that the statutes of Illinois are the same as those of this state. Sieverts v. National Benevolent Association, 95 Iowa 710; Northern Finance Corporation v. Meinhardt, 209 Iowa 895; In re Warner's Estate, 209 Iowa 948; Tansil v. McCumber, 201 Iowa 20.

The point chiefly relied upon for reversal is that the court erred, "In that the contract declared on was a contract of indemnity insurance and not of liability insurance, and no right of recovery was established in the plaintiff, and the plaintiff was not entitled to be subrogated to any rights of the assured and the assured had no right to recover under this policy of indemnity insurance."

It is well understood that contracts to indemnify may be to indemnify against liability or to indemnify against loss.

The business of insurance is affected with a public interest. O'Gorman Young v. Hartford Fire Ins. Co., 75 L. Ed. 324,282 U.S. 251.

Defendant is a foreign insurance corporation. The state may altogether exclude it from doing business within the state or it may admit it to do business on such terms and subject to such conditions, not involving the surrender of federal constitutional rights, (United States v. Chicago, M. St. P.R. Co., 75 L. Ed. 359), as the state may see fit to prescribe. Dixon v. Northwestern National Life Ins. Co., 189 Iowa 1268; 32 C.J. 989. The purpose of Section 8940, Sub-division 5e, is to authorize liability insurance. American Fidelity Co. v. Bleakley,157 Iowa 442.

Defendant, therefore, issued the policy in suit and took the premium therefor, or its right to it, solely under the authority of that statute. The proviso of the statute (Sub-division 5e, Section 8940) is one which, in the interest of the public, the state has the power to enact as a condition to permitting foreign corporations to transact within the state the business therein authorized. Merchants Mut. A.L. Ins. Co. v. Smart, 267 U.S. 126, 69 L. Ed. 538; Railway Express Agency v. Virginia, 75 L. Ed. 450,282 U.S. 440; Biller v. Meyer, 33 F.2d 440.

The statute in the interest of the public should be reasonably and liberally construed. Stone v. Interstate Exchange, 229 N.W. (Wis.) 26; A. Rose Son v. Zurich General Acc. L. Co., 145 Atl. (Pa.) 813.

If the policy sued upon is one within the class which defendant denominates liability insurance, and if because thereof it is not within Subdivision 5e, defendant was wholly without authority to issue it. The defendant's position, therefore, comes to this: that it is not bound by the condition prescribed by the state to its admission to doing business in the state; that it is not bound by the terms of the very statute under which it issued the policy and collected the premium therefor. This position manifestly cannot be recognized. American Fidelity Co. v. Bleakley, 157 Iowa 442.

The terms required to be embodied in the contract by the statute authorizing the contract must be read into the contract and are as much a part of it as if specifically incorporated therein. Crozier v. Hawkeye Stages, 209 Iowa 313; Stone v. Interstate Exchange, 229 N.W. (Wis.) 26; Ducommun v. Strong (Wis.), 212 N.W. 289; 214 N.W. 616; Archer v. Equitable Life Assurance Soc., 218 N.Y. 18, 112 N.E. 433; Verducci v. Casualty Co. (Ohio), 117 N.E. 235; Green v. Martin (Ala.), 132 So. 882; Elliott v. Indemnity Ins. Co., 230 N.W. (Wis.) 87; 32 C.J., 1162.

The contract is one of liability insurance. 36 C.J. 1057; 32 C.J. 975. The purpose of Subdivision 5-e is to permit insurance against loss or expense resulting from liability not merely from accident. American Fidelity Co. v. Bleakley, 157 Iowa 442 . The whole theory of liability insurance rests upon the existence of "liability." Various terms are loosely used in differentiating contracts of indemnity against liability from contracts of indemnity against loss. Whether the insurance or the indemnity is from liability or from loss it is one of indemnity, and the contract of liability insurance is in either case an indemnity contract. 36 C.J. 1057; 32 C.J. 975. By the statute defendant is authorized to "insure against liability for loss or expense arising or resulting from accidents occurring by reason of the ownership, maintenance, or use of automobiles or other conveyances, resulting in personal injuries or death * * *." The liability against which insurance is authorized includes personal injuries to the insured and damage to his own automobile. Thus the phrase "against liability for loss or expense" is not limited to liability to third parties. As respects the claims of third parties, there can be no loss and the insurer can be under no liability under the policy unless there is liability on the part of the insured because of which the loss is suffered. The word "liable" means not only "bound or obliged in law or equity; responsible; answerable," but "exposed to a certain contingency or casualty, more or less probable and, in modern use, of an undesired or harmful character;" (Webster's New International Dict.) "Having an aptitude or tendency; subject; exposed, as to the doing or occurring of something evil, injurious, or erroneous; as, we are constantly liable to accidents." Century Diet. "Liability" is "the state of being liable through obligation or duty; fixed or contingent responsibility; exposure to that which is or may be required * * * The state of being liable incidentally or by chance; exposure to that which is possible or probable; tendency, susceptibility. * * *" Century Dict.

The statute authorizes insurance against the insured's direct loss resulting from injury to his person or property and to loss resulting from injury to others. The authority to defendant to "insure against liability for loss" manifestly includes, and on its own contention has been so accepted by defendant as, authority to insure not only against liability to loss but against loss. The statute does not undertake to prescribe all the limitations and conditions of contracts which may be issued pursuant to its authority. It does, however, prescribe the one that, should execution on judgment against the insured be returned unsatisfied in an action by the injured party when the owner has "insured his liability, * * * the judgment creditor shall have a right of action against the insurer."

"The liability" is the liability insurance against which is authorized, and includes, as has been said, insurance against loss. This is manifest from the language which gives the "right of action against the insurer to the same extent that such owner or operator could have enforced his claim against such insurer had such owner or operator paid such judgment." This expression would be meaningless if insurance against loss from actual payment of liability alone were in the legislative mind. It recognizes the possibility of the issuance of contracts such as defendant claims the one before us to be, — contracts of indemnity against loss; but when such a contract is issued, even though the loss has not been actually paid by the insured, the statute gives to the person suffering the loss the same right which the insured would have if he had actually paid the judgment. The plaintiff stands here, therefore, in the same position that the insured would have been in, had the insured paid the plaintiff's judgment. The purpose of the legislature undoubtedly was in the conservation and protection of the interest and rights of the public, to confer upon the holder of a judgment against the operator or owner of an automobile for damages for injuries resulting from the fault of the insured, substantial benefit from the insurance. It cannot be presumed that the legislature intended to offer to insurance companies an inducement to put such limitations in their policies as would make the policies and the legislation of no value to such creditor. See Edwards v. Fidelity Co. (La.), 123 So. 162. To adopt defendant's construction would be to offer to insurers that very inducement — an inducement which they would naturally accept, and thereby make the statute a dead letter. Subdivision 5b uses substantially the same language as Subdivision 5e, and is open to similar consequences from accepting defendant's contention. Section 8940 as a whole shows the legislative intention to authorize insurance against loss, whether resulting from ill health, from liability of practitioners of medicine, etc., from accidental discharge of water from automatic sprinkler, from accidents to employees, from operation of automobiles. The legislative thought was to insure against loss and to specify the occasions of the losses for which indemnity was authorized.

The insured and the insurer may not by any terms that they agree to defeat, impair or modify the requirements of the statute enacted in the public interest. Malmgren v. Southwestern Ins. Co. (Cal.), 255 P. 512. The "no action clause" of the policy is in conflict with the statute, and so far as in conflict is void. Verducci v. Casualty Co. (Ohio), 117 N.E. 235. Even though the contract were for indemnity against loss only, the assured would have the right in equity to have the liability of the parties determined before payment. Sanders v. Frankfort Marine Ace. Ins. Co., 57 A. 655, 72 N.H. 485, 101 Am. St. Reports 688; Seeberger v. Wyman, 108 Iowa 527. The effect of the statute is to extend this right.

Moreover the liability of the defendant under the terms of the contract itself and the facts pleaded is one to indemnify.

The policy sued upon is a contract prepared by the defendant itself and sold by it to the insured. The insured must be presumed to have relied upon it as one intended to give to it the protection which its language and apparent purpose would ordinarily be accepted as giving. It is not to be presumed that the insured was knowingly purchasing a contract which contained such "jokers," self-contradictory or self-nullifying provisions as would make it of no effect. The language is to be construed most favorably to the insured and doubts and uncertainties resolved against the insurer. Githens v. Great American Ins. Co.,201 Iowa 266, 272; Kascoutas v. Federal Life Ins. Co., 193 Iowa 343; Tracy v. Palmetto Fire Ins. Co., 207 Iowa 1042, 1045.

By its contract the defendant undertook the defense of suits brought against the insured as the result of accidents whether groundless or not. Defendant reserved to itself and excluded from the insured the right to settle. The insured was relegated to a secondary position — that of assisting or co-operating. Insured had no right to interfere in negotiations or legal proceedings or to incur any expense except such as it provided at the time of the accident. The insured would naturally understand from the policy that the insurer undertook to relieve it from all liability or responsibility or exposure to loss. If the insured gave to the insurer the required notices, forwarded the summons, and if requested by the insurer furnished the stipulated co-operation, defendant did undertake the forensic defense.

The unjustified refusal of insurer to conduct the defense of the action against the insured would have subjected the insurer to liability to damages as for a present breach of the contract. Jones v. Southern Surety Co., 210 Iowa 61; Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 148 N.E. 12; In re Empire State Surety Co., 108 N.E. 825, 214 N.Y. 553; General Acc. F. L. Assur. Corporation v. Butler's Ice Cream Factory (Tex.) 291 S.W. 674; 5 S.W.2d 976; American Fidelity Cas. Co. v. Williams (Tex.), 34 S.W.2d 396; Hilker v. Western Automobile Ins. Co. (Wis.), 235 N.W. 413. Defendant did accordingly represent the insured in the action brought against it. Defendant's obligation to defend as the result of this contract did not end with an unsuccessful defense in court. Defendant was bound by the judgment suffered after the forensic defense which it had made. The insured by the recovery of final judgment sustained loss, for its liabilities were increased and the value of its estate diminished to the amount of the recovery. Malley v. American Indemnity Corporation,297 Pa. 216, 146 A. 571. Moreover, defendant agreed to pay the expense of the defense, including interest upon its part of the judgment and costs, irrespective of the policy limitations. In these circumstances defendant's obligation to defend did not end until the judgment to the amount insured against was paid. Sanders v. Frankfort, Marine Acc. Ins. Co., 57 A. 655, 72 N.H. 485, 101 Am. St. Reports 688; Schambs v. Fidelity Cas. Co., 259 Fed. 55.

By the terms of the policy also the termination of policy in case of a receivership, etc., was not to "affect the liability of the company as to any accident heretofore (theretofore?) occurring." Defendant's contention here in effect amounts simply to this: that though it is bound to pay the judgment to the amount of the policy limitation and though the insured is entitled, in paying over that amount to the plaintiff with one hand, to receive from defendant the amount in the other hand, defendant is not bound to pay unless this empty process, with no conceivable purpose, (unless it be to take advantage of an insolvent's inability to momentarily raise the required fund) is observed. A reasonable construction of the policy requires the court to disregard a construction which would lead to such absurd results and to enforce the policy under the circumstances set forth in this petition according to its ostensible purpose as one protecting the insured from liability from the loss which the recovery of the judgment itself by the fact of its recovery occasions, as well as from loss from its actual payment. This is in accord with the decided trend of recent authority. Verducci v. Casualty Co. (Ohio), 117 N.E. 235; Schambs v. Fidelity Cas. Co., 259 Fed. 55; Ducommun v. Strong (Wis.), 212 N.W. 289, 214 N.W. 616; Brucker v. Georgia Cas. Co., 32 S.W.2d 1088 (Mo.); American Indemnity Co. v. Fellbaum, 263 S.W. 908 (Texas); West v. MacMillan, 301 Pa. 344, 152 A. 104; Graff v. Continental Auto Ins. Co. (Mo.), 35 S.W.2d 926; Patterson v. Adan, 138 N.W. 281, 48 L.R.A. (N.S.) 184 (Minn.); Griffin v. General Cas. Co.,204 N.W. 727, 231 Mich. 642; Sanders v. Frankfort, Marine Acc. Ins. Co., 72 N.H. 485, 57 A. 655, 101 Am. St. Reports 688; Jedlicka v. Missouri Cas. Co. (Mo.), 14 S.W.2d 535; Goerss v. Indemnity Co. (Mo.), 3 S.W.2d 272; Malley v. American Indemnity Corporation, 297 Pa. 216, 146 A. 571; General Acc. F. L. Assur. Corp. v. Butler's Ice Cream Factory (Tex,), 291 S.W. 674; 5 S.W.2d 976; State ex rel. Indemnity Co. v. Daues, 13 S.W.2d 1059 (Mo.); Kurre v. American Indemnity Co. (Mo.), 17 S.W.2d 685; American Fidelity Cas. Co. v. Williams (Tex.), 34 S.W.2d 396; Davies v. Maryland Cas. Co., 154 P. 1116, 155 P. 1035, 89 Wash. 571; L.R.A. 1916D 395, 398; A. Rose Son v. Zurich General Acc. Liability Co., 145 A. 813, 296 Pa. 206.

For collection of cases on the subject see 36 C.J. 1057; 14 R.C.L. 1321; 5 Perm. Supp. 3813.

The judgment appealed from is in harmony with the foregoing views and should be, I think, affirmed.

FAVILLE, C.J., and EVANS, J., concur in this dissent.