Conley v. United States Fidelity & Guaranty Co.

Although the policy of insurance herein contains the common "no action" clause so that the insurer, while defending the suit, remains nominally out of the picture, nevertheless direct suit against a liability insurer may be instituted (1) under the general rules of equity, (2) by statute regarding indemnity contracts, and (3) by statute making it invalid to contract away procedural rights.

(1) Under the Equity Rule: Direct action against an insurer is permitted under the general rule of equity which "does not depend upon or require any contract for support, but results from the relation of surety and principal, independent of contract, and is founded upon the principle of natural justice of placing the charge where in equity it belongs"; and as to the argument that "the contract is one of indemnity merely," "this position cannot be maintained as against the long line of authorities." (BeaconLamp Co. v. Travelers Ins. Co., 61 N.J. Eq. 59, 47 A. 579; see, also, Sanders v. Frankfort etc. Co., 72 N.H. 485,57 A. 655, 101 Am. St. Rep. 688.)

(2) By Statute: The right to sue the insurer directly may be conferred without express statute (Devoto v. United AutoTransp. Co., 128 Wash. 604, 223 P. 1050) although the right is sometimes given by statute (Dillon v. Mark, 43 R.I. 119,110 A. 611) and such statutes are constitutional (Morrell v.Lalonde, 44 R.I. 20, 114 A. 178; Bell v. Weiner,46 R.I. 478, 129 A. 339), and the insurer has been considered an "adverse party" and, as such, entitled to service (Archer v.Wilcox, 185 Wis. 587, 201 N.W. 768). By two different statutes in Montana the right to sue the insurer directly is confirmed. Section 8168, Revised Codes 1921 provides: "One who indemnifies another against an act to be done by the latter is liable jointly with the person indemnified, and separately to every person injured by such act." The contract involved herein, is one of indemnity. By clear provision of statute alone, the "person injured" may proceed "separately" against the insured. The decisions on this statute are not many. The federal court for California allowed direct suit (Moore v. Los Angeles etc.Co., 89 Fed. 73) under the same statute, but another federal court and the supreme court of Montana have refused to permit joinder of the insurer and insured under this statute — have refused to allow joinder of tort and contract (Northam v.Casualty Co. of America, 177 Fed. 981; Cummings v. ReinsCopper Co., 40 Mont. 599, 107 P. 904). These latter decisions, however, only refuse to allow joinder of insurer and insured; and this court in the Cummings Case expressly exempted from the operation of the decision the question "whether the plaintiff may, under any circumstances, sue [the insurer] directly upon the contract."

(3) "No Action" Clause Invalid: Furthermore, the "no action" clause in the contract here involved is invalid, under the circumstances of this case, under section 7558, Revised Codes 1921, which provides that "every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract, by the usual proceedings in the ordinary tribunals * * * is void." Here the assured and injured party is, by section 8168, given the right to sue the insurer directly and the insurer is liable "separately to every person injured." The "no action" clause in the contract of insurance attempts to take away this right of suit, but section 7558 provides that such condition by which a party "is restricted from enforcing his rights under the contract * * * is void."

The above statutes fit the present case with sound justice, for the plaintiff herein was precluded from relief solely because of an artificial bar to action between husband and wife (Conley v. Conley, 92 Mont. 425, 15 P.2d 922), while, at the same time, the husband was forced to pay for his wife's injuries under his legal duty to care for and support his injured wife. In short, the husband was out his money for an injured wife, and yet, because of the procedural provisions in the contract of insurance, resort to the insurer is denied. In solving this, some courts resort to "the principle of natural justice of placing the charge where in equity it belongs" (Beacon Lamp Co. v.Travelers Ins. Co., supra); some courts find the right at law without aid of statute (Devoto v. United etc. Co., supra); legislatures remedy the matter by statute in a few instances (Dillon v. Mark, Morrell v. Lalonde and Bell v. Weiner, supra); and the statutory provisions in this state seem to care for the situation as to this particular type of contract. Counsel for appellant claim that by virtue of the provisions of section 8168, Revised Codes 1921, a right to separately sue the insurance company is conferred. And in support of this contention, they cite the case of Moore v. Los Angeles etc.Co., 89 Fed. 73. But the decision of this court in Cummings v.Reins Copper Co., 40 Mont. 599, 107 P. 904, expressly establishes that this contention is not well founded, disapproves of the statement of the court in the Moore Case, and approvingly quotes the language of the Montana federal district court in Northam v. Casualty Co., 177 Fed. 981, also contrary to appellant's contention. Section 8168, supra, very evidently contemplates indemnity with respect to an act which it is contemplated will be done and is but declaratory of the rule of the common law in respect of such situations. It does not in the slightest degree assume to establish any liability except such as may be created by the intention of the parties at the time of the making of the contract of indemnity.

There is much authority to the effect that in the absence either of a statute conferring upon an injured person the right to sue the insurer, either separately or jointly with the assured, or in the absence of language in the policy itself to that effect, the injured person may never maintain an action against the insurer until after he has obtained a judgment against the assured and has had an execution returned unsatisfied. The latest case upon this subject which I have been able to find is Kuntz v. Spence, (Tex.Com.App.)67 S.W.2d 254, decided January 24, 1934. (See, also, Cannon BallMotor Freight Lines v. Grasso, (Tex.Civ.App.)59 S.W.2d 337; Degnan v. Rhode Island etc. Co., 51 R.I. 366,154 A. 912, 83 A.L.R. 871.)

In Universal Automobile Ins. Co. v. Denton, 185 Ark. 899,50 S.W.2d 592, the Arkansas supreme court held against appellant's contention, even though that state had a statutory requirement to the effect that the injured party should be subrogated to the rights of the assured and could maintain a direct action against the insurer. In another case (entitledMorrell v. Lalonde, 271 Fed. 19) the question of the right of the insurance company to remove the action as one presenting a separable controversy was involved. The right to remove was denied, the court holding that the liability of the insurance company could never attach unless there was liability established upon the part of the insured person. (See, also, generally, to the same effect: Baker v. Tormey, 209 Wis. 627, 245 N.W. 652; Suydam v. Public Ind.Co., (N.J. Sup.) 161 A. 499.)

There can be no question under the record here presented but that respondent Conley never became liable to pay damages "imposed upon him by law for bodily injury." This was an absolutely essential condition precedent to the attaching of liability against the respondent company. There is not a word in its contract suggestive to the contrary; on the other hand, the contract is positive and specific to the effect that neither appellant nor any other injured person could have any right against it, except that a liability in law of assured to pay damages had been previously established by a judgment of court. Plaintiff brought this action to recover damages for personal injuries sustained as a result of the alleged gross and wilful negligence in the operation of an automobile by an employee of her husband, Frank Conley, one of the parties defendant. Conley is sought to be held under the doctrine of respondeat superior. The corporation defendant was the insurer under a "public liability" policy of insurance on the automobile in question.

Defendant Conley demurred generally to the complaint. The corporate defendant demurred generally and specially upon the ground of misjoinder of parties defendant. All these demurrers were sustained. The plaintiff failing to amend within the time allowed by the court after the ruling on these demurrers, her default was entered and a judgment of dismissal rendered. The appeal is from this judgment.

Plaintiff by appropriate specifications of error seeks to have the order of the court sustaining the demurrers and the entry of the judgment of dismissal reviewed.

It is conceded that the facts alleged are identical with those[1] appearing in the complaint in the case of Conley v.Conley, 92 Mont. 425, 15 P.2d 922, so far as the plaintiff attempts to state a cause of action against the defendant Frank Conley. It was there held that the complaint did not state a cause of action. The conclusion there reached was under similar facts reaffirmed by this court in the case of Kelly v.Williams, 94 Mont. 19, 21 P.2d 58. This case, in so far as the defendant Conley is concerned, is ruled directly by these decisions, and accordingly the trial court did not err in sustaining the demurrer of the defendant Conley to plaintiff's complaint.

Plaintiff argues that, even though the complaint failed to[2] state a cause of action against the defendant Conley, it nevertheless is sufficient as against the defendant corporation.

It is conceded by the parties hereto that the contract between the defendant Conley and the corporation is one of indemnity. The foundation of plaintiff's argument is section 8168, Revised Codes 1921, providing as follows: "One who indemnifies another against an act to be done by the latter is liable jointly with the person indemnified, and separately to every person injured by such act."

The defendant corporation by the terms of the policy in question undertook "to pay all sums which the assured shall become liable to pay as damages imposed upon him by law for bodily injury, including death at any time resulting therefrom (herein called ``bodily injury'), accidentally sustained by any person or persons if caused by the ownership, maintenance, or use of any automobile disclosed in the declarations for the purposes therein stated." Defendant Conley was the named assured in the policy. Admittedly, plaintiff sustained the injuries complained of while a passenger in the automobile described in the policy while being operated by an employee of the defendant Conley. Plaintiff argues that the effect of section 8168, supra, is to render the defendant corporation jointly and separately liable under this policy provision, so that suit may be maintained against the insurer prior to an adjudication of liability in favor of the plaintiff against the assured defendant.

The policy further provides that "any person or his legal representative who shall obtain final judgment against the assured because of any such bodily injury * * * and whose execution against the assured is returned unsatisfied, * * * may proceed against the company under the terms of this policy to recover the amount of such judgment either at law or in equity but not to exceed the limit of this policy applicable thereto. Nothing in this policy shall give to any person or persons claiming damages against the assured any right of action against the company except as in this paragraph provided."

This court in the case of Cummings v. Reins Copper Co.,40 Mont. 599, 107 P. 904, 911, had under consideration the provisions of section 8168, supra, then section 5653, Revised Codes 1907. In that case it was attempted to join, as here, the assured and the insurance company as parties defendant. The precise question upon which the court passed was whether or not the insurance company, under a contract of indemnity against liability for personal injuries, might be joined as a party defendant with the assured. It was held that such a joinder was not permissible, and the question whether or not the insured might ever be sued separately by the injured person was expressly reserved. The court, however, in the course of its opinion, in order to reach the conclusion there announced, found it necessary to determine the scope, meaning, and effect of section 8168, and, after deciding that the section (then 5653) was but a continuation of the common-law rule, said: "We must hold that section 5653 [8168], supra, does not change the rule recognized in the cases cited, unless the language employed in it impels to the contrary conclusion. The phrase ``an act to be done,' with reference to which the indemnity exists, clearly implies an act the nature of which is known to the parties, and one which is yet anticipated. It also strongly implies that the liability contemplated is to accrue from the doing of the act, and not upon the contract of indemnity. This view does no violence to the language employed; on the contrary, it seems to be the plain and obvious import of it. At the same time it renders unnecessary the conclusion that the Legislature intended, in enacting it — not by express declaration, but by the barest implication — to abrogate a rule of law which is based upon a fundamental principle."

Counsel for plaintiff cite the case of Moore v. Los AngelesIron Steel Co., 89 Fed. 73, a decision from the circuit court of the southern district of California, wherein a view at variance with that expressed by this court in Cummings v.Reins Copper Co., supra, was announced. In the Cummings Case this court declined to follow the Moore Case, and said of that decision, "But the reasons assigned do not commend themselves to our judgment." It there approved the reasoning of the circuit court for the district of Montana, in the case of Northam v.Casualty Co. of America, 177 Fed. 981. It was there sought to sue the insurer alone under an indemnity contract for the liability of the assured without any adjudication of the liability in favor of the injured person, but it was held that section 8168, supra, would not sustain the statement of a cause of action previous to an adjudication of the liability of the insured.

The state of California has a statute identical with our section 8168. One of the district courts of appeal of that state has likewise refused to follow the Moore Case, and, instead, adopted the doctrine of the Northam Case. (Severns v.California Highway Indemnity Exchange, 100 Cal. App. 384,280 P. 213.)

We are not disposed at this time to depart from the interpretation of section 8168, supra, as promulgated by this court in Cummings v. Reins Copper Co., supra. This section does not operate, under the terms of the policy in question, to give plaintiff a right of action against the defendant corporation prior to an adjudication of a liability against an assured under the terms and conditions of the policy.

Nor has the plaintiff a cause of action by reason of the[3] provision of section 7472, Revised Codes 1921, where it is declared that "a contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." This court, in the case ofMcKeever v. Oregon Mortgage Co., Ltd., 60 Mont. 270, 198 P. 752, 753, in interpreting the latter section, said: "It is held by practically all of the authorities that it is not sufficient that the contract may incidentally benefit the third party. (Tatem v. Eglanol Min. Co., 45 Mont. 367,123 P. 28.) The party for whose benefit the contract is made must be named or otherwise sufficiently described or designated. (Bacon v. Davis, 9 Cal. App. 83, 98 P. 71; 13 C.J. 711.) However, if the contract was made expressly for the benefit of a class of persons to which class the party seeking enforcement belongs, he may obtain the benefit of it. (Burton v. Larkin, 36 Kan. 246,13 P. 398, 59 Am. Rep. 541.)"

The complaint failed to state facts sufficient to constitute a cause of action as against the defendant corporation. The general demurrer to plaintiff's complaint was properly sustained.

MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES MATTHEWS and STEWART concur.