Summary
In Conold v. Stern, et al., 138 Ohio St. 352, 35 N.E.2d 133, 137 A.L.R. 1003, Charles Luntz was killed and Helen Conold injured when an automobile driven by Carl Stem, upon which he held a liability insurance policy, collided with another vehicle.
Summary of this case from Storm v. Nationwide Ins. Co.Opinion
No. 28436
Decided June 11, 1941.
Insurance — Indemnity — Action by judgment creditor of insured against insurer — Sections 9510-3 and 9510-4, General Code — Failure by insured to cooperate with insure, a defense — Res judicata — Point or fact adjudicated in former action — May not be questioned in future action, when — Judgment for insurer in action by judgment creditor of insured — Voiding insurance for non-cooperation with insurer — Determinative in action against insurer by another judgment creditor of same insured.
1. An insured's failure to comply with a cooperation clause in an indemnity insurance policy constitutes a good defense to his insurer as against a person seeking to recover from the insurer under and by virtue of Sections 9510-3 and 9510-4, General Code, the amount of a judgment against the insured for personal injuries. ( Luntz et at., Exrs., v. Stern, 135 Ohio St. 225, approved and followed.)
2. A point or a fact which was actually and directly in issue in a former action and was there passed upon and determined by a court of competent jurisdiction may not be drawn in question in any future action between the same parties or their privies, whether the cause of action in the two actions be identical or different.
3. When an injured party recovers a final judgment against a person insured under an indemnity insurance policy for injuries caused by such insured, but fails to recover a judgment against the insurer in a supplemental action in which the insured and insurer are parties defendant under Section 9510-4, General Code, on the sole ground that the insurance policy was void because of the failure of the insured to co-operate with the insurer in the defense of the action of the injured party against the insured, such adjudication in favor of the insurer is determinative of the result in its favor in another action brought against it under Section 9510-4, General Code, by another plaintiff who was injured by the insured at the same time and in the same occurrence as the plaintiff first mentioned, and in which latter action the same insured and insurer are again adverse parties on the controlling issue as to whether the insurance policy was valid and in force as between the insurer and insured.
APPEAL from the court of Appeals of Summit county.
The record in this case is confined to the pleadings and entries exhibiting the action of the courts with reference to the same. The issue to be determined is raised by a demurrer to the supplemental answer of the defendant insurance company.
The plaintiff on March 25, 1936, filed her supplemental petition in a case which she had prosecuted to judgment against the defendant, Karl Stern, under date of January 25, 1936. In this supplemental action she made The Ohio Casualty Insurance Company, hereinafter denominated the insurance company, a defendant. In her supplemental petition she alleges that on April 8, 1933, she sustained personal injuries in an automobile collision in the city of Cuyahoga Falls due to the negligent operation of one of the automobiles owned and operated by the defendant, Karl Stern; that she brought her original action based upon the negligence of Karl Stern for personal injuries and that she recovered a judgment against him for $8,500.
She further alleges that prior to and on the date of the accident there was in full force an automobile insurance policy covering the operation of the automobile owned and operated by Stern at the time of the accident, issued by the insurance company, by the terms of which it insured Stern against legal liability resulting from bodily injuries occasioned by him in the operation of the automobile.
Plaintiff further alleges that her judgment against Stern is final and unsatisfied, and that more than 30 days have elapsed since the rendition of the judgment; that she had made a demand on the insurance company to pay the judgment but that it had refused to do so. She also alleges that she is entitled to have the insurance money under such policy applied to the satisfaction of her judgment against Stern and prays for judgment against the insurance company for the amount of her judgment against Stern, plus interest.
To this supplemental petition of the plaintiff, the insurance company filed a supplemental answer in which it avers in substance that on July 3, 1935, Vera. F. Luntz and Darwin S. Luntz, as executors of the estate of Charles T. Luntz, deceased, recovered a judgment in the Common Pleas Court of Summit county, Ohio, against Karl Stern, being the same person as the original defendant herein, for the alleged wrongful death of Charles T. Luntz arising out of a collision on April 8, 1933, between an automobile owned and operated by Stern, in which Luntz, as well as the plaintiff, Helen Conold, was riding as a passenger, and an automobile owned and operated by one Henry Wenhart; that on the date of the accident there was in force and effect an automobile insurance policy issued by the insurance company, covering the operation of such automobile, by the terms of which it insured Karl Stern, as its insured, against legal liability resulting from bodily injury or death occasioned by the insured subject to the terms and conditions of the policy, which policy is the same as that then being sued upon; that the judgment not being satisfied by either the insurance company or Karl Stern within 30 days after its rendition, the executors on October 16, 1935, filed their supplemental petition wherein the defendant, the insurance company, was made a new party defendant to have the insurance money provided for in the policy applied in satisfaction of their judgment under Sections 9510-3 and 9510-4, General Code; that to this supplemental petition the insurance company filed its answer admitting the judgment and that its policy was in full force and effect on April 8, 1933, but alleging that Karl Stern failed, neglected and refused to furnish aid in securing information concerning such accident and failed to render cooperation and assistance in the defense of the action as requested by the insurance company; that the neglect of Karl Stern was in violation of and contrary to the conditions, limitations and agreements contained in the policy, and that because of such failure upon the part of Karl Stern, it, on January 8, 1934, notified him in writing that it elected to declare and did declare the policy broken, null and void, and that thereafter it was under no obligation to Karl Stern or to judgment creditors of Karl Stern in any sum whatsoever; that to that answer the judgment creditors, executors of Charles T. Luntz, filed an amended reply, alleging full cooperation upon the part of the defendant Stern; that trial was had upon the issues made by the supplemental petition, the answer and amended reply, resulting in a verdict in favor of such judgment creditors; that a motion for new trial was filed and overruled and judgment entered on September 1, 1937, in favor of such judgment creditors against the insurance company; that on appeal on questions of law the Court of Appeals of Summit county reversed the judgment of the Common Pleas Court and remanded the cause to that court; that thereupon the insurance company appealed the cause to the Supreme Court of Ohio which reversed the Court of Appeals insofar as it did not render final judgment for the insurance company as more fully appears in the record and opinion of the case of Luntz et al., Exrs., v. Stern, 135 Ohio St. 225, 20 N.E.2d 241; and that the policy of insurance, the Buick automobile, the accident, Karl Stern, Henry Wenhart and the acts and conduct of Karl Stern in the Luntz action, are the same as mentioned and referred to in the original, amended and supplemental petitions of the plaintiff and the original answer of the defendant filed in this action.
The insurance company further avers in its supplemental answer that, it having been adjudicated by the Supreme Court of Ohio in the aforementioned Luntz action that Karl Stern had breached the terms, conditions and provisions of the policy upon his part to be performed, there was no liability upon the defendant under its policy and that such adjudication and judgment is determinative of the rights of the parties and is a bar to the right of the plaintiff to maintain this action.
The plaintiff, Helen Conold, filed a general demurrer to the foregoing supplemental answer filed by the insurance company, the substance of which is hereinbefore set out, which demurrer was overruled by the court. The court also overruled a motion of the insurance company for judgment on the pleadings. The plaintiff, Helen Conold, not desiring to reply or plead further, the court entered judgment in favor of the insurance company.
An appeal was taken on questions of law to the Court of Appeals, which court affirmed the judgment of the trial court in favor of the insurance company. Thereupon, a motion to certify the record was filed in this court, which motion was allowed, by reason whereof the case is now before this court for review and final determination.
Messrs. Burt, Carson Shadrach, for appellant.
Messrs. Wise, Roetzel Maxon, for appellee, The Ohio Casualty Insurance Company.
This supplemental action was brought under Sections 9510-3 and 9510-4, General Code, to have the insurance money, provided for in a motor-vehicle-liability-insurance contract between the insurance company and the defendant, Karl Stern, applied in satisfaction of a judgment rendered in the Common Pleas Court of Summit county against defendant Stern, in an action by plaintiff for personal injuries.
In substance these sections provide (1) that in respect to every contract of insurance against third-party risks on account of bodily injury or death by accident, whenever a loss occurs on account of a casualty covered by such contract of insurance, "the liability of the insurance company shall become absolute," and the payment of the loss shall not depend upon the satisfaction by the assured of a final judgment against him for loss, or damage or death occasioned by such casualty, and that "no such contract of insurance shall be cancelled or annulled by any agreement between the insurance company and the assured, after the said insured has become responsible for such loss or damage or death, and any such cancellation or annulment shall be void"; and (2) that, upon the recovery of a final judgment against any person, firm or corporation, by any person, including administrators or executors, for loss or damage on account of bodily injury or death, if the defendant in such action was insured against such loss or damage at the time when the right of action arose, "the judgment creditor or his successor in interest shall be entitled to have the insurance money provided for in the contract of insurance between the insurance company and the defendant applied to the satisfaction of the judgment," and, if the judgment is not satisfied within 30 days after the date when it was rendered, the judgment creditor "to reach and apply the insurance money to the satisfaction of the judgment, may file in the action in which said judgment was rendered, a supplemental petition wherein the insurer is made new party defendant in said action," and "thereafter the action shall proceed as to the insurer as in an original action at law."
As was suggested by the opinion of this court in the case of Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, 151 N.E. 718, "If the language of Section 9510-3 should be taken in its literal sense, and the interpretation of the plaintiff be adopted, the insurance company would have no ground of defense, and immediately upon the occurrence of an accident, resulting in loss and damage, would be bound to pay, and all questions of contributory negligence, proximate cause, and other elements bearing upon the right to recover, would be eliminated."
While the statutes in question declare that the liability of the insurance company shall become absolute, to be valid they must be interpreted to mean " 'that the payment of the loss shall not depend upon the satisfaction by the assured of a final judgment against him for a loss or damage or death occasioned by such casualty' " ( Stacey v. Fidelity Casualty Co. of New York, supra), and that the amount of loss shall not thereafter be open to dispute ( Lorando v. Gethro, 228 Mass. 181, 117 N.E. 185); and while Section 9510-4, General Code, provides that an injured person may, by supplemental petition, proceed against the insurance company after judgment is obtained against the insured who was responsible for the injury, this must be interpreted to mean that such right is subject to the limitations and conditions of the insurance contract entered into between the insurance company and the insured, including conditions subsequent to be performed by the insured after an injury covered by the policy occurs, which conditions become conditions precedent to a right of action on the policy. Clements v. Preferred Accident Ins. Co. of New York (C.C.A. 8), 41 F.2d 470; Ocean Accident Guarantee Corp., Ltd., v. Lucas (C.C.A. 6), 74 F.2d 115, 98 A.L.R., 1461; Storer v. Ocean Accident Guarantee Corp., Ltd. (C. C. A. 6), 80 F.2d 470; Western Casualty Surety Co. v. Beverfordsen. (C.C.A. 8), 93 F.2d 166; Myers v. Ocean Accident Guarantee Corp., Ltd. (C.C.A. 4), 99 F.2d 485; Employers Liability Assurance Corp. v. Ryan (C.C.A. 6), 109 F.2d 690. See also Rothman v. Metropolitan Casualty Ins. Co., 134 Ohio St. 241, 16 N.E.2d 417; Stacey v. Fidelity Casualty Co., 21 Ohio App. 70, 152 N.E. 794, affirmed Stacey v. Fidelity Casualty Co., supra. Otherwise, there would be no occasion for a supplemental action wherein the insurance company is made a defendant, and through service of summons upon it is subjected to an independent judgment, all as provided for by the statute. Garnishment would be sufficient.
The conditions and limitations of the policy are enforcible, not only against the insured but against all persons who seek relief under it. Otherwise, the statute would violate the due process clause of the Constitution. Stacey v. Fidelity Casualty Co. of New York, supra.
The authorities are in practical unanimity on this subject. A clause in an insurance policy requiring the insured's cooperation, aid and assistance in a defense of an action against him is a material condition of the policy, the violation of which by the insured forfeits his rights to claim indemnity under the policy. It is a condition precedent, failure to perform which, in the absence of waiver or estoppel, constitutes a defense to liability on the policy. Stacey v. Fidelity Casualty Co. of New York, supra; Royal Indemnity Co. v. Morris, 37 F.2d 90, certiorari denied, Morris v. Royal Indemnity Co., 281 U.S. 748, 74 L.Ed., 1160, 50 S.Ct., 353; Bachhuber v. Boosalis, 200 Wis. 574, 229 N.W. 117; Metropolitan Casualty Ins. Co. v. Blue, 219 Ala. 37, 121 So. 25; Guerin v. Indemnity Ins. Co. of North America, 107 Conn. 649, 142 A. 268; Coleman v. New Amsterdam Casualty Co., 247 N.Y. 271, 160 N.E. 367, 72 A. L. R., 1443.
And the insured's failure to comply with the cooperation clause in his indemnity insurance policy constitutes a good defense to his insurer as against a person injured by the fault of the insured, seeking, under and by virtue of the statutes in question, to recover against the insurer for his injury. Stacey v. Fidelity Casualty Co. of New York, supra; Luntz et al., Exrs., v. Stern, 135 Ohio St. 225, 20 N.E.2d 241; Bachhuber v. Boosalic, supra; Metropolitan Casualty Ins. Co. v. Blue, supra; Coleman v. New Amsterdam Casualty Co., supra; Lorando v. Gethro, 228 Mass. 181, 117 N.E. 185, 1 A. L. R., 1374; Seltzer v. Indemnity Ins. Co. of North America, 252 N.Y. 330, 169 N.E. 403.
The plaintiff contends, however, that under the statute her rights in the policy were fixed at the time her cause of action arose against the defendant Stern, which is the date of her injury, or, at the latest, that her rights were fixed as of the date her original action was filed; that up to that time the alleged lack of cooperation on the part of Stern had not taken place; that the alleged lack of cooperation, which was the subject of litigation in the case of Luntz et al., Exrs., v. Stern, supra, culminating in the judgment which is set up as a defense in the supplemental answer herein, did not occur with reference to or in connection with her claim against Stern; and that such lack of cooperation as to the Luntz claim cannot affect her right to recover on the policy issued by the insurer.
It is apparent that the rights of the plaintiff must be based upon the terms of the contract of insurance between the insurer and the insured, and that this contract must be valid and in force and effect at the time she seeks to enforce her claim under it. Cooperation of the insured with the insurer, in the defense of any claim asserted against it, is alleged to be one of the conditions of the policy. When, as alleged, that condition was broken, the policy came to an end, if the insurer so elected, and it did so elect. The date of the accident or date when the injured parties may acquire a potential interest in the proceeds of the policy has nothing to do with fixing the time when the policy may become inoperative or void by failure of the insured to perform conditions subsequent therein, except that under the statute the policy may not be cancelled or avoided by agreement of the parties to it.
It is conceivable that the policy might be valid and in force when one judgment creditor of the insured succeeds in asserting his rights against the insurer, and that by reason of a subsequent breach of the contract through failure of the insured to perform a condition subsequent, the policy might thereafter become void before another judgment creditor is able to enforce his claim against the insured and for that reason fail. In other words, the failure on the part of the insured in this case, without collusion or fraudulent conduct with the insurer, to perform conditions subsequent in relation to the claim of any judgment creditor of the insured arising under the policy of insurance must affect all such claims thereafter asserted, because if the policy, which, from the pleadings in this case, seems to have been an indivisible contract and to have been declared null and void as such, becomes void by nonperformance of the insured, it is void as to all parties who may thereafter claim under it.
The supplemental answer of the insurance company to the supplemental petition of the plaintiff in this case pleads as a bar the judgment in its favor in the case of Luntz et al., Exrs., v. Stern, No. 27192 in this court, supra, in which the plaintiffs, executors of Luntz, were denied a recovery against the insurance company because Stern had failed to cooperate with the insurance company in defending the Luntz action against him. The insurance company here claims that the judgment in its favor in the supplemental action in the Luntz case is determinative of this action in its favor because Stern is bound by that judgment, and a fortiori the plaintiff is likewise bound because her right is dependent upon the validity of the insurance contract as between the insurance company and Stern, an issue of fact which was determined in that action. On the other hand, the plaintiff claims that the judgment in the Luntz case is not res judicata against her because she was not a party to that action. Does the supplemental answer of the insurance company to the supplemental petition of the plaintiff herein set out a good defense? This, it is submitted, is the crucial issue in this case.
In the case of Wright, Admr., v. Schick, 134, Ohio St., 193, 16 N.E.2d 321, 121 A. L. R., 882, this court held that:
"If, in such an action, the defendant and the insurer were in reality adversaries on the controlling issue as to whether the insurance policy was in force at the time of the plaintiff's injuries, and such issue is in fact litigated and finally determined, it is res judicata as between defendant and the insurer in any subsequent action wherein the defendant and the insurer are aligned as adverse parties on such issue."
And this court further held that:
"When the plaintiff recovers a final judgment against the insurer upon the sole basis that the insurance policy was in force at the time of the injuries, such adjudication is determinative of the result in an action brought under Section 9510-4, General Code (108 Ohio Laws, pt. 1, 386), by another plaintiff who was personally injured by the defendant at the same time and in the same occurrence as the plaintiff first mentioned, and in which latter action the defendant and the insurer are again opposing parties on the controlling issue as to whether the insurance policy was operative at the time of the injuries." See, also, Ohio Casualty Ins. Co. v. Gordon, 95 F.2d 605, 609.
These decisions are not on the ground that the judgment in favor of the plaintiff against the insurance company in the first action is res judicata directly in favor of the plaintiff in the second action, but on the ground that the judgment in the first action operates as a bar against the insurer in favor of the insured. It is true that in the Schick case above cited neither the causes of action nor the parties plaintiff were the same in the original actions; nevertheless, the judgment in the supplemental action in the first case was held to estop the insurance company from again claiming the invalidity of the insurance contract in the second supplemental action. It is well recognized that a final judgment or decree of a court of competent jurisdiction upon the merits of a case is a bar to any future action between the same parties or their privies upon the same cause of action; but it must also be recognized that a point or a fact which was actually and directly in issue in a former action and was there passed upon and determined by a court of competent jurisdiction cannot be drawn in question in any future action between the same parties or their privies, whether the cause of action in the two actions be identical or different. In the first instance, the res which is judicata is the cause of action, but in the second, the res which may be judicata is the particular issue or fact common to both actions. 2 Black on Judgments (2 Ed.), 764, Section 504; Keith v. Willers Truck Service, 64 S.D. 274, 266 N.W. 256, 104 A. L. R., 1471; see annotation 88 A. L. R., 574.
While the insured and insurer in the Schick case were joined as codefendants in the first supplemental action, they were, nevertheless, adversary parties because the question of the validity of the insurance contract and the question as to whether the insured was indemnified by such contract were involved and decided, and since the question as to whether the policy was in effect had been litigated between them as adversaries in the first supplemental action in favor of the insured, it could not be raised again in the second supplemental action in which they were likewise codefendants. The plaintiff in the second action, Bertie Wright, who had also been injured by the insured, had the benefit of the application of the doctrine of estoppel by judgment, not in her own right, but as a result of the litigated fact in favor of the insured in the first action to whom the benefit of res judicata was accorded in the second action.
In the case at bar, for like reason, the finding against the insured in the Luntz case as to the validity of the insurance contract must operate conversely as res judicata against him and in favor of the insurance company in the present case. Restatement of Judgments (Tentative Draft No. 1), 130, Section 330. Does it operate as an estoppel as well against the plaintiff, Helen Conold, who was not a party to the Luntz action? May she have the question of the validity of the insurance contract relitigated in this action, or do her rights in the contract fall with those of the insured?
The supplemental petition of the plaintiff in order to make out a cause of action against the insurance company pleads as an essential allegation not only that she had secured judgment against Stern but that at the date of her accident there was in full force and effect the insurance policy in question by the terms of which the insurance company was obligated to Karl Stern to indemnify him against liability resulting from injuries which she received at his hands. The contract of insurance between Stern and the insurance company, which is the basis of the claim of the plaintiff, was not one required by law to be given for the protection of persons injured through the operation of his automobile in which an absolute liability may be predicated against the insurer ( Kruger v. California Highway Indemnity Exchange, 201 Cal. 672, 258 P. 602), but a voluntary contract entered into by Stern with the insurance company primarily for his own benefit but also for the benefit of third parties who might be injured by the operation of his automobile. It is a contract between the insured and the insurer wherein the obligations of each party to the other are clearly defined, and wherein certain limitations and conditions are imposed upon the respective contracting parties affecting the validity of the contract and the rights of each under it. The statutes in question do not contravene or void any of these limitations or conditions, but provide only that if the contract is valid and in force as between the parties to it, a third party may, if a judgment against the insured for an injury covered by the policy is not satisfied within 30 days after it is rendered, proceed against the insurer, and further provide as a protection to such injured party or parties that no cancellation of the contract shall be made by an agreement of the parties after an injury occurs. Third parties may not alter its terms or make it more beneficial to them than it is to the insured for whose protection it was issued. The rights of injured persons under and by reason of any such policy are limited by and dependent upon the terms and conditions of the contract, and the right of the plaintiff in this case must be dependent upon the right of Stern to enforce his contract. The right of a judgment creditor of the insured against the insurer, if any, is a derivative right implied in law by way of subrogation to the rights of the insured against the insurer. Hence, the right of a judgment creditor against the insurer can rise no higher than the rights of the insured judgment debtor against such insurer.
This rule of law is well stated in 12 American Jurisprudence, 842, Section 289, as follows:
"Even in jurisdictions which recognize the right of a beneficiary to enforce the contract, the agreement between the promisor and promisee must possess the necessary elements to make it a binding obligation — in other words, it must be a valid agreement between the parties to enable a third person, for whose benefit the promise is made, to sue upon it. His rights depend upon, and are measured by, the terms of the contract. The right of a third person for whose benefit a promise is made is affected with all the infirmities of the contract as between the parties to the agreement. Unless the third person has been induced to alter his position by relying in good faith upon the contract made for his benefit or unless a novation bas been effected, the promisor may set up any defense or equity against him which be could have set up as against the promisee." See, also, Electric Appliance Co. v. U. S. Fidelity Guaranty Co., 110 Wis. 434, 85 N.W. 648, 53 L.R.A., 609; Malanaphy v. Fuller J. Mfg. Co., 125 Iowa 719, 101 N.W. 640; Meyerson v. New Idea Hosiery Co., 217 Ala. 153, 115 So. 94, 55 A. L. R., 1231.
In this instant supplemental action of another judgment creditor of Stern against the insurance company, the right of Stern against the insurer cannot be relitigated. His right against the insurance company was fully litigated in the former supplemental action and the judgment against him in that case stands a bar for all time. Restatement of Judgments (Tentative Draft No. 1), 130, Section 330. Must it not also be a bar against any third party whose right, if any, against the insurance company is derived from and dependent upon a valid right of Stern against the insurance company? It is inconceivable that the insurance company should be held liable to the plaintiff and at the same time not be required to indemnify Stern in case he should be required to pay the Conold judgment, he being the only party to whom it owed contractual obligations.
Res judicata or estoppel operates not only between parties to an action but between parties, and others not parties, as to the derivative rights of the latter which flow from those who were adversary parties in the action. Where a court of competent jurisdiction finds that a legatee under a will receives the legacy, not in her own right, but as a trust fund to be held for her by another, a judgment creditor of the legatee seeking to subject the fund to the payment of its judgment, although not a party, is bound by the decree as to the character of the fund because it is in privity with the legatee. First National Bank of Bolivar v. Burns (Mo.App.), 199 S.W. 282. Unsecured creditors of a mortgagor, though not parties by name or service of process, are represented in a suit for foreclosure by their debtor, the mortgagor, and the decree and sale which bars the mortgagor, in the absence of fraud, bars them. St. Louis-San Francisco Ry. Co. v. McElvain, 253 F. 123, 130. See Hopper v. Nicholas, 106 Ohio St. 292, 302, 140 N.E. 186.
In the Schick case where, in a former action, the insurance contract was held valid as between the insurer and insured, the injured plaintiff in the second action was subrogated to the adjudicated rights of the insured against the insurer. Conversely, but for like reason, since the insurance contract was held void as between the insurer and the insured in the Luntz action, the injured plaintiff in this case, limited to a derivative right from the insured, is barred as her insured is barred from recovery against the insurance company.
There is no claim under the pleadings in this case that any agreement was made between Stern and the insurance company to cancel the policy of insurance or that the former's failure to cooperate was in collusion with the insurance company to defeat the claim of the defendant.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
WILLIAMS, ZIMMERMAN and BETTMAN, JJ., concur.
WEYGANDT, C.J., and TURNER, J., dissent.
MATTHIAS, J., not participating.
The conclusions reached by Judge Hart in his opinion are in harmony with the cases of Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, 151 N.E. 718; Wright, Admr., v. Schick, 134 Ohio St. 193, 16 N.E.2d 321, 121 A. L. R., 882; and Luntz et al., Exrs., v. Stern, 135 Ohio St. 225, 20 N.E.2d 241. In fact, a contrary holding would, in my judgment, require the overruling of those cases, which I am unwilling to do.
The expression, "whenever a loss or damage occurs on account of a casualty covered by such contract of insurance, the liability of the insurance company shall become absolute," as used in Section 9510-3, General Code, was properly interpreted in the Stacey case, and such interpretation corresponds with the decisions of other courts in jurisdictions having the same or a similar statute. See, George v. Employers' Liability Assurance Corp., 219 Ala. 307, 122 So. 175, 72 A. L. R., 1438; Hynding v. Home Accident Ins. Co., 214 Cal. 743, 7 P.2d 999, 85 A. L. R., 13, and cases cited therein; also 29 American Jurisprudence, 811, Section 1081; 5 Id., 810, Section 544 et seq.
Undoubtedly the purpose of the statute was to do away with clauses in contracts of insurance making the obligation of the insurer to pay loss or damage dependent upon the prior satisfaction by the insured of a judgment obtained against him by an injured person.
The meaning and effect of Sections 9510-3 and 9510-4, General Code, are accurately and succinctly stated in Employers' Liability Assurance Corp. v. Ryan (C.C.A. 6), 109 F.2d 690, 691, as follows:
"Sections 9510-3 and 9510-4 of the General Code of Ohio, permit an injured party a direct action against his judgment debtor's insurers after he has obtained a judgment against the insured. In such action the insurer may defend for breach of conditions in the insured's contract pertaining to notice of the accident, or to notice of a claim on account of it [or for failure to cooperate in the defense of an action], and on clauses which limit the casualties coming within the terms of the insured's contract, such provisions binding the judgment creditor if they are binding upon the assured." See, also, Storer v. Ocean Accident Guarantee Corp., Ltd. (C.C.A. 6), 80 F.2d 470.
As pointed out in the Stacey case, if the quoted language from Section 9510-3, General Code, were to be taken in its literal sense to deprive an insurance company of any defense in proceedings against it by the judgment creditor of the insured, a denial of due process of law would result in contravention of both the state and federal Constitutions. It is to be remembered that the insurance company does not become a party to the action, under Section 9510-4, General Code, until after the injured person has recovered a judgment against the insured. If it is desirable to have an action in which the injured person may originally sue the insured and his insurer together, trying out all questions in such action, the General Assembly must provide the appropriate legislation. See 85 A. L. R., 27, annotation.
The foregoing opinion follows the recent decisions of this court, which are bottomed upon the case of Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, 151 N.E. 718. Ordinarily, I would acquiesce under the rule of stare decisis.
However, it is the duty of this court to enforce all constitutional enactments of the Legislature and, being of the opinion that the majority decision does not give due effect to Sections 9510-3 and 9510-4, General Code, I am registering my dissent.
The transaction of the business of insurance in Ohio requires a license and may be exercised only in compliance with the laws of this state (22 Ohio Jurisprudence, 227, Section 41), which become a part of the insurance contract (22 Ohio Jurisprudence, 347, Section 189).
Regardless of any provision contained in the insurance policy, the laws of Ohio must prevail and any policy provision, condition or agreement contrary to statute must fall. In the case of Verducci v. Casualty Co. of America, 96 Ohio St. 260, 117 N.E. 235, this court held:
"1. The business of insurance is one of public interest, affecting all classes of people and property, and is therefore properly the subject of legislative regulation and control.
"2. Domestic and foreign corporations engaged in the insurance business in Ohio must conform their business and contracts to the provisions of the statutes of Ohio regulating and controlling the same."
Sections 9510-3 and 9510-4, General Code, are supplementary to Section 9510, General Code, under which companies are organized or permitted to do insurance business in Ohio.
Section 9510-3, General Code, provides:
"In respect to every contract of insurance made between an insurance company and any person, firm or corporation by which such person, firm or corporation is insured against loss or damage on account of the bodily injury or death by accident of any person for which loss or damage such person, firm or corporation is responsible, whenever a loss or damage occurs on account of a casualty covered by such contract of insurance, the liability of the insurance company shall become absolute, and the payment of said loss shall not depend upon the satisfaction by the assured of a final judgment against him for loss, or damage or death occasioned by such casualty. No such contract of insurance shall be cancelled or annulled by any agreement between the insurance company and the assured, after the said assured has become responsible for such loss or damage or death, and any such cancellation or annulment shall be void."
Section 9510-4, General Code, provides:
"Upon the recovery of a final judgment against any firm, person or corporation by any person, including administrators and executors, for loss or damage on account of bodily injury or death, for loss or damage to tangible or intangible property of any person, firm or corporation, for loss or damage to a person on account of bodily injury to his wife, minor child or children if the defendant in such action was insured against loss or damage at the time when the rights of action arose, the judgment creditor or his successor in interest shall be entitled to have the insurance money provided for in the contract of insurance between the insurance company and the defendant applied to the satisfaction of the judgment, and if the judgment is not satisfied within thirty days after the date when it is rendered, the judgment creditor or his successor in interest, to reach and apply the insurance money to the satisfaction of the judgment, may file in the action in which said judgment was rendered, a supplemental petition wherein the insurer is made new party defendant in said action, and whereon service of summons upon the insurer shall be made and returned as in the commencement of an action at law. Thereafter the action shall proceed as to the insurer as in an original action at law."
While there is no legal obligation on the part of an insured to take out a policy indemnifying against loss on account of injuries to third persons, yet when it is taken out it becomes, by virtue of Sections 9510-3 and 9510-4, General Code, a contract made for the benefit of a third party. Such contract may be cancelled or annulled prior to any accident. But if the policy is in force at the time of the accident "the liability of the insurance company shall become absolute" and "no such contract of insurance shall be cancelled or annulled by any agreement between the insurance company and the assured, after the said assured has become responsible for such loss or damage or death, and any such cancellation or annulment shall be void."
I thoroughly disagree with the holding in Stacey v. Fidelity Casualty Co. of New York, supra, that such "contract of insurance becomes absolute only in the sense that the payment of loss by the insurance company shall not depend upon the satisfaction by the assured of a final judgment against him for loss or damage or death occasioned by such casualty." There is no "only" or any other limitation in the statute. Instead, there is the positive provision that prevents the parties, even by mutual agreement, from cancelling or annulling the policy after the happening of the accident. Certainly, there is no right in one party to do without agreement what both may not do by agreement. Yet the majority in the instant case holds that the insurance company may of its own accord repudiate this contract and avoid the rights of an injured party whose rights had theretofore become fixed under the above-quoted statutes.
In the Stacey case, the court was worried about the possible unconstitutionality of Sections 9510-3 and 9510-4, General Code, and felt that it was required to give a constitutional interpretation to what was thought to be a doubtful statute. At page 639 of the opinion, it is said: "In construing this language it is again the duty of the court to give to the statute such an interpretation as will prevent a declaration of unconstitutionality." At the close of the opinion, it is said: "Sections 9510-3 and 9510-4 are not unconstitutional when properly interpreted, and will doubtless serve a useful purpose, but may not be permitted to eliminate essential terms and conditions of policies of insurance." (Italics mine.)
Had this been said in reference to a policy issued prior to the enactment of these sections, I could readily agree. But when it comes to contracts of insurance entered into subsequent to the enactment of these statutes, then there can be no question of unconstitutionality because insurance business in this state may be transacted only in accordance with the statutes of this state, which become a part of and modify or extend every contract of insurance written in this state so as to effect the purpose of the statute. In the Stacey case, no notice was taken of Verducci v. Casualty Co. of America, supra. Had the latter case been studied, it would be difficult to understand the concern of the court in the Stacey case about the constitutionality of the statute there being construed.
In the course of the Stacey opinion, the court also said at page 638: "If the language of Section 9510-3 should be taken in its literal sense, and the interpretation of the plaintiff be adopted, the insurance company would have no ground of defense, and immediately upon the occurrence of an accident, resulting in loss and damage, would be bound to pay, and all questions of contributory negligence, proximate cause, and other elements bearing upon the right to recover, would be eliminated. It must necessarily be assumed that the Legislature had no such intent. To give the section such meaning would necessarily render it invalid." There is thus put up a straw man to destroy.
Sections 9510-3 and 9510-4, General Code, are parts of a single act (108 Ohio Laws, pt. 1, 385, and 115 Ohio Laws, 403). When these two sections are construed together, as they should be, it is at once apparent that the right of recovery by the injured person from the insurance company depends upon the prior recovery by the injured person of a judgment in an action for damages brought against the insured. In the action for damages, the insured (the insurance company under its policy defends the damage action for the insured) has the full right and opportunity to try out all questions of contributory negligence, proximate cause, and other elements bearing upon the right of the injured party to recover. When the recovery is made in the action for damages, then by virtue of Section 9510-3, General Code, the questions of contributory negligence, proximate cause and other elements bearing upon the right to recover are res judicata between the injured party, the insured and the insurance company.
If there were any doubt about the meaning of the words in Section 9510-3, General Code, that "the liability of the insurance company shall become absolute," such doubt ought to be dispelled by the language of Section 9510-4 that "upon the recovery of a final judgment * * * for loss or damage * * * if the defendant in such action was insured against loss or damage at the time when the rights of action arose, the judgment creditor * * * shall be entitled to have the insurance money * * * applied to the satisfaction of the judgment * * *." (Italics mine.)
What the majority holds in the instant case is that notwithstanding the defendant was insured at the time when the right of action arose, notwithstanding that the policy of insurance was in full force and effect at the time of the accident, and notwithstanding the plain and unequivocal provision of Section 9510-3 that "no such contract of insurance shall be cancelled or annulled by any agreement between the insurance company and the insured, after the said assured has become responsible for such loss or damage or death, and any such cancellation or annulment shall be void," the insurance company may declare the policy void because of the non-cooperation of the insured after the liability became absolute and after the rights of the injured party to recover directly from the insurance company had become fixed. (Italics mine.)
While the peculiar facts referred to in the brief in this case may raise a clear inference that the tendency of insured's conduct was harmful or at least not helpful to the insurance company, yet it should not be overlooked that the question here is being raised upon demurrer to an answer by the insurance company to a supplemental petition of the injured party filed pursuant to Section 9510-4, General Code. The facts showing non-cooperation were not pleaded. Furthermore, it should not be overlooked that when the defendant secured a judgment against the insured in the action for damages, the liability of the insurance company as well as of the insured became res judicata as to the injured party.
Contrary to the argument in the majority opinion, the rights of Stern against the insurance company are not involved in the instant case, save only the question of whether at the time of the accident Stern held a valid policy of insurance covering the accident, which policy had been issued by the appellee insurance company.
The majority opinion attempts to measure the rights of the injured person by the contract between Stern and the insurance company without giving any consideration to the fact that Stern and the insurance company had no right to make any contract which conflicted with, modified or eliminated any provision of any statute of this state.
In the absence of the statutes above-quoted, I could agree that the Luntz case formed the basis of res judicata, but giving effect to those statutes, I maintain that the liability of the insurance company to the plaintiff is now res judicata by virtue of the judgment in the damage case.
We must not decide this case upon the facts in the Luntz case, because in the instant case we have merely a supplemental answer, filed by the insurance company, to which a demurrer was filed and overruled with final judgment following appellant's failure to plead further.
If Stern, the insured, breached his contract to cooperate in the defense of the case, then the insurance company has a right of action against Stern for any damages caused by such breach of contract.
Final judgment ought to be entered for appellant.