Opinion
Decided October 6, 1936.
A condition in a motor vehicle liability policy that "the assured when requested by the Company shall aid . . . in securing evidence and the attendance of witnesses, in defending suits . . . and shall at all times render to the company cooperation and assistance in the assured's power" is a condition subsequent, and a material breach thereof relieves the insurer from liability to indemnify the assured. A finding that the assured "violated his agreement to cooperate and assist the company in defending the action" is one of fact, and was warranted by evidence that the assured got drunk and thereby disabled himself from appearing at the trial and thereafter disappeared. In such case the finding by the trial court "that liability would have been established" if the assured had testified does not establish that the insurer was not prejudiced by the assured's absence from trial. Evidence that the insurer's attorney at the first day of trial gave the assured money, when he was wholly without funds, and that an agent of the insurer was aware that "if money was put in his hands he immediately drank" did not compel a conclusion that the insurer was guilty of negligence. Though the law may disregard trivial and innocent breaches of a condition and may receive evidence of the consequences of a breach to determine whether it is material, all questions of actual harm and probable effect become immaterial when a material breach has been found. An agreement by an insurer to "pay any judgments entered against" the assured in consideration of the release of an attachment constituted no more than a promise to pay according to the terms and conditions of the policy and not independently thereof.
PETITION, for a declaratory judgment to determine whether the plaintiff is legally bound to satisfy either or both of two judgments recovered severally by the defendants, Ethel W. Adams and Joseph V. Adams against the defendant Keliher. Trial by the court (Scammon, J.) with findings in favor of the defendant Ethel W. Adams and against the defendant Joseph V. Adams, to which all the parties excepted. Transferred, after the retirement of Judge Scammon, by Sawyer, C. J.
The record discloses the following facts: Upon January 1, 1933, the plaintiff company issued to the defendant Keliher at Lynn, Massachusetts, a motor vehicle liability policy in accordance with the Massachusetts Compulsory Insurance Act (Massachusetts Laws 1925, c. 346) containing a so-called "extra territorial" clause, by which the plaintiff agreed "to indemnify the named assured . . . against loss by reason of his legal liability to pay damages to others for bodily injuries, including death at any time resulting therefrom accidentally sustained during the term of this policy by any person or persons not hereinafter excluded, arising out of the ownership, operation, maintenance, control or use, including loading and unloading, of the motor vehicle or trailer described in the policy within the limits of the Continental United States of America and the Dominion of Canada, elsewhere than upon the ways of the Commonwealth of Massachusetts."
The policy also contained a clause requiring the cooperation of the assured, in the following language: "The foregoing agreements are subject to the following conditions: C. COOPERATION. The assured, when requested by the Company, shall aid in effecting settlement, in securing evidence and the attendance of witnesses, in defending suits, and in prosecuting appeals, and shall at all times render to the Company all cooperation and assistance in the assured's power."
Upon July 26, 1933, while said policy was in force, a collision occurred between the insured car driven by the defendant Keliher, and a car owned and operated by the defendant Ethel W. Adams, within the state of New Hampshire.
Upon the following day, July 27, 1933, the defendant Keliher was arraigned in the Municipal Court of the city of Rochester upon a complaint charging him with a violation of Public Laws, c. 90, s. 1, providing that "If a person traveling on a highway with a vehicle meets another person so traveling in the opposite direction, he shall seasonably turn to the right of the center of the traveled part of the road, so that each may pass the other without interference." To this complaint he pleaded guilty and was sentenced to pay a fine of five dollars and costs, which he paid.
Upon August 4, 1933, Ethel W. Adams brought suit in the Superior Court for the county of Strafford against the defendant Keliher, to recover for personal injuries sustained by her as a result of the above mentioned accident, declaring as the basis of her claim upon his violation of Public Laws, c. 90, s. 1. Upon the same day an attachment was made of Keliher's automobile. The writ in the above mentioned action was sent by Mrs. Adams' attorney to James H. Dignan, a claims attorney of the plaintiff company and the manager of its Boston branch, who accepted service on behalf of the defendant Keliher, and returned the writ to plaintiff's counsel, together with a letter which reads as follows:
"August 8th, 1933. Conrad E. Snow, Esq., Rochester Trust Co. Bldg., Rochester, New Hampshire. Re: Ethel W. Adams vs. Thomas R. Keliher.
"Dear Sir: I return herewith writ in the case of Ethel W. Adams vs. Thomas R. Keliher on which service has been accepted by me on behalf of Mr. Keliher.
"Under date of January 1, 1933, this company issued a policy of Liability Insurance to Mr. Keliher covering a Chevrolet Sedan against liability and property damage claims arising in Massachusetts and elsewhere in the United States. At the time of the accident which occurred on July 26th, 1933, at Barrington, New Hampshire, this policy of insurance was in force and effect and the company will pay any judgments entered against Mr. Keliher up to and including the limits of the policy which are as follows:
"$5,000. Any one person for bodily injury. 10,000. Any one accident for bodily injury. 5,000. For property damage.
"It is my understanding that upon receipt of this letter plus the writ on which service has been accepted, Mr. Keliher's car will be released. Very truly yours, (Signed) J. H. Dignan, Claims Attorney." Upon receipt of this letter the attachment on Mr. Keliher's car was released.
In its findings the court construed the above letter as follows: This is "an unconditional agreement, it was in no way dependent upon anything that Mr. Keliher might or might not do, it was made more than one and one-half years prior to the trial, and was an independent agreement with Mrs. Adams and both should be bound by it. It was made for a consideration and was relied upon by counsel for the plaintiff, and the company ought not to be permitted to repudiate its agreement because someone else has failed to perform their agreement with it. To permit a person or corporation to obtain property from another upon a promise to pay, to escape liability because of the the conduct of a third party with whom it has contractual relations, opens the door for fraud that should forever remain closed." To the foregoing ruling the plaintiff duly excepted.
Upon July 30, 1934, suit was brought by the defendant Joseph V. Adams against the defendant Keliher to recover for expenses, loss of his wife's services, alleged to have resulted from the injuries sustained by her in the above mentioned accident.
In accordance with the terms of its policy, the plaintiff company, by its attorneys, assumed the defence of the suit brought by Ethel W. Adams, but disclaimed liability in the suit of Joseph V. Adams. By express authority from the defendant Keliher, however, the attorneys for the plaintiff appeared for him personally and defended the action of Joseph V. Adams.
The above actions came on for trial together upon February 25, 1936, and Mr. Keliher was requested by the plaintiff to assist in their preparation and trial. Upon that date he came to Dover with an agent of the plaintiff and was present in court when the jury was drawn. He was also present at the view thereafter taken by the jury. With reference to his subsequent conduct the court made the following findings:
"On the following day (February 26th), Keliher failed to appear at Court and was found in a local hotel under the influence of liquor and unable to attend Court. He agreed to wait until five o'clock that day but left earlier and counsel with the Sheriff of the County tried to locate him so as to have him in Court on Wednesday, February 27th, but were unable to. On Wednesday when he did not appear, his counsel moved for a mistrial. This was denied but a continuance was ordered until the following Monday morning, March 4th, 1935, to give the defendant an opportunity to appear. During this recess, the defendant was located in Lynn and promised to appear on Monday but avoided an agent of the company sent to bring him to Court on March 4th and he did not appear.
"On March 4th a motion for a mistrial was denied and the defendant excepted, and counsel for the defendant disclaimed coverage and in proceeding with the trial under the orders of the Court did not waive any of its rights.
"The jury found a verdict for both plaintiffs, $6500 for Ethel W. Adams and $1500 for Joseph V. Adams for expenses, loss of consortium, etc. The plaintiff had previously offered to settle both cases for $5,000."
The court further found that "the company made every effort within reason to have him [Keliher] attend and he refused and violated his agreement to cooperate and assist the company in defending the action." To this finding the defendants Ethel W. Adams and Joseph V. Adams duly excepted.
The facts having been found as above, the court made the following rulings of law:
"The Court finds that the policy in question did not cover the damage sustained by Joseph V. Adams:
"1st Because the extra-territorial coverage did not embrace the damage he sustained:
"2nd. Because of the failure of Mr. Keliher to cooperate."
To these findings the defendants Ethel W. and Joseph V. Adams severally excepted.
"The Court finds that the policy in question covers the damage sustained by Ethel W. Adams to the amount of Five Thousand Dollars and that the judgment by Mrs. Adams against Keliher should be satisfied by the Glens Falls Indemnity Company to that extent and in that amount."
To this finding the plaintiff excepted.
Other facts are stated in the opinion.
Both parties made numerous requests for findings of fact and rulings of law, which, so far as they appear to be material, are stated in the opinion.
Hughes Burns (Mr. Burns orally), for the plaintiff.
Conrad E. Snow (by brief and orally), for the defendants.
Although the questions presented by the plaintiff's petition might have been raised as matters of defence to a bill in equity brought by the defendants Ethel W. Adams and Joseph V. Adams against the plaintiff company to secure the payment of their judgments against the defendant Keliher in accordance with the procedure approved by this court in Sanders v. Insurance Co., 72 N.H. 485, a petition for a declaratory judgment like that now before us appears to be the only recognized method by which the plaintiff company could, of its own motion, secure a decision of the questions here involved. This proceeding is, therefore, properly brought under the declaratory judgment act, Laws 1929, c. 86, one effect of which is "to enable the normal defendant to institute the proceedings." Faulkner v. Keene, 85 N.H. 147, 255.
The provision of the policy that the assured shall cooperate in the defence of all suits against him is stated to be a condition of the plaintiff's agreements, including the agreement to indemnify the assured against liability for personal injuries resulting from the operation of the motor vehicle described therein, and it appears to be conceded by the defendants that a material breach of this condition would relieve the plaintiff from liability under the policy. The authorities leave no room for doubt upon this question. "Policies containing covenants the same as or similar to those contained in this policy have been so often sustained that the question should be considered at rest." Watkins v. Watkins, 210 Wis. 606. See notes on "Liability Insurance — Cooperation," in 72 A.L.R. 1446 and 98 A.L.R. 1465, where the cases are collected. Whether a condition of the kind here involved shall be called a condition precedent as in Bachhuber v. Boosalis, 200 Wis. 574, or a condition subsequent as in Medical c Co. v. Light, 48 Oh. App. 508, is perhaps a barren speculation, but since the effect of the assured's failure to cooperate is to relieve the insurer from an obligation which has already attached, subject to possible defeasance, it seems more in accord with the customary use of English terms to call this provision a condition subsequent. It is, in either event, a "material condition of the policy" the violation of which by the assured destroys the right to claim indemnity thereunder. Royal Indemnity Co. v. Morris, 37 Fed. (2d) 90. In Ward v. Casualty Co., 71 N.H. 262, this was assumed without discussion to be the law.
The question, whether the conduct of the defendant Keliher constituted a violation of his obligation to cooperate and assist the company in defending the action against him, was a question of fact to be determined in the Superior Court (Ward v. Casualty Co., supra, 267, 268) which has been decided adversely to the defendants. They now argue, however, that the finding of the trial court should be set aside for three reasons: 1, because "There was no sufficient evidence that Mr. Keliher violated his agreement to cooperate"; 2, because "Petitioner negligently caused Mr. Keliher's condition on which it now relies as a breach of his agreement to cooperate," and 3, because "Petitioner failed to sustain the burden of showing a substantial and material injury through the alleged failure to cooperate and assist."
The first of these contentions hardly merits attention. The court found, in effect, that Keliher got drunk and thereby disabled himself from appearing in court on the day after the jury was drawn and when the trial was about to start, and thereafter, upon the same day, disappeared so that he could not be found by plaintiff's counsel or the sheriff of the county. Without reference to his subsequent conduct, which was equally indefensible, these facts were amply sufficient to sustain the finding of the trial court that Keliher "violated his agreement to cooperate and assist the company in defending the action."
Defendants' second contention is equally without merit. The substance of the claim is that the plaintiff, through its agents, was negligent because it placed in Keliher's hands the money which he presumably used to purchase liquor. In support of this claim, reference is made to the admitted fact that, upon February 25, 1935, the first day of the trial, plaintiff's counsel, Mr. Burns, gave to Mr. Keliher, who was then wholly without funds, a check for $20 and to the testimony of James J. Cotter, of Lynn, Massachusetts, the plaintiff's agent who wrote Mr. Keliher's policy on January 1, 1933, that since the death of his mother in September 1933, Keliher had been a drunkard and wholly irresponsible and that if money was put in his hands he immediately drank. The argument seems to be that the plaintiff company was chargeable with Mr. Cotter's knowledge of Keliher's habits acquired long after the policy in question was issued, through occurrences which had no connection whatever with his agency, and that the conduct of the company's attorney, Mr. Burns, in giving Keliher money to meet his immediate necessities was, therefore, as a matter of law, negligent. We know of no rule or rules of law which compel these conclusions nor have any authorities sustaining the defendants' contention been called to our attention. The question of the plaintiff's negligence was, at best, one of fact which has been decided adversely to the defendants by the refusal of the trial court to make a finding of negligence in accordance with their request.
With reference to the defendants' third contention, the trial court found as follows: "Counsel have asked for a finding that the failure of Mr. Keliher to cooperate did not adversely affect the result. Both the writs of Joseph V. Adams and Ethel W. Adams allege that the accident was caused by Keliher being upon the wrong side of the highway in violation of law. Mr. Keliher had pleaded guilty to this offense on the day following the accident and paid a fine of five dollars and costs. So far as liability went, the Court finds it to be more probable than otherwise that liability would have been established if Mr. Keliher had testified, but as to any other effectual assistance he might have given in the conduct of the case the Court makes no findings."
In view of the court's finding that it is "more probable than otherwise that liability would have been established if Mr. Keliher had testified," counsel for the defendants argue that his absence from the trial did not harm the defendant and, therefore, that his refusal to cooperate was not material.
There are both practical and theoretical answers to this argument. Every person familiar with the trial of cases by jury knows that the case of an individual defendant is seriously, if not hopelessly, prejudiced by his absence from the trial. Such absence, if not adequately explained, is a circumstance, "chiefly persuasive as distinguished from probative in its effect," (Login v. Waisman, 82 N.H. 500, 502) which normally affects the decision of the jury upon all questions submitted to them. Even if the liability of a defendant were admitted or conclusively established, it cannot be doubted that the mental attitude of the jury in assessing damages would be influenced by his unexplained absence from the court room. Due regard for the current demand for realism in the administration of the law does not permit the adoption of the defendants' argument that the plaintiff was not prejudiced by Keliher's absence from the trial of the case against him.
The theoretical answer to the defendants' argument, which is equally complete, was well stated by Cardozo, J. in Coleman v. Casualty Co., 247 N.Y. 271, as follows: "The argument misconceives the effect of a refusal. Co-operation with the insurer is one of the conditions of the policy. When the condition was broken, the policy was at an end, if the insurer so elected. The case is not one of the breach of a mere covenant, where the consequences may vary with fluctuations of the damage. There has been a failure to fulfill a condition upon which obligation is dependent."
A breach of condition is no less decisive in its effect than a breach of warranty with reference to which we have recently stated the law as follows: "It may be taken as still law in New Hampshire that if a fraudulent statement in an application is to be regarded as a warranty, the question of `materiality' is not one of fact for the jury, but one of law for the court in determining whether the statement is material in the sense that it was intended by the parties to be a part of the contract. This view restricts the question to one of construction of the policy itself." Amoskeag Trust Co. v. Insurance Co. ante, 154. In other words, while the law may disregard trivial and innocent breaches of condition, and while the character of the assured's conduct and the importance of its probable effect upon the interests of the insurer may be considered for the purpose of determining whether there has been a substantial breach, all questions of actual harm and probable effect become immaterial when a breach of condition has been definitely established.
From the foregoing discussion it follows that the exceptions of the defendants, Ethel W. and Joseph V. Adams must be overruled, and it is, therefore, unnecessary to consider the question whether the claim of Joseph V. Adams was within the coverage of the policy.
There remains for consideration the exception of the plaintiff to the trial court's ruling that the letter of Mr. Dignan, dated August 8, 1933, constituted an unconditional and independent agreement with Mrs. Adams to pay any judgment entered against Mr. Keliher in her suit, within the limits of the policy. The plaintiff attacks this ruling upon two grounds: 1, "Because the letter by its terms had reference to the original policy of insurance issued to Keliher" and hence could not properly be construed as an independent agreement, and 2, "Because Dignan had no authority to bind the Insurance Company by any independent agreement."
We think that the plaintiff's first position is well taken, and therefore, do not consider the merits of the second. The letter first recites the issuance of the policy. It next states that the policy was in force at the time of the accident, and finally that "the company will pay any judgments entered against Mr. Keliher up to and including the limits of the policy which are as follows: $5,000. Any one person for bodily injury." We think it plain that the true intent and meaning of the language above quoted was that the company would pay, in accordance with the terms of the policy, any judgments entered against Mr. Keliher within the policy limits. The idea that Mr. Dignan, when he wrote this letter, undertook, on behalf of the company, to guarantee the payment of any judgment entered against Mr. Keliher in Mrs. Adams' suit, without regard to the conditions of the policy, — which he referred no less than three times, — appears so improbable, that an interpretation leading to such an unintended result should not be adopted if another reasonable construction of the language is possible. In this case the alternative is obvious. The letter should be construed as though it read as follows: "Subject to the terms and conditions of said policy, the company will pay any judgments entered against Mr. Keliher up to and including the limits of the policy." Since the only obligation of the company to pay the judgment in Mrs. Adams' suit was subject to the conditions of the policy and since a breach of a material condition has been established, it follows that the obligation of the plaintiff with reference to her judgment is at an end and the plaintiff is entitled to judgment in this proceeding, in accordance with the first prayer of its petition.
Judgment for the plaintiff.
All concurred.