Summary
In Aetna Casualty and Surety Co. v. Buckeye Union Casualty Co. (1952) 157 Ohio St. 385, 105 N.E.2d 568, cited by the plaintiff The Allstate, the Aetna Casualty had issued an automobile liability insurance policy to one Butler on his Chevrolet, which also applied to a substitute automobile temporarily used while his Chevrolet was being repaired, but as to such temporary use of a substitute automobile the Aetna insurance was excess insurance over any other insurance available to the insured.
Summary of this case from Allstate Ins. Co. v. UrbanOpinion
No. 32752
Decided April 23, 1952.
Insurance — Automobile indemnity — Primary and secondary coverage by different insurers — Negligence action against insured — Insurer issuing primary coverage policy wrongfully disclaims liability — Insurer secondarily liable effected settlement — May recover from one primarily liable — Subrogation provision in secondary coverage policy — Inures to insurer as against primary insurer.
1. Where the operator of an automobile is covered with respect to negligent operation thereof by two insurance policies issued by different companies one of which policies provides primary coverage and the other secondary coverage and the company which carries the primary coverage wrongfully disclaims coverage and refuses to defend or participate in settlement of an action which is brought against the insured, such disclaimer is made at its peril and the company which carries the secondary insurance may, after reasonable notice to the other company, effect reasonable settlement of the action and, upon general equitable principles, may recover from the carrier of the primary coverage the amount so expended within the limits of that policy.
2. Where a liability insurance policy which provides secondary insurance contains provisions subrogating the insurer to the rights of the insured, such subrogation provisions inure to the benefit of that insurer as against another insurance company which carries primary insurance in favor of the same insured.
APPEAL from the Court of Appeals for Cuyahoga county.
The Aetna Casualty Surety Company, hereinafter referred to as Aetna, sued The Buckeye Union Casualty Company, hereinafter referred to as Buckeye, for $2,660.81, that being the amount paid by Aetna to one Gibbs in settlement of an action brought by Gibbs against one Butler, who was insured by Aetna, that action having arisen out of an automobile collision. The policy issued by Aetna to Butler was a liability policy in the principal sum of $5,000. It contained, among others, the following provisions:
"VI. Temporary Use of Substitute Automobile
"While an automobile owned in full or in part by the named insured is withdrawn from normal use because of its breakdown, repair, servicing, loss or destruction, such insurance as is afforded by this policy * * * with respect to such automobile applies with respect to another automobile not so owned while temporarily used as the substitute for such automobile. * * *"
"No. 15. Other Insurance. * * *
"If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance under insuring agreements V and VI shall be excess insurance over any other valid and collectible insurance available to the insured, either as an insured under a policy applicable with respect to the automobile or otherwise, against a loss covered under either or both of said insuring agreements." (Emphasis added.)
The policy also contained the following subrogation clause:
"14. Subrogation * * *
"In the event of any payment under this policy, the company shall be subrogated to all of the insured's rights of recovery therefor against any person or organization * * *."
Prior to May 16, 1944, the date of the accident causing the loss here in question, Butler's Chevrolet automobile (covered by the Aetna policy) was severely damaged by fire. Being a regular customer of the Weaver Motor Company, he took it to that company to be repaired, repair work being a regular normal part of its business. The car remained there for several weeks, and during part of that period Weaver Motor Company at Butler's request loaned him a 1940 Chevrolet sedan to use until the repairs on his own car were completed. While thus using it he collided with a tractor and trailer outfit belonging to Gibbs under circumstances which made it probable that Butler was liable to Gibbs for the damage thus caused.
Prior to the date of the collision with the Gibbs truck, Buckeye had issued to Weaver Motor Company its policy No. AG-8756 and the same was then in full force and effect. This policy was designated as a "garage liability policy" and covered not only Weaver Motor Company, but its customers as well, under a "customer's blanket" provision, a premium charge for which was included in the total premium charged for the policy.
The Buckeye policy issued to Weaver Motor Company contained, inter alia, the following provisions:
"It is agreed that such insurance as is afforded by the policy for bodily injury liability and for property damage liability applies also to any customer of the named insured, as insured, subject to the following provisions:
"1. The insurance applies only if the named insured's operations are classified as `automobile dealer or repair shop' and only while any such customer is using, for purposes of demonstration or otherwise in direct connection with such business operations, any automobile covered under such classification."
The general insuring agreements of the Buckeye policy provided as follows:
"Coverage B — Property Damage Liability — To pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident and arising out of such of the operations hereinafter defined as are indicated by specific premium charge or charges in item 3 of the declarations.
"* * *
"II Defense * * *
"It is further agreed that as respects insurance afforded by this policy the company shall
"(a) defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless * * *."
The Buckeye policy contained the standard "other insurance" provision, but, unlike the Aetna policy, it did not contain any "excess insurance" provision. The amount involved in the action brought by Gibbs against Butler was within the money limits of the Buckeye policy, if the coverage of the Buckeye policy extended to Butler.
On May 25, 1944, about nine days after the collision, Gibbs made demand on Butler for this damage. Within a few days Butler notified both Aetna and Buckeye of the demand of Gibbs and requested protection from both companies. Buckeye, however, disclaimed on the ground of "no coverage." About a year later Gibbs sued Butler's estate (he having died in the meantime) for $5,000 in the Common Pleas Court of Wayne County, Ohio. A copy of the petition was duly forwarded by his administratrix to Buckeye but it again declined the claim on the ground of "no coverage."
After demand upon and notice to Buckeye, Aetna made settlement with Gibbs on February 6, 1946, for $2,500 and certain costs, making a total of $2,660.81.
In its petition Aetna alleges that, by reason of the provisions of the two policies, Buckeye was the primary insurer of Butler and that Aetna became and was the excess and secondary insurer of Butler as regards his operation of the automobile involved in the collision.
In its answer Buckeye makes formal admission and then avers "that said Butler used said automobile for his own purposes and was not in any way using said car in direct connection with the business operations of said the Weaver Motor Company, and * * * that if the said plaintiff did in fact pay to Raymond D. Gibbs the sum of $2,500, said plaintiff was only carrying out its legal obligation under the contract of insurance referred to in plaintiff's petition."
Jury was waived and the cause was tried to the court upon the pleadings, stipulations and the evidence. Upon request the judge stated in writing his "conclusions of fact and conclusions of law."
The "conclusions of fact" include the following:
"The court finds from the evidence that at the time of the collision between the Chevrolet sedan owned by the Weaver Motor Company and operated by Edward G. Butler and the truck owned by Dan Gibbs Son, Butler was using said automobile of the Weaver Motor Company with its permission and as one of its customers and that such use by him was in direct connection with the business operations of the Weaver Motor Company, being in furtherance of the building up of its business through good will and the maintenance of satisfactory relationships with its customers."
In the "conclusions of law," the court found that Butler was covered by the Buckeye policy; that the coverage of the Buckeye policy was primary and that of the Aetna policy was secondary but that, under the court's construction of Farm Bureau Mutual Automobile Ins. Co. v. Buckeye Union Casualty Co., 147 Ohio St. 79, 67 N.E.2d 906, the payment by Aetna to Gibbs was made by Aetna as a volunteer and without right of recovery of any part thereof from Buckeye; that Aetna was not, by said payment, subrogated to any rights; and that judgment should be rendered in favor of Buckeye.
Upon appeal to the Court of Appeals on questions of law, the judgment of the trial court was affirmed. The journal entry in the Court of Appeals does not state the ground of affirmance. The opinion of the Court of Appeals, however, contains the following:
"Upon examination of the evidence (agreed stipulation of facts, exhibits, copies of policies, depositions) we conclude that the `conclusions of fact' reached by the trial court are within the bounds of the proof; and that the `conclusions of law' under (1) and (2), as set forth above, are sustained by the contracts of insurance, in the light of the evidence."
That opinion then states the court's conclusion that Aetna was at no time legally liable to pay anything because of the "excess" provision in its policy and the fact that the amount of the damage settlement made by Aetna came within the limits of the Buckeye policy, and that Aetna was a volunteer in making the payment.
The cause comes into this court upon the allowance of a motion to certify the record.
Messrs. McKeehan, Merrick, Arter Stewart and Mr. C.M. Horn, for appellant.
Mr. Wm. M. Byrnes, Mr. W.A. Kane and Mr. Frank J. Kus, for appellee.
As appears from the foregoing statement of facts both lower courts agreed upon the important fact that Butler's use of the Weaver Motor Company automobile was such as to create coverage of Butler by the Buckeye policy. The lower courts also agreed on the legal construction of the two policies, to wit, that the coverage of the Buckeye policy was primary and that of the Aetna policy was secondary. With that construction of the policies this court agrees.
The sole question before this court is whether Aetna in making the settlement and paying the money to Gibbs, under the undisputed circumstances of this case, was a mere volunteer without right of recovery from Buckeye.
We do not agree with the conclusion of the Court of Appeals in that regard.
When Butler was sued by Gibbs he had the right to look to both Aetna and Buckeye or to either of them for protection. If Buckeye disclaimed coverage, as it did, and refused to take necessary steps to protect him, he could, and in effect did, demand full protection from Aetna. The Aetna policy provided that it "shall be excess insurance over any other valid and collectible insurance available to the insured." So long as Buckeye disclaimed coverage and refused to participate in any way in negotiating settlement or defending the action, there was no admitted or established "other valid and collectible" insurance. Aetna was, therefore, forced to defend and pay any resulting judgment — or settle. Under its contract of insurance with Butler, Aetna could not abandon him merely because buckeye chose to deny coverage and gamble on future exoneration. Buckeye was put on notice immediately after the accident by letter written June 5, 1944. The action against Butler was instituted July 20, 1945, and on July 24, 1945, a copy of that petition was sent to Buckeye. By letter dated October 1, 1945, Buckeye again disclaimed coverage of Butler and declined to defend the action. On January 28, 1946, Buckeye was notified by letter that Aetna, after extensive investigation, was satisfied that the action brought against Butler should be settled for $2,500, that Aetna expected to make such settlement within five days, and that Buckeye should proceed to take any steps which it might deem necessary. Buckeye chose to do nothing.
Buckeye could not escape ultimate liability merely by denying coverage and refusing to defend the action. It cannot be immunized from payment by its own breach of contract. See Klaustermeyer v. Cleveland Trust Co., Assignee, 89 Ohio St. 142, 105 N.E. 278.
An action had been instituted against the insured. Aetna took all reasonable measures to preserve any rights which it might have, through subrogation or otherwise, to compel Buckeye to discharge its obligation as primary insurer. The amount paid in settlement is stipulated as reasonable.
It is well settled that one secondarily liable, who is forced to pay because of the refusal, or failure after demand, of the one primarily liable to discharge the obligation, has the right of indemnity from the one primarily liable. Globe Indemnity Co. v. Schmitt, 142 Ohio St. 595, 53 N.E.2d 790; Maryland Casualty Co. v. Frederick Co., 142 Ohio St. 605, 53 N.E.2d 795; Losito v. Kruse, Jr., 136 Ohio St. 183, 24 N.E.2d 705, 126 A.L.R., 1194; Herron v. City of Youngstown, 136 Ohio St. 190, 24 N.E.2d 708.
Aetna had an interest to protect and a legal obligation to pay. In effecting settlement and making payment under such circumstances Aetna was not a volunteer.
In 50 American Jurisprudence, 698, Section 22, it is said:
"Generally speaking, the party making payment is a volunteer if, in so doing, he has no right or interest of his own to protect, and acts without obligation, moral or legal, and without being requested by anyone liable on the obligation. * * *
"Where the person paying the debt has an interest to protect, he is not a stranger."
Likewise, the right of one paying through compulsion to be subrogated is recognized in 60 Corpus Juris, 716, Section 27, where it is stated:
"Subrogation goes on the theory that the one invoking it has rightfully discharged the debt. It always requires something more than the mere payment of a debt in order to entitle the person paying the same to be substituted in the place of the original creditor. A mere volunteer or intermeddler who, having no interest to protect, without any legal or moral obligation to pay, and without an agreement for subrogation, or an assignment of the debt, pays the debt of another is not entitled to subrogation, the payment in his case absolutely extinguishing the debt. The payor must have acted on compulsion, and it is only in cases where the person paying the debt of another will be liable in the event of a default or compelled to pay in order to protect his own interests, or by virtue of legal process, that equity substitutes him in the place of the creditor without any agreement to that effect."
It is now determined that Butler was covered by the Buckeye policy and that Buckeye was obligated to defend Butler and pay any judgment rendered against him, within the limits of its policy, or effect settlement. Those rights of Butler against Buckeye passed to Aetna under the subrogation clause in Aetna's policy.
Therefore, applying the principles of equity and natural justice, Aetna has the equitable right to recover from Buckeye and it also has the right to recover by way of subrogation under the policy.
The instant case is distinguishable on the facts from Farm Bureau Mutual Automobile Ins. Co. v. Buckeye Union Casualty Co., supra. In that case the policies of both companies contained "other insurance" clauses which provided for prorating the claims. Both insurance companies admitted their coverage and the liability of their insured for some amount of damages on the claim asserted. No action was instituted against the insured. One company made full settlement without being forced to do so by court action. The case did not involve primary and secondary liability. Subrogation was not involved. Under those circumstances, the court held that there was no legal liability requiring the settling company to make the payment and consequently that it was a volunteer. The decision in that case is not disturbed. It is not applicable to the facts of the instant case.
For the reasons hereinabove stated, we conclude that Aetna, as the secondary insurer which was forced to make settlement and pay to protect itself, is entitled to recover from Buckeye which was the primary insurer.
The judgment of the Court of Appeals is reversed and final judgment is rendered for Aetna.
Judgment reversed.
WEYGANDT, C.J., ZIMMERMAN, STEWART, MATTHIAS and HART, JJ., concur.
TAFT, J., not participating.