Opinion
Decided February 29, 1932.
Insurance — Automobile liability — Insured may recover expenses defending groundless damage suit, when — Insurer's liability for insured's expenses depends upon policy terms.
1. Under liability policy whereby assurer, in independent and unconditional promise, agreed to defend suits, even if groundless, assured could recover expenses incurred in successfully defending damage suits which assurer refused to defend.
2. Assurer's liability for expenses incurred by assured in defending damage suits depends on terms of liability policy.
ERROR: Court of Appeals for Lucas county.
Messrs. Tracy, Chapman Welles and Mr. Sidney D.L. Jackson, Jr., for plaintiff in error.
Messrs. Brady, Yager Bebout and Mr. Joseph D. Stecher, for defendant in error.
Sam Mostov brought an action in the court of common pleas to recover expenses which he had incurred in successfully defending certain lawsuits brought against him in the court of common pleas of Cuyahoga county. His action was based upon a policy of liability insurance which contains a provision that the indemnity company should defend suits brought against the assured. The trial resulted in a judgment against the company in the sum of $1,404.31, covering attorney fees, and other expenses paid by Mostov in defending said actions, and this proceeding is brought to secure a reversal of that judgment.
The original policy was issued by the International Indemnity Company, but thereafter the Union Indemnity Company purchased the business of the former company and agreed to assume all its liabilities. The indemnity policy was in effect for one year from December 8, 1926, and the amount of the indemnity provided thereby is greatly in excess of the amount of the judgment rendered in this case. It covered certain automobiles, among which was a Willys-Knight sedan. In August, 1927, while the policy was in force, the Willys-Knight automobile came into collision on one of the streets of East Cleveland, Ohio, with an automobile owned by Sam Greitzer and operated by his son Joseph Greitzer, a minor. Shortly after the collision, actions were brought against the assured by Sam Greitzer and Joseph Greitzer for personal injuries, property damage, loss of services, etc., resulting from the collision. Mostov immediately after the collision notified the company thereof as required by the policy, but it declined to extend coverage under the policy, and upon the bringing of the actions against him he notified the company thereof, but it refused to defend the actions, whereupon he himself employed counsel and expended the above-named amount in successfully defending the actions, thus establishing the fact that they were groundless. No controversy exists in this case regarding the amount so expended by Mostov and no contention is made that it was not a reasonable sum.
Mostov resides in Toledo, and on August 20, 1927, he drove the car to Cleveland to attend a wedding of a relative on the following day. He stayed at a hotel that night, but left the car in a garage of his relative. Early on the following morning his car was taken from the garage without his knowledge or consent by a sixteen year old relative and driven some two miles to the east into the city of East Cleveland, where the collision occurred.
The pertinent provisions of the indemnity policy are as follows:
"To indemnify the Assured against loss from the liability imposed by law upon the Assured for claims for damages by reason of the ownership, maintenance and/or use * * * of any automobile enumerated and described in Statement IV of the Schedule of Statements * * * subject to the limits hereinafter stated, if such claims are made on account of:
"Clause A — Liability
"Bodily injuries, including death therefrom, accidentally suffered or alleged to have been suffered, by any person or persons (excluding any employee of the Assured while engaged within the course of his employment), provided such accidents or alleged accidents occur while this policy is in force.
"Clause B — Property Damage
"Damage to or destruction of property of every description, including the resultant loss of use thereof, but excepting property of the Assured or in charge of the Assured, or any of his employees, or carried in or upon the automobile insured hereunder, caused by an accident occurring while this policy is in force."
"In addition to the above, the company agrees:
"Clause C — Investigation and Defense
"To investigate all reported accidents under this policy, and to defend in the name and on behalf of the Assured any suit for damages, even if groundless, brought against the Assured to recover damages on account of such injuries or damage to or destruction of property, unless or until the Company shall elect to effect settlement thereof."
Clause (A), above quoted from the policy, relates to the liability of the company on its obligation to pay for bodily injuries, including death, and clause (B) relates to liability for damage to or destruction of property. These two clauses and the paragraph preceding define the term "liability" as used therein. The indemnity provided by these clauses is against "the liability imposed by law" upon the assured, and is the obligation to pay any judgment recovered against him for "claims for damages by reason of the ownership, maintenance and/or use * * * of any automobile," described in the policy. In other words, the term "liability," as defined by the policy, relates only to the satisfaction of any judgment recovered and not to the obligation to defend the action, "even if groundless."
In addition, the policy contains clause (C), which is an independent and unconditional promise on the part of the company to investigate all reported accidents under the policy and to defend all suits for damages, even if groundless, brought against the assured to recover damages for injuries or destruction of property unless or until the company should elect to effect a settlement thereof. This clause is a clear and unequivocal promise to make the investigation and defense unless the company shall elect to effect a settlement, and it gives no other option to the company. Notwithstanding this explicit language, the company determined not to investigate, not to defend the suit, and not to effect a settlement, and it still insists in maintaining that attitude. In so doing it breached the plain provisions of clause (C), and made it necessary for Mostov to make the defense and to incur the expense rendered necessary in so doing.
Liability, or the lack of it, depends upon the terms of the contract between the company and the assured, and this fact is well illustrated by the following language quoted from 36 Corpus Juris, 1093: "Where the obligation of insurer is to defend all suits of which notice is given to it, and to pay all expenses in defending such suits, it is liable for the expenses incurred by insured in his successful defense of a suit against him, which insurer had declined to defend. But where the obligation of insurer to defend is limited to cases where insured is legally liable on the facts and circumstances of the accident causing the injury, and it does not stipulate to indemnify insured against the costs of defending himself against fictitious or groundless suits, it cannot be held liable to insured for costs and expenses incurred by him in successfully defending a suit which insurer has failed or refused to defend, on a fictitious or groundless claim."
Many cases are cited by counsel, nearly all of which may be reconciled when due attention is given to the language of the particular policies involved. The company declined to make the defense, but it has received the benefit of the defense made by Mostov, and, as its conduct was a breach of clause (C) of the policy, it has no just ground of complaint, because he now seeks to recover the necessary expenses paid by him in making the defense. When these suits were brought, neither the company nor Mostov knew that they were groundless, and that could only be ascertained at the end of the litigation, and doubtless the likelihood that such a situation might arise is just what induced the making of the contract in such form as to require the company to investigate and defend, whether the action were groundless or not. On this proposition we cite South Knoxville Brick Co. v. Empire State Surety Co., 126 Tenn. 402, 150 S.W. 92, Ann. Cas., 1913E, 107; Bloom-Rosenblum-Kline Co. v. Union Indemnity Co., 121 Ohio St. 220, 167 N.E. 884.
The policy contains certain conditions, in part as follows:
"Exclusions. It is a condition of this policy: * * *
"(B) That the Company shall not be liable under this policy (unless waived by endorsement hereon) while any automobile described herein is used, operated or manipulated * * * (2) by any person in violation of law as to age, or in any event under the age of sixteen years * * *."
On the date of the collision there was in full force and effect in the city of East Cleveland an ordinance reading as follows: "No person being the owner, bailee, lessee or custodian of any motor vehicle shall permit a minor under the age of eighteen years to operate the same, nor shall any person under the age of eighteen operate any motor vehicle on the public highways, streets, thoroughfares, parks or boulevards of the City of East Cleveland."
The company contends that at the time of the collision the Mostov automobile was being operated by Leonard Fishelman, who was only sixteen years of age, and that this constituted operating the automobile in violation of law.
A very interesting question is raised by counsel for the company in asserting that it was not liable under the policy because the car was being operated in violation of an ordinance of the city of East Cleveland, and that a violation of the ordinance was a violation of law as to age within the exclusion clause of the policy. In view of the fact that we construe clause (C) as an independent and unconditional promise to defend, it becomes unnecessary to pass upon the question as to whether the company is relieved from liability by reason of the fact that the boy who was operating the car was only sixteen years of age. To decide that question in this case would be mere obiter.
For the reasons given this court is of the opinion that the judgment is right and it will be affirmed.
Judgment affirmed.
LLOYD and WILLIAMS, JJ., concur.