In Brassil v. Maryland Casualty Co., 1914, 210 N.Y. 235, 104 N.E. 622, L.R.A. 1915A, 629, the insurer, itself unwilling to appeal from a judgment in excess of the coverage, refused to pay its liability unless the insured too waived the appeal and paid the excess part of the judgment.Summary of this case from Brochstein v. Nationwide Mutual Insurance Company
Argued January 13, 1914
Decided February 24, 1914
James J. Mahoney and George I. Woolley for appellant. Thomas F. Magner for respondent.
The action is novel. The question is whether an "insured" under a contract of indemnity for common-law or statutory liability to employees, can recover of the "insurer" his reasonable expenses in the prosecution of appeals which the insurer has refused to take, after the insured has been cast in judgment in the court of first instance. The mere statement of the question indicates that the answer must depend upon the circumstances. What were the circumstances in the case at bar? The amount for which the plaintiff was insured in the case of accident to any one employee was $1,500. Before the trials of the two actions brought against this plaintiff, the plaintiffs therein offered to settle them for $1,500. This offer was communicated to the defendant in this action, the insurance company, which declined to entertain it, although the plaintiff requested and urged that it be accepted. The situation at that time was that the defendant under its contract of indemnity had the right to exercise either of three options. 1. To pay the plaintiff, as insured, the sum of $1,500 and leave him to settle or litigate the suits brought against him. 2. To settle the suits on such terms as it could exact. 3. To defend the suits at its own cost through its own counsel. It decided upon the latter course, and this necessarily implies such a degree of examination into the merits as to indicate that in the judgment of its counsel there was good ground for a defense. From that moment the plaintiff was no longer a free agent. By the express provisions of his contract he was denied the right to settle on his own account or to assume charge of the litigation. In these circumstances the cases proceeded to trial and judgments were rendered against him for upwards of $6,000. One would naturally suppose that, in view of the defendant's previously declared determination to defend those actions, there would have been the prompt appeals usual in such cases. But it was not so here. The defendant, having succeeded in getting the plaintiff mulcted in damages largely exceeding the indemnity to which he was entitled under his policy, graciously announced that it "holds itself ready to comply with the terms" of the contract in case the defendant should satisfy the judgments which had been recovered against him. The plaintiff was naturally indignant and retorted that he would prosecute the appeals on his own account and hold the defendant responsible for the cost.
The mere statement of this unique situation indicates that the true measure of the rights of the plaintiff on the one hand and of the obligations of the defendant on the other is not to be found in the letter of the contract of insurance. That contract, by its very terms, was designed to exclude any such liability. But there is a contractual obligation of universal force which underlies all written agreements. It is the obligation of good faith in carrying out what is written. The defendant's failure to observe this requirement of the contract in suit is the thing upon which its liability may safely be predicated. Its failure to continue the defense of these cases was in effect a breach of its contract. We do not go so far as to hold that a contract to "defend" a suit necessarily raises an obligation to prosecute an appeal. That is not the question with which we are now concerned. The fact is that the defendant had decided that the actions against the plaintiff should be defended, and its position was that the amount for which the plaintiff proposed to settle was excessive. This was followed by a verdict four times as large as the offer of settlement. But that is not all. The plaintiff was not even then given the privilege of settling the cases upon such terms as he could make. He was offered his so-called indemnity of $1,500, but upon the condition that he should first satisfy the judgments. An acceptance of this offer would have destroyed his right to appeal and left him absolutely liable on judgments largely in excess of the amount he could have recovered from the defendant. Having thus effectually tied the plaintiff hand and foot, the defendant left him to continue the fight as best he could. Even this conduct might stand the test of legal principles, if not of good morals, had there not in fact been a good ground of appeal. That there was a legal defense to the actions is attested by the report of the appeal taken by the plaintiff ( Loughlin v. Brassil, 187 N.Y. 128), from which it appears that the judgment in favor of the Loughlins against the plaintiff was reversed.
In the light of these conditions it is idle to look to the letter of the insurance contract for the measure of the defendant's liability, and the fact that there are no precedents for such an action as this, is a very impressive indication of the unusual and inequitable attitude of the defendant. Without attempting to further characterize the defendant's position, it is enough to say that it would be a reproach to the law if there were no remedy for so obvious a wrong as was inflicted upon this plaintiff. His rights, as we have said, go deeper than the mere surface of the contract written for him by the defendant. Its stipulations imposed obligations based upon those principles of fair dealing which enter into every contract. Even the defendant has invoked this implied obligation of good faith and fair dealing not expressed in the terms of its written contract, for by its answer it has set forth that it was incumbent upon the plaintiff to "deal fairly and in good faith * * * and that he should not voluntarily or knowingly do any acts which would impose or tend to impose on him or on this defendant a loss in the premises." If this was the plaintiff's duty, it was not less the correlative obligation of the defendant to "deal fairly and in good faith" with him. The circumstances of this case are peculiar. We do not go beyond them in making our decision.
The judgment appealed from should be affirmed, with costs.
WILLARD BARTLETT, Ch. J., HISCOCK, CHASE and COLLIN, JJ., concur; MILLER, J., not sitting.