noting in context of failure to assist in defense that policy was violated and rights under policy were forfeited "notwithstanding the insurance company could otherwise have protected itself."Summary of this case from Joseph v. State Farm Fire & Cas. Co.
Decided March 29, 1939.
Insurance — Casualty — Liability of insurer becomes absolute, when — Payment not dependent upon satisfaction by assured of final judgment — Section 9510-3, General Code — Judgment creditor may sue insurer, when — Section 9510-4, General Code — Breach of contract by assured prevents recovery by injured person, when — Assured required to render cooperation and assistance to insurer, how — Performance or breach of contract a question of law, when.
1. "By virtue of the provisions of Section 9510-3, General Code, the liability of an insurance company in the event of loss or damage on account of a casualty covered by a 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." ( Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, approved and followed.)
2. By the provisions of Section 9510-4, General Code, a judgment creditor is entitled to a direct action against the insurance company after obtaining a judgment against the assured and after the lapse of 30 days after judgment is rendered, provided that any valid conditions or requirements in the contract of insurance which would be binding upon the assured are likewise binding upon such judgment creditor. ( Stacey v. Fidelity Casualty Co. of New York, supra, approved and followed.)
3. The purpose of the provisions of Sections 9510-3 and 9510-4, General Code, is to afford an injured person direct and prompt benefit of the provisions of the indemnity policy of the assured. He succeeds to only the rights of the assured and cannot recover in an action on the policy against the indemnity company if there has been such a breach of the contract by the assured as would prevent recovery by him.
4. Under the terms of a liability indemnity policy providing that the assured shall at all times render all possible cooperation and assistance with respect to claims and in the defense of suits, the assured is not required to join the indemnity company in presenting a sham defense, but is required to make a fair and frank disclosure of information demanded by the company and act with the utmost honesty and good faith. He may not condition his cooperation upon conformance to his demands for payment or settlement of claims, and he may not arbitrarily or unreasonably decline to assist in making a fair and legitimate defense or refuse to permit any defense to be made in his name in suits against him upon claims covered by the indemnity policy.
5. When the facts presented are undisputed, whether they constitute a performance or a breach of a written contract, is a question of law for the court.
APPEAL from the Court of Appeals of Summit county.
This case involves the terms of a liability insurance policy and presents the question whether the conduct of the assured in this instance constituted a violation of the provisions of the policy that the assured "shall at all times render all possible cooperation and assistance" in defending against claims made on account of any accident in which the automobile covered by the policy is involved, renders the policy void, and absolves the insurance company from liability upon its timely election, declaration and notice of its purpose to terminate the contract.
The action was instituted in the Court of Common Pleas of Summit county upon the filing of a supplemental petition wherein it was alleged that in a certain action theretofore instituted, the plaintiffs, as executors of Charles T. Luntz, deceased, had recovered a judgment against one Karl Stern in the sum of $10,000 on account of injuries, resulting in the death of Luntz, claimed to have been caused by the negligence of Stern in the operation of his automobile in which Luntz was a passenger. It was then averred that prior to and on April 8, 1933, the date of the accident, there was in full force an automobile insurance policy covering the operation of a certain Buick sedan then owned and operated by Stern, which policy had been issued by the defendant, Ohio Casualty Insurance Company. By the terms of the policy that company insured Stern against legal liability resulting from bodily injuries or death occasioned by Stern. The terms of the policy were set forth, stating that the liability for loss on account of an accident resulting in bodily injuries or death was limited to $20,000, and the company's total liability for loss on account of any one accident causing injuries to more than one person was limited to $40,000. It was asserted that, though more than thirty days had elapsed, the judgment was unpaid and recovery for the amount thereof was sought against the insurance company.
The answer of The Ohio Casualty Insurance Company admitted the essential facts stated in the supplemental petition and then set forth provisions of the policy which in substance made it a condition precedent to the company's liability that, upon the occurrence of any loss or accident, immediate written notice thereof should be given by the assured and further notice of any claim made on account thereof. The policy also contained the following provisions:
"It shall be a condition precedent to the company's liability under this policy that the assured shall not voluntarily assume any liability, or interfere in any negotiation for settlement, or interfere in any legal proceeding, or incur any expense, or settle any claim, except at the assured's own cost, without written consent of the company previously given; and that assured shall in no manner aid or abet the claimant; but whenever requested by the company the assured shall assist in the recovery of property insured hereunder either by means of replevin proceedings or otherwise, and shall aid in effecting settlements, securing information and evidence, and in obtaining the attendance of witnesses, and in defending or prosecuting suits or appeals, all to the extent and in such manner as is deemed desirable by the company; and shall at all times render all possible cooperation and assistance. The company reserves the right to settle or defend, as the company may elect, any claim or suit against the assured, to which this policy may apply.
"No suit or action on this policy for the recovery of any loss or damage under Sections I or II of this policy, shall lie or be sustainable in any court of law or equity unless the assured shall have complied with all of the conditions, limitations, agreements and warranties * * *. This policy shall be void in event of violation by the assured of any agreement, condition or breach of any warranty contained herein or in any rider now or hereafter attached hereto."
The company then alleged that the assured had failed, neglected and refused to furnish it or to aid it in securing information and evidence relative to the accident, had refused to aid in the preparation of the defense against such action, had failed, neglected and refused to aid in obtaining witnesses, and had failed, neglected and refused to render cooperation and assistance, as required by the terms of the policy, although frequently requested so to do. It was further alleged that Stern knowingly and wilfully refused to sign an answer prepared and presented to him by the company in order to enable it to defend against such action and that, on the contrary, he aided and abetted the plaintiffs in the commencement and prosecution of their cause and was hostile to the company. It was charged that as a result thereof the company had, on January 8, 1934, elected to declare, and did declare, the policy of insurance broken, null and void, and that it declined and refused to perform further services under the contract or to proceed any further in the defense of the action, and hence that the company was under no obligation to the plaintiffs or indebted to them in any sum whatever.
The reply, after certain admissions and denials, charged that, by reason of the large sum sought to be recovered as damages growing out of the automobile collision involved in the litigation, the defendant wilfully and knowingly devised ways and means to escape liability, and insisted that Stern engage in a sham defense and, in pursuance thereof, demanded him to verify an answer he did not in good faith believe to be true so that it might escape liability to him and to the plaintiffs.
The trial of the case resulted in a verdict for the full amount sought, upon which judgment was rendered by the Court of Common Pleas, a motion for judgment at the close of the evidence and for judgment non obstante veredicto, as well as a motion for new trial, having been overruled. Upon appeal to the Court of Appeals, that court found the "judgment of the trial court, finding that there was not a lack of cooperation upon the part of Stern, the policy holder, is manifestly against the weight of the evidence," denied the application of the appellant therein for final judgment and remanded the case to the Common Pleas Court. The case is in this court for review pursuant to the allowance of a motion to certify.
Mr. Oscar Abt, Mr. Ben Dreyer and Messrs. Slabaugh, Seiberling, Huber Guinther, for appellees, Vera F. Luntz and Darwin S. Luntz.
Messrs. Waters, Andress, Wise, Roetzel Maxon, for appellant.
This proceeding is instituted by the judgment creditors pursuant to the provisions of Sections 9510-3 and 9510-4, General Code, to enforce the right of subrogation thereby conferred upon them. The purpose and effect of this statute is to afford the injured party direct and prompt benefit of the policy of the insured. It is well settled, however, that such statutory provisions do not and could not have the effect of placing the injured person in a favored position contrary to the terms of the policy. He succeeded to only such rights as the assured had against the company. The indemnity policy is a contract in which there are mutual undertakings and obligations by the insurance company and the assured. The principle is well settled in cases of this character that the injured person is subrogated to the rights of the assured. He has no greater right than the assured and cannot recover from the insurance company if the assured, by reason of any breach of the conditions of the policy, could not recover. Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, 151 N.E. 718; Lorando v. Gethro, 228 Mass. 181, 117 N.E. 185; Ocean Accident Guaranty Corp., Ltd., v. Schroeder, 48 F.2d 727; Storer v. Ocean Accident Guaranty Corp., Ltd., 80 F.2d 470.
The policy enumerated certain definite and specific duties and obligations incumbent upon the assured which were there denominated as conditions precedent to the company's liability under its policy, and the issue presented in this proceeding was the compliance or non-compliance with those conditions by the assured. As we have seen, the rights of the injured party can rise no higher than the rights of the assured. Under the clear terms and provisions of the contract, liability of the company did not accrue unless and until the assured had met those conditions by doing the things specifically required of him. The pertinent obligations specified were that the assured would not voluntarily assume liability or interfere in the legal proceedings without written consent of the company previously given, that he would not aid and abet the claimants, and that he would assist and aid, upon request of the company, in securing information and evidence. All these, however, were included in the further general requirement to "at all times render all possible cooperation and assistance."
Although in the general charge the burden of proof in respect to the performance of these conditions precedent was properly placed upon the plaintiff, the court had previously erred in the application of the provisions of Section 11420-1, General Code, by requiring the defendant to first produce its evidence, and then refusing to consider defendant's motion for a directed verdict based upon absence of proof to support plaintiffs' right to recover. However, the disposition of that question is comparatively unimportant when we come to consider the entire record. The really important question in this case is whether the action or failure and refusal of the assured to act in the respect charged constitutes a violation of the terms of the policy and relieves the insurer from liability.
The record indicates no material dispute as to the facts. But before discussing the facts disclosing the attitude and action of the assured, let us ascertain what, under the law, was required of him by the terms of his contract. The principle applicable has become quite well settled by numerous adjudicated cases wherein were involved contract provisions and conditions in terms substantially the same as those involved in this case. They disclose practical accord in the statement of the principle applicable to the facts presented in the various cases.
The assured is not required to join in the preparation or presentation of a sham defense, but he is required to act with the utmost honesty and good faith. He is required to make a fair and frank disclosure of information demanded by the company to enable it to determine whether there is a genuine defense. He may not condition his cooperation upon the conformance of the insurer to his arbitrary demands for payment or settlement of claims or that it undertake to pay judgments at all events. Such acts constitute a refusal to cooperate. Coleman v. New Amsterdam Casualty Co., 247 N.Y. 271, 160 N.E. 367; Rochon v. Preferred Acc. Ins. Co. of New York, 114 Conn. 313, 158 A. 815.
A material misrepresentation of the facts to the insurer respecting an accident is a violation of the terms of the policy and constitutes ground for avoidance of the policy. This was held to constitute non-cooperation. United States Fidelity Guaranty Co. v. Wyer, 60 F.2d 856; Allegretto v. Oregon Automobile Ins. Co., 140 Ore., 538, 13 P.2d 647.
The assured cannot arbitrarily or unreasonably decline to assist in making a fair and legitimate defense, or refuse to permit any defense to be made in his name. By so doing, a material condition of his policy is violated and his rights under the policy are forfeited notwithstanding the insurance company could otherwise have protected itself. Royal Indemnity Co. v. Morris, 37 F.2d 90.
Similar conduct was held to be ground warranting a judgment for the insurer in the following cases: American Automobile Ins. Co. v. Fidelity Casualty Co., 159 Md. 631, 152 A. 523; Koontz v. General Casualty Co. of America, 162 Wn. 77, 297 P. 1081; Rochon v. Preferred Acc. Ins. Co. of New York, supra; Buffalo v. United States Fidelity Guaranty Co., 84 F.2d 833. Other cases have been cited and considered, but we find none out of harmony with the decisions above cited.
In the case of Coleman v. New Amsterdam Casualty Co., supra, the executive officer of the insured corporation refused to make a statement except upon the condition that the insurer would undertake to pay any judgment recovered against him as well as any against the assured corporation. Thereafter letters written the assured requesting that some officer be sent to verify an answer and later requesting conference on the merits of the claim were ignored. The insurer gave notice that it disclaimed liability since the assured was unwilling to plead in the defense, and judgment for damages was later rendered against the assured. In a review of the case in which a judgment in favor of the insurance company was affirmed by the Court of Appeals of New York, the following statement was made by Chief Justice Cardozo, who rendered the opinion: "The default of the assured was more than sluggishness or indifference, phases of thought and conduct that might be the subject of varying inferences when considered by a jury. It was so avowed and purposed that but one inference is possible. If that was cooperation, one is at a loss to imagine when cooperation could be lacking.
"The plaintiff makes the point that the default should be condoned, since there is no evidence that cooperation, however willing, would have defeated the claim for damages or diminished its extent. For all that appears, the insurer would be no better off if the assured had kept its covenant, and made disclosure full and free. The argument misconceives the effect of a refusal. Cooperation 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."
The record in the instant case discloses that at the time in question Karl Stern, the assured, was accompanied by his guests, Charles T. Luntz and Helen Conold, who were close personal friends, both of whom were riding with him in the front seat of his Buick automobile. While driving northerly on a four-lane, paved highway, his automobile came into collision with a Ford automobile travelling in a southerly direction driven by Henry Wenhart, in which there was also a passenger, a Miss Discutner. This occurred about two o'clock a. m., and there was then no other traffic in that vicinity. As a result of the collision, Luntz suffered injuries from which he later died, and both Miss Conold and Miss Discutner suffered severe injuries. Subsequently separate actions were brought by each of the injured persons. Judgments were recovered against the assured by Helen Conold and the executors of Luntz. The action brought by Miss Discutner resulted in a verdict in favor of the assured.
Upon receiving notice of the accident, the insurance company promptly proceeded to make an investigation, its representative visiting the scene of the accident and taking statements of various persons in connection therewith, including Helen Conold, who was a passenger in the car of the assured, the policeman who investigated the accident soon after its occurrence, and others who were on the scene shortly after the collision. These statements all concurred in the fact that the wreckage of both cars was on the east side of the highway, the assured's car being on the easterly curb and headed in a northerly direction. By these statements it was also disclosed that the skid marks of both cars, as well as broken glass from both cars, were on the east side of the road, which was Stern's right side of the highway.
The statements made by the insured, as well as his action and attitude thereafter, can scarcely be characterized by any other term than favorable to the claims of his friends and adverse and antagonistic to the insurer. It developed that, in company with one of the plaintiffs and one of plaintiffs' attorneys in this case, he went to see the prosecuting attorney to prevent the arrest of Wenhart, the driver of the Ford automobile. Definite promises were made by Stern of payment to Miss Discutner and Miss Conold, and liability thereby acknowledged. From the beginning he was insistent in his demand upon the company that compensation should be made for the injury to his passengers. He plainly indicated his feeling of independence and freedom from any responsibility in the matter of personal obligation to the company and demanded that the insurance company should compensate his guests whether there was any legal liability or not. In response to the direct question of the company's attorney, who asked the assured whether, assuming that there was no liability on his part, he expected the company to pay, regardless of whether he was negligent, he stated: "Absolutely. The same as if I carried insurance on my house and it burned * * *." Later the attitude of the insured was clearly indicated by his statement to the representative of the company when he said: "Go ahead, and take me into court * * *. I don't give a damn who is right and who is wrong. I have insurance to cover my passengers and you are not doing it, and until you do you will get nothing from me." When asked whether he told his passengers in his car of that attitude, his reply was: "There was only one to tell. The other is gone."
Suits having been filed against Stern, the insured, the attorneys for the insurance company sought to prepare and file appropriate answers in the several cases based upon the information procured from the various sources above indicated. Several conferences were held during which four different forms of answers were prepared in an effort to satisfy Stern as to the statements contained therein and procure his cooperation in making up an issue upon which it would be possible to go to trial, but without success. He steadfastly refused to sign any of them, though statements therein contained be made on information and belief. Speaking to representatives of the company at one of these conferences, Stern made the statements heretofore quoted and finally offered to bet that they would get beat if they went to trial, stated that the worse they were beat the better he would like it, that he did not have to help the company and they couldn't make him, and further that they could not make him go to Akron, and that he might not even attend the trial.
These adverse statements, of course, do not in themselves constitute failure of cooperation, but they surely do thus characterize unmistakably his acts and conduct and fully warranted the conclusion of the attorneys of the company that defense of a suit would be futile with a defendant as client who was cooperating with the plaintiffs in their suit to secure a judgment against him. It is significant that, after the company refused to proceed with the defense by reason of Stern's adverse attitude and refusal to cooperate in the preparation of his defense, and he had procured counsel, he signed and verified an answer substantially similar to those he had previously rejected when his aid and cooperation had been insisted upon by the attorneys of the company. By this action he provided compelling, if not conclusive, argument that his purpose in refusing to sign or verify any answer presented to him by the attorneys for the company was to drive the latter into a settlement with his guests, upon which, from the beginning, he had been so insistent. His explanation placed the responsibility for such inconsistency upon his own personal attorney.
It is particularly significant, too, that in the trial of the action brought by Miss Discutner, the occupant of the Wenhart automobile, the owner of which carried no liability insurance, a verdict was rendered against her, while the close personal friends who were guests in Stern's automobile secured verdicts and judgments for very substantial amounts.
The Luntz case was tried June 26, 1935, the Conold case January 14, 1936, and the Discutner case January 16, 1936. In the trial of the Luntz and Conold cases instituted by his guests, Stern testified that at the time of the collision he was driving along the center line of the road, partly on the wrong side of the road, but when he came to testify in the action brought by Miss Discutner, the passenger in the other automobile, he testified that he was driving on his own right side of the highway.
The general principle announced in the cases above cited is clearly applicable here. Cooperation with the insurer is one of the conditions of the policy and where there has been a failure to fulfill a condition upon which the obligation is dependent, the obligation ceases. The statement of Justice Cardozo is peculiarly applicable here: "The default of the assured was more than sluggishness or indifference, phases of thought and conduct that might be the subject of varying inferences when considered by a jury. It was so avowed and purposed that but one inference is possible. If this was cooperation, one is at a loss to imagine when cooperation could be lacking."
When the facts presented in a case are undisputed, whether they constitute a performance or a breach of the contract, is a question of law for the court. Facts which are undisputed in this record constituted a clear and unmistakable breach of the contract in the respects indicated and presented a clear question for the court. A judgment for the defendant should have been entered.
It follows that the judgment of the Court of Appeals, insofar as it reversed the judgment of the Court of Common Pleas is affirmed, but must be reversed insofar as it did not render final judgment, and judgment is here rendered for the defendant.
WEYGANDT, C.J., DAY, ZIMMERMAN, WILLIAMS, MATTHIAS and HART, JJ., concur.