Ocean Accident & Guarantee Corp. v. Hooker Electrochemical Co.

• Citation: 240 N.Y. 37,147 N.E. 351
• Court: New York Court of Appeals
• Decision Date: 03 March 1925
• Parties: OCEAN ACCIDENT & GUARANTEE CORPORATION v. HOOKER ELECTROCHEMICAL CO.

240 N.Y. 37

147 N.E. 351

OCEAN ACCIDENT & GUARANTEE CORPORATION

v.HOOKER ELECTROCHEMICAL CO.

Court of Appeals of New York.

March 3, 1925.

Action by the Ocean Accident & Guarantee Corporation against the Hooker Electrochemical Company. From an order of the Appellate Division (209 App. Div. 845,206 N. Y. S. 941), affirming an order of Special Term, denying defendant's motion for judgment dismissing plaintiff's complaint, defendant appeals on certified question.

Affirmed and certified question answered.

The following question was certified:

‘Is the release given by the trustee in bankruptcy of S. Wander & Sons Chemical Co., Inc., to the defendant herein, a bar, as matter of law, to the cause of action set forth in the complaint?’

Appeal from Supreme Court, Appellate Division, Fourth department.

Edward E. Franchot, of Niagara Falls, for appellant.

A. Lee Olmsted, of Syracuse, for respondent.

HISCOCK, C. J.

The questions presented upon this appeal arise upon a motion made to dismiss the complaint, and founded not only upon that pleading but also upon affidavits. All of these questions lead up to the principal one, which has been certified to us, whether the plaintiff as insurer and subrogee is barred by a release executed by the insured to defendant from recovering of the latter the moneys which it paid to indemnify the insured against loss caused by the wrogdoing of the defendant.

It appeared on the motion that a corporation, known on this appeal as the Wander Company, engaged in marketing a chemical known as chlorinated lime, made a contract with the defendant to manufacture and supply it with a quantity of this product which it then sold to various people. As the result of alleged fault on the part of defendant in manufacturing the article, it became explosive and caused injuries to a great many people to whom it was sold by the Wander Company. Plaintiff had issued to the latter company insurance policies, under which it became obligated to indemnify it against claims for such damages as these, and in accordance with its obligations as insurer it settled a large number of such claims, paying in the neighborhood of $40,000 in such settlements, and there are still many other claims which it has not settled. Under ordinary circumstances this would give plaintiff, by subrogation, an undoubted claim against defendant for the amounts so paid.

But in the meantime the Wander Company itself had brought an action against the defendant to recover a large amount of damages claimed to have been suffered by reason of the latter's alleged breach of contract, Soon after bringing this action, however, the Wander Company was forced into bankruptcy, and, by proceedings duly taken, its trustee was authorized to and did make a compromise of claims asserted by it against the defendant in consideration of the payment of a substantial sum of money, and a release was given to the defendant, and it is claimed that this settlement bars plaintiff's right of subrogation. Some facts in respect to this settlement and release are material in the consideration of the question hereafter to be had, whether they were confined to the claims asserted in the action brought by the Wander Company, or were a general settlement and release of all claims of every nature possessed by the Wander Company, whether within or without the scope of the action which it had brought as aforesaid.

The proceedings leading to the formal release were commenced by a petition in bankruptcy proceedings, presented by the trustee of the Wander Company, and this petition limited the settlement for the effectuation of which permission was being sought to ‘the suit now pending in favor of the bankrupt against said Hooker Electrochemical Company,’ and which is the suit to which reference has been made, and the prayer of the petition asked that an order should issue directing creditors of the bankrupt to show cause why an order should not be made and entered approving ‘a compromise settlement of said suit’ at a figure which was set forth in the petition. The order entered upon said petition is not found in the record, but the notice to creditors, presumably issued in accordance with such an order, referred simply to a compromise settlement of the suit. The order approving settlement of claims was not drawn with entire accuracy. Although in some of its recitals it referred to a sale of all claims held by the bankrupt against defendant, including those embraced in the action, it did in its formal portions order that ‘the compromise settlement of the claim and cause of action brought by the bankrupt against the said Hooker Electrochemical Company and pending undetermined’ be and the same hereby is approved and confirmed. Then, proceeding further, it inconsistently directed that the trustee execute a release ‘of all claims and demands in favor of the bankrupt or its trustee’ against defendant, ‘including the claims and demands upon which is predicated the suit now pending undetermined,’ and the release subsequently executed while in its first provisions a general release of all claims against the defendant in its concluding provisions was a release ‘particularly but not exclusively from all claims and demands of every kind and nature, * * * upon which is predicated the action now pending’ by the bankrupt against the defendant.

Thereafter plaintiff, relying upon principles of subrogation applicable as between insurer and insured, brought this action to recover from the defendant, as the primary wrongdoer which caused all of the trouble, a sum which should reimburse it for claims against the Wander Company which it had settled as aforesaid, and also for claims still pending against it, and certain expenses, it being claimed that under the policy of insurance issued by it to the Wander Company injured parties may recover directly from it although the insured has paid nothing to them.

Claiming that the release heretofore described operated to defeat plaintiff's claim for reimbursement founded on subrogation, the motion to dismiss the complaint was made which has been referred to. On that motion affidavits in answer to those filed by defendant were offered by plaintiff which, in our judgment, permitted the court to find, at least as a matter of fact, that when defendant made its settlement with the trustee of the Wander Company, it knew or possessed information which reasonably pursued would have given it knowledge of plaintiff's status as an insurer of the Wander Company against claims springing from defendant's fault, and that it had become subrogated to various claims of such a character against the latter.

This statement of what we regard as the controllling facts now appearing leads us to the discussion and decision of the question of law which has been certified to us, of the effect of the release given by the trustee of the Wander Company to defendant. Many propositions have been urged on the appeal which we do not deem it necessary to consider in this opinion, although they have all received attention. It seems to us that the decisive principles which are involved are few in number, and for the most part well established.

It is so well settled as not to require discussion that an insurer who pays claims against the insured for damages caused by the default or wrongdoing of a third party is entitled to be subrogated to the rights which the insured would have had against such third party for its default or wrongdoing. This right of subrogation is based upon principles of equity and natural justice. We recognize at once the fairness of the proposition that an insurer, who has been compelled by his contract to pay to or in behalf of the insured claims for damages, ought to be reimbursed by the party whose fault has caused such damages, and the principle of subrogation ought to be liberally applied for the protection of those who are its natural beneficiaries. Under the circumstances presented in this case, the right is in some of its results not different than would be the assignment by the insured of its right of action against the primary wrongdoer for the fault which has caused the damages which have been paid by the insurer. Hart v. Western R. R. Co., 13 Metc. 99, 46 Am. Dec. 719. The subrogee acquires rights which as between it and the insured are beyond the power of cancellation and destruction by the latter, and, under our practice is entitled to enforce these rights by an action in its own name, and without joining the insured as a party. Lord & Taylor, Inc., v. Yale & Towne Mfg. Co., 230 N. Y. 132, 129 N. E. 346.

[5] But while this would be the rule as between the insurer and the insured, it is recognized that a different one might apply as between the insurer and a third party who had made a settlement with the insured of the claims paid by the insurer and in respect of which he was claiming subrogation; that is, if the third party had been able to make a valid settlement with the insured as against the insurer of the claims upon which rested as a foundation the claim of the latter to subrogation, that right would necessarily fall. In determining whether a third party, being the primary wrongdoer, had made a settlement with the insured which would destroy the foundation for a claim of subrogation on the part of the insurer, the fact of knowledge on the part of the third party that there was an insurer who had become entitled to the right of subrogation would obviously be of large importance. As we have...