Abrams v. Factory Mut. Liab. Ins. Co.

• Decision Date: 17 September 1937
• Parties: ABRAMS v. FACTORY MUT. LIABILITY INS. CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

298 Mass. 141

10 N.E.2d 82

ABRAMS

v.FACTORY MUT. LIABILITY INS. CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 17, 1937.

Action of contract or tort by Irving Abrams against the Factory Mutual Liability Insurance Company. From an order sustaining a demurrer by the defendant and denying a motion by the plaintiff to amend the substitute declaration, the plaintiff appeals.

Order sustaining the demurrer reversed, and appeal from order denying plaintiff's motion to amend the substitute declaration dismissed.Appeal from Superior Court, Suffolk County; Williams, Judge.

C. M. Goldman, of Boston, for appellant.

M. Z. Kolodny, of Boston, for appellee.

QUA, Justice.

The first count is in contract. It alleges in substance that the defendant issued a motor vehicle liability policy to the plaintiff; that the plaintiff was concerned in an accident in the State of Connecticut which was covered by the policy and as a result of which one Lawrence brought an action against the plaintiff; that the action was defended by the defendant; that the plaintiff complied in all respects with the terms of the policy, but that the defendant, in violation of its obligations under the policy, ‘failed to use proper care and due diligence in the investigation, preparation of the case for trial and trial of the case,’ as a result of which judgment was entered against the plaintiff in the sum of $15,000 and costs, or $10,000 in excess of the limit of the defendant's liability in the policy; and that the defendant, in further violation of its obligations under the policy, wilfully failed and refused to settle Lawrence's claim within the policy limit of $5,000, ‘when in a position to do so,’ and ‘when a reasonable prudent person exercising due care from the standpoint of the assured would have so settled the case, and such failure constituted bad faith on the part of the defendant.’ It is further alleged that the defendant paid $5,000 on account of the judgment against the plaintiff, and that the plaintiff was compelled to expend $2,500, including his counsel fees, to settle the balance of the judgment against him.

The second count is in tort for negligence. Its allegations are practically the same as those of the first count, except that the failure to settle is alleged to have been negligent.

The policy a copy of which was annexed to the declaration, contained a ‘Non-Statutory’ or extra-territorial clause indemnifying the insured against loss by reason of legal liability for injuries accidentally sustained outside this Commonwealth ‘to the sum of five thousand dollars ($5,000) for one person injured.’ In the ‘Conditions' were provisions whereby the company agreed to defend as provided in the policy, ‘or at the option of the Company to settle, in the name and on behalf of the Insured’ claims or suits for suit injuries, and whereby the insured, although required to assist in the defence, was forbidden to ‘interfere in any negotiation for settlement or legal proceeding without the consent of the Company.’

A demurrer was sustained as to each count on the ground that the matters contained therein were insufficient in law to maintain the action.

We think that each count did contain a statement of a cause of action. By the express terms of the policy the defendant obligated itself to defend lawsuits. If it did not settle, it was bound to defend. Connolly v. Bolster, 187 Mass. 266, 270, 72 N.E. 981;Miller v. United States Fidelity & Casualty Co. (Mass.) 197 N.E. 75. When a party binds himself by contract to do a work or to perform a service, he agrees by implication to do a workmanlike job and to use reasonable and appropriate care and skill in doing it. This is true whether the work consists in building a house, repairing an automobile, treating a patient or defending against a claim or a lawsuit. The plaintiff could maintain an action of contract against the defendant if, without excuse, the defendant wholly refused to defend. He can likewise maintain an action of contract if the defendant defended negligently.

An examination of the relation of the parties from another standpoint leads to the same conclusion. The policy not only includes a promise by the insurer to defend against claims and lawsuits, but gives it the sole right to defend to the entire exclusion of the insured. Such a clause in such a policy has been referred to as creating both an obligation and a privilege. Rollins v. Bay View Auto Parts Co., 239 Mass. 414, 420, 132 N.E. 177. It is inserted primarily for the benefit of the insurer in the sense that where there is a conflict of interest between insurer and insured the insurer may exercise the right to defend for its own advantage, even though from the standpoint of the insured a different course would have been preferable. Thus the insurer may prosecute exceptions although risk to the insured may be involved. Davison v. Maryland Casualty Co., 197 Mass. 167, 171, 83 N.E. 407. Or it may consent to a judgment, although a subsequent action by the insured may be prejudiced. Long v. Union Indemnity Co., 277 Mass. 428, 178 N.E. 737, 79 A.L.R. 1116. (See now, however, G. L. [Ter.Ed.] c. 231, § 140A, as inserted by St. 1932, c. 130, § 1.) In short the insured has transferred to the insurer his right to defend himself as security to the insurer for the risk undertaken But the insured still had an interest in his own defence which may be financially greater than the interest of the insurer, if the claim is likely to result in a large judgment, and if the limit of the insurer's liability is low. In general a security holder may use the security to the extent necessary for his own protection, but he must not negligently sacrifice the rights of others. Guinzburg v. H. W. Downs Co., 165 Mass. 467, 43 N.E. 195,52 Am.St.Rep. 525;Benj. N. Moore & Sons Co. v. Manufacturers' National Bank, 261 Mass. 328, 332, 158 N.E. 755.

The count in tort states a cause of action as well as the count in contract. Although the duty arises out of the contract and is measured by its terms, negligence in the manner of performing that duty as distinguished from mere failure to perform it, causing damage, is a tort. Bryant v. Rich, 106 Mass. 180, 190,8 Am.Rep....