American Mut. Liability Ins. Co. v. State Auto. Ins. Ass'n

• Citation: 72 N.W.2d 88,246 Iowa 1294
• Decision Date: 20 September 1955
• Docket Number: No. 48655,48655
• Parties: AMERICAN MUTUAL LIABILITY INSURANCE CO., Appellant, v. STATE AUTOMOBILE INSURANCE ASSOCIATION, Tracy North and Sears R. North, Appellees.
• Court: United States State Supreme Court of Iowa

Page 88

72 N.W.2d 88

246 Iowa 1294

AMERICAN MUTUAL LIABILITY INSURANCE CO., Appellant, v. STATE AUTOMOBILE INSURANCE ASSOCIATION, Tracy North and Sears R. North, Appellees.

No. 48655.

Supreme Court of Iowa.

Sept. 20, 1955.

Deck & Mahr, Sioux City, for appellant.

Mallonee & Mallonee, Audubon, for appellees.

GARFIELD, Justice.

Plaintiff, insurer under the Workmen's Compensation Law, chapters 85, 86, Codes 1950, 1954, I.C.A., of Michael-Leonard Co., brought this law action under Code section 85.22 as subrogee of P. H. Underwood, employee of Michael-Leonard, to recover from third parties for personal injuries to him. The petition was dismissed on defendants' motion. From judgment of dismissal plaintiff has appealed.

The appeal involves the construction of Code section 85.22, especially subsection 5 thereof, chapter 64, Acts 52d General Assembly, 1947. We have never before considered the meaning of subsection 5. Some provisions of section 85.22 were before us in Iowa National Mutual Ins. Co. v. Chicago, B. & Q. R. Co., Iowa, 68 N.W.2d 920.

In addition to the matters above stated plaintiff's petition alleges: an automobile operated by defendant Tracy North, owned by defendant Sears North, struck the rear of a car in which Underwood was seated; the resulting injuries to Underwood arose out of and in the course of his employment by Michael-Leonard and were compensable; plaintiff has paid for medical, hospital and nursing care furnished Underwood and as compensation to him about $1,500 and will be required to make additional payments therefor in the future; plaintiff served written notice on Underwood to bring action against defendant Norths as they caused said injuries under circumstances creating a legal liability but Underwood failed to bring said action within 90 days after receipt of the notice, stating he had executed a covenant not to sue said Norths; defendant Sears North carried automobile liability insurance in defendant State Automobile Insurance Ass'n; representatives of the three defendants negotiated a settlement with Underwood so that upon payment of $22.90 they received from him three months after he was injured a covenant not to sue, copy of which was attached; plaintiff claims under the Workmen's Compensation Law it is subrogated to all rights of Underwood to maintain this action to recover for his injuries; said covenant not to sue creates a legal liability upon defendants for said injuries; plaintiff is entitled to recover from defendants the money it was and will be required to pay Underwood for said injuries; Underwood was damaged by said injuries to the extent of $35,000.

Defendants' motion to dismiss alleges the petition is insufficient because: it states no grounds of negligence against them which were the proximate cause of Underwood's injuries nor that he was free from contributory negligence; Code section 85.22 is designed merely to provide an insurance carrier a remedy against an injured employee, not a third party, and to enable the carrier to collect from the employee any payments made to him by a third party; it is not shown a previous action had been commenced against defendants by plaintiff or Underwood to recover for his injuries or that defendants ever admitted any legal liability therefor; the petition is an attempt to do something unconstitutional since it is designed to deny defendants their right to defend and prove themselves free from negligence which caused the injuries.

The trial court sustained the motion to dismiss upon the above grounds.

Code section 85.22 under which this action is brought, so far as now material, provides:

'Liability of others--subrogation. When an employee receives an injury for which compensation is payable * * * and which injury is caused under circumstances creating a legal liability against some person other than the employer to pay damages, the employee, * * * may take proceedings against his employer for compensation, and * * * also maintain an action against such third party for damages. When an injured employee * * * brings an action against such third party, * * * the following rights and duties shall ensue:

'1. If compensation is paid the employee * * * the employer by whom the same was paid, or his insurer which paid it, shall be indemnified out of the recovery of damages to the extent of the payment so made, * * *.

'2. In case the employee fails to bring such action within ninety days, * * * after written notice so to do given by the employer or his insurer, * * * then the employer or his insurer shall be subrogated to the rights of the employee to maintain the action against such third party, and may recover damages for the injury to the same extent that the employee might. In case of recovery, the court shall enter judgment for distribution of the proceeds thereof as follows:

'a. A sum sufficient to repay the employer for the amount of compensation actually paid by him to that time.

'b. A sum sufficient to pay the employer the present worth * * * of the future payments of compensation for which he is liable, * * *.

'c. The balance, if any, shall be paid over to the employee.

'3. Before a settlement shall become effective between an employee or an employer and such third party who is liable for the injury, it must be with the written * * * consent of the employer or insurer, in case the settlement is between the employee and such third party; or on refusal of consent, * * * then upon the written approval of the industrial commissioner.

'4. * * *.

'5. For subrogation purposes hereunder, any payment made unto an injured employee, * * * by or on behalf of any third party, his or its principal or agent liable for, connected with, or involved in causing an injury to such employee shall be considered as having been so paid as damages resulting from and because said injury was caused under circumstances creating a legal liability against said third party, whether such payment be made under a covenant not to sue, compromise settlement, denial of liability or otherwise.' (Italics added.)

Subsection 5 was added as an amendment to the statute by chapter 64, Acts 52d General Assembly, 1947. The title to chapter 64 reads: 'An Act to amend section eighty-five point twenty-two (85.22), code, 1946, by adding at the end thereof a separate subsection prescribing the force and effect for subrogation purposes under the workmen's compensation law of payments made unto an injured employee, * * * by any third party, his or its principal or agent liable for, connected with, or involved in causing the injury to such employee.'

Plaintiff in effect concedes that if it were not for subsection 5 it has not stated a cause of action since it has not alleged the injuries to Underwood were caused by the negligence of the driver North nor that Underwood was free from contributory negligence. Such concession seems called for by our decisions under what is now section 85.22 prior to the addition of subsection 5 thereto in 1947. Southern Surety Co. v. Chicago, R. I. & P. R. Co. 215 Iowa 525, 531, 245 N.W. 864 ('This court cannot hold * * * the agreement made between the employee and the railway company was an admission of liability on the part of the railway company, nor that the payments made under such agreement were for damages.'); Renner v. Model Laundry Co., 191 Iowa 1288, 1293-1294, 184 N.W. 611, 613; Disbrow v. Deering Implement Co., 233 Iowa 380, 387-389, 9 N.W.2d 378, 382.

Other courts, in the absence of a statutory provision such as subsection 5 of section 85.22, hold a settlement between an alleged third-party wrongdoer and an injured employee is not an admission of the former's liability for the injury. United States F. & G. Co. v. New York, N. H. & H. R. Co., 101 Conn. 200, 125 A. 875, 877 ('Defendant's settlement with the employee cannot be taken as an acknowledgment by it of its legal liability.'); Whitney v. Louisville & N. R. Co., 296 Ky. 381, 177 S.W.2d 139; Western Maryland Ry. Co. v. Employers Liability Assur. Corp., 163 Md. 97, 161 A. 5; Texas Employers Ins. Ass'n v. Fort Worth & D. C. Ry. Co., Tex.Civ.App., 181 S.W.2d 828; 71 C.J., Workmen's Comp. Acts, section 1609.

Plaintiff maintains, however, that under subsection 5, quoted above, for subrogation purposes the payment to Underwood by or on behalf of defendants 'shall be considered as having been so paid as damages resulting from and because said injury was caused under circumstances creating a legal liability against said' defendants, even though such payment was made under a covenant not to sue and that it was therefore error to sustain defendants' motion to dismiss.

We see no escape from the conclusion that, as against defendants' motion to dismiss, the petition states a cause of action under section 85.22, as amended by the addition of subsection 5. The statute now plainly provides, as plaintiff contends, that for subrogation purposes such a payment as plaintiff alleges defendants made the injured employee shall be considered as having been paid because the injury was caused under circumstances creating a legal liability against them.

The title to the amending act, chapter 64, Acts 52d General Assembly, above quoted, indicates the legislature intended to make some change in the existing law and to prescribe the force and effect for subrogation purposes of such a payment as plaintiff alleges defendants made Underwood. We think the amendment was intended to have the force and effect plaintiff contends for it. No other reasonable or plausible meaning of subsection 5 has been suggested.

Since the petition, in view of section 85.22, alleges a legal liability against defendants for the injuries to Underwood plaintiff was not required to assert grounds of negligence against them nor Underwood's freedom from contributory negligence. Defendants' contention that section 85.22 as now amended is designed merely to provide an insurance carrier a remedy against an injured...