Automobile Underwriters v. Rich

• Decision Date: 28 March 1944
• Docket Number: 27916.
• Citation: 53 N.E.2d 775,222 Ind. 384
• Parties: AUTOMOBILE UNDERWRITERS, Inc., v. RICH.
• Court: Indiana Supreme Court

53 N.E.2d 775

222 Ind. 384

AUTOMOBILE UNDERWRITERS, Inc., v. RICH.

No. 27916.

Supreme Court of Indiana

March 28, 1944

Appeal from Boone Circuit Court; Ernest R. Stewart Judge.

Fenton Steers, Beasley & Klee, of Indianapolis, and Parr, Parr & Parr, of Lebanon, for appellant.

John W. Hornaday, of Lebanon, and Edwin McClure and Seth S. Ward both of Indianapolis, for appellee.

O'MALLEY Judge.

The appellee filed this action against appellant to recover damages alleged to be sustained by reason of the fraud of appellant's agent in the procurement of a release and covenant not to sue.

The complaint alleged that H. A. Montgomery and his agent, Price Baldwin, were covered by a liability insurance policy issued by appellant, and that appellee while riding as a passenger in a motor car was injured in a collision between the motor car in which appellee was riding and a truck owned by H. A. Montgomery and operated by his agent, Price Baldwin. That the accident took place at or near Garden City, Indiana on State Road 31; that her injuries were caused solely and only by the negligence of Price Baldwin while acting for and on behalf of H. A. Montgomery; that in the accident the appellee's left knee-cap was injured permanently; that as a result of said accident the appellee has suffered much pain and that the proximate cause of the accident was the negligence and unlawful acts of Montgomery acting by and through his agent Baldwin. That by reason of her injuries so suffered, appellee had a just and valid claim against Montgomery in the sum of Forty-Thousand Dollars ($40,000). It is further alleged that as a result of this accident the appellee has a stiff knee and is unable to carry on her work and will be unable to carry on her work; that at the time of the accident the appellee was a widow, the mother of two children, and earning Twenty-Six Dollars ($26) per week; that as a result the appellee is still under the care of a physician, has a complete ankylosis of the left knee and has already expended the sum of Nine Hundred Forty-Five Dollars ($945) for medical care and hospitalization. The complaint further alleged that the appellant as insurer of Montgomery and Baldwin fraudulently obtained a release and covenant not to sue from appellee for the sum of One Hundred Fifty Dollars ($150); that the agent of appellant, a lawyer, told appellee that she needed no attorney to inform her of her rights; that he knew her rights and that One Hundred Fifty Dollars ($150) was the greatest amount that she could hope to recover; that unless she took this sum and made settlement she would receive nothing. It was further alleged that at the time of the settlement the appellee was under the care of appellant's physician; that the claim agent told appellee that he had investigated her injuries and that her injuries were not permanent but merely temporary, and that she could go to work in a few days; that the amount offered was more than she could possibly recover by going to court; that each representation was false; that appellant knew each of them to be false; that the appellee relied on and believed said representations and was thereby misled; that she would not have executed the release and covenant not to sue if she had known the falsity of the representations so made, and that the acts of appellant were irregular, deceptive and false.

To this complaint a demurrer was filed setting forth that the complaint did not contain facts sufficient to constitute a cause of action. In the memorandum attached to the demurrer the only reasons in support thereof are that the representations of fraud refer to matters of opinion and to future matters, and that there was no duty owing by appellant to appellee.

This cause is predicated upon the long standing principles of law that where a right of action exists on behalf of a plaintiff against a defendant, and the defendant, or some one for him, by fraudulent representations induces the plaintiff to make a settlement of his cause for an inadequate sum, the plaintiff has the right to elect to proceed in one of two ways:

1. He can tender or return whatever was received and bring suit on the original right of action, requesting therein that the settlement be set aside, or he can await the interposing of the settlement in bar of his suit and then set up the fraud and payment in avoidance.

2. He can keep what he has received and file suit against the ones perpetrating the fraud and recover such amount as will make the settlement an honest one.

If the second method is pursued, the plaintiff recognizes that the settlement is a bar to the original action and that it is incumbent on him to allege and prove not only that the settlement was procured by fraud and to his damage, but also that he had a good cause of action against the original tort feasor at the time of the settlement.

The measure of damages under this second method must take into consideration the salable value of the right of action for the purpose of compromising, and the nature and extent of the injuries known and foreseeable as of the time of the settlement, under the particular circumstances of the parties then shown existing. Rochester Bridge Co. v. McNeill, 1919, 188 Ind. 432, 122 N.E. 662. See also Gould v. Cayuga Co. Bank, 1885, 99 N.Y. 333, 2 N.E. 16.

The fraud or deceit necessary to recover in this class of cases must be the same as in any other class.

In the case of Watson Coal & Mining Company v. Casteel, 1879, 68 Ind. 476, this court said:

'Representations, to amount to fraud, must be false; they must be made for a fraudulent purpose; they must be believed to be true by the party to whom they are made; they must have induced him to act upon them; and they must have effected the fraud.'

In the case of Lewark v. Carter et at., 1889, 117 Ind. 206, 20 N.E. 119, 121, 3 L.R.A. 440, 10 Am.St.Rep. 40, this court said:

'Representations made for an honest purpose, and with fair reason for believing them to be true, are not fraudulent, although it may turn out that they were not true.'

In the case of Furnas v. Friday, 1885, 102 Ind. 129, 1 N.E. 296, 297, it was said:

'Where there is an honest purpose, and neither recklessness nor carelessness, there can be no fraud; for fraud involves moral turpitude; and where there is neither a dishonest purpose nor recklessness, there can be no moral wrong.'

In 23 American Jurisprudence 773, it is said:

'The essential elements required to sustain an action for deceit are, generally speaking, that a representation was made as a statement of fact, which was untrue and known to be untrue by the party making it, or else recklessly made; that it was made with intent to deceive and for the purpose of inducing the other party to act upon it; and that he did in fact rely on it and was induced thereby to act to his injury or damage.'

In Rochester Bridge Co. v. McNeill, supra [188 Ind. 432, 122 N.E. 664] it is said:

'The mere fact that a statement takes the form of an expression of opinion is not always conclusive, for, as the question is now presented, it must be interpreted by the facts and surrounding circumstances shown by the complaint. The rule that actionalbe fraud...