Aycock Hosiery Mills v. Maryland Casualty Co.

• Decision Date: 08 December 1928
• Citation: 11 S.W.2d 889
• Parties: AYCOCK HOSIERY MILLS v. MARYLAND CASUALTY CO.
• Court: Tennessee Supreme Court

11 S.W.2d 889

AYCOCK HOSIERY MILLS v. MARYLAND CASUALTY CO.

Supreme Court of Tennessee.

December 8, 1928.

Certiorari to Court of Appeals, on Appeal from Chancery Court, Hamilton County; W. B. Garvin, Judge.

Action by the Aycock Hosiery Mills against the Maryland Casualty Company. Decree for complainant was modified by the Court of Appeals, and both parties bring certiorari. Reversed, and judgment of the Chancellor affirmed.

C. G. Milligan, of Chattanooga, for appellant.

Chas. C. Moore, of Chattanooga, and Alan S. Kelly, of South Pittsburg, for appellee.

COOK, J.

The complainant, observing sections 41 and 42 of the Workmen's Compensation Act (Pub. Acts 1919, c. 123), covered its risks by insurance with the defendant, and this action arose from the relation of defendant, the insurer, and complainant, the insured employer, under a policy wherein the insurer agreed:

"I. To pay to the person and in the manner provided therein, any sum due or to become due from this Employer because of any such injuries, including death resulting therefrom, under certain Statutes cited and described in endorsements attached to this policy, each of which Statutes is herein referred to as the Workmen's Compensation Law. It is agreed that all of the provisions of each Workmen's Compensation Law cited and described in endorsements attached to this policy shall be and remain a part of this contract, as fully and completely as though written herein, so far as they apply to compensation while this policy shall remain in force, and all premiums provided by this policy, or by any endorsement hereon shall be fully earned whether any such Workmen's Compensation Law, or any part of any such, is now, or shall hereafter be, declared invalid or unconstitutional. This obligation for compensation shall include all provisions of the Workmen's Compensation Law respecting funeral expenses, medical, surgical, nurse and hospital services, medical or surgical apparatus or appliances or medicines. Nothing herein contained shall operate to so extend this policy as to include within its terms any Workmen's Compensation Law, scheme or plan not cited and described in an endorsement hereto attached.

"II. To indemnify this Employer against loss by reason of the liability imposed upon this Employer by law for damages on account of such injuries, including death resulting therefrom.

"III. To serve this Employer (1) by the inspection of work places set forth in the Declarations whenever deemed necessary by the Company and thereupon to suggest to this Employer such changes and improvements as may operate to reduce the number and severity of personal injuries during work; and (2) upon notice of such injuries so sustained, by investigation thereof and by settlement of any resulting claims in accordance with the law.

"IV. To defend in the name and on behalf of this Employer any suits or other proceedings which may at any time be instituted against this Employer on account of such injuries, including death resulting therefrom, including suits or other proceedings alleging such injuries or death and demanding damages, or compensation therefor, although such suits, proceedings, allegations and demands are wholly groundless, false or fraudulent.

"V. To pay all costs taxed against this Employer in any legal proceeding defended by the Company, all interest accruing after entry of judgment, and all expenses incurred by the Company for investigation, negotiations for settlement, or defense of claims or suits; further to pay the cost of such immediate surgical relief as is imperative at the time of an accident."

"VII. This policy shall cover such injuries, including death resulting therefrom, sustained by any employee or employees legally employed by this Employer. * * *"

The chancellor found that the defendant refused to settle the claim of the injured employee, assumed control of the defense in an action to recover under the Compensation Act, and wrongfully and negligently handled that defense, and conducted itself in such manner as to cause a loss to the complainant of $5,350.75, for which he gave a decree. The Court of Appeals concurred in the finding of facts by the chancellor, and, with the exception of a slight modification hereinafter mentioned, affirmed his decree. Both parties filed petition for certiorari, writs were granted, and the cause is brought here upon certiorari to the Court of Appeals.

The judgments of the chancellor and the Court of Appeals do not rest upon any specific provision of the policy, but, as indicated by their opinions, upon the obligation imposed by law upon the indemnitor to act in good faith and exercise ordinary care when it assumes authority under the policy to adjust claims or to defend suits against the indemnitee.

The facts found by the chancellor and the Court of Appeals are, in substance, as follows:

Judson Chandler, an employee under 16 years of age, was injured March 13, 1920. Upon notice and report by the employer of the accident, the defendant's attorney and manager, Mr. Hitzfield, made an investigation and wrote complainant on April 27, 1920:

"I have thoroughly investigated the accident in which Judson Chandler was injured and I am of the opinion that this man is not entitled to compensation by reason of the fact that his injuries did not `arise out of and in the course of his employment.'"

— and, following this, a letter of June 24, 1920:

"In response to your very earnest plea in behalf of our assured and the injured, Judson Chandler, I have decided to pay the total amount of medical expense allowable under the Workmen's Compensation Law in this case even though there is no liability, namely $100.00. * * *

"You understand that both myself and the officials at the general office of our company feel that this is not a case covered by compensation and that we are in no way liable for any amount other than the first aid service. I have however, departed from the question of liability and am paying this $100.00 because we appreciate the business of this concern and feel disposed to help them share the burden they have assumed from a standpoint of humanity in this case. * * *"

On September 25, 1920, the employee, through his father as next friend, filed suit in the county court of Marion county, where the employer and the employee resided, to recover under the Compensation Act. The defendant assumed control of the defense under paragraph IV of the policy and filed answer in the name of Aycock Hosiery Mills, denying liability because the injury did not arise out of and in course of employment.

In October, 1920, the cause was transferred by consent to the circuit court, where, at the February term, 1921, it was called for trial and witnesses testified, among them J. W. Chandler, the nominal plaintiff, who stated in the course of his testimony that his son, Judson, was 15 years of age when the injury occurred, and that he, the father, did not procure an employment certificate. The certificate here referred to was that required by section 5, c. 57, Acts of 1911, and section 3, c. 77, Acts of 1917.

At that time witnesses were available to contradict the statement of the petitioner that his son was not legally employed by complainant. Though representing the insured, the insurer either applied for or acquiesced in an order continuing the cause to enable it to plead and set up this new fact. The effect of its establishment would have been to absolve the insurance company of liability measured by the schedules of the Compensation Act and to fasten an absolute liability upon the insured employer measured by rules of the common law.

When the superintendent of the hosiery mills heard of this action by the casualty company he protested...