Boney v. Central Mut. Ins. Co. of Chicago

• Decision Date: 04 May 1938
• Docket Number: 457.
• Citation: 196 S.E. 837
• Parties: 213 N.C. 470, 117 A.L.R. 231 v. CENTRAL MUT. INS. CO. OF CHICAGO. BONEY, Insurance Commissioner,
• Court: North Carolina Supreme Court

196 S.E. 837

213 N.C. 470, 117 A.L.R. 231

BONEY, Insurance Commissioner, v. CENTRAL MUT. INS. CO. OF CHICAGO.

No. 457.

Supreme Court of North Carolina

May 4, 1938

Appeal from Superior Court, Wake County; G. V. Cooper, Special Judge.

Action by the State of North Carolina, on the relation of Dan C Boney, Insurance Commissioner, against the Central Mutual Insurance Company of Chicago, for appointment of a receiver to administer the special fund deposited by the Central Mutual Insurance Company of Chicago with the State Treasurer for the payment of the obligation of the insurance company to citizens or residents of North Carolina. Paul F. Smith was appointed receiver. The Burlington Trucking Company filed a claim with the receiver. From a judgment disallowing the claim, the Burlington Trucking Company appeals.

Reversed.

The action was instituted under C. S. § 6445 by the Insurance Commissioner for the purpose of having a receiver appointed to administer the special fund deposited by the Central Mutual Insurance Company of Chicago (an Illinois corporation now insolvent) with the State Treasurer for the payment of the obligation of said insurance company to citizens or residents of this state. Paul F. Smith was duly appointed and qualified receiver. Thereafter, the Burlington Trucking Company, a North Carolina corporation, a policyholder, filed a claim with said receiver on account of a judgment rendered against said trucking company for liability covered by the liability insurance policy of defendant insurance company. This claim was disallowed by the receiver on the ground that the claimant had not paid the judgment upon which the claim was based. Upon appeal to the superior court, it was adjudged that claimant was entitled only to prove its claim for the actual amount paid upon said judgment, with provision permitting payment of the judgment by installments, the claim to be allowed for the amount of payments actually made within the limits of the policy. Claimant appealed to the Supreme Court.

Thereafter it appearing that the claimant, Burlington Trucking Company had been placed in receivership, the receiver of the trucking company was, by order, empowered to prosecute the claim on its behalf.

J. M. Broughton, of Raleigh, Thos. C. Carter, of Burlington, and Wm. H. Yarborough, Jr., of Raleigh, for appellant Burlington Trucking Co.

A. L. Purrington, Jr., of Raleigh, for appellee receiver of Central Mut. Ins. Co. of Chicago.

DEVIN Justice.

The question presented for decision by this appeal arose upon the following facts:

The Central Mutual Insurance Company of Chicago (hereinafter called the insurance company) issued its policy of insurance to the Burlington Trucking Company insuring it "against loss from liability imposed by law upon assured for damages on account of bodily injuries, including death resulting therefrom, * * * caused by or through the ownership, maintenance or operation of any automobile described in the schedule." The policy required the assured to give within five days written notice of any accident, claim, or suit resulting, to forward process to the company, and, when requested, to aid in securing evidence and attendance of witnesses. The policy contained the further provision that: "The (Insurance) Company will investigate all accidents and claims covered hereunder, and defend in the name and on behalf of the assured all suits thereon, and will pay * * * the expenses incurred by it in such investigation and defense, but the company reserves the right to settle any such claim or suit. The assured shall not voluntarily assume any liability nor interfere in any negotiations or legal proceedings conducted by the company on account of any claim, nor, except at his own cost, settle any claim, nor incur any other expense without the written consent of the Company previously given."

During the life of this policy the automobile of the trucking company was involved in an accident resulting in the death of Sarah Colston Barry in the state of Virginia. In a suit for damages therefor prosecuted by R. P. Barry, Jr., administrator, in the District Court of the United States for the Western District of Virginia, judgment was rendered December 5, 1936, against the trucking company for $4,000. This suit was defended from the beginning and throughout by the insurance company. Following the appointment of the receiver for the insurance company, claim under the policy was filed by the trucking company for $4,000, with certified copy of the judgment attached. The trucking company had paid $700 on the judgment. The receiver rejected the claim for the remainder of the judgment for the reason that the insured had not paid it. A similar ruling of the superior court, on appeal, was based upon the same ground.

Does the policy of insurance in suit constitute a contract of insurance against liability for damages, or only a contract of indemnity against actual loss in the sense of money paid? As a condition precedent to the right to recover on the policy, must the assured have paid the judgment?

It has been well said that a policy of liability insurance is either a contract of insurance against liability for loss or damage and is properly called a liability contract, or it is a contract of insurance against loss or damage, and is thus called an indemnity contract. Whether it is the one or the other depends upon the intention of the parties as evinced by the phraseology of the agreement in the policy. "Where the policy provides that insured shall immediately notify the company in case of accident or injury, that the company would defend actions growing out of injuries, in the name of insured, and that insured should not settle any claim or incur any expense without the consent of the company, it is generally held to be a policy of indemnity against liability for damages, and is not merely a contract of indemnity against damages." 36 C.J. 1057, 1058; 14 R.C.L. 1321.

In Slavens v. Ins. Co., 9 Cir., 27 F.2d 859, 861, construing a policy like the one in the instant case, after citing with approval the statement of the law found in 36 C.J. 1057, 1058, quoted above, the court said: "The case at bar comes within the definition so quoted. While it expresses the obligation of the company to indemnify the assured against 'loss from the liability imposed by law' upon him for damages on account of bodily injuries accidentally sustained, it also contains the condition that the insured shall notify the company of the accident, that he shall not voluntarily assume any liability or settle any claim or incur any expense on account thereof without the consent of the company, and that the company will defend in the name and on behalf of the assured any suit against him to recover damages on account of bodily injuries." A number of cases from different jurisdictions are cited in support of the view expressed by the court.

In Malley v. American Indem. Corp., 297 Pa. 216, 146 A. 571, 572, 81 A.L.R. 1322, it was said: "There are two types of indemnity insurance, sometimes called indemnity against liability or 'liability contracts' and indemnity against damage or 'indemnity contracts.' In the first class, the liability of the insured determines the enforceability, in the other the policy is only enforceable when the insured has sustained actual loss, as by paying a judgment against him coming within the scope of the policy. The class into which particular policies fall depends on the intention of the parties as shown by their contract. * * * Where the policy, indemnifying insured against loss arising out of legal liability, provides that the insured shall immediately notify the company in case of injury, and the company will defend all suits growing out of injuries, in the name of insured, and insured will not settle any claim without consent of the company, it is usually held to be a policy of indemnity against liability for damages or an indemnity against liability, and is not a mere contract of indemnity against damages."

In the leading case of Clark v. Bonsal & Co., 157 N.C. 270, 72 S.E. 954, 48 L.R.A.,N.S., 191, construing a liability insurance contract where the insurance was "against loss from the liability imposed by law upon the assured for damages," Hoke, J., states the law in these words: "In construing contracts of this character, the courts have generally held that if the indemnity is clearly one against loss or damages no action will lie in favor of the insured till some damage has been sustained, either by payment of the whole or some part of an employe's claim; but if the stipulation is in effect one indemnifying against liability a right of action accrues when the injury occurs, or, in some instances, when amount and rightfulness of the claim has been established by judgment of some court having jurisdiction."

In the elaboration of his opinion Justice Hoke cites Anoka Lumber Co. v. Casualty Co., 63 Minn. 286, 65 N.W. 353, 355, 30 L.R.A. 689, and Sanders v. Frankfort Marine, Accident & Plate Glass Ins. Co., 72 N.H. 485, 57 A. 655, 661, 101 Am.St.Rep. 688, and refers to those cases as follows: "In the Minnesota and New Hampshire cases, supra-and we incline to the opinion that the present policy comes within the principle-it was held that the term 'insured against loss from liability arising,' etc., in the first portion of the policy, was so modified by subsequent clauses that it amounted to insurance against liability, and the entire amount could be applied to the employer by appropriate process."

Examining the opinion in Anoka Lumber Co. v. Casualty Co., supra, we find that court, in holding the insurance contract one of indemnity against liability, reasoned as follows: "If the plaintiff is forbidden to settle a...