Colby v. Preferred Acc. Ins. Co. of N.Y.

• Decision Date: 26 August 1935
• Citation: 181 A. 13
• Parties: COLBY et al. v. PREFERRED ACC. INS. CO. OF NEW YORK.
• Court: Maine Supreme Court

181 A. 13

COLBY et al.

v. PREFERRED ACC. INS. CO. OF NEW YORK.

Supreme Judicial Court of Maine.

Aug. 26, 1935.

[Copyrighted material omitted.]

Appeal from Supreme Judicial Court, Kennebec County, in Equity.

Suit by Bernice Colby, pro ami, Shirley Alley and another against the Preferred Accident Insurance Company of New York. Decree for plaintiffs, and defendant appeals.

Appeals dismissed.

Argued before DUNN, STURGIS, BARNES, THAXTER, and HUDSON, JJ.

Ralph W. Farris and Walter M. Sanborn, both of Augusta, for appellant.

Locke, Campbell & Reid and Carleton & Donovan, all of Augusta, for appellees.

HUDSON, Justice.

The plaintiffs seek to reach and apply "insurance money" in satisfaction of judgments obtained by them severally against John Graham, minor son of Gladys Urner Graham, the "named assured" in an automobile liability policy issued by the defendant.

On July 27, 1934, they were injured in an accident while the insured automobile was being driven by the son. The policy provided that:

"The unqualified word 'Assured' includes not only the named Assured but any other person using and having a legal right to use any such automobile, * * * provided that such use is with the permission of the Named Assured, * * *."

Section 178 of chapter 60, R. S. 1930, provides that:

"Whenever any person, * * * recovers a final judgment against any other person, firm, or corporation, for any loss or damage specified in the preceding section, the judgment creditor shall be entitled to have the insurance money applied to the satisfaction of the judgment by bringing a bill in equity, in his own name, against the insuring company to reach and apply said insurance money; provided that when the right of action accrued the judgment debtor was insured against said liability, and that before the recovery of said judgment the insuring company had had notice of such accident, injury, or damage."

The defendant was seasonably given the required notice and defended John. It now denies liability to pay these judgments. These actions were heard by a single justice, who found that the "plaintiffs failed to prove such permission," but that the "defendant did assume the defense of the cases against John Graham in the Court below, without any reservation as to coverage and with knowledge of the facts; also that no notice was given plaintiffs at the time of the trial that such a defense was to be made" and held "as a matter of law that by so doing it is now estopped from setting up lack of coverage at the present time or has waived its right to make such defense * * *."

From the decrees based on said findings of fact and law, the defendant appealed.

"As a general rule, one who suffers injury which comes within the provisions of a liability insurance policy, is not in privity of contract with insurer, and can not reach the proceeds of the policy for the payment of his claim by an action directly against insurer, unless such recovery is permitted by statute, or by the express provisions of the policy." 36 C. J. § 129, pages 1129 and 1130.

The plaintiffs base their rights both upon statute and this provision in the policy :

"If any person * * * shall obtain final judgment against the assured because of any such injuries, * * * if such judgment is not satisfied within thirty days after it is rendered, then such person or his legal representatives may proceed against the company to recover the amount of such judgment, either at law or in equity, but not exceeding the limit of this policy applicable thereto."

Was John's use of the automobile (admittedly the one described in the policy) covered? Yes, if "with the permission of the named assured," his mother.

The justice below found that in fact he did not have such permission, but held that this defendant, because of its conduct, was not in a position to set up this lack of coverage.

The decision, then, depends upon the application of the law of estoppel or waiver, or election, to the facts herein. Counsel have stated the issues to be:

1. Were plaintiffs required to plead estoppel or waiver?

2. Did plaintiffs fail to prove judgment debtor was insured against liability by defendant ?

3. Was the finding that defendant was estopped or had waived defense of non-coverage justified in fact and in law?

These we will consider seriatim.

1. The plaintiffs in their bills, based either on this remedial statute or on the promise in the policy, alleged all matter necessary of proof. So alleged were the recovery of the final judgments, their nonpayment; the negligent operation of the automobile covered by the policy, its ownership in the assured, and its use with her consent; and that "when the right of action represented by the aforesaid judgment accrued, the judgment debtor," John, "and the automobile, which he was operating and which caused the damage and injury * * * were insured against the liability upon which said judgment is based," and finally, that "before the recovery of said judgment said defendant insuring company had had notice of such accident, injury and damage." The defendant, answering, denied the consent and alleged that it never "issued a policy insuring said judgment debtor against liability." Then the plaintiffs, in full compliance with our equity practice, had only to and did file formal replications.

"Estoppels are of two kinds, viz.: those technically such, as by deed, etc., which must be pleaded, to make them absolutely such, and those in pais, which, though not pleaded, may be given in evidence, so as to operate as effectually as those technically such." Rangely v. Spring, 28 Me. 127, 143.

At common law an estoppel in pais need not be pleaded. 21 C. J. 1241, § 248.

In Miller v. Union Indemnity Co., 209 App. Div. 455, 204 N. Y. S. 730, in which in defense it was claimed there was non-coverage, not because of lack of permission, but of co-operation, it was held that the plaintiff in framing his complaint need not anticipate that the defendant would claim nonco-operation as a defense and so plead facts showing the waiver of such a defense. The defense of nonco-operation is an affirmative one on which the insurer carries the burden of proof. United States Fidelity & Guaranty Co. v. Remond, 221 Ala. 349, 129 So. 15; Francis v. London Guarantee & Accident Co., 100 Vt. 425, 138 A. 780; Cowell v. Employers' Indemnity Corporation, 326 Mo. 1103, 34 S. W.(2d) 705.

When these plaintiffs drew their bills alleging permission, they were not chargeable with knowledge that the defendant would deny it and thus coverage. They were not bound to anticipate that such a defense would be made. Their allegations, conforming to the provisions of the statute and the terms of the policy, stated cases sufficient for equitable relief. The defendant, however, in denying permission and thus putting it in issue, gave the right to the plaintiffs to prove that the defendant was estopped to deny permission. To such answers the only duty of the plaintiffs in pleading was to file replications, in accordance with Equity Rule 17, which provides:

"The replication shall state in substance that the allegations in the bill are true and that those in the answer are not true."

This they did.

The following language from Mabee v. Continental Casualty Co., 37 Idaho, 667, 219 P. 598, 602, 37 A. L. R. 348, is pertinent :

"It is finally contended that the evidence of waiver was not admissible in the absence of an allegation of waiver in plaintiff's complaint. Aside from the fact that it was not so much a waiver as an estoppel upon which respondent relied, it was the appellant who first alleged this provision of the policy and its breach as an affirmative defense. No replication thereto was required under our system of pleading. The tender of this issue by the affirmative answer joined the issue, and the respondent, under the issue so joined, was entitled to avail herself of all defenses which she could command, whether they consisted of matters of mere denial or admitted the facts as pleaded and sought to avoid the same by reason of waiver, estoppel, or other legal reason."

We see no distinction in a situation where there is no provision for a replication and one in which the replication, expressly provided for by statute, is made.

It is argued by the defense that the introduction of this testimony as to estoppel prejudiced it as surprise testimony; if so, its remedy was to ask for a continuance. Had the facts, however, claimed to constitute the estoppel, been alleged, namely, that the defendant assumed the defense in the original actions without reservations, it would have been apprised of nothing it did not already know.

2. It was incumbent upon the plaintiffs to prove that the judgment debtor was insured against liability by this defendant, unless by its conduct it had excused the necessity of such proof. The defense contends that inasmuch as the justice below found as a fact that there was no permission of operation of this car by John, that that in and of itself was a finding of noncoverage, and hence recovery could not be had either under the statute or by the terms of the policy. This contention, however, it seems to us, is based on a mistaken conception of the finding of the justice and is only a partial statement of it. He found not only that the plaintiffs failed to prove the permission, but that the defendant assumed the defense of these actions without any reservation as to coverage and with knowledge of the facts, and that no notice was given the plaintiffs at the time of the trial that such a defense was to be made. We believe that he held correctly that on these facts the defendant was estopped from setting up lack of coverage which is an affirmative defense. Under these circumstances, the burden of proof of noncoverage was on the defendant. Francis v. London Guarantee & Accident Co., Ltd., 100 Vt. 425, 138 A. 780; United States Fidelity & Guaranty Co. v. Remond, 221 Ala. 349, 129 So....