Commonwealth Ins. Agency, Inc. v. Arnold

• Decision Date: 12 April 1965
• Docket Number: No. 50775,No. 1,50775,1
• Citation: 389 S.W.2d 803
• Parties: COMMONWEALTH INSURANCE AGENCY, INC., a Corporation, and Walter A. Klein, (Plaintiffs) Appellants, v. Philip ARNOLD, (Defendant) Respondent
• Court: Missouri Supreme Court

Page 803

389 S.W.2d 803

COMMONWEALTH INSURANCE AGENCY, INC., a Corporation, and Walter A. Klein, (Plaintiffs) Appellants, v. Philip ARNOLD, (Defendant) Respondent.

No. 50775.

Supreme Court of Missouri, Division No. 1.

April 12, 1965.

Motion for Rehearing or to Transfer to Court En Banc Denied

May 10, 1965.

Harry Gershenson, J. E. Sigoloff, St. Louis, for (plaintiffs) appellants.

Harold A. Thomas, Jr., Nelson W. Hartman, Fordyce, Mayme, Hartman, Renard & Stribling, St. Louis, for respondent.

WELBORN, Commissioner.

Plaintiff Commonwealth Insurance Agency and its president, plaintiff Walter A. Klein, filed an action for declaratory judgment against defendant Philip Arnold, who, on behalf of Underwriters at Lloyd's London, had issued to plaintiffs a policy of 'Errors and Omissions Insurance' for the operation of plaintiffs' insurance business. The petition sought a declaration of defendant's liability on the policy issued to plaintiffs as it related to a claim against them which was the subject of an action by the Golub Corporation and others against plaintiffs in the St. Louis Circuit Court. On defendant's motion in the present case, the trial court dismissed plaintiffs' petition. Plaintiffs have appealed from such order.

Defendant issued to plaintiffs a policy of 'Insurance Brokers and Agents Errors and Omissions Insurance' for a period from August 22, 1955 to August 22, 1958. The policy was subsequently extended for two additional three-year terms. The policy undertook to indemnify plaintiffs 'against any claim or claims for breach of duty as Insurance Brokers * * * which may be made against them (during the term of the policy) by reason of any negligent act, error or omission, whenever or wherever committed or alleged to have been committed, on the part of the Assured' in its business. The limit of liability was $100,000 in any one policy year with a deductible amount of $2,500 for any claim.

Among the conditions of the policy was one that the assured should not admit liability or settle any claim without the written consent of the insurer, 'who shall be entitled at any time to take over and conduct in the name of the Assured the defence of any claim.

'Nevertheless, the Assured shall not be required to contest any legal proceedings unless a Lawyer (to be mutually agreed upon by the Assured and the Underwriters) shall advise that such proceedings should be contested.'

A further condition read:

'5. This Insurance shall not indemnify the Assured in respect of any claim made against them

'(a) * * *

'(b) brought about or contributed to by any commingling of or inability or failure to pay or collect premium, claim or tax moneys,

'(c) brought about or contributed to by the dishonest fraudulent, criminal or malicious act or omission of the Assured or any employee of the Assured, or

'(d) * * *.'

Plaintiffs' petition alleged that an action was filed against them in the St. Louis Circuit Court on January 3, 1962, by the Golub Corporation and associated companies. Copies of Golub's original and first amended petitions were attached to plaintiffs' petition in this case and incorporated therein by reference. Golub's petition alleged that, in 1955, plaintiff Klein, acting on behalf of plaintiffs Commonwealth Insurance Agency, placed certain public liability insurance for Golub and its associated companies, operators of retail stores in New York and Massachusetts. The insurance was with Underwriters at Lloyd's, London, for a three-year term, effective August 6, 1955. Golub's petition alleged that, in August, 1958, they directed plaintiffs to extend and renew the coverage which the Golub companies had had for the preceding three years and that plaintiffs thereafter told Golub that the extension had been effectuated as directed; that, on or about October 1, 1958, plaintiffs mailed to Golub a cover note of Underwriters at Lloyd's, purporting to extend the prior coverage.

Golub's petition further alleged that, although they had directed plaintiffs to renew and extend the prior coverage with Lloyd's and that, although plaintiffs advised Golub that such extention had been effectuated, plaintiffs had, without Golub's knowledge or authority, placed the insurance with British Commercial Insurance Company, Ltd., which was not an underwriter at Lloyd's. The petition further alleged that British Commercial Insurance Company was unable to pay claims against Golub because it entered into liquidation proceedings in September, 1959. Golub alleged that, because of the default of British Commercial Insurance Company on its policy, Golub had been required to defend and settle claims for $25,000 and further pending claims involved a liability of $25,000. Golub asked judgment for $50,000 loss which it claimed to have suffered due to plaintiffs' 'negligence and fraud.' Golub's amended petition is essentially the same as its original, except that it charges negligence and fraud in separate counts.

Plaintiffs' petition in this case alleged that they gave defendant 'immediate notice in writing' of the claims of Golub and of the institution of this action, but that defendant had denied any obligation to indemnify plaintiffs in respect to such claims on the grounds that they are excluded from the coverage of the insurance by Condition 5(b) set out above.

Plaintiffs alleged that they contended that such condition is not applicable and that by reason of the conflicting claims of the parties as to the interpretation of the policy relative to the coverage and the settlement and defense of claims, irreparable damages might be done plaintiffs unless the rights of the parties under the policy are determined in advance of the trial of Golub's action.

Plaintiffs' petition asked a declaration of the rights of the parties under the insurance policy, the coverage provided thereunder, and that under a correct construction of the policy, the claim of Golub is not excepted by Condition 5(b); that defendant is liable to indemnify plaintiffs against the claim of Golub; that if the claim is to be contested, defendant be required to agree with plaintiffs upon a lawyer who shall advise that the action of Golub be contested, or of defendant's obligation to indemnify plaintiffs.

Defendant filed a motion to dismiss on the grounds that plaintiffs' action was premature and presented no justiciable controversy because it did not present a definitestate of facts ripe for determination and admitting of specific relief by way of a decree conclusive in character and determinative of the issues; that the petition presented merely a difference of opinion on a legal question and requested the court to issue an advisory opinion on a speculative and hypothetical situation which may never come to pass. The trial court sustained defendant's motion and, after plaintiffs' motion to set aside the order or, in the alternative, for a new trial, had been denied, this appeal was taken.

The essential question on this appeal is whether or not plaintiffs' petition alleges a state of facts which produces a justiciable controversy between plaintiffs and defendant. We recognize, as plaintiffs assert, that their petition is to be construed favorably to them, giving them the benefit of every reasonable and fair intendment in view of the facts alleged. City of Creve Coeur v. Creve Coeur Fire Protection District, Mo.Sup., 355 S.W.2d 857, 859. The exhibits attached to the petition, consisting of the insurance policy and Golub's petitions, are a part of plaintiffs' petition for all purposes, Civ.Rule 55.14, V.A.M.R., and are to be considered in passing upon its sufficiency. M.F.A. Mutual Insurance Company v. Hill, Mo.Sup., 320 S.W.2d 559, 562(2).

We have several cases which have described the 'justiciable controversy,' essential before a court may exercise its jurisdiction in response to a petition for a declaratory judgment. '(T)here must be a sufficiently complete state of facts presenting issues ripe for determination * * *.' Tietjens v. City of St. Louis, 359 Mo. 439, 222 S.W.2d 70, 72. The determination must provide 'specific relief through a decree of a conclusive character.' Transport Mfg. & Equip. Co. v. Toberman, Mo.Sup., 301 S.W.2d 801, 806. Declaratory judgment may not be used to 'adjudicate hypothetical or speculative situations which may never come to pass.' M.F.A. Mutual Insurance Company v. Hill, Mo., 320 S.W.2d 559, 564. 'A mere difference of opinion or disagreement or argument on a legal question does not afford adequate ground for invoking the judicial power.' Tietjens v. City of St. Louis, supra. '(W)here the record furnishes insufficient facts from which to determine liability, and advice concerning the respective duties and obligations of the parties is all that is asked, a court will not pass on (the question presented).' City of Joplin v. Jasper County, 349 Mo. 441, 161 S.W.2d 411, 413.

Application of these general principles to specific cases is not a simple matter. 'The only safe guide is an analysis of the precedents in which declaratory judgments have been granted and declined.' Borchard, Declaratory Judgments (2d ed.), p. 56. Controversies involving insurance policies have been a fruitful source of declaratory judgment litigation. Our courts have considered several controveries involving insurance.

In Pennsylvania Casualty Co. v. Suburban Service Bus Co., Mo.App., 211 S.W.2d 524, relied upon by plaintiffs as precedent for their quest for relief in this case, the insurer had paid $19,100 in claims under a policy with a $20,000 limit. After such payments, $11,500 on judgments remained outstanding which could be settled for $5,500. Plaintiffs demanded of the insured the difference between that amount and the $900 remaining within the policy limits. Upon defendant's refusal to...