Fidelity & Cas. Co. of New York v. McConnaughy

• Decision Date: 23 February 1962
• Docket Number: No. 149,149
• Citation: 179 A.2d 117,228 Md. 1
• Parties: FIDELITY AND CASUALTY COMPANY OF NEW YORK v. Margaret Ritzmann McCONNAUGHY, etc.
• Court: Maryland Court of Appeals

Page 1

228 Md. 1

179 A.2d 117

FIDELITY AND CASUALTY COMPANY OF NEW YORK v. Margaret Ritzmann McCONNAUGHY, etc.

No. 149.

Court of Appeals of Maryland.

Feb. 23, 1962.

Richard C. Murray and W. Lee Harrison, Towson (Smith & Harrison, Towson, on the brief), for appellant.

Walter B. Siwinski, Towson, and Harry E. Goertz, Baltimore, for appellee.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

HAMMOND, Judge.

The appeal is by an insurance company from a summary judgment in favor of a judgment-creditor of an insured under an automobile liability policy. The company unsuccessfully urged below that it was not liable to the judgment-creditor because it had disclaimed liability for noncooperation by the insured before he had been found liable in a negligence suit against him by the judgment-creditor.

Margaret Ritzmann sued James Butler in 1954 to recover for injuries suffered when an automobile in which she was a passenger collided with his car. The appellant, the Fidelity and Casualty Company of New York, undertook the defense of the case under the liability policy it had issued to Butler. Following the accident, the insurance company filed an SR-21 form with the Department of Motor Vehicles (stating that at the time of the accident Butler had in force an automobile liability insurance policy) to satisfy the requirements of Code (1957), Art. 66 1/2, Sec. 122 (codified under the sub-title 'Motor Vehicle Financial Responsibility'). The issue in the negligence suit was which vehicle had been to the left of the center of the road when the accident happened. Miss Ritzmann had several witnesses to her version of the occurrence, but investigation by the insurance company failed to locate any witness to support Butler's defense that he was driving on the right side of the road.

While being interviewed by his lawyers, selected for him by the insurance company under its policy right to control the defense of the suit, Butler said there were two witnesses whose addresses he did not know. Upon request he brought into the lawyer's office one Edward Tillman and one Overland T. Jones, each of whom, in the fall of 1955, signed a statement that he had been an eyewitness to the accident and that Butler's car had been on the right side of the road and the other car on the wrong side.

Miss Ritzmann had submitted an offer to settle her claim for $3,500. The insurance company claimed below and now claims that it rejected this offer because of the statements of Tillman and Jones as to how the accident happened.

In May 1956, on deposition, Tillman testified that he had not seen the accident; that Butler had approached him and asked him to testify that the Ritzmann automobile pulled in front of him onto his side of the road; that his previous statement, given to Butler's counsel, was false; and that Jones had been told to give a similar version of the accident.

Because of Tillman's deposition, Butler's lawyers wrote him a registered letter asking him to come in the office to discuss the case. He was examined under oath by his own lawyer in question-and-answer form, with the questions and answers recorded by one of the court stenographers of Baltimore County. After he had given various answers which the lawyer found unsatisfactory, he was advised several times of the existence of the crime of perjury and of the consequences of its commission, and thereafter he acquiesced in his counsel's repeated suggestions that he had asked Tillman to testify that the other car had pulled out onto the wrong side of the road and that Tillman had 'worked on' Jones.

Nine days later the lawyers advised Butler that they were withdrawing from the case and the insurer was disclaiming liability under the policy because of his violation of the cooperation clause.

Thereafter, the settlement offer of $3,500, which the insurer had rejected because of the favorable statements of Tillman and Jones, was withdrawn. Butler secured other counsel but when he failed to appear at the trial, they struck their appearance. A verdict of $10,000 against Butler was awarded Miss Ritzmann (who by then had become Mrs. McConnaughy) on October 17, 1956. After an unsuccessful attempt to execute on the judgment, Mrs. McConnaughy filed suit against the insurance company, alleging that under the policy it had issued Butler it was 'legally obligated' to pay the judgment against him.

The insurance company, in answer to the declaration and the plaintiff's motion for summary judgment, set forth Butler's breach of the policy provision to cooperate and alleged that it had been prejudiced by his false statements and his procuring witnesses who made false statements, saying in its affidavit that the plaintiff offered to settle for $3,500, 'but in view of the statements obtained as aforesaid from Edward H. Tillman and Overland T. Jones, there was no acceptance of the settlement demand.'

Judge Lindsay granted the plaintiff's motion for summary judgment on June 19, 1961, saying: 'The motion for summary judgment is hereby granted in the amount of $10,000 with interest from October 17, 1956, and the cost of this suit.' On both the law and judgment dockets the clerk made entries indicating that judgment had been rendered for the sum of '$10,000, interest and costs.' On June 22, the insurance company filed its order of appeal 'from the order granting summary judgment in favor of the plaintiff * * *.' On July 3 the plaintiff filed a petition praying that an order be passed 'directing the Clerk to amend his entries on the Court and judgment dockets so as to show a judgment in keeping with the opinion of this Honorable Court in the amount of $12,803.29, with interest and cost from June 19, 1961.' (The principal figure obviously represented the $10,000 judgment with interest at 6% from 1956.)

The court passed an ex parte order, directing the clerk 'to amend his entries on the Court and judgment dockets' so as to show a judgment of $12,803.29 with interest from June 19, 1961, and costs.

The appellee moved to dismiss the appeal because (1) the final judgment was entered on July 3, 1961, and the appeal, noted on June 22, 1961, was premature; and (2) the appeal was not from a final judgment since it states it to be from 'the order' granting summary judgment.

There is no substance to the motion to dismiss and it is denied. The court's action on July 3 was only to correct a clerical error in a final judgment it had granted on June 19, and this was a proper and permissible action. The claim that the appeal was not from a judgment but from the opinion of the court is frivolous.

On the merits, the appellees do not controvert the insurance company's contention that Butler did breach the cooperation clause. Such a clause is valid and '[t]he insured under a liability policy containing a co-operation clause is obligated to assist in good faith in making every legitimate defense to a suit for damages.' Indemnity Ins. Co. of N. A. v. Smith, 197 Md. 160, 164, 78 A.2d 461, 463. This includes a fair, frank and truthful disclosure of information requested by the insurer for the purpose of enabling it to determine whether or not there is a genuine defense. Farm Bureau Mutual Automobile Ins. Co. v. Garlitz, 180 Md. 615, 618, 26 A.2d 388. See also 8 Appleman, Insurance Law and Practice, Sec. 4782; Annotation, 98 A.L.R. 1465, 1470. It has been held in this connection that it is immaterial that the breach of the cooperation clause consists of 'over-cooperation,' as in Butler's case. DeHart v. Illinois Cas. Co., 116 F.2d 685 (7th Cir.); Hunt v. Dollar, 224 Wis. 48, 271 N.W. 405 (Wis.); Searls v. Standard Acc. Ins. Co., 316 Mass. 606, 56 N.E.2d 127 (Mass.). The rights of a judgment-creditor of an insured are no greater than those of the insured, in whose shoes he stands. Farm Bureau Mutual Automobile Ins. Co. v. Garlitz, supra.

The appellee says the insurer may not avoid liability on the policy for three reasons:

1. The filing of the SR-21 form with the Commissioner of Motor Vehicles under the Maryland Financial Responsibility Law prevents the insurance company from disclaiming liability under the policy.

2. The insurer is blocked from disclaiming by waiver and estoppel:

a. by the length of time it continued to conduct the defense of the case; and

b. by the breach of professional ethics of the lawyers representing Butler at the instance of the insurance company.

3. There was no prejudice to the insurer resulting from Butler's breach of the policy provision to cooperate.

Under Maryland's Financial Responsibility Law, unless the owner or operator of a motor vehicle which is involved in an accident carries liability insurance and the insurer files a certificate so stating, the owner or operator must deposit security to meet possible judgments and must also show 'proof of financial responsibility' for the future, or else lose his license and registration. Code (1957), Art. 66 1/2, Sec. 122. The Department of Motor Vehicles requires proof of such insurance in the form of a certificate by the insurer on a form commonly called an SR-21.

Although an insurance company issuing a policy to meet the requirement of 'proof of financial responsibility' is by Sec. 131(a)(6)(F) precluded from setting up, as against a judgment-creditor of the insured, defenses that arise out of the insured's conduct (such as failure to cooperate), Sec. 131(a)(6)(F) does not apply to those insurance policies which except an owner or operator from the security and financial responsibility requirements of Sec. 122 since these policies are not issued as 'proof of financial responsibility,' as that term is artfully used in Sec. 122 and in other sections of the Financial Responsibility Law. Citizens Co. of New York v. Allied Mutual Ins. Co., 217 Md. 494, 500; 40 Op.Atty.Gen. 329. Therefore, an insurer is not precluded from setting up a defense against a judgment-creditor because it has filed an SR-21 form with the Department...