Fireman's Fund American Ins. Companies v. Turner

• Court: Supreme Court of Oregon
• Citation: 93 Or.Adv.Sh. 325,53 A.L.R.3d 620,260 Or. 30,488 P.2d 429
• Parties: , 53 A.L.R.3d 620 FIREMAN'S FUND AMERICAN INSURANCE COMPANIES, Appellant, v. Robert S. TURNER, Respondent.
• Decision Date: 10 September 1971

Page 429

488 P.2d 429 260 Or. 30, 53 A.L.R.3d 620 FIREMAN'S FUND AMERICAN INSURANCE COMPANIES, Appellant,
v.
Robert S. TURNER, Respondent. Supreme Court of Oregon. Argued and Submitted July 12, 1971.
Decided Sept. 10, 1971.

Page 430

[260 Or. 31] William L. Hallmark, Portland, argued the cause for appellant. With him on the brief were C. Anderson Griffith and McMenamin, Jones, Joseph & Lang, Portland.

Duane Vergeer, Portland, argued the cause for respondent. With him on the brief were Vergeer, Samuels, Roehr & Sweek, Portland.

Before O'CONNELL, C.J., and McALLISTER, HOLMAN, TONGUE and HOWELL, JJ.

TONGUE, Justice.

This is an action for indemnity brought by the insurer of an employer against an employee. The purpose of the action is to recover from insurer of the [260 Or. 32] employee the defense costs and amount paid by the insurer of the employer in satisfaction of a judgment against both employer and employee in favor of a third party injured by an automobile owned by the employee and negligently driven by him in the course of his employment. Plaintiff appeals from a judgment in favor of defendant as entered by the court, sitting without a jury.

All of the issues presented for decision have not been previously decided by this court. They are:

(1) Whether an employer who is held vicariously liable to a third person injured by the negligence of an employee (and without negligence on the part of the employer), may seek indemnity against the employee;

(2) Whether in such a case it violates public policy for the employer's insurer to be subrogated to the employer's cause of action for indemnity; and

(3) Whether the Lamb-Weston doctrine of contribution between insurers is applicable in such a case.

Plaintiff issued to Oregon Sign & Neon Corporation (Oregon Sign) a policy of liability insurance with limits for personal injury in the sum of $100,000. That policy covered Oregon Sign against liability arising from the operation of vehicles owned by certain employees, including defendant, but did not cover the employees against liability. The policy also contained a subrogation clause in general form, under

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which plaintiff, as the insurer, was subrogated to the rights of Oregon Sign in the event that plaintiff, as its insurer, made payments under the terms of the policy.

Defendant was the manager of Oregon Sign and carried his own liability insurance under a policy with [260 Or. 33] limits of $10,000 for injury to one person. He was paid a monthly 'car allowance' by Oregon Sign for expenses incurred in the operation of his car for business purposes. ¹

While operating his automobile in the course of his employer's business defendant rear-ended another automobile. The party injured in that accident brought an action for personal injuries and recovered judgment in the sum of $9,177.23 and $75 in costs against both Oregon Sign and defendant, based solely upon negligent driving by defendant. The recovery against Oregon Sign was based solely on the doctrine of respondeat superior, without claim of negligence by it as employer.

Plaintiff insurer paid $7,401.76 in satisfaction of that judgment (or 10/11th of that judgment), and expended an additional $1,186 in defending the action. Defendant's insurer contributed the balance (or 1/11th), in satisfaction of that same judgment.

The trial court made the following additional finding of fact:

'That the negligence of Robert S. Turner was established at the trial of the cause, and that the Court having heard evidence on the nature of the accident and the conduct of the defendant at the time of said accident finds that the accident resulted from inadvertance (sic) and a mistake of judgment on the part of Robert S. Turner, but that Robert S. Turner at the time of the accident was rendering good and faithful service to his employer.'

[260 Or. 34] The trial court also made the following conclusions of law: ²

'That no recovery may be had by an employer against an employee even though such employee is guilty of negligence constituting a mere inadvertance (sic) or mistake where the employee is at the time complained of rendering good and faithful service to his employer.

'That plaintiff's action may not be maintained because it is against public policy to permit subrogation of a personal injury award.

'That each carrier having discharged its prorata share of the judgment, and each having received a premium therefor no recovery can be had by the one against the other.'

1. An employer held vicariously liable to a third person injured by the negligence of an employee, without negligence on the part of the employer, may seek indemnity against the employee.

Plaintiff, as appellant contends that it has long been recognized at common law and by most courts, including this court, that an employer held vicariously liable to a third person injured by the negligence of an employee, without negligence on the part of the employer, may seek indemnity against the employee. ³

[260 Or. 35]

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a. It is not contrary to public policy for an employer to seek indemnity against an employee.

Defendant, while recognizing the authorities cited by plaintiff, contends that 'considerations of public policy * * * (are) of greater importance than recognition of an out-dated rule of law exercised without regard to its effect.' Thus, defendant contends that Oregon Sign, as an employer, knew that it was inevitable that defendant in driving from 24,000 to 36,000 miles each year would have an accident; that defendant obtained insurance coverage to protect it against such accidents and that where, as in this case, there was no drinking or gross negligence, but no more than 'mere inadvertent negligence which was within the contemplation of the parties,' the employer should not, as a matter of public policy, be entitled to 'pass the economic loss off on to the employee when it is foreseeable at the outset.'

We may agree that this contention may have considerable merit as a matter of abstract justice, depending[260 Or. 36] upon the circumstances of the particular case. Indeed, the common law ruel of indemnity by an employer against his employees has been strongly criticized for much the same reasons. ⁴ Defendant has cited no cases, however, in which the courts have undertaken to abolish that rule by judicial decision, and perhaps for good reason.

The 'fault concept'--that all persons should be held responsible for the consequences of their wrongful acts, including 'inadvertent negligence,'--while subject to criticism, is still firmly established as the foundation of tort liability. Exceptions to and modifications of that rule, such as the requirement of gross negligence, rather than simple negligence, as the basis for liability of the driver of an automobile to a guest passenger, have usually been adopted as the result of statute, rather than court decision. And while the legislatures, rather than the courts, are ordinarily considered to have the primary responsibility for changes in the law for reasons of public policy, legislation which undertakes to relieve persons from responsibility for their wrongful acts is also usually subject to strong criticism. (Witness the current controversy over proposals for 'no-fault' insurance legislation.)

It has been contended that to permit employers to seek such indemnity against their employees would 'thwart efficient loss distribution in pursuit of perfecting the fault principle' and that 'if this doctrine were carried to its logical conclusion most of our accident[260 Or. 37] loss would ultimately be paid for by the operators of machines or other workmen.' ⁵

In considering this contention, however, it must be kept in mind that, as a practical matter, few employers seek to exercise such

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a right of indemnity against their individual employees, and for three good reasons: (a) the adverse effect upon employee morale; (b) the inability of most employees to pay such indemnity, and (c) the opposition of unions. ⁶ And while in cases involving automobile accidents the insurers of employers may not be inhibited by these considerations, most employees today also carry automobile liability insurance, as in this case. In addition, in this case, defendant was paid a monthly 'car allowance' to cover the cost of expenses incurred in the operation of his car for business purposes. ⁷ This, of course, raises the problem of the exercise by the insurer of an employer of its rights of subrogation and the problem of whether the insurance companies for both employer and employee should contribute to the loss in a case such as this, as considered separately below. ⁸

It must also be kept in mind that the rule of vicarious liability of employers, although a court-made rule, is a rule. under which persons injured by the wrongful acts of employees may seek recovery against the employer as the one best able to pay and to distribute[260 Or. 38] the resulting loss--all in the absence of any negligence or 'fault' on part of the employer. Thus, it is contended, and with some merit, that if such liability without fault is imposed on the employer, it is not contrary to public policy to permit him to seek indemnity against the person at fault, despite the fact that such person may be his employee. ⁹

In any event, it is our view that the right of an employer held vicariously liable to a third person injured by the wrongful act of an employee to seek indemnity against the employee is too well...