First Nat. Bank of Kansas City v. Higgins, 48379

• Decision Date: 26 March 1962
• Docket Number: No. 48379,48379
• Citation: 357 S.W.2d 139
• Parties: FIRST NATIONAL BANK OF KANSAS CITY, a corporation, Executor of the Estate of Franklin E. Whiteley, deceased, Appellant, v. T. James HIGGINS, Defendant, General Reinsurance Corporation, Appellant, C. Lawrence Leggett, Receiver of International Indemnity Exchange, Respondent.
• Court: Missouri Supreme Court

Page 139

357 S.W.2d 139

FIRST NATIONAL BANK OF KANSAS CITY, a corporation, Executor of the Estate of Franklin E. Whiteley, deceased, Appellant, v. T. James HIGGINS, Defendant,

General Reinsurance Corporation, Appellant, C. Lawrence

Leggett, Receiver of International Indemnity

Exchange, Respondent.

No. 48379.

Supreme Court of Missouri, En Banc.

March 26, 1962.

Rehearing Denied May 14, 1962.

Lucian Lane, Woodruff & Lane, Kansas City, for appellant.

Paul C. Sprinkle, Sprinkle, Carter, Sprinkle & Larson, Kansas City, for garnishee-appellant.

Charles H. Howard, Jefferson City, Hendren & Andrae, Jefferson City, of counsel, for interpleader-respondent.

STOCKARD, Commissioner.

Garnishor and garnishee have appealed from a judgment wherein the trial court awarded the amount sought by the garnishor to the Superintendent of the Division of Insurance (hereafter called 'Superintendent') as receiver of the assets of the insolvent International Indemnity Exchange (hereafter called 'International'). This court has jurisdiction because the Superintendent in his capacity as a state officer is a party. Leggett v. General Indemnity Exchange, 363 Mo. 273, 250 S.W.2d 710.

International entered into an agreement with General Reinsurance Corporation (hereafter called 'General') whereby it reinsured with General certain obligations arising under its automobile liability policies. The effect of this agreement is the principal issue on this appeal and its terms will be discussed in detail subsequently. International issued to James T. Higgins its 'Multiple Peril Policy' of automobile liability insurance, and while it and the reinsurance agreement were in effect Higgins was involved in an automobile accident. Suit for personal injuries was filed against him by Edna Whiteley and a separate suit for consequential damages was filed against him by Franklin E. Whiteley, husband of Edna. Mr. Whiteley subsequently died and the First National Bank of Kansas City, as executor of his estate, has been substituted as party plaintiff. Edna Whiteley obtained judgment against Higgins and received $7,500 in satisfaction thereof. Before the husband's suit for consequential damages was tried the Superintendent brought proceedings against International pursuant to Section 375.560, RSMo 1959, V.A.M.S., alleging that it was insolvent, and obtained a judgment vesting in him as receiver all of its assets. Counsel for Higgins, which had been furnished by International in the suit for consequential damages, withdrew from that case. Mr. Whiteley then served notice on the Superintendent and on General to defend the suit, and when both either refused or failed to do so he obtained a judgment against Higgins in the amount of $5,000. This judgment was not satisfied, general execution was issued, and summons of garnishment was served on General. Interrogatories were exhibited to and answered by General in which it denied that it was obligated to Higgins. Plaintiff-garnishor filed a denial and set forth his contentions and claim, and General filed its reply and the issues were thus formed. General then filed and the trial court sustained a motion to require that the Superintendent be made a party to the garnishment proceeding. After first unsuccessfully seeking a writ of prohibition in this court the Superintendent filed what he termed a counterclaim against plaintiff and a cross-claim against General in which he asserted that plaintiff-garnishor had no right to recover against General and that all money payable by General under the reinsurance agreement was payable to him as receiver 'on behalf of all the creditors of International.' The trial court ruled that the Superintendent was 'entitled to judgment against [General] in the sum of $5,000 with interest.' Plaintiff-garnishor and General have appealed.

For a valuable consideration General agreed in Article I of the reinsurance agreement to 'accept reinsurance' from International as set forth in Exhibit A attached to and made part of the agreement and entitled 'Excess Reinsurance of Automobile and other Bodily Injury Liability-Single Limit Liability.' Section 1 of the exhibit, entitled 'Cover,' provided that 'as respects accidents' occurring under policies of insurance 'covered hereunder' International was to 'pay in respect of each accident the amount of loss indicated' therein as 'Company's Retention.' General agreed to accept 'on an excess basis, all loss above said retention; provided that loss to the Reinsurer on account of each accident shall not exceed the amount set forth * * * as 'Maximum Amount to be Reinsured with Reinsurer.'' International's retention of 'Automobile and other Bodily Injury Liability' was stated to be $5,000 per person and $10,000 per accident, and the 'Maximum Amount to be Reinsured with Reinsurer' was $20,000 per person and $40,000 per accident. As the 'provisional premium' for the reinsurance, International was to pay General 'the actual excess premium charged' the policyholder for the limits reinsured less a commission to be retained by International. A 'rating formula' was provided for determining premiums payable to General, and therein the term 'losses' in respect to any rating period was defined to mean 'paid loss and loss expense plus pending loss and loss expense resulting from accidents occurring during said period.' It was further provided in the exhibit that 'as respects a loss for which the Company [International] is held liable for an amount in excess of the policy limit, the Reinsurer [General] hereby agrees to assume seventy-five percent (75%) of that part of such loss which is in excess of the policy limit, provided that as respects such loss, the Company shall retain the amount applicable * * * as 'Company's Retention' and the liability to the Reinsurer under this Exhibit shall not exceed the amount applicable * * * as 'Maximum Amount to be Reinsured with Reinsurer.''

Article II of the reinsurance agreement pertained to 'General Exclusions and Special Acceptances.' Article III, entitled 'Liability of Reinsurer,' was as follows: 'The liability of the Reinsurer [General] shall follow that of the Company [International] in every case and shall be subject in all respects to all the general and special stipulations, clauses, waivers and modifications of the Company's policy, binder, or other undertaking and any endorsements thereon; * * *. Payments under this Agreement shall be made directly to the Company or to its liquidator, receiver or statutory successor on the basis of the liability of the Company under the contracts reinsured, without diminution because of the insolvency of the Company. It is agreed, however, that the liquidator or receiver or statutory successor of the insolvent Company shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Company on the contracts or contract reinsured within a reasonable time after such claim is filed in the insolvency proceeding and that during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Company or its liquidator or receiver or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to court appeal, against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of defense undertaken by the Reinsurer.'

By Article IV International agreed to advise General of 'all claims and any subsequent developments pertaining thereto, which may in its opinion develop into losses involving reinsurance hereunder. * * * All payments of claims (including the interest accrued prior to the judgment where such interest is added to the judgment) in which this reinsurance is involved shall be binding upon the Reinsurer, which shall be bound to pay or allow, as the case may be, its proportion of such payments.' There then followed a provision for apportioning certain expenses, and it was also provided that upon request International would 'afford the Reinsurer an opportunity to be associated with the Company, * * * in the defense or control of any claim or suit or proceeding involving this reinsurance, * * *.' It was then provided that the 'Reinsurer shall reimburse the Company promptly for loss against which indemnity is herein provided, upon receipt by the Reinsurer of satisfactory evidence of payment of such loss.'

Article V, entitled 'Salvage,' provided that in the event International obtained 'reimbursement' or made a 'recovery,' General was to receive credit, when the reinsurance is on the share basis, with 'its share of any salvage on account of claims and settlements involving reinsurance hereunder,' and when the reinsurance is on the excess basis, the salvage should 'always be used to reimburse the excess carriers in the reverse order of their priority * * * before being used in any way to reimburse [International] for its primary loss.' The remaining articles, entitled 'Reports and Remittances,' 'Reserves and Taxes,' 'Inspection,' and 'Arbitration' have no bearing on the issues presented. The provisions of the arbitration article, if its provisions are or would be binding on the Superintendent and General after receivership, have been waived by them. It does not appear that the issue was raised in the trial court, and no mention of the article is made by any party to this appeal.

'An ordinary contract of reinsurance, in the absence of provisions to the contrary, operates solely as between the reinsurer and the reinsured. It creates no privity between the original insured and the reinsurer. The contract of insurance and the contract of reinsurance are totally distinct and unconnected.' O'Hare v. Pursell, Mo.Sup., 329 S.W.2d 614, 620; 46 C.J.S. Insurance Sec. 1232a. Such...