General Acc., Fire & Life Assur. Corp. v. Louisville Home Tel. Co.

• Decision Date: 17 April 1917
• Citation: 175 Ky. 96,193 S.W. 1031
• Parties: GENERAL ACCIDENT, FIRE & LIFE ASSUR. CORP., LIMITED, v. LOUISVILLE HOME TELEPHONE CO.
• Court: Kentucky Court of Appeals

193 S.W. 1031

175 Ky. 96

GENERAL ACCIDENT, FIRE & LIFE ASSUR. CORP., LIMITED, v. LOUISVILLE HOME TELEPHONE CO.

Court of Appeals of Kentucky.

April 17, 1917

Appeal from Circuit Court, Jefferson County, Common Pleas Branch Second Division.

Action by the Louisville Home Telephone Company against the General Accident, Fire & Life Assurance Corporation, Limited. Judgment for plaintiff, and defendant appeals. Affirmed.

George Weissinger Smith, of Louisville, for appellant.

Helm Bruce, Frank Murray Dixon, and Bruce & Bullitt, all of Louisville, for appellee.

CARROLL J.

The appellant, a liability insurance company, issued an accident policy to the appellee telephone company agreeing to indemnify it to the extent of not more than $5,000 against loss by reason of any liability incurred by the telephone company on account of personal injuries to one person caused by its negligence. It also reserved the right to defend any suit brought against the telephone company to recover damages on account of claims covered by its policy. While this policy was in force, one John M. Beall brought a suit against the telephone company to recover damages for injuries alleged to have been sustained by its negligence, and the insurance company took charge of the defense for the telephone company as it had the right under the contract to do. A trial resulted in a verdict and judgment for $12,000, but on a motion for a new trial this verdict and judgment were set aside and a new trial ordered. On a second trial Beall was given a verdict for $7,250, upon which judgment was entered. A motion for a new trial was made and overruled, and thereupon the telephone company prosecuted an appeal to this court, and Beall also prosecuted a cross-appeal, insisting that the original judgment for $12,000 should be reinstated. After the second judgment had been susperseded and pending the appeal in this court from the judgment, but before the case was decided in this court, the telephone company paid Beall $2,250, with interest from the date of the judgment this being the amount of the judgment in excess of the sum of $5,000 with interest for which the insurance company was liable under its contract with the telephone company. In consideration of this payment, Beall agreed with the telephone company that he would not thereafter attempt to collect from it any sum in excess of $5,000 with interest and statutory damages thereon. At the time this settlement by the telephone company was made with Beall, the liability of the telephone company to Beall on account of the verdict and judgment on the second trial was $7,250, with interest from the date of the judgment, together with 10 per cent. damages if the judgment should be affirmed. Aside from this, if the judgment on the first verdict for $12,000, which was set aside by the trial court, should be reinstated by the Court of Appeals in place of the judgment on the second trial, the liability of the telephone company would be for $12,000, with interest from the date of the first judgment. It will thus be seen that, if the judgment on the second trial was affirmed in the Court of Appeals, the telephone company would be required to pay in excess of the amount for which it had indemnity in the insurance company $2,250, with interest and damages, and, if the first judgment was reinstated, its liability in excess of the indemnity would be $7,000, with interest from the date of that judgment. It might here be noticed that the record did not disclose the settlement made between the telephone company and Beall, nor did the insurance company have any information concerning it until after the judgment for $7,250 had been affirmed by the Court of Appeals.

After the settlement was made, the case proceeded to a final conclusion exactly as if there had been no settlement, and, when the judgment of the Court of Appeals affirming the $7,250 judgment became final, the telephone company, in satisfaction of this judgment, was required to and did pay to Beall $5,000, with interest, damages, and costs, amounting in the aggregate to $6,014.70, for which sum it remained liable to him after having paid the $2,250; and thereafter it brought this suit against the insurance company to recover this sum, for which it was liable under its policy, if liable at all. In its answer to this suit the insurance company denied all liability under its policy contract on account of the fact that without its knowledge or consent the telephone company settled with Beall a part of his judgment under the circumstances heretofore stated, resting its defense upon clause G in the policy contract, reading as follows:

"Except as herein elsewhere provided for, the assured shall not voluntarily assume any liability, settle any claim, or incur any expense except at its own cost, or interfere in any negotiation for settlement or legal proceedings without the consent of the corporation previously given in writing."

In an amended answer, which was offered and made a part of the record but not permitted to be filed, the insurance company further set up the defense:

"That at the time said telephone company made said payment in and settlement with said Beall, said Beall was in need of money and manifested to said telephone company a willingness to compromise his said claim and suit against said telephone company for said damages, and said telephone company concealed said facts from this defendant and deprived this defendant of a favorable opportunity to settle said claim and said suit and reduced its opportunity to make an advantageous settlement for an amount less than its possible liability under the terms of said policy issued to said telephone company."

The trial court being of the opinion that the original answer, which relied on the condition in the policy contract heretofore set out, did not constitute any defense, sustained a general demurrer to the answer, and, further being of the opinion that the amended answer did not state any grounds of defense, refused, as we have stated, to permit it to be filed. With the record in this condition, the insurance company declining to plead further, judgment went against it for the full amount sought to be recovered by the telephone company, and the case has been brought here.

It will thus be seen that there is no issue of fact in the case. It turns entirely on questions of law arising on the answer and amended answer of the insurance company. The right of the insurance company to take charge of and control the litigation between Beall and the telephone company is conceded by counsel for the telephone company, and it is further conceded that if the telephone company, without the written consent of the insurance company, voluntarily assumed any liability to settle or settled that part of the judgment for which the insurance company was liable under its contract, it would avoid the policy and work a release of the insurance company from all liability, but insisted that the telephone company had the right, without relieving the insurance company from liability, to settle with Beall so much of his judgment as it was not indemnified against by the insurance company. And as the settlement made with Beall went to this extent only, the question for our decision is: Could the telephone company, without relieving the insurance company from all liability, settle without its consent in writing any part of the judgment obtained by Beall against it?

For the telephone company the argument is made that clause G did not, according to its terms, prevent it from settling at its own cost that part of any liability or claim that it was not indemnified against; while counsel for the insurance company insist that under a proper interpretation of this clause the insured could not, without its consent in writing, settle any claim, or assume any liability whatever on account of a claim any part of which the insurance company was bound under its contract to pay. Under this latter construction of the contract, if the liability of the insured arising on a judgment that had not become final should reach, for example, the sum of $10,000, and he could settle the excess over $5,000 by the payment of $1,000, he would be prohibited from so doing unless the insurance company consented thereto in writing. The same conclusion would, of course, be reached if the insured undertook to settle any part of a meritorious claim for damages presented against him although by so settling the insured might reasonably believe he could save himself a considerable sum of money.

Counsel for the insurance company contend that the words in clause G "except at its own cost" qualify only the words "incur any expense" and do not relate to or qualify the words "assume any liability or settle any claim"; in other words, that the insured may under this clause, without affecting the liability of the insurance company, incur any expense at its own cost that it sees proper to incur in preparing a defense to a claim or in resisting a suit brought on it,...