O'Hare v. Pursell

• Decision Date: 09 November 1959
• Docket Number: No. 46934,No. 1,46934,1
• Citation: 329 S.W.2d 614
• Parties: Bessie O'HARE et al., Plaintiffs, v. Damon H. PURSELL and Domon H. Pursell Construction Co., Inc. (Third-Party Plaintiffs), Respondents (Missouri Union Insurance Company, a Missouri corporation , Appellant)
• Court: Missouri Supreme Court

Page 614

329 S.W.2d 614

Bessie O'HARE et al., Plaintiffs, v. Damon H. PURSELL and Domon H. Pursell Construction Co., Inc. (Third-Party Plaintiffs), Respondents (Missouri Union Insurance Company, a Missouri corporation [Third-Party Defendant], Appellant).

No. 46934.

Supreme Court of Missouri, Division No. 1.

Nov. 9, 1959.

Motion for Rehearing or to Transfer to Court en Banc Denied

Dec. 14, 1959.

Goldenhersh, Goldenhersh, Koebel & Gallagher, St. Louis, C. William Garver Kansas City, Melvin L. Hertzman, St. Louis, of counsel, for appellant.

Sevier & Turnage, Robert F. Sevier, William E. Turnage, Liberty, for respondents.

HOUSER, Commissioner.

This is third-party proceeding in which Damon H. Pursell and Damon H. Pursell Construction Company, Inc., as third-party plaintiffs, sought to enforce their rights under a policy of public liability insurance issued to them by Insurance Company of Texas, a Texas corporation (hereinafter 'I.C.T.'), and under a treaty of reinsurance between I.C.T. and its reinsurer. Third-party plaintiffs sued for $15,516.97 paid by them to judgment creditors in satisfaction of judgments and court costs rendered against them. Third-party defendant is Missouri Union Insurance Company, a Missouri corporation (hereinafter 'Missouri Union'), the reinsurer of I.C.T. under the treaty of reinsurance. Following a trial by the court without a jury the Circuit Court of Clay County rendered judgment for third-party plaintiffs and against third-party defendant for $15,516.97, and the latter has appealed.

Damon H. Pursell is an individual, a resident of Clay County. Damon H. Pursell Construction Company, Inc., is a Missouri corporation with offices in Clay County. They will be referred to as 'the insureds.' On February 21, 1955, I.C.T. issued a policy of public liability insurance to the insureds, with limits of $100, 000/200,000 for each accident, covering automobiles, trucks and machinery they operated. During the policy period, and on May 1, 1955, a motor vehicle thus insured, operated by Pursell for the construction company, was involved in an accident. Report of the accident was made to I.C.T., which employed a local attorney, Stephen R. Pratt, to handle the claims. Pratt investigated the case, arranged for medical examinations of the injured claimants, conferred with claimants' attorney and reported to I.C.T. Thereafter and on September 30, 1955, I.C.T. and Missouri Union simultaneously entered into two written contracts: a 'Treaty of Reinsurance' and a 'Retrocession and Quota Share Agreement of Reinsurance.'

Treaty of Reinsurance

By this instrument I.C.T. as the ceding company and Missouri Union as the reinsurer, expressing the intent of the parties 'that the ceding company shall cede to the reinsurer, one hundred percent (100%) of all policy liability of whatever nature now in force written through agents in the State of Missouri, or issued after the effective date of this Treaty,' agreed as follows: The ceding company ceded and the reinsurer accepted and reinsured as of midnight, September 30, 1955, 'one hundred percent (100%) of the ceding company's policy liability under all policies written by the ceding company on risks written through agents in the State of Missouri' in force on that day, and 100% of the ceding company's loss reserve on the same risks outstanding as of that date. The contract recited that the loss reserve amounted to approximately $290,000. Reinsurer further agreed 'that as a part of said one hundred percent (100%) reinsurance and take over of loss reserve * * * the reinsurer will service, adjust and settle obligations directly with the insureds whose policies are reinsured hereunder and whose losses occurred prior to September 30, 1955.' The agreed premium payable for the reinsurance was 100% of the unearned premium reserve of the ceding company on said risks as of midnight, September 30, 1955, less a discount on said reserves of 40% thereof. In consideration of the 100% reinsurance of liability by the reinsurer the ceding company agreed 'to turn over to said reinsurer all records, books, papers and statistical information pertaining to the operation of the business and from and after midnight, September 30, 1955, the reinsurer shall, as reinsurer hereunder, service and handle all policies and obligations to insureds which are reinsured hereunder, and the ceding company agrees that the reinsurer may settle all obligation and claims in this connection in such manner as it may deem necessary and at its discretion and that it may commence, defend, compromise or withdraw from action, suits, or prosecutions, and in general do all things that it may deem expedient in connection with its servicing and handling the business reinsured.' Reinsurer agreed 'to exercise the highest faith and trust in connection with handling the affairs and obligations of the ceding company so as to preserve and enhance the reputation of said ceding company with the insuring public.' Reinsurer agreed 'that the reinsurance hereunder shall be payable by the reinsurer on the basis of the liabilities of the ceding company under contract or contracts reinsured without diminution because of any insolvency of the ceding company.' In the event of insolvency of the ceding company it was agreed that reinsurer might investigate and defend claims made against the ceding company with respect to the policies insured. Any reinsurance payable to the ceding company, after the insolvency of the ceding company, should be paid 'for the benefit of those policies' reinsured, and should 'not be for the benefit of general creditors of the ceding company. Provided, however, that in the event of an action by the insured directly against the reinsurer or by a receivor of the ceding company against the reinsurer for the use and benefit of the insured,' the reinsurer should be entitled to all set-offs and counterclaims that it would have been entitled to against the ceding company had the ceding company been solvent and had it brought the action in its own name and for its own benefit. It was provided that the reinsurance attach automatically, and reinsurers' liability was 'based upon the same terms and conditions as those of the policies of the ceding company.'

Retrocession and Quota Share Agreement of Reinsurance

By this instrument Missouri Union as the ceding company retroceded and I.C.T. as the reinsurer agreed to accept a fixed share of 50% of the ceding company's business received under its Quota Share Treaty of Reinsurance with I.C.T., commencing with its treaty of September 30, 1955. The ceding company ceded and the reinsurer accepted 50% of the ceding company's retention under all policies written by the ceding company which were in force on September 30, 1955. It was provided that 'The liability of the reinsurer shall follow the liability of the ceding company in accordance with the conditions of its original Reinsurance Agreement and shall be subject to the same risks, conditions and modes of settlements; it being the intent of this Agreement that the reinsurer shall in proportion to its participation follow the fortune of the ceding company in all respects under its original Reinsurance Agreement.' The commission allowance on the business retroceded was fixed at 40%. The provisions relating to insolvency of the ceding company were couched in the same language as that employed in the Treaty of Reinsurance, except for the omission of the language found in the Treaty providing as follows: 'Although the reinsurance hereunder shall be payable without diminution because of insolvency of the ceding company as provided in this article, any reinsurance payable by the reinsurer to the ceding company, after the insolvency of the ceding company, shall be paid for the benefit of those policies written through agents in the State of Missouri, and shall not be for the benefit of general creditors of the ceding company. Provided, however, that in the event of an action by the insured directly against the reinsurer or by a receivor of the ceding company against the reinsurer for the use and benefit of the insured, the reinsurer shall be entitled to assert any of the defenses available to it under Article III hereof, and shall be entitled to all set-offs and counterclaims that it would have been entitled to against the ceding company had the ceding company been solvent and had the ceding company brought the action in its own name and for its own benefit.' The sums due and payable to either party were to be deemed mutual debts and credits. The amount payable to the reinsurer under this agreement was the premium earned less the amount from insurer to ceding company.

Pursuant to the Treaty of Reinsurance Missouri Union 'took over' and serviced those policies issued by I.C.T. in this state that Missouri Union was qualified to write. In early October 1955 a representative of Missouri Union in the Kansas City office told Pursell that Missouri Union had 'taken over the business of ICT in the State of Missouri,' and that Missouri Union would be servicing Pursell's contracts, and handling all the claims; that if the insureds had any questions about the policy or if they could not get a satisfactory answer from the local agent, the insureds should get in touch with the Missouri Union agent in Kansas City. The local agent who wrote the policy in question was Frank F. Hamer. Prior to October 1955 Hamer dealt with I.C.T. with reference to the policy. On October 7, 1955, Hamer and I.C.T. signed an agreement excluding the handling of casualty coverages for I.C.T., and a new contract was entered into between Hamer and Missouri Union for the handling of casualty business. After that date Hamer dealt with Missouri Union and not with I.C.T. with reference to the instant policy. He sent the insureds billings for premiums as they came due on the I.C.T. policy, based upon audits made by and statements issued from Missouri Union. The...