Hasbrouck v. Buffalo Housewrecking & Salvage Co. (In re Empire State Sur. Co.)

• Decision Date: 13 April 1915
• Parties: In re EMPIRE STATE SURETY CO. HASBROUCK, State Ins. Superintendent, v. BUFFALO HOUSEWRECKING & SALVAGE CO. et al.
• Court: New York Court of Appeals Court of Appeals

214 N.Y. 553

108 N.E. 825

In re EMPIRE STATE SURETY CO.

HASBROUCK, State Ins. Superintendent,

v.BUFFALO HOUSEWRECKING & SALVAGE CO. et al.

Court of Appeals of New York.

April 13, 1915.

Appeal from Supreme Court, Appellate Division, First Department.

Insolvency proceedings against the Empire State Surety Company . From a judgment (165 App. Div. 135,150 N. Y. Supp. 567) affirming an order denying a motion to confirm a report of the Superintendent of Insurance rejecting as contingent claims presented in the liquidation of the defendant, the Superintendent of Insurance appeals by permission (in 151 N. Y. Supp. 1114) on certified questions. Judgments affirmed, and questions answered.

The questions certified are as follows:

I. At the date of the making and entry of the order adjudging the Empire State Surety Company to be insolvent, and directing the liquidation of its business, on December 16, 1912, had the claim of the claimants Chehalis River Lumber & Shingle Company, La Salle County Carbon Coal Company, Putnam Coal & Ice Company, and Edwin H. Thatcher so far ripened and matured as to entitle the claimants to share in the distribution of the assets in the hands of the superintendent?

II. At the date of the making and entry of the order adjudging the Empire State Surety Company to be insolvent and directing the liquidation of its business, on December 16, 1912, had the claim of the claimants Buffalo Housewrecking & Salvage Company and Charles A. Wheeler so far ripened and matured as to entitle the claimants to share in the distribution of the assets in the hands of the superintendent?

III. At the date of the making and entry of the order adjudging the Empire State Surety Company to be insolvent, and directing the liquidation of its business, on December 16, 1912, had the claim of the claimants Albert Lurie Company and the Utah Consolidated Mining Company so far ripened and matured as to entitle the claimants to share in the distribution of the assets in the hands of the superintendent?

IV. If the said claims, or any one or more of them, had not so far ripened, has the court power to set a date, other than the date of the entry of the order of liquidation, within which the claimants may perfect their claims?

V. Is the power of the court to fix a date for the valuation of claims under section 63 of the Insurance Law limited to the time of the making of the order of liquidation?

VI. Are items paid by the assured for services rendered by attorneys after the date of liquidation in the defense of actions covered by the policy provable against the fund in the hands of the superintendent of insurance for distribution in this proceeding?

The facts, so far as material, are stated in the opinion.

Collin, J., dissenting.P. C. Dugan, of Albany, for appellant.

Walter H. Dodd, of New York City, for respondent Buffalo Housewrecking & Salvage Co.

Thomas B. Hardin, of New York City, for respondent Chehalis River Lumber & Shingle Co.

John Burlinson Coleman, of New York City, for respondent La Salle County Carbon Coal Co.

Benjamin Reass, of Brooklyn, for respondents Edwin H. Thatcher and Albert Lurie Co.

Frank Verner Johnson, of New York City, for respondent Putnam Coal & Ice Co.

SEABURY, J. (after stating the facts as above).

[1] This is an appeal by the superintendent of insurance, as liquidator of the Empire State Surety Company, from an order denying a motion to confirm a report of the superintendent of insurance which rejected as contingent certain claims presented in the liquidation of the Empire State Surety Company. Prior to December 16, 1912, the Empire State Surety Company was a corporation duly authorized to carry on the business of liability insurance in this state. On December 16, 1912, by an order of the Supreme Court, in a proceeding instituted under and pursuant to the provisions of section 63 of the Insurance Law, the Empire State Surety Company was ascertained and declared to be insolvent, and the superintendent of insurance was directed to take possession of its property and liquidate its business. The report of the superintendent of insurance rejected as contingent 14 claims under policies of liability insurance which had been filed in the liquidation proceeding. The respondents represent 8 of these 14 rejected claims. Upon the date of the entry of the order of liquidation these respondents held policies of liability insurance issued by the Empire State Surety Company. In these policies this company agreed to indemnify the assured therein:

‘ Against loss resulting from the liability imposed by law upon the insured for damages on account of death or bodily injuries suffered as a result of an accident.’

The policies contained the following clause:

‘No action shall lie against the company upon this policy unless brought by the assured to reimburse himself for the actual payment by him of money as follows, to wit: (a) Any settlement of a suit upon a claim for damages brought by any of the persons, and under the circumstances described in section I of the insuring clause, after final judgment in such suit or in the settlement of such claim, before or after suit or final judgment, upon the written authority of the company.’

The policies also contained the following clause:

‘Condition D. If thereafter any suit is brought against the assured to enforce a claim for damages on account of an accident covered by this policy, the assured shall immediately forward to the company's home office every summons or other process as soon as the same shall have been served on him, and the company will, at its own cost, defend such suit in the name and on behalf of the assured unless the company shall elect to settle the same or to pay the assured the indemnity provided for in condition A hereof.’

There are three classes of claimants against the Empire State Surety Company referred to in the questions certified to this court. The first question refers to claimants against whom a judgment had been rendered prior to December 16, 1912. The second question refers to claimants who made settlements of claims brought against them after the date of the entry of the order of liquidation, although the causes of action against the assured arose prior to that time, and the defense of such actions had been assumed by the Empire State Surety Company. The third question refers to claimants who made settlements of claims brought against them or had judgments rendered against them after the date of the entry of the order of liquidation, although the accidents upon which the assured were sued happened prior to the date of the entry of that order.

Under these policies the Empire State Surety Company not only agreed to indemnify the assured against loss, but, in addition to this, it agreed at its own cost to defend any suit brought against the assured unless it should elect to settle the same or to pay the assured the indemnity provided for in the policy. The policy, therefore, not only afforded insurance against loss, but also carried with it the obligation of the company to defend suits brought against the assured. This latter obligation the company, under the terms of the policy, was required to perform during the life of the contract. Failure to defend suits brought against the assured constituted a breach of contract upon its part. Brassil v. Maryland Casualty Company, 210 N. Y. 235, 104 N . E. 622, L. R. A. 1915A, 629;St. Louis Dressed Beef & P. Company v. Maryland Casualty Company, 201 U. S. 173, 26 Sup. Ct. 400, 50 L. Ed. 712. Such a breach of contract on the part of the company released the assured from the agreement not to settle the claim without its consent, and was, in effect, a waiver of the condition of the policy that the company should only be liable after the assured had paid the judgment rendered against him. St. Louis D. Beef & P. Company v. Md. Casualty Company, supra. As was said by Judge Werner in Brassil v. Maryland Casualty Company, supra:

‘Its failure to continue the defense of these cases was in effect a breach of its contract.’

In St. Louis Beef P. Company v. Md. Casualty Company, supra, Mr. Justice Holmes said:

‘The defendant by its abdication put the plaintiff in its place with all its rights. To limit its liability as if its only promise was to pay a loss paid upon a judgment is to neglect the meaning and purpose of the reference to a judgment, and even the words of the promise. The promise in form is to indemnify against loss by certain kinds of liability. The judgment contemplated in the condition is a judgment in a suit defended by the defendant in case it elects not to settle.’ Page 182 of 210 U. S., page 403 of 26 Sup. Ct. (50 L. Ed. 712).

The cases which have decided that, where the company has not been guilty of a breach of contract, it is liable only to pay the assured the loss which has been sustained as a result of a judgment recovered against him (Brewster v. Empire State Surety Company, 145 App. Div. 678,130 N. Y. Supp. 439;Saratoga Trap Rock Company v. Standard Accident Insurance Company, 143 App. Div. 852,128 N. Y. Supp. 822;McWilliams v. Home Insurance Company, 40 App. Div. 400,57 N. Y. Supp. 1100), are without application when the company itself has been guilty of a breach of the contract or has failed to perform its conditions. In the present case the Empire State Surety Company, by reason of its insolvency, was unable to perform its obligations under the contract to defend such suits as were brought against the assured and were within the policy. This failure upon its part to perform its contract was a waiver of the condition that it should only be liable to the assured for a loss resulting from the recovery of a judgment against him, and relieved the assured of the obligation of complying with the other terms of the policy, which, except for the failure of the company to perform its obligation, would still have been operative. When the Empire State Surety Company went into liquidation it...