Heisner v. Jones, 37170

• Decision Date: 25 July 1969
• Docket Number: No. 37170,37170
• Citation: 169 N.W.2d 606,184 Neb. 602
• Parties: Virginia HEISNER, Appellee, v. Bobby JONES and Betty Barrett, Appellees, and Protective Fire & Casualty Company, Garnishee-Appellant.
• Court: Nebraska Supreme Court

Page 606

169 N.W.2d 606

184 Neb. 602

Virginia HEISNER, Appellee, v. Bobby JONES and Betty Barrett, Appellees and Protective Fire & Casualty Company, Garnishee-Appellant.

No. 37170.

Supreme Court of Nebraska.

July 25, 1969.

Syllabus by the Court

1. Covenants which require parties to arbitrate any future dispute and to be bound by the result, thus precluding them from presenting the controversy in court, will not be enforced.

2. An uninsured motorist clause in an insurance policy reciting that insurer's liability is to pay the amount insured shall be legally entitled to recover as damages from the operator of an uninsured automobile implies that the amount plaintiffs may recover should be determined by processes of law and thus by a court rather than by an arbitrator.

3. A provision in an automobile liability insurance policy which proscribes and inhibits an insured's action and recovery for injuries sustained in an accident arising out of ownership or use of an uninsured automobile is void.

4. A provision in an automobile liability insurance policy with relation to uninsured motorist's coverage which provides that the insurer will not be bound unless the insured's action is brought with the written consent of the insurer, and which is incorporated into the policy for the purpose of enforcing a void arbitration provision is void as against public policy.

5. Under section 25--328, R.R.S.1943, an uninsured motorist's insurance carrier generally has a right to intervene in litigation between its insured and an uninsured motorist tort-feasor as to the issues of liability and damages arising out of an accident between its insured and the uninsured motorist tort-feasor.

Blevens & Bartu, Seward, for garnishee-appellant.

Eisenstatt, Morrison, Higgins, Miller, Kinnamon & Morrison, Omaha, for Heisner.

Heard before WHITE, C.J., and CARTER, SPENCER, BOSLAUGH, SMITH, McCOWN and NEWTON, JJ.

WHITE, Chief Justice.

This appeal arose out of a garnishment action brought by Virginia Heisner, wife of the insured, against Bobby Jones and Betty Barrett, and Protective Fire and Casualty Company to enforce Protective Fire and Casualty Company's contractual obligations under the uninsured motorist provision of an insurance policy issued to the insured. From a decision for the plaintiff, Virginia Heisner, Protective Fire and Casualty Company, hereinafter referred to as Protective, appeals.

The facts are stipulated. Protective is the automobile insurance carrier for Richard Heisner and his wife Virginia Heisner, the plaintiff. Included in the policy is uninsured motorist coverage. On December 24, 1966, Virginia Heisner was involved in an accident with an automobile driven by defendant Bobby Jones and owned by defendant Betty Barrett. She suffered personal injuries, requiring medical attention and treatment, and incurred other expenses incidental to the injuries. The Barrett vehicle was subsequently found to be uninsured. Richard Heisner and Protective settled the collision loss but subsequent negotiations between the plaintiff and Protective were unsuccessful concerning payment under the policy for her physical injuries. On March 21, 1967, the plaintiff filed a petition in the district court for Douglas County praying for damages against driver Bobby Jones and owner Betty Barrett. The next day, the attorney for the plaintiff notified Protective that suit had been filed and sent a copy of the petition. Protective did not consent to be bound by judgment resulting from the lawsuit. A default judgment for $7,500 was entered against defendant Betty Barrett and request was made to Protective by the plaintiff to pay that amount under its uninsured motorist's coverage. Protective advised that it did not consider the judgment binding upon it under the terms of the policy since it did not consent, and subsequently made an offer of settlement in the amount of $1,250. Protective also indicated that it was also willing to arbitrate in accordance with another provision in its policy. After a renewed demand by plaintiff that Protective satisfy the judgment for $7,500, Protective made formal demand for arbitration. Plaintiff, instead, commenced the garnishment proceedings from which this appeal is taken.

The portion of the uninsured motorist provisions in the insurance policy with which we are concerned requires Protective: 'To pay all sums which the insured * * * shall be legally entitled to recover as damages from the owner or operator of an uninsured automobile because of bodily injury * * * caused by accident and arising out of the ownership, maintenance or use of such uninsured automobile; provided, for the purposes of this coverage, determination as to whether the insured * * * is legally entitled to recover such damages, and if so the amount thereof, shall be made by agreement between the insured * * * and the company or, if they fail to agree, by arbitration.'

The arbitration clause provides that: 'If any person making claim hereunder and the company do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured automobile * * * or do not agree as to the amount * * * then, upon written demand of either, the matter * * * shall be settled by arbitration * * * and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such person and the company each agree to consider itself bound and to be bound by any award made by the arbitrators * * *.'

Protective, in another provision, declines to be bound to a judgment without its consent: 'No judgment against any person * * * alleged to be legally responsible for the bodily injury shall be conclusive, as between the insured and the company, of the issues of liability of such person or organization or of the amount of damages to which the insured is legally entitled Unless such judgment is entered pursuant to an action prosecuted by the insured with the written consent of the company.' (Emphasis supplied.)

The trial court found that both the arbitration provision and the provision by which Protective, without its consent, declines to be bound in a separate action by the insured against the uninsured motorist, were invalid and ruled that Protective must pay the amount of the judgment. We affirm the judgment of the district court.

The arbitration clause in the policy compelling the parties to a contract to arbitrate and thus to oust the court of jurisdiction to settle the dispute is against public policy in Nebraska. This long-standing rule was first announced in German-American Ins. Co. v. Etherton, 25 Neb. 505, 41 N.W. 406, as follows: 'Where a policy provides that the whole matter in controversy between the parties, including the right to recover at all, shall be submitted to arbitration, the condition is void.'

Later decisions which have followed this rule include: National Masonic Accident Assn. v. Burr, 44 Neb. 256, 62 N.W. 466; Schrandt v. Young, 62 Neb. 254, 86 N.W. 1085; Phoenix Ins. Co. of Hartford v. Zlotky, 66 Neb. 584, 92 N.W. 736; Wilson & Co., Inc. v. Fremont Cake & Meal Co., 153 Neb. 160, 43 N.W.2d 657.

Assaults on the doctrine of the invalidity of an arbitration clause are continually reasserted in new contexts in the development of the law. It is asserted that the novel situation present in the scheme of uninsured motorist's coverage permits an application of the doctrine without the violation of the public policy principles upon which the doctrine is founded. Perhaps the best answer to these assertions is found in the recent case of Barnhart v. Civil Service Employees Ins. Co., 16 Utah 2d 223, 398 P.2d 873. In that case an identical provision and the same assertion was made to the Utah court. In deciding the same questions and arguments presented in the appellant's brief in this case, the court said as follows: '* * * all persons who desire to do so should also be encouraged to resort to the orderly processes of law for the purpose of settling disputes or grievances, real or imaginary, nor (and) that they should be allowed free access to the courts for that purpose. * * * It is thus to be seen that covenants which prevent a party from having access to court runs counter to both the expressed purpose and the spirit of our system of justice. This is further accented because such a provision purports to confer final judicial authority on private arbitrators and tends to divest the official courts of jurisdiction. This precludes them from fulfilling their responsibility of remaining available to adjudicate all...