Henry v. Johnson

• Court: Kansas Supreme Court
• Writing for the Court: FATZER; PARKER
• Citation: Henry v. Johnson, 191 Kan. 369, 381 P.2d 538 (Kan. 1963)
• Decision Date: 11 May 1963
• Docket Number: No. 43207,43207
• Parties: John D. HENRY, Appellant, v. James E. JOHNSON, Defendant, and All-State Insurance Company, Appellee.

Page 538

381 P.2d 538

191 Kan. 369

John D. HENRY, Appellant, v. James E. JOHNSON, Defendant and All-State Insurance Company, Appellee.

No. 43207.

Supreme Court of Kansas.

May 11, 1963.

Syllabus by the Court

The record in a garnishment proceeding against a liability insurer based upon a default judgment against its insured, is examined, and it is held: The district court erred (1) in concluding that the conduct of the insurer-garnishee in defending the insured defendant in plaintiff's tort action against the defendant under a purported nonwaiver and reservation of rights arrangement with the insured was sufficient to save the insurer from the bar of waiver or estoppel in the garnishment proceeding and to permit it to assert policy defenses of noncoverage, and (2) in discharging the insurer-garnishee.

Sidney L. Foulston, Jr., Wichita, argued the cause, and Enos E. Hook and John H. Gerety, Wichita, were with him on the briefs for appellant.

Philip Kassebaum, Wichita, argued the cause, and Wayne Coulson, Paul R. Kitch, Dale M. Stucky, Donald R. Newkirk, Robert J. Hill, Gerrit H. Wormhoudt, John E. Rees, Robert T. Cornwell, Willard B. Thompson and David W. Buxton, Wichita, were with him on the briefs for appellee. Hugo T. Wedell, Homer V. Gooing, Wichita, of counsel.

FATZER, Justice.

This was a proceeding in garnishment against a liability insurer based upon a judgment against its insured. The action out of which the appeal arises was filed by the appellant, John D. Henry, on September 17, 1958, against the defendant, James E. Johnson, for personal injuries and property damage resulting from a collision of their automobiles, which occurred at the intersection of Pawnee and Ridgewood Streets in the city of Wichita on December 16, 1957.

Summons was served upon the defendant and he failed to answer or otherwise plead. On October 20, 1958, the plaintiff filed a motion for judgment and mailed a copy thereof to the defendant and he failed to appear or answer the plaintiff's petition.

On October 30, 1958, the cause came on for hearing on plaintiff's motion for judgment and the court, after hearing the plaintiff's evidence, found that plaintiff received injuries to his person and damage to his automobile and incurred hospital and medical bills all as a result of the automobile collision; that the defendant was guilty of negligence as charged in the plaintiff's petition; that the plaintiff was not guilty of any negligence, and that plaintiff should have and recover judgment against the defendant for the sum of $41,256.85 and for costs.

On November 3, 1958, the defendant met with a representative of the garnishee-appellee, Allstate Insurance Company, and with its attorneys in their offices in Wichita. The defendant informed them that a default judgment had been rendered against him on October 30, 1958; that no summons had been served upon him and that in first learned of the suit on October 31, 1958, when he received a telephone call from a newspaper reporter. At that meeting, the defendant was advised that if he had received a summons, the garnishee's liability insurance policy issued in his favor was avoided because of his failure to forward the summons to the garnishee; that he could secure his own attorney but that the garnishee through its attorneys would attempt to get the judgment set aside subject, however, to a reservation of its rights because of lack of notice of suit. The defendant gave the garnishee's representative and its attorneys a written statement of the foregoing facts and garnishee's counsel prepared a letter reserving its rights which was handed to the defendant. Subject to the reservation, the defendant authorized the garnishee's attorneys to file a motion on his behalf to set aside and vacate the default judgment, and for a new trial. The garnishee's letter dated November 3, 1958, reserving its rights reads:

'Dear Mr. Johnson:

'With respect to the automobile accident occurring on December 16, 1957, at Pawnee and Ridgewood Streets in which you were involved, you are hereby notified that the Allstate Insurance Company in investigating the said accident or any claim arising therefrom, or in negotiating for compromise settlement, or in making any settlement or in defending any suit against you or others, or in undertaking to set aside the judgment entered against you on October 30, 1958, in the District Court of Sedgwick County, Kansas, Case No A-73383, and to take whatever further action shall be deemed advisable, or in any other way acting or failing to act, does not waive any of its rights or admit any obligations under the policy.

'We are making this reservation of rights because of your failure to comply with the policy conditions entitled '2, Notice of Claim or Suit' and '8, Assistance and Cooperation of the Insured' and for other reasons.

'The service of this notice upon you does not deprive you of any rights you may have against this company.' (Emphasis supplied.)

On November 3, 1958, Allstate's attorneys, representing the defendant, entered his general appearance in the action and filed the following motion:

'Comes now the defendant James E. Johnson and moves the court for an order vacating and setting aside the order of judgment made and entered herein on the 30th day of October, 1958, in favor of the plaintiff and against this defendant and granting this defendant leave to file his answer, which is attached hereto, and granting this defendant a new trial on the following grounds:

'1. Defendant was not served with process and had no notice of this plaintiff's claim against him.

'2. Irregularity in obtaining the judgment.

'3. Unavoidable casualty and misfortune which prevented this defendant from defending the action.

'4. This defendant was not afforded a reasonable opportunity to present his evidence and to be heard on the merits of the case although he has a meritorious defense.

'5. The judgment is excessive and contrary to the evidence.'

On November 24, 1958, the defendant's motion was heard by the court, and the defendant and the plaintiff presented testimony in support of and in defense of the motion. Counsel argued the matter and the court requested the parties to submit briefs. On January 16, 1959, the court found that residence service of summons was had upon the defendant and that the defendant, by filing his motion, had submitted himself to the jurisdiction of the court; that the defendant had failed to show any reason, either in law or in equity, why the default judgment of October 30, 1958, should be set aside and vacated, and the defendant's motion was overruled in toto.

In February, 1960, execution having been issued and outstanding, the plaintiff as judgment creditor, filed an affidavit for garnishment alleging that Allstate Insurance Company, as garnishee, was the insurer of the defendant at the time of the collision and that it had property of the defendant in its possession or under its control and was indebted to the defendant on that account. Garnishment summons was duly served upon the defendant and Allstate.

Thereafter, Allstate filed its affidavit of garnishee for discharge (G.S.1949, 60-945), and the plaintiff timely filed notice of election to take issue upon the garnishee's affidavit.

On the issues between the plaintiff and the garnishee, trial was had by the court. The defendant testified that at the conference in Allstate's attorneys' offices on November 3, 1958, he understood that, in doing any work in the case after judgment had been rendered against him, Allstate would not waive any of its rights, and he would not waive any of his rights; that after his rights had been explained to him, he authorized Allstate's counsel 'to enter a general appearance' in the damage action and he was told that he could hire his own lawyer if he wanted to but that Allstate's counsel would continue to represent him.

Counsel for the defendant stated that Allstate had notice of the automobile collision on December 16, 1957, between the plaintiff and defendant; that it investigated the accident; that they represented Allstate in connection with other lawsuits arising out of the same accident, and that plaintiff's counsel 'knew there were attorneys in the case when he took the default judgment.'

Allstate's affidavit of garnishee for discharge did not allege its reservation of rights arrangement with the defendant nor was the reservation of rights arrangement alleged in the defendant's motion to vacate and set aside the default judgment. The first time the plaintiff knew of the reservation of rights arrangement was when Allstate's letter to the defendant of November 3, 1958, was introduced in evidence at the hearing.

On June 12, 1961, the district court made findings of fact and conclusions of law, and those pertinent read:

'FINDINGS OF FACT.

'1. In 1952, and subsequent thereto, defendant James H. Johnson, contracted with garnishee for liability insurance coverage. Defendant's exhibit A is a copy of the contract of insurance entered into between defendant and garnishee. Plaintiff's exhibit 1 reflects the limits of such policy to be $10,000.00 for each person injured and $20,000.00 total benefits for each accident. The insured vehicle was a 1956 Chevrolet sedan. This contract of insurance was in force and effect at the time of the accident from which these proceedings arise.

'2. Section 3 of garnishee's policy, subcaptioned 'Conditions', subparagraph 2, captioned 'Notice' (appearing on page 12 of defendant's exhibit 'A' herein) provides in part as follows:

"* * * If claim is made or suit is brought against the insured, he shall immediately forward to Allstate every demand, notice of summons received by him or his representative."

'3. On September 17, 1958, this lawsuit was filed by plaintiff, John D. Henry, against defendant, arising from an accident which occurred on December 16, 1957, between plaintiff's vehicle and a 1958 Chevrolet station...