Hilker v. W. Auto. Ins. Co. of Ft. Scott, Kan.

Decision Date11 June 1930
Citation204 Wis. 1,231 N.W. 257
CourtWisconsin Supreme Court


Appeal from a Judgment of the Circuit Court for Racine County; S. E. Smalley, Judge. Affirmed.

Action by Fred C. Hilker against the Western Automobile Insurance Company of Ft. Scott, Kan., begun November 30, 1928, to recover the excess over the coverage of an automobile indemnity policy which was paid by plaintiff to satisfy a judgment for damages for injuries caused when his automobile struck a child. From a judgment for plaintiff entered August 15, 1929, the defendant appealed.

The defendant company issued a policy of automobile indemnity insurance to the plaintiff, which limited its liability for injury to one person to $5,000. The policy gave the defendant insurance company full and complete control of the handling and adjustment of all claims for liability made against the insured, and provided that the insured “shall not interfere in any negotiations for settlement or any legal procedure.”

The defendant company took full control of the defense of the two actions brought against the plaintiff. These actions resulted in judgments against the plaintiff which totaled $10,500. Stoffle v. Hilker, 189 Wis. 414, 419, 207 N. W. 685.

The plaintiff paid these judgments, and then brought this action to recover the $5,500 which he was compelled to pay in excess of the coverage of the policy, alleging that the defendant company acted in bad faith in conducting the defense of these actions, and in withholding from him information as to the actions, and in failing to settle these actions, alleging that they could have been adjusted for a sum less than $5,000.

The jury found that the defendant company could have settled the two actions brought against the plaintiff before they were begun as well as during the trial, for less than $5,000, and that the defendant company acted “in bad faith toward the plaintiff in failing to make such settlements, in its manner of handling these claims against the plaintiff, and in dealing with him.

Judgment for the plaintiff was entered on the verdict for the sum of $5,500.Hoyt, Bender, Trump, McIntyre & Hoyt, of Milwaukee (Eugene L. McIntyre, of Milwaukee, of counsel), for appellant.

Simmons, Walker, Wratten & Sporer, of Racine, for respondent.


1. The case presents a question of vital importance to both insurer and insured, which has been considered by this court in but a single case, decided in 1916. Wisconsin Zinc Co. v. Fidelity & D. Co., 162 Wis. 39, 155 N. W. 1081, Ann. Cas. 1918C, 399. Since that case was decided, a great body of automobile law has been developed. The court at that time did not see, and could not then foresee, the problems that would arise under the provisions of these policies which give the insurer the complete and absolute control of all claims arising out of automobile accidents.

In view of the fact that these contracts of insurance are prepared by the company and are not prescribed by law, the tendency of the decisions has been to extend, rather than to circumscribe, the field of liability on the part of the company and to hold that the rights of the insured “go deeper than the mere surface of the contract written for him by the defendant. Its stipulations imposed obligations based upon those principles of fair dealing which enter into every contract.” Brassil v. Maryland Casualty Co., 210 N. Y. 235, 104 N. E. 622, 624, L. R. A. 1915A, 629, 632.

2. The parties knew when they made this contract that a large percentage of these cases are settled without litigation, and that such adjustments were one of the methods of protecting the interests of the insured which were commonly used to discharge the duty imposed upon these companies by their policies. That this was in the minds of the parties when they made this contract is shown by the fact that the policy takes from the insured all right to adjust any claim, and requires him to aid the company in effecting a settlement.

[1] “The adjustment of controversy is always favored by the law. But here the claim is that this field of operation is left as a no man's land. The insured is prevented from entering upon it, and the insurer cannot be asked to do so, or be held accountable for his conduct if he does so enter. The creation of such a situation is not to be implied. It could arise only from the explicit and unmistakable agreement of the parties.” Douglas v. United States Fidelity & G. Co., 81 N. H. 371, 127 A. 708, 713, 37 A. L. R. 1477, 1484. In the absence of such an agreement, the company must be held liable for any want of good faith in defending the action or in attemptingto adjust the claims made against the plaintiff.

[2] 3. The appellant raises no question as to the instructions of the court. The chief question presented is whether the answers of the jury are sustained by the evidence. In determining this question, we must consider the relationship that existed between these parties. For a consideration fixed by it, the defendant company contracted to indemnify the plaintiff against the very claims that were the basis of the judgments totaling $10,500. As a condition of affording plaintiff that protection, the company assumed absolute control of the adjustment of all claims and of all litigation arising out of such claims.

Under such a contract there is no escape from the conclusion that the insurance company became the agent of the insured for the purpose of handling such claims and of conducting such litigation. The determination in Wisconsin Zinc Co. v. Fidelity & D. Co., 162 Wis. 39, 52, 155 N. W. 1081, Ann. Cas. 1918C, 399, that the insurance carrier “could not be the agent of the insured under such a policy of insurance” must be overruled.

[3] This determination that the company was not the agent of the insured was “put upon the ground that, if there were such a relation the insurer would be bound to consider the interests of the insured, when in conflict with its own. It is then said that, when there is such conflict, the insurer may consult its own interests solely. Therefore, it is concluded, there can be no agency. This reasoning seems to imply that one party cannot be the agent of the other party. But the law is plainly otherwise. The parties may make that sort of an agreement if they see fit. The result of such a compact is not to leave the promisor free to act as though he had made no promise. On the contrary, his conduct will be subject to closer scrutiny than that of the ordinary agent, because of his adverse interest. * * * Where one acts as agent under such circumstances, he is bound to give the rights of his principal at least as great consideration as he does his own. * * * The insurer cannot betray the trust it has undertaken nor be relieved from the usual rule that in such a case an agent must serve as he has promised to serve. The fact that there will be, or may be, conflicting interests is evidence to be considered upon the question of intent to create an agency; but it is of little weight in view of the explicit terms of the present contract. The whole control of negotiations is taken from the insured and given to the insurer.” Douglas v. United States Fidelity & G. Co., 81 N. H. 371, 127 A. 708, 711, 37 A. L. R. 1477, 1482. See, also, Stowers Furniture Co. v. American Indemnity Co. (Tex. Com. App.) 15 S.W.(2d) 544, 547, 548.

[4] The rule is fundamental that a person may not act as the agent of another where his interests are adverse to those of his principal, without the full knowledge and consent of his principal. 1 Mechem, Agency, § 177. Holding the insurance company to be the agent of the plaintiff does not violate this fundamental rule, because the plaintiff, when he accepted the policy, knew of the adverse interest of the defendant, and consented that it might act in that capacity, despite its adverse interest.

The defendant company, acting as agent of the plaintiff, contracted to take “complete and exclusive control of the suit against the assured, and the assured was absolutely prohibited from making any settlement, except at his own expense, or to interfere in any negotiations for...

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