Johnson v. Hardware Mut. Cas. Co.
| Decision Date | 07 November 1936 |
| Docket Number | No. 9226.,9226. |
| Citation | 187 A. 788 |
| Parties | JOHNSON v. HARDWARE MUT. CASUALTY CO. |
| Court | Vermont Supreme Court |
Exceptions from Windsor County Court; Walter H. Cleary, Judge.
Action by W. O. Johnson against the Hardware Mutual Casualty Company. Judgment for plaintiff, and defendant brings exceptions.
Reversed and remanded, with leave to plaintiff to apply for amendment.
Argued before POWERS, C J., and SLACK, MOULTON, THOMPSON, and SHERBURNE, JJ.
Wilson & Keyser, of Chelsea, for plaintiff.
Herbert G. Barber, of Brattleboro, Raymond Trainor, of White River Junction, and Edwin W. Hadley, of Boston, Mass. for defendant.
The defendant, hereinafter called the Company, issued to the plaintiff, the owner of a Studebaker sedan automobile, a policy of insurance in which it agreed, in substance, to indemnify him against loss or expense arising from claims upon him by reason of legal liability on account of bodily injuries or death accidentally suffered by any person or persons due to the ownership, maintenance, or use of said Studebaker automobile, and against loss or expense arising from claims upon him on account of damage or destruction of property alleged to have been caused by an accident due to the ownership, maintenance, or use of said Studebaker automobile.
The Company also agreed: "To defend in the name and on behalf of the assured any suit seeking damages for such bodily injuries or property damage even if such suit is groundless, false or fraudulent; to pay, irrespective of the limit of liability stated in the policy, all costs taxes against the assured in any such defended suit, all premiums on attachment and/or. appeal bonds not in excess of the limits set forth in this policy, required in any such proceedings; all expenses incurred by the Company, all interests accruing after entry of judgment until the Company has paid, tendered or deposited in Court such part of such judgment as does not exceed the limit of the Company's liability thereon, also any expense incurred by the assured for such immediate surgical relief as shall be imperative at the time of bodily injury."
Condition L of the policy provides that no action or suit on the policy against the Company shall be sustainable until the amount of the damages for which the assured is liable is determined, either by a final judgment against the assured or by agreement between the assured and the plaintiff with the written consent of the Company.
Condition S provides that the policy shall constitute the entire contract between the Company and the assured.
Condition P of the policy provides:
By the provisions of the policy, the liability of the Company as to the claim of any one person for personal injuries, irrespective of how many persons might be injured in the accident, was limited to $5,000. If more than one person were injured in a single accident, the liability of the Company was limited to a total of $10,000, single claims within such group of claims being limited to $5,000. The liability of the Company as to property damage caused in any one accident was limited to $5,000.
On December 8, 1930, while the policy was in force, the plaintiff was driving his automobile in Wilder, Vt. His automobile collided with an automobile truck, whereby the truck went down an embankment. The truck, which was owned by a Mrs. Palmer, was damaged. Four boys who were passengers in the truck received minor injuries. William Rule, the driver of the truck, who worked for Mrs. Palmer, received serious injuries. Rule brought suit against the plaintiff to recover damages for the injuries he received. The ad damnum in the writ was $20,000.
The case was tried by jury at the June term, 1931, of Windsor county court. Before, and during the course of, the trial, there were negotiations between counsel for the parties and Paul J. McDonald, who, at that time, was the New England claim manager and claims attorney of the Company. Various offers of settlement of decreasing amounts were made by counsel for Rule which the Company declined. The representatives of the Company made counter offers in lesser amounts which were declined. On July 10, during the trial, counsel for Rule, who was also counsel for the four boys who were in the truck at the time of the accident, and for Mrs. Palmer, the owner of the truck, offered to accept $6,000 for the claims of Rule and the minor claims of Kenneth Rule and Mrs. Palmer. Soon after, he offered to accept $5,500 for those claims, which were within the limits of the policy. In the forenoon of July 13, the last offer was withdrawn before any reply to the same had been received. The jury returned a verdict of $14,000 for the plaintiff. The case was taken to this court on exceptions, and the judgment was affirmed. Rule v. Johnson, 104 Vt. 486, 162 A. 383. It is undisputed that in that case there were items of contradictory evidence and contradictory claims as to the existence of legal liability.
The Company settled and paid the personal injury claims of the four boys who were in the truck, and the property damage claim of Mrs. Palmer, who owned the truck, out of its own funds. It is not disputed that the Company performed its contractual duty under the policy as to the claim of William Rule by paying $5,000, plus costs and interest, being a total of $5,815.70. After the judgment in the case of Rule v. Johnson was affirmed by this court, the plaintiff in this case made a settlement with William Rule by paying him a sum which, after payments by the Company under the policy, amounted to over $6,000. It is stipulated that the amount plaintiff, Johnson, has paid over and above all payments by the Company is, with all interest accrued, $6,600.
The plaintiff has brought this action against the defendant for its negligence in failing to settle the claim of William Rule against him, and seeks to recover the sum of $6,600, which is the amount over and above what the defendant paid that he had to pay to settle the judgment against him. At the close of the plaintiff's evidence, the defendant moved for a directed verdict. The motion was denied, and the defendant was allowed an exception. It is not necessary to consider the grounds of that motion, as the defendant waived its exception by proceeding with the trial and introducing evidence. At the close of all the evidence, the defendant moved for a directed verdict. The motion was denied, and the defendant was allowed an exception.
There are six grounds stated in the motion, but we consider only the first three grounds. They are:
The plaintiff does not claim that in the case of Rule v. Johnson the defendant was negligent in the selection of counsel, in the investigation and preparation of the case, or in the handling of the trial itself. His only claim of negligence is that the defendant negligently, during the trial of that case, failed to settle the case when a settlement for a sum within the limits of the liability of the defendant under the policy was possible.
The question whether the insurer under a policy like the one in this case can be held for negligence for not settling a case for a sum within the limits of its liability under the policy is one of first impression in this jurisdiction. The authorities are not in harmony on this question.
There are authorities which hold that in cases of indemnity contract, like the one in this case, when liability against the insured arises, the indemnity company is in duty bound to exercise the care of a prudent person to protect the interest of the assured up to the amount of its liability under the policy, for the reason that it has contracted to act as his agent and assumes full and absolute control over the litigation arising out of the accident covered by the policy; that the provisions of the policy giving the indemnity company absolute and complete control of the litigation, as a matter of law, carry with it a corresponding duty and obligation, on the part of the indemnity company, to exercise that degree of care that a prudent person would exercise under the same or similar circumstances, and the failure to exercise such care and prudence is negligence.
These cases hold that where, under the provisions of the policy, the indemnity company has the absolute power to settle a case covered by the policy, and the assured has no right to settle the case except at his own expense, if the indemnity company refuses or fails to settle a case for a sum within the limits of its liability under the policy, when such a settlement is possible, and the assured is thereby compelled to pay a sum in excess of the liability of the indemnity company to discharge the judgment against him, he can recover from the indemnity company the excess amount he was compelled to pay in an action of tort for negligence if a prudent person would have settled the case in the same or similar circumstances.
The leading case supporting this rule is Douglas v. United States Fid. & Guar. Co., ...
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