Johnson v. Hardware Mutual Casualty Co.

• Decision Date: 05 May 1936
• Parties: W. O. JOHNSON v. HARDWARE MUTUAL CASUALTY CO
• Court: Vermont Supreme Court

187 A. 788

108 Vt. 269

W. O. JOHNSON v. HARDWARE MUTUAL CASUALTY CO

Supreme Court of Vermont

May 5, 1936

February Term, 1936.

Waiver of Motion for Directed Verdict---Construction of Insurance Contract---Of Term Respecting Right of Insurer to Control Defense of Claim---Parties Charged with Knowledge of Contract---Duty of Court in Construing Contract---Rights of Parties Determined by Unambiguous Agreement---Extent of Liability of Insurer for Failure to Settle Claim within Indemnity Policy Limits---Bad Faith Defined and Explained---When Imputed---"State of Mind" of Corporation---Attorneys and Adjuster for Insurance Company as Its Agents---Good Faith Presumed---Burden and Sufficiency of Proof of Bad Faith---Circumstances Constituting Evidence of Bad Faith---Warranting Inference Thereof---Existence of Bad Faith Jury Question---Cause Remanded with Leave to Apply to Amend Complaint.

1. Exception to denial of defendant's motion for directed verdict is waived when defendant proceeds with trial and introduces evidence.

2. When the terms of a contract of insurance are ambiguous or fairly susceptible of two different constructions, that construction will be adopted which is more favorable to the insured, but contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties have used, and if clear and unambiguous such terms are to be taken in their plain, ordinary, and popular sense.

3. Terms of liability insurance policy that insurer shall defend any suit covered by the policy and that assured shall not voluntarily assume any liability, settle any claim, or incur any expense, except at his own cost, or interfere in any negotiation or legal procedure without the consent of the insurer, give the insurer exclusive control of any action against assured and option to settle or try action as it sees fit.

4. Parties to a contract of insurance are charged with knowledge of its contents and bound by clear and unambiguous terms used therein.

5. Where the terms of a contract of indemnity are clear and unambiguous, the rights of the parties are to be determined by the agreement into which they entered.

6. In the absence of fraud, negligence, or bad faith, it is not the duty of the court to read into contracts conditions or limitations which the parties have not assumed.

7. It is the duty of the court to construe contracts and not to make them for the parties.

8. In action by assured against insurer alleging negligence in failing to accept offer of settlement of claim for damages resulting from motor vehicle accident, where offer was within limits of plaintiff's liability insurance policy, which gave defendant insurance company exclusive right to try or settle case as it preferred, and trial resulted in judgment for amount in excess of policy limits, insurer held not liable in absence of fraud or bad faith, and entitled to directed verdict.

9. Bad faith is an intentional tort of an active and affirmative nature.

10. Bad faith means with actual intent to mislead or deceive another and refers to a real and actual state of mind capable of both direct and circumstantial proof.

11. Bad faith will not be imputed unless there is something in the particular transaction which is equivalent to fraud, actual or constructive.

12. A corporation can act only through its agents, whose state of mind is that of the corporation.

13. Attorneys and adjuster for insurance company insuring defendant in automobile accident case held to be agents of the company in trial and negotiations for settlement, so that their acts, so far as authorized, were the acts of the company.

14. Liability insurance company will be presumed to have acted in good faith in negotiations for settlement of case in which its insured is defendant.

15. In action by insured against liability insurance company for damages sustained by reason of company's failure to accept proposition of settlement within policy limits, when trial resulted in judgment in excess thereof burden is upon insured to prove that such failure was actuated by bad faith, and unless proof of sufficient weight to overcome the presumption of good faith is submitted, there is no obligation upon the company to deny the allegations of bad faith.

16. In such action, remark made by company's adjuster when insured refused his request to contribute toward a settlement offered, which was within policy limits, held some evidence of bad faith on the part of the company, but to be considered in connection with other evidence.

17. In such action, refusal of home office of defendant company to accept proposition of settlement within policy limits held not, standing alone, sufficient to sustain a charge of bad faith, but where persistently maintained against advice of counsel in charge of case and adjuster present at trial and fully cognizant of situation, circumstances held sufficient to warrant an inference that requisite good faith was not exercised.

18. In such action, question whether there was in fact bad faith on part of company is for jury and not within province of Supreme Court to decide on motion to modify proposed order of judgment for defendant and to remand case to give plaintiff opportunity to apply to amend his complaint by alleging bad faith.

19. In such action, remand of case granted to allow plaintiff to apply for leave to amend complaint by alleging bad faith.

ACTION OF TORT for negligence to recover damages suffered by plaintiff through failure of defendant liability insurance company to accept proposition of settlement, within limits of plaintiff's indemnity contract with defendant, of claim for damages against plaintiff arising out of motor vehicle accident, where trial resulted in judgment in excess of policy limit. Trial by jury at the June Term, 1935, Windsor County, Cleary, J., presiding. Verdict for the plaintiff and judgment thereon. The defendant excepted. After announcement of decision of Supreme Court at the May Term, 1936, plaintiff moved that the proposed judgment order be modified to direct remand of cause that he might apply for leave to amend his complaint by alleging bad faith on the part of the defendant. The opinion states the case.

Judgment reversed and cause remanded, with leave to apply for an amendment if plaintiff be so advised.

Herbert G. Barber, Raymond Trainor, and Edwin W Hadley, of Boston, Mass., for the defendant.

Wilson & Keyser for the plaintiff.

Present: POWERS, C. J., SLACK, MOULTON, THOMPSON and SHERBURNE, JJ.

OPINION

THOMPSON

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 taxed against the assured in any such defended suit, all premiums on attachment and/oor 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:

"The assured, when requested by the Company, shall aid in effecting settlements, securing evidence, the attendance of witnesses, and in prosecuting appeals. The assured shall not voluntarily assume any liability, settle any claim, or incur any expense other than for immediate surgical relief, except at his own cost, or interfere in any negotiation or legal procedure without the consent of the Company previously given in writing."

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...