Lorando v. Gethro

Decision Date13 September 1917
Citation228 Mass. 181,117 N.E. 185
PartiesLORANDO v. GETHRO et al.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

OPINION TEXT STARTS HERE

Report from Supreme Judicial Court, Suffolk County; Edward P. Pierce, Judge.

Suit by Albert Lorando against Joseph C. Gethro and the New England Equitable Insurance Company, a corporation. On report after an order overruling a demurrer to the complaint. Order affirmed.

Jos. W. Bartlett, Fredk. E. Jennings, and Arthur T. Smith, all of Boston, for plaintiff.

Ralph H. Willard and Wm. H. Taylor, both of Boston, for defendants.

RUGG, C. J.

This is a suit in equity under St. 1914, c. 464, brought by one who has recovered judgment against the principal defendant, for bodily injuries caused by his negligence, and against an insurance company which had insured the principal defendant against loss or damage arising from such cause, by policy dated subsequent to the time when the statute became effective. The defendants demurred to the bill on the ground that the statute is unconstitutional. The statute is printed in the margin.1

[2] The phraseology of this statute is somewhat involved. The words ‘loss or damage’ are found four times in section 1 and twice in section 2. The first time these words occur, manifestly they refer to the subject-matter of the contract of insurance, namely, the loss or damage which the assured ultimately may suffer through paying or being liable to pay the amount recovered for the bodily injuries or death by accident caused by him to others. The second, third and fourth times these words are used they refer equally plainly to the ‘bodily injury or death by accident of any person’ for which the assured legally may be responsible. The tautological addition of the words ‘or death’ in connection with their use the third time does not affect their sense. Clearly a like meaning attaches to them at their first occurrence in section 2. At their second appearance in that section, they refer to the loss or damage suffered by the assured, and this is no notwithstanding the circumstance that they are preceded immediately by the word ‘said,’ which at first would seem to make them synonymous with the first ‘loss or damage’ in that section. The word ‘loss' alone without other connected or modifying word occurs twice in the first section. It refers in each instance to the detriment caused to the insured, for which he is to be indemnified by the insurer.

Indubitably ‘loss' as thus used does not refer to the event out of which as a consequence the pecuniary liability of the assured flows. A ‘loss occurs on account of a casualty’ as the words here are used, not when the casualty happens, but when the damages resulting from that casualty have been fixed in any legal way. ‘Loss' in this connection means the actual financial obligation of the insured, measured in money, in respect of the casualty against which he is insured. Ordinarily in cases of dispute that loss can be ascertained only by the judgment of a court. It can ‘occur’ in the sense of the statute only when so ascertained.

The clause following, namely, ‘the liability of the insurance company shall become absolute,’ in its context, means only that the liability of the insurance company, so far as concerns the amount of the loss, shall not thereafter be open to dispute. The insurer's liabilityis absolute only in respect of the amount of the loss and not in other respects.

This clause thus interpreted is or might be of great force in cases of bankruptcy or financial irresponsibility of the assured. It fixes the amount of loss for which the insured has been found liable, not exceeding the extent of the insurance, rather than the financial loss actually sustained by him through payment of money damages, as the measure of the insurer's liability. In many conceivable instances this distinction might be exceedingly important. Perhaps the clause thus interpreted adds little or nothing to what might be implied from the ordinary contract of insurance between abundantly solvent parties. But that matter is not left hereafter to be the subject of contract between the parties. It is definitely established as the relation imposed by law upon the parties. Whatever may be their degree of financial responsibility, the clause does not mean that the other valid conditions of a contract of casualty insurance are abrogated. Whatever conditions are imposed by that contract, whether as to written notice by the insured to the insurer of any accident and claim, the delivery to the insured of summons in case of action instituted, as to time of bringing action on the policy, or otherwise, are left in full force, unaffected by this clause.

This clause also leaves open for determination the question whether the policy of insurance covers the casualty in issue, or whether otherwise the insurer is liable to the assured. It does not prohibit any ground of defense which ordinarily would be open to an insurer in an action brought against it by the insured on the policy. It forecloses only the ground that the amount of the loss shall not be open to dispute. As to that subject it provides that the ‘loss,’ as that word is used in contracts of casualty insurance, shall mean loss as we have defined it, and that its meaning in that respect shall not be modified, affected or limited by stipulations between the parties.

The contention is untenable that the words ‘the liability of the insurance company shall become absolute’ mean that the insurance company thereafter shall have no ground of defense open to it. It is almost inconceivable that the Legislature would attempt to make an insurance company unconditionally liable to pay for a loss without giving it an opportunity to require any notices of loss or of actions at law and thus to ascertain the circumstances out of which the loss arises and its nature and extent at or near the time when the event occurs, or to make reasonable conditions as to the establishment of its liability under the insurance contract. Such an intent on the part of the general court could not be inferred in the absence of unequivocal words expressing that purpose so clearly as to be beyond discussion. A statute of such import would present a constitutional question quite different from those now at the bar. It would require unmistakable words to warrant the supposition that the Legislature had pressed its power to such an extreme. The instant statute conveys no such meaning. All its words may be given an effective and natural interpretation without reaching so unusual a result.

The statute then provides that the payment of the ‘loss' as thus defined by the insurer to the insured shall not depend upon the satisfaction by the latter of final judgment against him founded on the casualty against which he was insured. The meaning of this clause is plain. As matter of construction its effect is no nullify ‘Condition 7’ of the present policy of insurance, namely, that:

‘No action shall lie against the company to recover for any loss * * * unless * * * for loss or expense actually sustained and paid in money by the assured in satisfaction of a final judgment.’

Its design obviously is to prevent the enforcement of such and like conditions, which were held valid in Connolly v. Bolster, 187 Mass. 266, 72 N. E. 981, and in Davison v. Maryland Casualty Co., 197 Mass. 167, 170, 83 N. E. 407, and which, unless prohibited by law, indisputably are binding terms of a contract. By the express provision of this statute such conditions are to be of no effect.

The final sentence of section 1 prohibits the cancellation or annulment of a policy of casualty insurance by agreement between the insured and the insurer after a casualty has occurred, for which the insured is liable, and against the damage accruing from which to him he is insured by the policy, without the assent of the person injured by the casualty. It is not a dominant provision, but is ancillary to the main purpose of the act.

The second section establishes a temporary lien in favor of one, who has put the damages, resulting to him from the casualty insured against, in the form of a judgment, on the amount due under the policy as between the insured and the insurer. It also affords him the usual remedies of a judgment creditor (Rioux v. Cronin, 222 Mass. 131, 109 N. E. 898), or the special equitable attachment provided by R. L. c. 159, § 3, cl. 7.

The Legislature has power under the Constitution to enact the statute as thus interpreted. Said Chief Justice Knowlton in New York Life Ins. Co. v. Hardison, 199 Mass. 190, 198, 85 N. E. 410, 413 (127 Am. St. Rep. 478):

‘The Legislature has large powers for the regulation of the business of insurance. It may act under the police power for the protection of the public, or it may act as the creator and controller of corporations, domestic and foreign, which are subject to its power. This has been decided in many cases in this commonwealth and elsewhere.’

A number of decisions there are collected. It was held in Considine v. Metropolitan Life Co., 165 Mass. 462, 466, 43 N. E. 201, 203, that there is ‘no doubt of the constitutional power of the Legislature to prescribe the form of a policy of insurance.’ To the same effect in substance are Knights Templars' Indemnity Co. v. Jarman, 187 U. S. 197, 204, 23 Sup. Ct. 108, 47 L. Ed. 139, and Whitfield v. AEtna Life Ins. Co., 205 U. S. 489, 495, 27 Sup. Ct. 578, 51 L. Ed. 895.

The instant statute has for its chief object simply a regulation as to the form of a policy of insurance. It prohibits in substance the insertion in any contracts for casualty insurance of a condition that the assured must actually pay the loss before liability attaches to the insurer. With that single exception and its accompanying incidents the insurer and insured are free to make such contracts as they choose, and the scope and validity of such contracts are left as before, unaffected by this statute.

[5] A further important feature of ...

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