Mendota Electric Co. v. New York Indemnity Co.

• Decision Date: 17 December 1926
• Docket Number: No. 25696.,25696.
• Citation: 169 Minn. 377,211 N.W. 317
• Parties: MENDOTA ELECTRIC CO. v. NEW YORK INDEMNITY CO.
• Court: Minnesota Supreme Court

211 N.W. 317

169 Minn. 377

MENDOTA ELECTRIC CO. v. NEW YORK INDEMNITY CO.

No. 25696.

Supreme Court of Minnesota.

December 17, 1926.

Appeal from District Court, Ramsey County; James C. Michael, Judge.

Action by the Mendota Electric Company against the New York Indemnity Company. From an order sustaining a demurrer to the complaint, plaintiff appeals. Reversed.

Daggett & Pew, of St. Paul, for appellant.

Oppenheimer, Dickson, Hodgson, Brown & Donnelly, of St. Paul, for respondent.

LEES, C.

This is an appeal from an order sustaining a demurrer to the complaint.

Omitting the formal allegations, the facts set forth are as follows: Plaintiff furnished electric light and power to consumers in and near the town of Mendota. Defendant had insured plaintiff in the sum of $5,000 against loss, by reason of the liability imposed by law, for damages, on account of bodily injuries received by any one person not employed by plaintiff. Mike Finch, who was not plaintiff's employee, suffered severe injuries and brought suit against plaintiff and the Northern States Power Company and the Tri-State Telephone & Telegraph Company to recover damages. The complaint states that the injuries were sustained "under circumstances creating clear liability on the part of this plaintiff * * * for damages." Defendant undertook the defense of the action in plaintiff's behalf and agreed with plaintiff that, if it were possible to satisfy plaintiff's liability to Finch, it would pay the amount required of plaintiff to effect a settlement, provided it did not exceed $5,000.

Finch's action came on for trial in the district court of Ramsey county in November, 1925. While the trial was in progress, Finch agreed to accept $18,000 in full settlement of his claim for damages. The defendants in that action and the defendant in the present action were represented by capable attorneys whose opinion it was that the proposed settlement was advisable. The Northern States Power Company agreed to contribute and did contribute $2,000, and the Tri-State Telephone & Telegraph Company $11,250, leaving $4,750 to be contributed by this plaintiff. It requested this defendant to contribute that amount, but defendant repudiated its previous agreement with plaintiff and refused to contribute more than $3,625. Cognizant of its liability to this plaintiff under the terms of the contract of insurance, defendant acted "in bad faith * * * in coercing and compelling this plaintiff to contribute to said settlement" the sum of $1,125, which plaintiff paid in order to satisfy Finch's claim. The defendant's acts were negligent and prejudicial to plaintiff's interests in that damages in excess of $5,000 might have been recovered against this plaintiff, if the settlement had not been made. The complaint concluded with a demand for judgment for $1,125.

Defendant's counsel contend that, unless plaintiff's contribution was made under duress or was exacted by defendant in bad faith, there can be no recovery. They also contend that the complaint shows that plaintiff voluntarily paid $1,125 as its share of the amount Finch demanded in settlement of his action. They cite cases holding that an insurer may contract for the exclusive right to settle claims against the insured and may exercise the right as it sees fit, subject only to the qualification that it must act in good faith; cases holding that where the insurer, in violation of its contract, refuses to assume the defense of an action brought against the insured, such an action as this may be maintained; and cases holding that, where the insurer, having undertaken the defense, fails to conduct it with ordinary skill and prudence, it is chargeable with liability for the damages which result to the insured.

Cases of the first class are New Orleans, etc., Co. v. Maryland Cas. Co., 114 La. 154, 38 So. 89, 6 L. R. A. (N. S.) 562; Wisconsin Zinc Co. v Fidelity & D. Co., 162 Wis. 39, 155 N. W. 1081, Ann. Cas. 1918C, 399.

Cases in the second class are St. Louis, etc., Co. v. Maryland Cas. Co., 201 U. S. 173, 26 S. Ct. 400, 50 L. Ed. 712, and Butler Bros. v. Am. Fidelity Co., 120 Minn. 157, 139 N. W. 355, 44 L. R. A. (N. S.) 609.

Cases in the third class are Attleboro Mfg. Co. v. Frankfort, etc., Ins. Co. (C. C. A.) 240 F. 573; Douglas v. United States F. & G. Co., 81 N. H. 371, 127...