Michel v. American Fire & Casualty Co.

• Decision Date: 18 March 1936
• Docket Number: No. 7970.,7970.
• Parties: MICHEL v. AMERICAN FIRE & CASUALTY CO. ENGLISH et al. v. SAME.
• Court: U.S. Court of Appeals — Fifth Circuit

82 F.2d 583 (1936)

MICHEL v. AMERICAN FIRE & CASUALTY CO.

ENGLISH et al. v. SAME.

No. 7970.

Circuit Court of Appeals, Fifth Circuit.

March 18, 1936.

E. Dixie Beggs, Jr., of Pensacola, Fla., and Joseph G. Dempsey, of New Orleans, La., for appellants.

John M. Coe, of Pensacola, Fla., and Chas. A. Morehead, of Miami, Fla., for appellee.

Before FOSTER, SIBLEY, and WALKER, Circuit Judges.

SIBLEY, Circuit Judge.

On two garnishments issued upon two judgments in the District Court, the garnishee, American Fire & Casualty Company, answered that it was not indebted to the defendant G. C. Wesley; and the plaintiffs, M. E. Alma Michel and Hazel Claire English, traversed the answers. On trial of the general issues thus made, the judge directed the jury to find for the garnishee. From the resulting judgments plaintiffs prosecute these appeals. The proof made before the jury showed verdicts for the plaintiffs against Wesley on November 23, 1933; that the verdicts were on December 7th ordered set aside unless before the first Monday in January remittiturs should be filed reducing them to stated amounts; and that on December 29th the remittiturs were duly entered and judgments taken for the reduced amounts. The garnishments were issued April 16, 1934. A policy of insurance concededly binding on the garnishee was introduced, wherein the insurers undertook to indemnify Wesley against the results of injuries to the persons or property of others occasioned by the use of his automobiles during a period within which the plaintiffs received injuries for which their judgments were rendered. On the part of the garnishee it was proved that on December 8, 1933, the day after the remittiturs were ordered, the garnishee paid Wesley $1,000 in cash and took from him a release under seal whereby Wesley released it "from any and all obligations, indemnities, warranties, agreements or covenants under that certain policy of insurance numbered 54,114, and from any and all liability, protection or indemnity under the same." The manager of garnishee's claim department testified that he negotiated with Wesley for the release, that the impending liability upon the policy was $6,200, and that there was an oral agreement that the company would in addition to paying the $1,000 cash for the release continue to defend the suits of plaintiffs as it had been doing, and that it did carry them on through the Court of Appeals and pay the counsel fees and the costs of appeal. In answer to the question whether this settlement was not an effort to defeat liability to the plaintiffs, he said: "Of course it was a protection to the Company. It was agreeable with Mr. Wesley. The purpose of it was to prevent our liability to the full amount of the judgments." The policy was surrendered on the execution of the release. The affidavits for garnishment state that Wesley did not have visible property out of which to make the judgments. There was no other evidence of insolvency except the fact that the judgments were not paid. The contentions of appellants are: (1) That there was a direct liability to them under the policy which Wesley's release could not extinguish; (2) that there was at least a liability to Wesley which was an asset that could not be disposed of in fraud of his creditors; and (3) that a jury could have found that the release was in fraud of these appellants.

1. The policy was taken out and paid for by Wesley.^* It provides for his indemnification on account of claims against him made by those whose persons or property his automobiles might injure, and for relieving him of the burden of defending suits about such things. There is no provision that any injured person is to be indemnified. The policy was not taken out pursuant to any statute requiring protection for the public. Of course, a third person, a stranger both to the contract and the consideration, may enforce a promise made for the purpose of benefiting him, according to the overwhelming weight of American authority. Hendrick v. Lindsay, 93 U.S. 143, 23 L.Ed. 855; Carson, Pirie, Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498, 81 A.L. R. 1262 and note. Such is the law in Florida. Wright v. Terry, 23 Fla. 160, 2 So. 6; Enns-Halbe Co. v. Templeton, 101 Fla. 609, 135 So. 135. Familiar instances are that members of a class intended to be the beneficiaries of the contract although not named may enforce insurance taken out for their protection, as also materialmen and laborers may enforce contractor's bonds conditioned to pay them. In Ohio Casualty Ins. Co. v. Beckwith, 74 F.(2d) 75, we held that a policy of insurance much like this might be sued upon by a person injured. But it was because the policy included provisions that the insurer would, besides defending the claim, pay all costs and expenses and interest after judgment until he should pay into court on the judgment its amount not in excess of the policy limit. We thought those provisions amounted to a promise to pay the judgment within the limit of the policy, and that it was a promise for the benefit of the injured person which after obtaining judgment he could enforce. Nothing of the sort appears in this policy. While there is no express prohibition against a third person suing on the policy,^** there is nothing that would confer the right. Indemnity is promised to the assured alone. The contract is a selfish one for his own protection. Notwithstanding the insurer defended the suits of these plaintiffs according to its contract, it did not thereby render itself directly liable to them to pay the judgments.

2. But we do not think the assured, Wesley, must have paid the judgments obtained against him before he could call upon the insurer for the indemnity promised. Such insurance is often taken by persons of small means to provide from a solvent source funds to protect them against disaster. The insured may have only a home or a small business. Must he suffer the one to be sold out by the sheriff or sacrifice the other before he can call on his insurer for help? When, as here, the insurer has full charge of defending the liability, it is more reasonable to suppose that the indemnity intended was to be afforded by furnishing the money to discharge the liability when finally established. Whether such an indemnity has been promised must be determined from the language of the contract in the light of the objects sought by the parties. As pointed out in the case of Beckwith, supra, and clearly stated and fully illustrated in cases cited in 31 C.J., Indemnity, §§ 33, 34, 35, and 36 C.J., Liability Insurance, §§ 1, 2, 74, 75, 76, there is a clear distinction between contracts to indemnify against liability incurred and those to indemnify against loss, the term "loss" generally referring to an actual payment by the indemnitee. If the indemnity promised is against liability, the incurring of the liability, or, if disputed, the rendition of a judgment upon it, will entitle the indemnitee to enforce his indemnity. But if the indemnity is against losses paid, payment of course must have happened before the indemnity contract can be enforced. If this policy be of the latter class, since Wesley paid nothing on the judgment, neither he nor anyone in his right could have enforced it when these garnishments issued. Allen v. Ætna Ins. Co. (C.C.A.) 145 F. 881, 7 L.R.A. (N.S.) 958; United States F. & G. Co. v. Williams, 148 Md. 289, 129 A. 660; Combs v. Hunt, 140 Va. 627, 125 S.E. 661, 37 A.L.R. 621. If this policy had used only the words "indemnify against loss," such might be its proper construction. But in the insurance world the term "loss" is very commonly used to express an ascertained liability of the insurer. When insurers pay such liabilities, they speak of it as a payment of their losses. Business men also speak of their losses irrespective of whether the liabilities which cause them have been paid. So do gamblers. Taking all the expressions of the policy together, we are of opinion that Wesley was insured against ascertained liabilities incurred to a limit of $10,000 on account of the claims mentioned in the policy, irrespective...