North River Ins. Co. v. McKenzie

• Decision Date: 30 August 1954
• Docket Number: 6 Div. 663
• Parties: , 51 A.L.R.2d 687 NORTH RIVER INSURANCE CO. v. James M. McKENZIE et al.
• Court: Alabama Supreme Court

Page 599

74 So.2d 599

261 Ala. 353, 51 A.L.R.2d 687

NORTH RIVER INSURANCE CO. v. James M. McKENZIE et al.

6 Div. 663.

Supreme Court of Alabama.

Aug. 30, 1954.

Marvin Williams, Jr., Davies & Williams, Birmingham, for appellant.

Ray & Giles, Birmingham, for appellees.

LIVINGSTON, Chief Justice.

The original bill of complaint in this cause was filed by appellant, North River Insurance Company, against James M. McKenzie, Carrie McKenzie and the Bank for Savings and Trust, a corporation, in the Circuit Court of Jefferson County, Alabama, in Equity.

The bill of complaint alleged, in part, the following: Complainant, prior to May 26, 1945, issued a policy of insurance on a dwelling house owned by respondents, James M. McKenzie and Carrie McKenzie, insuring said building against loss or damage by aircraft in the amount of $2,150. On May 26, 1945, the insured building was damaged by aircraft operated by an agent of the United States Government. Thereafter, on May 11, 1948, complainant paid, advanced, or loaned to respondents, McKenzies, the sum of $2,537, being the full amount of said policy with interest thereon from the date of the accident. The McKenzies, at that time, executed to complainant an instrument called a loan receipt.

Prior to the execution of said loan receipt, both James M. McKenzie and Carrie McKenzie had instituted actions in the United States District Court against the United States Government for damages caused to them by the latter's aircraft. James M. McKenzie's suit, which alleged $7,500 damages to the insured dwelling house alone, was settled for $5,982.15 shortly after complainant insurance company and the McKenzies executed the loan receipt. The original bill further averred that a part of the $5,982.15 recovered from the United States Government was deposited in respondent bank, and that a part thereof was used by respondents, McKenzies, to purchase certain real estate situated in Jefferson County, Alabama. Also, the original bill averred that the McKenzies had become trustees as to complainant for all sums received as damages to the insured building up to the amount of $2,537, and that complainant was entitled to trace said trust funds into the hands of respondent bank and into said real property.

By amendment, complainant attached a copy of the loan receipt to the original bill. Demurrers were filed to the complaint, as amended, and were sustained by the court. Complainant then again amended the bill to aver that the net recovery by respondents, McKenzies, from the United States Government for loss and damage by aircraft to the insured building amounted to $5,982.15. After the latter amendment, demurrer to the complaint was overruled. An appeal from said decree on demurrer was taken by respondents, McKenzies. This court reversed and remanded, allowing complainant thirty days within which to amend. Our decision on said first appeal, 257 Ala. 265, 58 So.2d 581, was based upon insufficient allegations within the complaint, in that it failed to allege any consideration for the loan receipt.

Complainant then amended its bill of complaint, and set out the express provisions of the insurance policy with reference to subrogation, which provide that the 'company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this company.' The bill, as amended, further averred that if for any reason the loan receipt be held invalid and ineffective, then the payment of $2,537 by the insurer would entitle complainant to be subrogated to the rights of respondents, McKenzies, against the United States Government.

Complainant further amended the bill by alleging that respondents, McKenzies, shortly after the loss, advised complainant insurance company that they (the insured) would attempt to collect their entire damages from the United States Government, and that they (the insured) requested that their claim against complainant be allowed to remain in abeyance until the McKenzies could attempt to collect from the alleged tort-feasor. Thereafter, the McKenzies, as previously stated, filed suits against the United States Government. Said suits were prosecuted under the Federal Tort Claims Act, 28 U.S.C.A. §§ 1346, 2671 et seq. The amended complaint further alleged that while the said federal suits were pending, the McKenzies requested that complainant pay or advance to them the amount of the insurance policy. Complainant thereupon payed or advanced the face amount of the policy, plus interest thereon from the date of the loss to the date of payment. The McKenzies at that time executed the loan receipt.

Furthermore, the amended bill set out certain correspondence between attorney for complainant and attorney for the insured (McKenzies). The effect of said correspondence is that the attorney for the insured advised the McKenzies of the insurance company's right of subrogation, that the two attorneys agreed that the suits were properly prosecuted against the United States Government in the name of the McKenzies, and that the attorney for the insurance company would not intervene in the pending suits on behalf of said company. Also, the attorney for the insured stated that he would deem it his duty to advise the insurer's attorney of any plans prior to any final action being taken in the United States District Court. In addition, the bill, as amended, averred that despite said correspondence a settlement was made by respondents, McKenzies, with the United States Government, without any notice of knowledge of the settlement having been rendered to complainant until after said settlement had been effected. Said bill alleged that complainant did not intervene in the federal suits until after the settlement inasmuch as it had relied on the promises and assurances made by attorney for the insured. By virtue of the above allegations complainant claimed that respondents, McKenzies, were estopped to assert that the loan receipt was invalid or to contest complainant's right to subrogation by reason of its payment under the policy.

Demurrer to the complaint, as amended, again was filed by respondents, McKenzies, and sustained by the trial court. Thereafter, complainant further amended the bill by averring that the total amount recovered by the McKenzies for loss of insured property, after allowing all reasonable costs and expenses for recovering such sum, including the amount paid by complainant to said respondents, was in excess of the value of the insured property. Demurrer to the bill, as last amended, was overruled.

Answer of respondents, McKenzies, denies that the funds received from the United States Government are trust funds, or that complainant has the right to trace said funds. Said answer further denies that the amount recovered by the McKenzies from the government for damage to the insured dwelling, plus the $2,537 paid by complainant, is in excess of the value of the insured property.

Testimony was taken ore tenus before the trial court. After submission, the lower court rendered its final decree, finding in favor of the respondents, the appellees. Complainant, appellant, has prosecuted this appeal from such final decree on the merits of the cause, no application for rehearing or motion for new trial having been filed below.

Four main issues are presented upon this appeal: (1) Did $2,537 of the sum recovered by James M. McKenzie from the federal government, in the settlement heretofore mentioned, constitute a trust fund for the benefit of appellant insurance company? (2) Under the circumstances which prevailed at the time of the settlement, are the McKenzies now estopped from claiming that the burden was upon the insurer to intervene in the federal suit in order to have protected any rights it might have had therein? (3) Is the insurer entitled to be subrogated to the extent of its payment ($2,537) from the sum of $5,982.15, which James M. McKenzie recovered from the federal government by way of settlement? (4) Did the trial court err in sustaining the demurrer of respondents, McKenzies, to the bill of complaint, as amended, the decree sustaining said demurrer bearing date of October 9, 1952, and having the effect of requiring complainant to aver and prove that the total amount recovered by the McKenzies for the loss of the insured dwelling, after allowing all reasonable costs and expense for recovering said sum, including the amount paid by complainant, was in excess of the value of the insured property?

We are of the opinion that each of the stated issues must be answered in the affirmative.

Hayward v.State Farm Mut. Automobile Ins. Co., 212 Minn. 500, 4 N.W.2d 316, 318, 140 A.L.R. 1236, is much in point here. There, in a suit for damages to his person and his automobile, Hayward recovered a verdict of $7,401.93 against the tort-feasor. Prior to Hayward's suit against the tort-feasor, the Home Insurance Company of New York had paid Hayward $550, representing the damage to his automobile under a policy of collision insurance carried by Hayward, and the insurance company had taken a subrogation receipt and assignment from Hayward. State Farm Mutual Automobile Insurance Company, the tort-feasor's insurer, paid the judgment except for the $550 which the Home Insurance Company had claimed under its right of subrogation. Thereupon, Hayward sued both companies for the $550. State Farm Mutual paid the money into court and was dismissed from the suit. The question presented was whether or not the Home Company, as subrogee, could assert a right to the money paid into court.

The Supreme Court of Minnesota approached the problem by first stating that Hayward had but one indivisible cause of action against the tort-feasor. The opinion states that Hayward subrogated a part of his cause to the Home Insurance Company when he collected his collision insurance, and 'this was true whether or not he signed a...