Radcliffe v. Franklin Nat. Ins. Co. of N. Y.

Decision Date27 June 1956
PartiesRuth H. RADCLIFFE and R. Heber Radcliffe, Plaintiffs-Appellants, v. FRANKLIN NATIONAL INSURANCE COMPANY OF NEW YORK, a corporation, and United National Indemnity Company of New York, a corporation, Defendants-Respondents.
CourtOregon Supreme Court

Thomas H. Tongue, III, Portland, argued the cause for appellants. On the brief were Hicks, Davis & Tongue, Portland, and Arthur W. Schaupp, Klamath Falls.

Howard K. Beebe, Portland, argued the cause for respondents. With him on the brief were Maguire, Shields, Morrison & Bailey, Portland.

Before WARNER, C. J., and TOOZE, ROSSMAN, LUSK, LATOURETTE and PERRY, JJ.

ROSSMAN, Justice.

This is an appeal by the plaintiffs from a judgment which the circuit court entered in favor of the defendants after it had directed the jury to return its verdict for them. The plaintiffs are R. Heber Redcliffe and Ruth H. Radcliffe, husband and wife. The defendants are Franklin National Insurance Company of New York and United National Indemnity Company of New York. The plaintiff, R. Heber Radcliffe, is the insured in a policy of automobile liability insurance, which describes an automobile owned by him, and which was issued October 2, 1947, by the defendants. The latter unite in issuing policies of insurance, but in the policies each limits to specific phases of the undertaking the protection it promises to provide. In the policy before us, the defendant, United National Indemnity Company, insured against claims of bodily and property damage arising out of the operation of Radcliffe's automobile to the extent of $10,000 for injury to or death of one person and to the extent of $20,000 for injury and death in a single accident of more than one person. The undertakings by the Franklin National Insurance Company are not at issue upon this appeal and, accordingly, when we employ the word insurer we will mean the United National Indemnity Company.

July 4, 1948, when the two Radcliffes were in their car and Mrs. Radcliffe was driving, it collided with an automobile carrying Mr. and Mrs. Golden O. Hodges and their two minor children. The collision occurred in Klamath county upon a public thoroughfare. All four of the Hodgeses were injured. August 18, 1949, Mr. and Mrs. Hodges each filed an action in Klamath county against the Radcliffes. Each charged the Radcliffes with negligence and averred that, as a proximate result of the negligence, injury occurred to each of the two plaintiffs. Mrs. Hodges demanded $50,000 damages and Mr. Hodges $10,000.

The defendant, United National Indemnity Company, pursuant to the terms of the policy of insurance, assumed the defense of the two actions and for that purpose employed Mr. Edwin E. Driscoll, a capable, experienced member of the Oregon bar. Later, the two actions were consolidated for trial and on September 21, 1950, the trial commenced. On the second day of the trial the Hodgeses offered to accept $10,000 in satisfaction of all four claims. The insurer neither accepted nor rejected the offer. September 26, the jury returned a verdict in the amounts of $20,000 and $1,500 for Mrs. Hodges and Mr. Hodges, respectively. After entry of judgments, the United Indemnity Company paid to the Hodgeses $11,500 together with costs and interest. Later, the Radcliffes paid $10,000 to the Hodgeses and thereupon instituted this action for the recovery of that sum of money from the insurance companies. They charged the insurance companies with negligence and bad faith.

The following are the pertinent provisions of the policy of insurance:

'The unqualified word 'insured' wherever used in coverages includes the named insured and except where specifically stated to the contrary, also includes any person while using the automobile * * * with the permission of the named insured.

* * *

* * *

'I Coverage A--Bodily Injury Liability.

'To pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages, * * * sustained by any person or persons, caused by accident and arising out of the ownership, maintenance or use of the automobile.

'II Defense, Settlement, Supplementary Payments.

'As respects such insurance as is afforded by the other terms of this policy

'(a) * * * the company shall

'1. defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the company; * * *.

* * *

* * *

'The limit of bodily injury liability stated in the declarations as applicable to 'each person' is the limit of the company's liability for all damages, including damages for care and loss of services, arising out of bodily injury, including death at any time resulting therefrom, sustained by one person in any accident; * * * .

* * *

* * *

'When an accident occurs written notice shall be given by or on behalf of the insured to the company * * *.

'If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.

* * *

* * *

'The insured shall cooperate with the company and, upon the company's request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others as shall be imperative at the time of accident.'

Before going on we pause to observe that the provisions just quoted bound the insurer to 'defend in his (insured's) name and behalf any suit against the insured.' But no provision couched in terms equally explicit and imperative cast upon the insurer a duty to settle claims. The policy, however, required the insurer 'to pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of liability imposed upon him by law for damages.' The duty created by those words is not restricted to the payment of judgments, but includes all liabilities imposed 'by law for damages.' Although the words 'pay' and 'settle,' in many instances mean the same, 'settle' is a term of the accordion type and at times expands its connotation until it becomes a synonym for 'compromise.' The policy reserves to the company the right to make settlements and imposes upon the insured the duty to assist in effecting them. The provisions which require the insured 'as soon as possible' to notify the insurer 'when an accident occurs' and to forward 'immediately' to the company 'every demand, notice, summons or other process' may be intended in part to place the insurer in a position to settle promptly claims arising out of automobile accidents.

The above provisions of the policy constituted an undertaking upon the part of the insurer to save the insured harmless from liabilities arising out of automobile accidents to the extent of $10,000 and $20,000 and to place the insurer in a superior position to furnish the protection. In protecting the insured, the company could resort to payment, settlement or litigation. Settlement was an optional means, but if not chosen, defense was mandatory. Settlement appears to be an adjunct or corollary of the right to defend. In all events, payment of liabilities imposed by law had to be made to the extent of $10,000 and $20.000. The policy recognized in the insured no privilege of handling the situation himself. He was required to entrust his protection to the insurer. When an accident happened, the responsibility for the financial result was thrust upon the insurer to the extent of $10,000 and $20,000. If the insured wished the protection afforded by the policy, the latter bound him to 'cooperate with the company.' It clarified the signification of the word 'cooperate' by specifying that the insured must, upon demand of the insurer, 'attend hearings and trials' and assist in 'effecting settlements, securing and giving evidence.' It also cast upon the insured the duty to help with such tasks as 'obtaining the attendance of witnesses.' Thus the insurer, not the insured, assumed charge the moment an accident occurred.

As a basis for this action, the complaint avers that after the defendants had assumed charge of the defense of the personal injury action it was their duty

'to conduct themselves in respect to such negotiations for compromise and the management of the defense of said claims and actions with a reasonable degree of care, skill and diligence for the protection of plaintiffs' interest, and among other things it became the defendants' duty to report to the plaintiffs seasonably in order to permit the plaintiffs to act on any offers for settlement of said claim, and to conduct said ligations [sic] including appeals with reasonable diligence.

'* * * during the pendency of said trial and while the same was in progress the said plaintiffs, Betty C. Hodges and Golden O. Hodges, by and through their attorney U. S. Balentine, made to defendants, by and through their attorney Edwin E. Driscoll, a firm offer to settle and compromise all of said four actions and claims heretofore alleged against the plaintiffs for the sum of $10,000.00, lawful money of the United States; that said defendants negligently and carelessly refused to accept said offer or to compromise and to pay the amount thereof.

* * *

* * *

'That said defendants did not in good faith protect the interests of plaintiffs and were negligent in the performance of the duties which they assumed; and wholly failed in good faith in the...

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