Rogers v. American Fidelity & Cas. Co.

• Decision Date: 27 October 1958
• Docket Number: No. A--402,A--402
• Citation: 145 A.2d 344,52 N.J.Super. 254
• Parties: Clayton ROGERS and Marjorie Rogers, Plaintiffs-Appellants, v. AMERICAN FIDELITY AND CASUALTY COMPANY, Inc., a foreign insurance corporation authorized to do business in New Jersey, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 254

52 N.J.Super. 254

145 A.2d 344

Clayton ROGERS and Marjorie Rogers, Plaintiffs-Appellants, v. AMERICAN FIDELITY AND CASUALTY COMPANY, Inc., a foreign insurance corporation authorized to do business in New Jersey, Defendant-Respondent.

No. A--402.

Superior Court of New Jersey, Appellate Division.

Argued Sept. 29, 1958.

Decided Oct. 27, 1958.

Charles Blume, Newark, argued the cause for plaintiffs-appellants.

Burton J. Ironson, Irvington, argued the cause for defendant-respondent (Sam Lieberman, Newark, attorney).

Before Judges GOLDMANN, CONFORD and HANEMAN.

The opinion of the court was delivered by

CONFORD, J.A.D.

This is an action on an automobile collision insurance policy. The amount of recovery sought is $410. The Morris County District Court, trying the case without a jury, held for the defendant, 'the only question for determination' being stated as 'whether the plaintiffs did anything which would affect the defendant's rights of subrogation, if any,' under the policy.

The statement of the case certified by the trial judge reveals the following factual situation. The defendant issued its collision automobile policy to plaintiffs as the 'Named Insured' with a $75 deductible clause. Paragraph 11 of the policy under the head, 'Conditions,' reads as follows:

'11. Subrogation: In the event of any payment under this policy, the company shall be subrogated to all the insured's rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights.' (Emphasis supplied.)

During the policy term there was an accidental collision between plaintiff's car, then being driven by plaintiff Marjorie Rogers' sister, Mary Parker, and a motor vehicle owned and operated by Albert Wershing. At the time, Mary Parker 'was taking the plaintiffs' two children' to the Parker home 'for a visit' and was using the car by loan from Mrs. Rogers. Subsequent to the accident, as set forth in the statement of the case,

'Mrs. Rogers, who did not carry liability insurance, was informed by the Motor Vehicle Department, that, unless she posted security or obtained a release from Mr. Wershing, she would lose her driving privileges. Thereupon, Mrs. Rogers contacted Mr. Wershing at the latter's home for the express purpose of obtaining from Mr. Wershing a release so that the provisions of the Financial Responsibility Law would not be invoked. Mr. Wershing referred the matter to his insurance company, Selected Risks, whereupon a Settlement Agreement was entered into between Mr. Wershing and Miss Parker providing for payment of Mr. Wershing's damages in the sum of $710.00 at the rate of $5.00 every other week. Upon payment of this sum, the Agreement provided for Miss Parker, who signed the Agreement, to be fully and completely released from any and all claims of Mr. Wershing.'

Miss Parker, over objection, testified on behalf of defendant that she had entered into the agreement referred to and was making payments thereon to Mr. Wershing's insurance carrier.

Wershing, called by the defendant, was permitted to testify over objection that Miss Parker told him the collision was her fault. There is no other evidence bearing upon the circumstances surrounding the accident.

The plaintiffs raise the following points on appeal: (1) In the absence of evidence by defendant showing that plaintiffs 'might have recovered' for their loss in an action against Wershing there was no showing of 'prejudice' to defendant's rights as subrogee of plaintiffs by what was done here, the subrogation right having no greater substance than plaintiffs' cause of action against Wershing. (2) Plaintiffs were not bound by what Miss Parker said or did, there being no agency between them. Moreover, a settlement agreement is not admissible as to liability. (3) Plaintiff Clayton Rogers is particularly free of responsibility as he had nothing whatever to do with the settlement with Wershing.

I.

For purposes of clearness in exposition of the legal problem involved in the first point of appeal we treat the matter initially as though Mrs. Rogers had herself been operating the car when the accident occurred and had made the settlement Miss Parker did. There would seem little basis for doubt that in such a case Mrs. Rogers would be estopped against subsequently bringing an action against Wershing predicated upon his negligence and her own freedom from contributory negligence, within the rationale of Kelleher v. Lozzi, 7 N.J. 17, 80 A.2d 196 (1951). Consequently, the settlement would as effectively foreclose any possibility of defendant as subrogee, realizing anything from Wershing, as though the insured had given Wershing a release in return for a consideration. In the latter situation the rule supported by the overwhelming weight of authority is that the insured may not recover on the policy, being precluded by his own breach of contract in respect to the subrogatory position of the carrier. Hilley v. Blue Ridge Insurance Company, 235 N.C. 544, 70 S.E.2d 570, 38 A.L.R.2d 1090 (Sup.Ct.1952); Auto Owners' Protective Exchange of Kankakee, Ill., v. Edwards, 82 Ind.App. 558, 136 N.E. 577 (App.Ct.1922); Libertin v. St. Paul Fire and Marine Insurance Company, 74 S.D. 436, 54 N.W.2d 168 (Sup.Ct.1952); Conard v. Moreland, 230 Iowa 520, 298 N.W. 628 (Sup.Ct.1941); Farmer v. Union Insurance Company, 146 Miss. 600, 111 So. 584 (Sup.Ct.1927); Chandler v. State Farm Mut. Auto Ins. Co., 200 Miss. 702, 28 So.2d 571 (Sup.Ct.1947); Knight v. Calvert Fire Ins. Co., 268 S.W.2d 53 (Mo.Ct.App.1954); Richardson v. Employers Mut. Liability Ins. Co., 269 S.W.2d 132 (Mo.Ct.App.1954); Highlands v. Cumberland Valley Farmers Mut. Ins. Co., 203 Pa. 134, 52 A. 130 (Sup.Ct.1902); Niagara Fire Ins. Co. v. Fidelity Title and Trust Co., 123 Pa. 516, 16 A. 790, 10 Am.St.Rep. 543 (Sup.Ct.1889); Bloomingdale v. Columbia Ins. Co., 84 N.Y.S. 572 (Sup.Ct., App.Term, 1903); Maryland Motor Car Ins. Co. v. Haggard, 168 S.W. 1011 (Tex.Civ.App.1914); 6 Appleman, Insurance Law and Practice (1942), § 4093, pp. 588--589; Annotation, 38 A.L.R.2d 1095, 1096 (1954). See also Remedial System of Loaning v. N. H. Fire Ins. Co., 227 Ky. 652, 13 S.W.2d 1005, 1006 (Ct.App.1929); and Weber v. United Hardward & Implement Mutuals Co., 75 N.D. 581, 31 N.W.2d 456, 459 (Sup.Ct.1948).

The only case we find in the foregoing category which considers an argument by an insured that the carrier defendant has the burden of showing the liability of the third person to the insured in order to avoid liability on the policy because of a release given by the insured is Universal Credit Co. for Use of Lewallen v. Service Fire Ins. Co. 69 Ga.App. 357, 25 S.E.2d 526 (Ct.App.1943). The contention was disposed of by the observation that since the insured had brought suit against the third person charging him with negligence, therefore 'as between the parties this sufficiently established the liability of the third person' (25 S.E.2d at page 529).

Where, however, the insurance company after paying the insured on the policy sues him to recover back the amount paid because of a release given the third person there is substantial authority supporting both sides of the question as to whether the carrier must show liability, or the probability thereof, of the third person to the assured in respect of the loss or casualty. On the affirmative of the issue may be found Century Insurance Co., Ltd. v. Joachim, 17 N.J.Misc. 229, 8 A.2d 191 (Dist.Ct.1939); Hamilton Fire Insurance Co. v. Greger, 246 N.Y. 162, 158 N.E. 60, 55 A.L.R. 921 (Ct.App.1927); James v. Emmco Ins. Co., 71 Ga.App. 196, 30 S.E.2d 361 (Ct.App.1944); Pasley v. American Surety Co., 253 S.W.2d 86 (Tex.Civ.App.1952); Washington Fire & Marine Ins. Co. v. Williamson, 100 So.2d 852 (Miss.Supp.Ct.1958); Royal Indemnity Co. v. Pharr, 94 Ga.App. 114, 93 S.E.2d 784 (Ct.App.1956); Franklin Fire Ins. Co. of Philadelphia v. Weinberg, 197 App.Div. 576, 188 N.Y.S. 610 (App.Div.1921). See also Pacific Fire Ins. Co. v. Smith, 202 S.W.2d 328, 330 (Tex.Civ.App.1947); and Home Insurance Company of New York v. Smith, 235 Mo.App. 552, 140 S.W.2d 64, 68 (Ct.App.1940).

The rationale of these decisions is expressed in the leading Greger case, supra, where Judge Lehman said, for the Court of Appeals (158 N.E. at page 62):

'(T)he insurance company should recover only for the loss it has sustained by that release * * *. It must in such case show that in fact the wrong has been committed and also the damages caused thereby. In order to prove damage, it must show that in fact it might have recovered against the railroad company as a wrongdoer.'

The New York court laid to one side, unanswered, the question as to whether, if the action were one by the insured on the policy rather than by the carrier for damages for breach of the policy, it would follow those courts which hold for the carrier 'regardless of whether or not recovery might have been had against the wrongdoer if no release had been given' (158 N.E. at page 62). A dictum elucidative of the validity of the distinction between the two situations and supporting the defensive position of the carrier when sued is found in Franklin Fire Ins. Co. of Philadelphia v. Weinberg, supra (188 N.Y.S. at page 614).

Many courts permit the carrier to recover back payments made without knowledge of the fact that the insured has settled his case with the putative wrongdoer and given a release, or when that has taken place subsequently, without requiring any evidential demonstration of liability by the third person to the insured. Universal Insurance Company v. Millside Farms, Inc., 119 N.J.L. 534, 197 A. 648 (Sup.Ct.1938); Illinois Automobile Ins. Exch. v. Braun, 280 Pa. 550, 124 A. 691, 36 A.L.R. 1262 (Sup.Ct.1924); Inter Insurance Exchange of Chicago Motor Club v. Andersen, 331 Ill.App....