Ross v. Am. Employers' Liab. Ins. Co.

• Decision Date: 06 July 1897
• Parties: ROSS et al. v. AMERICAN EMPLOYERS' LIABILITY INS. CO.
• Court: New Jersey Court of Chancery

38 A. 22

56 N.J.E. 41

ROSS et al.

v. AMERICAN EMPLOYERS' LIABILITY INS. CO.

Court of Chancery of New Jersey.

July 6, 1897.

Bill by P. Sanford Ross and others against the American Employers' Liability Insurance Company for appointment of a receiver. Heard on application of the receiver for instructions as to payment of dividends.

R. V. Lindabury, pro se.

Carroll Robbins, for Virginia policy holders.

Hamilton Wallis, for one class of policy holders.

William H. Corbin, for another class.

William D. Edwards and Mr. Proctor, for certain claimants.

PITNEY, V. C. This is an application upon petition by the receiver of the insolvent corporation defendant, upon notice to all the creditors, for instructions in the matter of paying a dividend, as to what creditors shall share in it. All the creditors had notice of the application, and many of them appeared by counsel. Three questions were presented:

1. The insolvent corporation issued several kinds or classes of policies of insurance. One class of insurance was by a policy called an "Employers' Liability Policy" to employers, insuring against their liability for accidents happening to employes. In this policy the undertaking is expressed in the following language: "That said company will pay to the insured all damages with which the insured may be legally charged under the common law or any statute (not exceeding the amounts hereinafter limited) for or by reason of any accidental injuries, fatal or otherwise, happening to any employe or employes of the insured," etc. Another policy issued by the company is called a "Railroad Liability Policy," and was issued to railroads, in which the covenant is: "That said company will pay to the insured, or their legal representatives, all damages with which the insured may be legally charged, or which the insured may be required to pay (not exceeding the amounts hereinafter limited, for or by reason of any liability on account of injuries inflicted upon the person or property of any person or persons whomsoever while traveling on the railroad of the insured," etc. Another class of policies was issued to owners of steam boilers, and another to owners of elevators, for injuries occurring in their operation. But no question arises under either. The first question arises under the "employers' liability" policies and the "railroad liability" policies. In these policies provision is made for the service of notice by the insured upon the insurer of claims for damages for accidents, and an opportunity given to the insurer to defend the same. Two classes of claims have been audited and adjusted by the receiver: First, those in which the accident happened, claim made, and judgment recovered against the insured before the decree of insolvency; second, those in which the accident happened before the decree of insolvency, but in which the claim was made and allowed, or judgment recovered on it, after the decree of insolvency. It is urged on behalf of the first class that by the true construction of the policy it should have priority, and be paid out of the assets of the insolvent corporation before any of the other claims are paid. The argument in support of this is as follows: That by the decree of insolvency all liability by the insolvent company as insurer from that time on ceases, and the assets of the company must be divided in accordance with the doctrine of Vanatta v. Insurance Co., 31 N. J. Eq. 23; s. c, sub nom. Mayer v. Attorney General, 32 N. J. Eq. 815; and Duryee v. System Co., 19 N. J. Law J. 18; on appeal, sub nom. Gray v. Reynolds (N. J. Err. & App.) 37 Atl. 461. The ground taken is that the person injured is not insured, but that the person liable for the injury is insured, and that the liability of the insurer to the insured arises only after the insured is "legally charged" (in the language of the covenant above quoted) with liability on account of the accident; or, as put by the brief of counsel: "In all these cases two things must coexist before any liability arose upon the policy of the defendant corporation: (1) There must have been an injury to some person, and (2) by reason of such injury the insured must have been legally charged with or required to pay something." Or, in other words, the happening of the accident for which the party insured was ultimately held liable did not fasten any liability on the insurer, but that such liability on the part of the insurer arose entirely out of the recovery of judgment by the injured party against the insured party, whereby he became "legally charged." I am unable to adopt this doctrine. The vice of the argument in support of it is that it treats the liability of the insured in the matter as depending not upon the intrinsic character of the accident, but entirely upon the question of whether or not a judgment shall be rendered against it thereon; precisely as the question of liability on a policy of life, fire, or marine insurance is dependent entirely upon the actual occurrence,—the death of the party, of the fire, or the actual shipwreck. The recovery of the judgment against the insured by the injured party is not the injury against which the insurer insures him, but it is the liability for the consequences of the accident against which he is insured, and of which liability the judgment is a mere test or mode of proof. In fact, the recovery of the judgment is a mere mode by which the insured proves to the insurer that the intrinsic character of the accident was such that he was liable for the consequences of it. In this respect the judgment resembles the proof of loss to be furnished to an ordinary insurer against fire or shipwreck before action brought, or proof of death in case of life...