Sandoval v. Chenoweth

• Decision Date: 25 May 1967
• Docket Number: No. 7890--PR,7890--PR
• Citation: 102 Ariz. 241,428 P.2d 98
• Parties: Oscar SANDOVAL and Financial Indemnity Company, Appellants and Cross-Appellees, v. Chester A. CHENOWETH, Appellee and Cross-Appellant.
• Court: Arizona Supreme Court

Page 98

428 P.2d 98

102 Ariz. 241

Oscar SANDOVAL and Financial Indemnity Company, Appellants and Cross-Appellees, v. Chester A. CHENOWETH, Appellee and Cross-Appellant.

No. 7890--PR.

Supreme Court of Arizona, In Banc.

May 25, 1967.

Rehearing Denied July 6, 1967.

O'Connor, Anderson, Westover, Killingsworth & Beshears, by John P. Otto, Phoenix, for appellants and cross-appellees.

Gibbons, Kinney & Tipton, by Charles A. Ditsch, and Leland Featherman, Phoenix, for appellee and cross-appellant.

Samuel Langerman, Phoenix, for amicus curiae American Trial Lawyers Assn.

McFARLAND, Vice Chief Justice:

Chester A. Chenoweth has petitioned for and been granted review of the decision of the Arizona Court of Appeals in the case of Sandoval v. Chenoweth, 2 Ariz.App. 553, 410 P.2d 671. For purposes of convenience plaintiff in the trial court, Chester A. Chenoweth, will be hereinafter referred to as plaintiff; the defendant, Oscar Sandoval, as defendant; and defendant's insurer, Financial Indemnity Co., will be referred to as Financial.

This action arises out of an automobile accident which occurred on August 22, 1960, in which it is alleged that defendant ran a red light and collided with plaintiff's automobile, causing plaintiff injury and damages in the amount of $35,000. Defendnat notified his insurer, Financial, of the accident, and thereafter, plaintiff and Financial's adjusters negotiated at length in order to effect a settlement of plaintiff's claims. The attempts at settlement failed, and plaintiff brought suit. Defendant was served with process on April 4th, 1961, but did not notify Financial. On May 10, 1961, default judgment was entered against defendant in the sum of $35,000. A writ of garnishment in this amount was served on Financial on July 27, 1961. Although it is alleged that plaintiff told the adjusters he was going to sue, it is undisputed that Financial had no notice of the filing of the suit until after the default judgment was entered.

In the subsequent garnishment action Financial defended on the ground that defendant had breached the conditions of his policy in that he had failed to notify Financial of the filing of the suit, and therefore Financial owed defendant nothing.

The policy condition provided as follows:

'* * * 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 representatives.'

On cross motions for summary judgment the trial court granted summary judgment in favor of plaintiff in the amount of $5,000. The trial court then granted summary judgment against plaintiff and in favor of Financial for all sums in excess of $5,000. In so doing, the court must necessarily have determined that the 'policy defense' of failure of notice of suit is not available to an insurer, under the Financial Responsibility Law, A.R.S. § 28--1101, et seq.

As both plaintiff and Financial have appealed from the Superior Court, we will treat Financial's appeal first, and deal with plaintiff's cross appeal later in this opinion.

Financial contends the trial court erred for the reason that the provisions of the Arizona Financial Responsibility Act are not applicable in the instant case.

The holding of the trial court has been buttressed by the subsequent decision and opinion of this court in Jenkins v. Mayflower Insurance Exchange, 93 Ariz. 287, 380 P.2d 145, wherein we held in a unanimous opinion that the 'omnibus clause' is a part of every motor vehicle liability policy, by whatever name it may be called. In so holding we refused to consider distinctions between the terms 'motor vehicle liability policy,' 'automobile liability policy' or 'policy of insurance.' The Mayflower case was founded on our holding in Schecter v. Killingsworth, 93 Ariz. 273, 380 P.2d 136, wherein we said:

'The Financial Responsibility Act has for its principal purpose the protection of the public using the highways from financial hardship which may result from the use of automobiles by financially irresponsible persons.' 93 Ariz. at 280, 380 P.2d at 140

In Schecter v. Killingsworth, supra, we further stated that the primary purpose of the Financial Responsibility Act was 'the providing of security against uncompensated damages arising from operation of motor vehicles on our highways.' The foregoing statements were quoted and relied upon in Jenkins v. Mayflower, supra, and the two cases, when read in conjunction, fully express the public policy of this state in regard to judicial implementation of the Financial Responsibility Act. The holding of Jenkins v. Mayflower that a restrictive endorsement negating coverage could not be relied on by the insurer where it conflicted with the coverage required by the omnibus clause read into Every automobile liability policy by the Financial Responsibility Act, was reiterated by this court in Pacific Indemnity Co. v. Hamman Wholesale Lumber and Supply Co., Inc., 95 Ariz. 362, 390 P.2d 897.

Counsel for Financial ask that we overrule Jenkins v. Mayflower. The cases cited do not differ in reason nor authority from those cited and considered by this court in arriving at our decision. Jenkins v. Mayflower, supra, 93 Ariz. at 290, 380 P.2d at 147. Our decision in that case was arrived at after mature consideration. The result is just and equitable, as it alleviates to a large degree the suffering and injustice rendered an innocent injured party by the assertion of an insurer's defense based on a technicality over which he had no control.

Counsel and amicus urge in behalf of plaintiff that several attempts have been made to change the effect of the Mayflower decision by legislative enactment and that the Legislature has refused to act. We do not feel this to be grounds for either reaffirming or overruling Mayflower. However, we do recognize that if the law is to be changed, the objectives of the Financial Responsibility Law as interpreted in Schecter v. Killingsworth and Mayflower should be changed by the Legislature.

The Supreme Court of California in Interinsurance Exchange Of Automobile Club of Southern California v. Ohio Casualty Insurance Company, 58 Cal.2d 142, 23 Cal.Rptr. 592, 373 P.2d 640, subsequent to a legislative amendment making their financial responsibility law even more akin to that of this state, re-affirmed the rule of public policy announced in Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 307 P.2d 359, cited in Mayflower. In doing so, the court stated:

'* * * (T)he Entire automobile financial responsibility law must be liberally construed to foster its main objective of giving 'monetary protection to that ever changing and tragically large group of persons who while lawfully using the highways themselves suffer grave injury through the negligent use of those highways by others.' To hold that the 1957 legislation abrogated the rule of Wildman, would violate this rule of liberal construction and would be contrary to the trend indicated in recent legislative and judicial determinations involving the Vehicle Code. * * *' 373 P.2d at 646.

In the absence of any showing of injustice or a legislative change of public policy, we find no reason to depart from the established law of the state and the doctrine of stare decisis. The social and economic problems arising from the ever mounting easualty rate on our streets and highways are even more persuasive today than at the time of the enactment of the financial responsibility law or the decision in Mayflower.

Our holding in Jenkins v. Mayflower Insurance Exchange is reaffirmed.

Under the rule expressed in Mayflower, the provisions of the Financial Responsibility Law are applicable to the facts of the instant case whether or not the policy would be technically classed as a 'certified' policy. A.R.S. § 28--1170 expressly states as follows:

'F. Every motor vehicle liability policy shall be subject to the following provisions which need not be contained therein:

'1. The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute when injury or damage covered by the motor vehicle liability policy occurs. The policy may not be cancelled or annulled as to such liability by an agreement between the insurance carrier and the insured after the occurrence of the injury or damage, and no statement made by the insured or on his behalf And no violation of the policy shall defeat or void the policy.' (Emphasis added.)

In the light of the Mayflower decision, the foregoing statutory provision is controlling in the instant case. Financial contends, however, that the effect of this statute, when applied to the facts of the instant case, will result in a denial of due process violative of Art. II, § 4, of the Arizona Constitution, A.R.S. and of the Fourteenth Amendment of the Constitution of the United States of America. The elements of due process in regard to notice and right to a hearing have previously been set forth by this court in Phoenix Metals Corporation v. Roth, 79 Ariz. 106, 284 P.2d 645, as follows:

"The essential elements of due process of law are notice and an opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the case before a tribunal having jurisdiction of the cause. * * *" 79 Ariz. at 109, 284 P.2d at 647.

In the instant case, Financial was notified of the claim against them but was not notified that suit had been filed against defendant. Default judgment was entered on May 10th, 1961, and counsel for Financial first learned of the default judgment on or about May 29th, 1961, when Financial's adjusters forwarded a letter from plaintiff's counsel.

It was not until August 9, 1961, more than nine weeks after being informed of the suit, that a motion was made to set aside the default. The motion to set aside was denied on September 27, 1961. After Financial was notified of the default judgment, but before...