Southern Farm Bureau Cas. Ins. Co. v. Robinson, 5-2885

• Decision Date: 11 March 1963
• Docket Number: No. 5-2885,5-2885
• Citation: 365 S.W.2d 454,236 Ark. 268
• Parties: SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Bartis ROBINSON, Appellee.
• Court: Arkansas Supreme Court

Page 454

365 S.W.2d 454

236 Ark. 268

SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Bartis ROBINSON, Appellee.

No. 5-2885.

Supreme Court of Arkansas.

March 11, 1963.

Cockrill, Laser, McGehee & Sharp, Little Rock, for appellant.

Murphy & Arnold, Batesville, for appellee.

JOHNSON, Justice.

On August 22, 1956, appellant Southern Farm Bureau Casualty Insurance Company issued its automobile liability policy to Forrest B. Booth. The policy was in effect on May 28, 1958, when Booth had an automobile accident in Illinois. At the time Booth was driving the car and appellee Bartis Robinson was a passenger. Robinson was injured and hospitalized. Booth returned to Arkansas.

On June 30, 1958, Robinson filed suit against Booth in Illinois and on July 15, 1958, Booth received in Arkansas by registered mail a notice of the action and a copy of the process. There is evidence, controverted, that Booth did not forward the suit papers to appellant until October 10, 1958, and that it was not until September 16, 1958, that appellant learned of the Illinois action as a result of a telephone call from Robinson's attorneys. Appellant took a non-waiver agreement from Booth on October 9, 1958, and then answered, entering his appearance in the Illinois action. Thereafter on October 21, 1958, appellant filed a declaratory judgment action against Booth in the United States District Court, Eastern District of Arkansas, Northern Division, in which action appellant alleged that Booth did not deliver the suit papers to appellant as required by his policy and therefore it was not liable under the policy.

Booth did not answer appellant's complaint, and on January 6, 1959, a judgment by default was entered against Booth. On February 7, 1959, appellee filed a motion in the United States District Court to set aside the judgment and allow him to defend, which was denied.

On February 13, 1959, appellant obtained permission of the Illinois court to withdraw the answer its Illinois attorneys had filed for Booth, and Booth was given notice thereof and time in which to employ counsel and defend the action if he so desired. Booth did not file an answer, and on September 13, 1960, Robinson took a default judgment against Booth in the amount of $20,000.00 in the Illinois action. Thereafter on January 2, 1961, appellee reduced his Illinois judgment against Booth to an Arkansas judgment and an execution was issued against Booth which was returned unsatisfied.

Having exhausted his remedies against Booth, appellee then filed this suit directly against appellant in the Independence Circuit Court under the authority of Ark.Stats. § 66-526.

At trial the jury awarded appellee $5,000.00 damages, $818.94 medical expenses, no interest, and costs of $71.90. The trial court entered its judgment on October 27, 1961, for the amount of the jury award, together with interest on the Illinois judgment until it was reduced to an Arkansas judgment, interest on the Arkansas judgment, the statutory penalty, attorneys fees and costs against appellant. For reversal of that judgment, appellant relies on four points, each of which we shall consider separately.

I.

'The trial court erred in holding that the judgment of the United States District Court was not conclusive of the single factual issue in the instant action.'

Restated, this question is, 'Can a default declaratory judgment between an insurer and an insured, instituted while suit is pending in a foreign jurisdiction between the insured and an injured person, which suit the insurer is defending, destroy the rights of the injured person who was not a party to the declaratory judgment proceedings?'

When the United States District Court denied appellee's motion to set aside the judgment and allow appellee to intervene and answer, the District Court filed a Memorandum Opinion denying the motion for lack of timeliness, in which the Court stated in part:

'Aside from that, however, I would give serious consideration to granting the motion, notwithstanding the movant's lack of diligence if I felt that there was any real likelihood of his being seriously prejudiced in a subsequent action against the company on account of the entry of the default judgment. I do not believe, however, that there is any substantial danger of such prejudice. The movant has never been a party to this action and is not bound by the judgment; in my opinion he will be prefectly free, should he ultimately obtain a judgment against the insured, to litigate with the company the question of whether the insured complied with the requirements of the policy. Allstate Insurance Co. v. Thompson, D.C., Ark., 121 F.Supp. 696, 702-3.'

The manifest purpose of the 'direct action statute' (Ark.Stats. § 66-526) is to protect the rights of the injured and not the rights of the insurer or the insured. The rights of the injured arose at the time of the injury, 46 C.J.S. Insurance § 1191, p. 122, and are antagonistic to the rights of both the insurer and the insured. Under the facts here presented, it cannot be said that the insured and appellee were in privity with each other either in law or in fact.

On the specific point here in question, Professor Appleman in his comprehensive works, Insurance Law and Practice, vol. 20, § 11371, states what appears to be the general rule as follows:

'Persons who have been injured in an automobile accident are certainly proper parties to a suit by the liability insurer to determine coverage of its policy and the better rule would seem to be that they are both proper and necessary parties to the maintenance of the suit. Hence, it would be error to dismiss such person from the declaratory judgment suit. * * * However, if the court does not or cannot secure jurisdiction over them their rights cannot be destroyed by their non-appearance; nor can such rights be determined where they are not made parties to the suit.'

The rationale of this rule is sound and since the specific question here presented appears to be a case of first impression in this jurisdiction, we adopt it as our own.

Applying the rule as adopted to our consistent literal construction of the Arkansas Declaratory Judgment Act (Ark.Stats. § 34-2501 et seq.), 'When the declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding,' Johnson v. Robbins, 223 Ark. 150, 264 S.W.2d 640; Laman, Mayor, v. Martin, 235 Ark. 938, 362 S.W.2d 711, we conclude that the U. S. District Court's declaratory judgment was not res judicata as to appellee who was not a party to the action.

II.

'The trial court erred in refusing to grant appellant's motion for a directed verdict on the ground that there was no substantial evidence that insured Booth complied with the policy provisions requiring immediate delivery to the company of suit papers.'

The policy provision here referred to is Section 3 of the Conditions of the policy:

'3. Insured's Duties. The insured or someone on his behalf, shall as soon as practicable after an accident or loss:

'(a) give written notice to the Company containing all particulars;

* * *

* * *

'(c) immediately deliver to the Company all papers in connection with any claims or suits; * * *.'

Appellant forcefully argues that Booth's own testimony relative to delivery of the suit papers to the company in compliance with the policy provision was such as to fall short of fulfilling the requirement that it be substantial in nature. It is true that Booth's testimony was generally contradictory, however he consistently maintained that he 'showed' the papers to appellant's agent shortly after receiving them. Be that as it may, the policy provides that notice shall be given by the insured, or someone on his behalf. There is substantial evidence that appellant received notice of the suit and that it was not prejudiced by delay in receiving such notice. Appellee's Illinois attorney, William C. Murphy, testified that he was retained by appellee on June 8, 1958, and that on June 16, 1958, he wrote appellant's agent about appellee's claim. He exhibited a copy of his letter and the signed receipt. Suit was filed in Illinois on June 30th and service perfected on July...