Stephens v. Allied Mut. Ins. Co.

Decision Date02 February 1968
Docket NumberNo. 36651,36651
Citation182 Neb. 562,156 N.W.2d 133
Parties, 26 A.L.R.3d 873 Robert P. STEPHENS, Appellee, v. ALLIED MUTUAL INSURANCE COMPANY, a Corporation, Appellant.
CourtNebraska Supreme Court

Syllabus by the Court

1. An insurance policy should be construed as any other contract to give effect to the intent of the parties at the time it was made.

2. The language of an insurance contract should be considered not in accordance with what the insurer intended the words to mean, but what a reasonable person in the position of insured would have understood them to mean. If the contract was prepared by the insurer and contains provisions reasonably subject to different interpretations, one favorable to the insurer and one advantageous to the insured, the one favorable to the latter will be adopted.

3. A provision drawn by the insurer to comply with the statutory requirement of uninsured motorist coverage must be construed in light of the purpose and policy of the statute.

4. The purpose of such a statute or provision is to give the same protection to the person injured by an uninsured motorist as he would have had if he had been injured in an accident caused by an automobile covered by a standard liability policy.

5. The insolvency of a tort-feasor's insurance carrier occurring subsequent to an accident, with a consequent refusal or inability of the carrier to defend or pay a judgment or claim resulting therefrom for which the tort-feasor has become liable, constitutes a 'denial of coverage' within the meaning of such provision in the uninsured motorist clause of the insured's policy.

6. A provision in an automobile liability policy that an insurer shall not be obligated to pay under uninsured motorist coverage for that part of the damages which the insured may be entitled to recover from the owner or operator of an uninsured automobile which represents expenses for medical services paid or payable under the medical payments coverage of the policy is void and against public policy in that it reduces the minimum coverage of uninsured motorist protection prescribed and required by the law.

7. Uninsured motorist coverage in an insurance contract is in the nature of a substitute liability or guaranty contract, and recovery thereon permits the allowance of attorney's fees under section 44--359, R.R.S.1943.

8. The amount of the allowance of the attorney's fees generally rests in the sound discretion of the court, considering the applicable elements involved therein.

Wilson, Barlow & Watson, Lincoln, for appellant.

Mattson, Ricketts & Gourley, Lincoln, for appellee.

Heard before WHITE, C.J., and CARTER, SPENCER, BOSLAUGH, SMITH, McCOWN and NEWTON, JJ.

WHITE, Chief Justice.

The plaintiff sues his own insurer for recovery under the uninsured motorist provision of his automobile liability policy. The primary question is whether the insolvency or the failure to defend or pay a claim subsequent to the accident by a tort-feasor's liability carrier constitutes a denial of such coverage by the tort-feasor's carrier thereby invoking the liability of the plaintiff's carrier under the uninsured motorist clause. The district court found for the plaintiff on this issue and we affirm the judgment.

Plaintiff, on November 17, 1964, was negligently injured by tort-feasor Russell in an automobile accident. Russell was insured on that date by Royal Standard Insurance Company (hereinafter referred to as Royal Standard). Royal Standard was notified but, in effect, did nothing. On April 5, 1965, Royal Standard became insolvent and was placed in receivership.

Plaintiff had been in correspondence with Royal Standard. The defendant's files indicated a request by Royal Standard for plaintiff's bills and a valuation of the claim. The defendant, in a letter of August 17, 1965, reviewed this situation and notified the plaintiff it denied liability. Plaintiff then sued Russell for damages and recovered a valid default judgment in the sum of $50,000 on September 28, 1965. A claim in this amount was filed with the receiver of Royal Standard, which was allowed in the amount of $5,000. Subsequently, on November 17, 1965, this action was filed and is before this court on the sustaining of a motion for summary judgment in favor of plaintiff in the sum of $10,000, which is the policy limit under the plaintiff's uninsured motorist coverage on his policy for which a separate premium was paid by him. Our Nebraska statute (section 60--509.01, R.S.Supp., 1965), requiring uninsured motorist coverage, does not define the term 'uninsured motorist.' Therefore the terms of the policy in this respect are controlling. The family protection coverage (uninsured motorist) endorsement in the policy defining an uninsured automobile is as follows:

'(c) 'uninsured automobile' means:

'* * * an automobile with respect to the * * * use of which there is * * * no bodily injury liability bond or insurance policy applicable at the time of the accident * * * or with respect to which there is a bodily injury liability bond or insurance policy applicable at the time of the accident but the company writing the same denies coverage thereunder * * *.'

In construing an insurance policy, such as in the present case, the following basic principles are applicable: "An insurance policy should be construed as any other contract to give effect to the intent of the parties at the time it was made.' Koehn v. Union Fire Ins. Co., 152 Neb. 254, 40 N.W.2d 874, 878. See, also, Rathbun v. Globe Indemnity Co., 107 Neb. 18, 184 N.W. 903, 24 A.L.R. 191.

"The language should be considered not in accordance with what the insurer intended the words to mean, but what a reasonable person in the position of insured would have understood them to mean. If the contract was prepared by the insurer and contains provisions reasonably subject to different interpretations, one favorable to the insurer and one advantageous to the insured, the one favorable to the latter will be adopted.' Koehn v. Union Fire Ins. Co., supra. See, also, 29 Am.Jur., Insurance, § 166, p. 180.' Lonsdale v. Union Ins. Co., 167 Neb. 56, 91 N.W.2d 245.

The controlling question is whether the subsequent insolvency of the tort-feasor's insurance company or its failure to defend the claim or pay the judgment constitutes a 'denial of coverage' within the meaning of this clause in the insurance contract.

A provision, drawn by the insurer to comply with the statutory requirement of uninsured motorist coverage, must be construed in light of the purpose, and policy of the statute. Such a provision, drawn in pursuance of a statutorily declared public policy, is enacted for the benefit of injured persons traveling on the public highways. Its purpose is to give the same protection to the person injured by an uninsured motorist as he would have had if he had been injured in an accident caused by an automobile covered by a standard liability policy. Such provisions are to be liberally construed to accomplish such purpose. 7 Am.Jur.2d, Automobile Insurance, s. 135, p. 460; Bryant v. State Farm Mutual Automobile Ins. Co., 205 Va. 897, 140 S.E.2d 817; Storm v. Nationwide Mutual Ins. Co., 199 Va. 130, 97 S.E.2d 759, 69 A.L.R.2d 849; Travelers Indemnity Co. v. Kowalski, 233 Cal.App.2d 607, 43 Cal.Rptr. 843; Mills v. Farmers Ins. Exchange, 231 Cal.App.2d 124, 41 Cal.Rptr. 650; State Farm Mutual Automobile Ins. Co. v. Brower, 204 Va. 887, 134 S.E.2d 277.

By its terms, the policy provision extends the coverage beyond the mere existence of an insurance contract at the time of the accident. It is to be assumed, considering the separate premium charge and the remedial and public policy purpose of the statute, that the voluntary inclusion of this clause by the defendant-insurer itself was intended to make the coverage effectual rather than merely nominal.

The uninsured motorist on the highway is a real risk. He is a real risk because of his probable inability to pay or respond for damages for negligent driving. The purpose of the statute and this particular clause is to eliminate that risk. To subdivide or apportion this risk and to make it dependent upon the whimsical uncertainty of solvency of an unidentified and uncertain tort-feasor insurance carrier is both unrealistic and unreasonable. It invokes an entirely unrelated and undeterminable factor that mitigates and lessens the accomplishment of the purpose of the statute and the area of effectual coverage sought to be reached by the voluntary inclusion of the clause in the insuring provision. The majority rule, almost without contradiction, is that where uninsured motorist statutes or policy provisions have defined an uninsured motorist in the same language as was used in the present policy, subsequent insolvency of an insurer constitutes a denial of coverage within the meaning of the provisions of the policy or statute. State Farm Mutual Automobile Ins. Co. v. Brower, supra; North River Ins. Co. v. Gibson, 244 S.C. 393, 137 S.E.2d 264; Katz v. American Motorist Ins. Co., 244 Cal.App.2d 886, 53 Cal.Rptr. 669; Pattani v. Keystone Ins. Co., 426 Pa. 332, 231 A.2d 402.

The identical issue presented in this case was decided by the Pennsylvania Supreme Court (June 29, 1967) in Pattani v. Keystone Ins. Co., supra. The Pennsylvania uninsured motorist statute, as in Nebraska, did not define the term, and the policy provisions were the same as in the present case. The Supreme Court of Pennsylvania held '* * * that insolvency of the tort feasor's carrier occurring subsequent to the accident, and the consequent refusal or inability of that carrier to defend or pay judgments to which its insured has become liable, constitutes a denial of coverage within the uninsured motorist provision of the insured's policy and entitles the other insured to proceed in accordance with his own insurance policy.' These cases illustrate, and reason dictates, that at a minimum a policy provision which...

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