Transport Indem. Co. v. Dahlen Transport Inc.
| Decision Date | 30 August 1968 |
| Docket Number | No. 40416,40416 |
| Citation | 281 Minn. 253,161 N.W.2d 546 |
| Parties | TRANSPORT INDEMNITY COMPANY, Respondent, v. DAHLEN TRANSPORT INC., et al., Appellants. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
1. A liability insurer exposed to claims on account of an accident and empowered to charge sums paid in settlement thereof up to a maximum of $5,000 to the insured as 'retrospective premium' has, in an action by the insurer to recover the payments so made, the burden of proving that the settlements were made reasonably and in good faith when the effect of the settlement payments was the elimination of possible liability on the part of the insurer for coverage in excess of $5,000.
2. If the language of a contract is ambiguous, resort may be had to extrinsic evidence in aid of construction. If the extrinsic evidence is conclusive and undisputed, the determination of the meaning of the contract is a function of the trial judge. If the extrinsic evidence is inconclusive or disputed, the uncertainty and conflict must be resolved by the triers of fact.
Peterson & Popovich, St. Paul, for appellant.
Mordaunt, Walstad, Cousineau & McGuire, Minneapolis, for respondent.
Heard before KNUTSON, C.J., and ROGOSHESKE, SHERAN, PETERSON and FRANK T. GALLAGHER, JJ.
Appeal from a judgment and from an order denying defendant's motion for a new trial.
The plaintiff, Transport Indemnity Company (hereinafter called the insurer) is an insurance company dealing primarily in insurance for the trucking industry. The defendants, Dahlen Transport, Inc., Dehlen Transport of Iowa, Inc., Trucking Properties, Inc., and Trucking Equipment, Inc. (hereinafter called the insured) are trucking companies under a common control.
An action to recover the premium due for liability insurance coverage resulted in a directed verdict for plaintiff. The insured now contends that the verdict includes the following sums 1 improperly charged to its account in determining retrospectively the amount owing by it:
(1) $14,725 paid out by the insurer as losses to persons making claims against the insured (contested in part); 2
(2) $2,550 charged by the insurer for what is termed 'unallocated expense.'
The question for decision in this court is whether the insured is entitled to question these charges and, if so, whether the trial court properly held in the insurer's favor with respect to these items as a matter of law.
A brief explanation is needed to put these questions in understandable context. Four separate policies of liability insurance were issued by plaintiff to defendants. Of the four policies, three in combination provided coverage against liability claims of a specified kind between $5,000 and $1,000,000 for each occurrence, with the premium for this coverage being a fixed percentage of the insured's gross operating revenues during the coverage period.
These three policies were supplemented by a fourth policy which affords coverage up to a maximum of $5,000 for each occurrence. It is the formula included in this fourth policy for the retrospective determination of premiums payable that gives rise to the present controversy. This so because in addition to a premium based on gross revenues, the insured assumes a premium obligation to be determined retrospectively at times fixed by the policy. That obligation, in the language of the policy, is to include '(i)ncurred losses, subject to a limit of $5,000 each occurrence and loss expense applicable under this policy.' The words 'incurred losses' are defined to mean 'net losses paid by the company.' The words 'loss expense' are defined to mean 'all adjustment expense incidental to losses reported to the company.' The sum of $14,725 to which reference has been made represents 'incurred losses' paid by the insurer under this policy during the accounting period involved. The sum of $2,550 in controversy was charged by the insurer as 'loss expense.'
1. From the inception of this litigation, the insured has contended that the premium charge based upon losses paid to persons making claims against the insured was not recoveragle by the plaintiff because 'the terms of the insuring agreement require that any such loss or expense payments must be reasonable, and that certain of those charged against it by the plaintiff were unreasonable and should not form a portion of the premium charged against it.' The responsive position of the plaintiff has been that 'the policy provisions give it the right to make the sole and exclusive determination as to the appropriateness or the propriety in the making of any payments for losses or expenses.' In view of this statement of the issue as set out in the pretrial order of Referee James R. Bettenberg, we believe, notwithstanding some confusion in the pleadings, that the issue was properly presented to the trial court and preserved for consideration by this court upon appeal.
It is not disputed that the insurer actually paid the sum of $14,725 in settlement of claims against the insured during the accounting period, and if its right to make settlement of such claims is absolute and unqualified, the insured has no basis for complaint with respect to this item.
The insurer contends that its right to make settlements under the terms of this fourth policy on behalf of the insured is absolute because by the terms of the policy it is empowered '(t)o investigate, negotiate settlement and defend suits pertinent to losses reported to the company.' It contends that this provision in the policies not only imposes on the insurer a duty to perform in the agreed manner, but also grants to it the right to decide whether to settle or defend any particular loss, citing in support of this proposition Long v. Union Ind. Co., 277 Mass. 428, 178 N.E. 737, 79 A.L.R. 1116; Bankers Ind. Ins. Co. v. A.E.A. Co., 32 N.J.Super. 471, 108 A.2d 464; Abrams v. Factory Mutual Lia. Ins. Co., 298 Mass. 141, 10 N.W.2d 82; and 7A Appleman, Insurance Law and Practice, § 4711.
It may be conceded, for present purposes at least, that an insurer does have an absolute right to settle claims made against its insured and covered by the terms of its policy when the funds of the insurer are being used to accomplish the settlement. But the situation is different where, as here, the company in settling claims for amounts up to a maximum of $5,000 for each occurrence is entitled to charge the amount of such incurred losses paid by it to the account of the insured as a retrospective premium. In effect, therefore, the insurer is making settlement of this category of claims with the insured's money. In substance, it is acting as the insured's agent for the purpose of investigating and settling claims which with respect to any one occurrence do not exceed $5,000.
If the fourth policy were the only one involved, the case would be one where, in effect, an agent had advanced money for his principal in conformity with written authority. In such event, arguably, the agent should recover the advancement unless the principal establishes affirmatively 3 that the payments were made in violation of a duty of loyalty and good faith 4 which such a relationship implies. But the problem at hand is not that simple. Under the policies in combination, the insurer has an excess exposure whenever a claim is asserted against the insured and for that reason its judgment in making these settlements raises to some extent a conflict of interest.
An illustration will clarify the point. Assume a person sustains personal injuries by reason of the conduct of the insured under circumstances covered by the four policies and makes a claim against the insured. Unless the claim is settled, the amount to which the claimant is entitled will be uncertain until finally determined, possibly by a jury. So long as this claim does not result in a judgment against the insured exceeding the sum of $5,000, the insurer has no involvement except that resulting from its obligation to investigate, negotiate settlement, and defend. Anything it pays voluntarily or under legal compulsion up to a maximum of $5,000 on account of one accident can be charged to the insured as retrospective premium. But if this claimant should ultimately recover an amount in excess of $5,000, the insurer (so long as the total amount does not exceed $1,000,000) must pay...
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