Travelers Ins. Co. v. Godsey

Decision Date04 February 1971
Docket NumberNo. 259,259
Citation273 A.2d 431,260 Md. 669
CourtMaryland Court of Appeals

H. Thomas Sisk, Rockville (Carr, Scott, Thompson & Diguguid, Rockville, and William N. Rogers on the brief), for appellant.

George W. Shadoan, Rockville (Shadoan & Mack, Rockville on the brief), for appellees.

Argued before HAMMOND, C. J., and BARNES, SINGLEY, SMITH and DIGGES, JJ.

HAMMOND, Chief Judge.

Linda Godsey, an infant who was a passenger in an automobile which struck another car, sued Karl Doepel, an infant who occupied the driver's seat of the car in which she was riding. He was an insured under a policy issued by the Travelers Insurance Company, the appellant. Travelers furnished the defense in Godsey's suit against Doepel as its policy required. The jury returned a verdict for Godsey in the amount of $28,500. Travelers had earlier refused to settle for $16,000, the limit of the policy, but after the verdict it arranged with Godsey to have entered a consent judgment for $16,000. Travelers says this was to protect Doepel against liability for the $12,500 excess of the verdict over the coverage; Godsey says it was to protect Travelers from claim by Doepel that it was liable to pay the $12,500 because it had unreasonably failed to settle for the policy limit. Either or both may be right but in any event Travelers issued two drafts in payment of the consent, judgment, one for $1,000 and one for $15,000, each payable to Godsey, her mother and her lawyer. Before the drafts were cashed, Travelers stopped payment, having just then found out fortuitously that the account of the accident and its cause that Godsey and Doepel had given its investigators and its lawyer and to which they had testified at the trial were in material and prejudicial variance with the facts. Each of them had said that Doepel was driving and Godsey was sitting on the console between the front seats when suddenly and unexpectedly the brakes failed. The later information furnished Travelers, the truth of which it became convinced, was that Doepel and Godsey were playing a game entitled 'chicken' which called for Doepel in the driver's seat to face the rear and talk to those on the back seat, while operating the foot pedals, and for Godsey, sitting on the console, to grasp the wheel and steer the car.

Travelers claims that Godsey and Doepel agreed that she would accept recovery only to the extent of the insurance coverage and not collect from Doepel, and that in furtherance of this aim they fraudulently colluded in withholding the true facts and in substituting a version of the accident that would bring about a settlement or verdict in her favor, and that this was a breach of Doepel's obligation to cooperate in the defense of the claim against him, which released the insurer from liability under its policy, since the tort judgment creditor's rights do not rise above those of the insured tort-feasor.

Travelers moved to set aside the consent judgment and Godsey opposed the move. Travelers then withdrew its motion, its lawyer withdrew from the case, and the consent judgment became final.

The three payees of the drafts brought suit for $16,000 based on the dishonoring of the drafts. Judge Miller granted the plaintiffs' motion for summary judgment, brushing aside the matters of the conduct of Godsey and Doepel and the question of whether the tort judgment effected a collateral estoppel on the insurer, holding that Travelers had agreed to pay $16,000 for a $28,500 judgment and was bound under that contract to pay the drafts since no fraud in the inducement of its choice to so contract had been shown.

Once more we are presented a bobtailed record which does not include the insurance policy and contains nothing as to the tort case except statements of the parties. Nevertheless, we think there is enough before us to require reversal of the summary judgment so that Travelers can have a day in court in which to prove, if it can, its allegations of fraud and collusion that would excuse it from liability under its policy.

It seems to be conceded that the cooperation clause in the policy does not vary significantly from the standard provisions in such policies. The contractual obligation to cooperate with the insurer includes the obligation to make a fair, frank and truthful disclosure to the insurer for the purpose of enabling it to determine whether or not there is a defense, and the obligation, in good faith, both to aid in making every legitimate defense to the claimed liability and to render assistance in the trial. United States Fid. & Guaranty Co. v. Williams, 148 Md. 289, 304-306, 307, 129 A. 660; Farm Bureau Mut. Automobile Ins. Co. v. Garlitz, 180 Md. 615, 618-619, 26 A.2d 388; Indemnity Ins. Co. of North America v. Smith, 197 Md. 160, 164-165, 78 A.2d 461; Fid. & Cas. Co. v. McConnaughy, 228 Md. 1, 7, 179 A.2d 117. McConnaughy held that to avoid liability under the policy the insurer must show prejudice resulting from the failure to cooperate, and changed the earlier Maryland rule that, at least in instances of noncooperation by misleading, prejudice need not be shown. After this Court shortly thereafter held in Watson v. U. S. F. & G. Co., 231 Md. 266, 189 A.2d 625, that failure of the insured to give notice of the accident enabled the insurer to avoid liability without showing prejudice, the legislature at its next session enacted § 482 of Art. 48A of the Code which now provides that:

'Where an insurer seeks to disclaim coverage on any policy of liability insurance issued by it, on the ground that the insured or anyone claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer shall be effective only if the insurer establishes, by a preponderance of affirmative evidence that such lack of cooperation or notice has resulted in actual prejudice to the insurer.'

See State Farm Mutual Automobile Ins. Co. v. Hearn, Adm'x, 242 Md. 575, 582, 219 A.2d 820; Home Indemnity Company v. Walker, Md., 273 A.2d 429 (1971).

We have no doubt that a deliberate misleading of the insurer by the insured in collaboration with the claimant to make it appear that the claimant was free from negligence or assumption of the risk when in fact he clearly had been negligent or clearly had assumed the risk, would be a fraudulent violation of the obligation to cooperate that would excuse the insurer from liability under its contract to indemnify its insured. 8 Appleman, Insurance Law and Practice §§ 4779 and 4782 (1942); Hardware Mut. Casualty Co. v. Mitnick, 180 Md. 604, 608, 26 A.2d 393; Farm Bureau Mut. Automobile Ins. Co. v. Garlitz and Fid. & Cas. Co. v. McConnaughy, both supra; Medico v. Employers' Liability Assur. Corporation, 132 Me. 422, 172 A. 1; Employers Mutual Cas. Co. v. Nelson, 109 N.H. 6, 241 A.2d 207, 210-211; Bertinelli v. Galoni, 331 Pa. 73, 200 A. 58, 60; State Farm Mutual Automobile Ins. Co. v. Shelton (Ky.), 368 S.W.2d 734, 737; Manning v. State Farm Mutual Automobile Insurance Co. (W.D.N.C.), 235 F.Supp. 615, 617-618; Storer v. Ocean Accident & Guarantee Corporation (6th Cir.), 80 F.2d 470, 472; Great American Insurance Co. of New York v. Dennis (W.D.Ky.), 203 F.Supp. 482.

The Maryland cases we have cited earlier make it plain that the right of the injured claimant to collect from the insurer of the one who harmed him derives from the contract right of the tortfeasor to have the insurer pay for him within the policy limit what otherwise he would be liable to pay. As the third party...

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