United Pac. Ins. Co. v. Schetky Equipment Co.

• Decision Date: 29 July 1959
• Citation: 342 P.2d 766,217 Or. 422
• Parties: UNITED PACIFIC INSURANCE COMPANY, a corporation, Appellant, v. SCHETKY EQUIPMENT COMPANY, Respondent.
• Court: Oregon Supreme Court

Page 766

342 P.2d 766

217 Or. 422

UNITED PACIFIC INSURANCE COMPANY, a corporation, Appellant, v. SCHETKY EQUIPMENT COMPANY, Respondent.

Supreme Court of Oregon, Department 2.

Argued and Submitted July 9, 1959.

Decided July 29, 1959.

John L. Schwabe, Portland, argued the cause for appellant. With him on the briefs were Mautz, Souther, Spaulding, Denecke & Kinsey, James B. O'Hanlon, and Douglas M. Thompson, Portland.

Robert R. Rankin, Portland, argued the cause for respondent. With him on the brief was Malcolm J. Montague, Portland.

Before McALLISTER, C. J., and LUSK, SLOAN and MILLARD, JJ.

SLOAN, Justice.

On July 23, 1952, plaintiff issued a policy of insurance to School District 21J, Marion County. The policy required plaintiff 'To pay for loss or damage to the automobile * * * caused (a) by fire * * *.' The 'automobile' was a school bus owned by the district. The policy period expired July 23, 1953. In late June of 1953 the district delivered the insured bus to defendant for extensive repair. On July 1, 1953, the bus was damaged by fire at defendant's place of business. For the purpose of this appeal we will consider the fire to have been caused by defendant's negligence. The trial court so found and there is substantial evidence to support the finding.

The contract between the district and defendant for the original repair of the bus leaves no doubt that the defendant occupied the status of a bailee. 8 C.J.S. Bailments § 27(3), p. 274. It is conceded that defendant owed the district the duty to return the bus in as good a condition as it received it. Its negligent conduct which caused the fire and damage to the bus rendered the defendant liable to the district for that damage. National Fire Ins. Co. v. Mogan, 186 Or. 285, 206 P.2d 963. The plaintiff was notified of the fire loss and, in proper time, proof of loss for the damage was submitted to plaintiff by the district.

In the meantime there occurred the peculiar arrangement which fomented this lawsuit. The defendant sought and obtained the permission of the district to repair the damage to the bus caused by the fire. At that time the defendant did not notify the district that it intended to make the repair at the cost of the district. The evidence discloses that when defendant was seeking permission from the district to repair the bus nothing was said with reference to any payment for repairing the fire damage. The clerk and the chairman of the district board testified that the defendant made no mention of holding the district for the cost of the repair. The clerk also testified: 'he [Mr. Schetky] told us that we had nothing to worry about, that it would be taken care of.' In fact it is significant that, after the repair was under way, the defendant, by Mr. John Schetky, an officer of the company, mentioned to the district board that to repaint only the part damaged by the fire would spoil the appearance of the bus. He suggested to the board that the remainder of the bus be painted at the cost of the district. This the district agreed to do. Again, on that occasion, the defendant made no mention that it expected the district to pay any part of the actual repair of the fire damage. Defendant did repair the bus and returned it to the district early in September, 1953. The delivery of the bus was followed about a month later by a bill from defendant to the district for the cost of the fire damage repair. It is pertinent to mention that the bill for the mechanical repair of the bus originally authorized for which it was taken to defendant's place of business was receied immediately after the delivery of the bus to the district in early September. The bill for the fire damage repair was not received until after October 13, 1953. The unexpected arrival of this bill started the chain reaction culminating here.

We will not elaborate on the negotiations and events that followed. The plaintiff had investigated the cause of the fire and had concluded that it was caused by the neglect of defendant. When, therefore the defendant presented its bill for the repair, the plaintiff requested the district to refuse to pay the defendant and submit to a lawsuit, if necessary, to determine the liability of the defendant to the district. The plaintiff agreed to bear all the cost and hold the district harmless. The defendant, of course, denied its negligence. This situation continued until March or April of 1954. In the meantime defendant and its attorneys were active in demanding payment from the district and in stimulating the district to demand payment of the loss from plaintiff. We mention one action of defendant to indicate the size and kind of 'needle' it was using on the plaintiff. This is important for later mention. On December 14, 1953, Mr. Schetky, an officer of the defendant company, came to the home of the school district clerk. He there wrote in his own hand a letter to the state insurance commissioner. This letter purported to be from the district school board and the clerk was induced to sign it. The letter reviewed the events we have described and sought the assistance of the insurance commissioner in forcing plaintiff to pay defendant's bill for the fire damage. Some of the language of the letter is material to the outcome of this case, bearing in mind that it was actually written by Schetky and not by the officer of the district:

'We are writing this letter because we think United Pacific should pay Schetky Equipment Corp. as our policy covers all fires on our busses and then let United Pacific Insurance Company sue Schetky Corporation if they want to. We members of the School Board are all very busy and would hate to leave our farms and businesses all the time for a court trial, which United Pacific recommends.' (Italics ours.)

It is interesting to note that in answer to this letter the insurance commissioner responded by advising the district he had investigated the matter and recommended that the district comply with the request of plaintiff and submit to legal action.

Nevertheless, the pressure continued and finally plaintiff, as its policy bound it to do, delivered its draft to and payable to the school district in the sum of $2,161.43, the amount of defendant's bill to the district. It should also be mentioned that this draft was delivered following a letter to plaintiff from the district dated March 12, 1954. This letter advised plaintiff that at a meeting of the district board held the day before it was decided to demand payment from plaintiff on the policy. The letter also stated:

'The board does not approve being sued by any concern and is of the opinion that the insurance representative should handle the matter. The directors would be willing to assign subrogation rights.' (Italics ours.)

The subrogation rights were assigned to plaintiff although this was unnecessary. The contract of insurance reserved such rights to plaintiff and it was entitled thereto as a matter of law. National Fire Ins. Co. v. Mogan, supra, 186 Or. 295, 206 P.2d 963. The district endorsed the draft to defendant and delivered it thereto. Plaintiff made demand upon defendant for reimbursement of its loss. Defendant refused and this action followed.

The trial court found as a matter of law that when plaintiff paid the district it 'was acting as a mere volunteer, not only permitting but authorizing money to be paid to the defendant whom plaintiff claims was guilty of negligence,' and that 'Plaintiff by said voluntary payment waived its right to any recovery of payments made and is now estopped from any recovery thereof.' The court did find, however, that plaintiff acquired subrogation rights against defendant, and, as we have mentioned, that the fire damage was caused by defendant's negligence.

The evidence we have thus far recited is sufficient to indicate that the payment made by plaintiff was not 'voluntary,' either in law or fact. In fact, it is most anomalous, to say the least, that defendant can now contend that the payment was voluntary when it was the goading of the district by defendant which caused the district to demand payment under the contract of insurance; particularly when defendant knew and requested that the payment was to be accompanied by subrogation of the right of action possessed by the school district. However, the 'insurer is not a volunteer if he sees fit to pay in discharge of an existing legal duty * * *.' Vance on Insurance (2d Ed.) 673, §§ 175-177. Plaintiff 'is not officious [volunteer] where he was under a duty to make the payment, as for example where he was a surety.' Restatement, Restitution, Comment to § 162, Subrogation p. 655. Western Casualty & Surety Co. v. Milwaukee General Const. Co., 213 Wis. 302, 251 N.W. 491. Can it be said that the plaintiff 'not only permit[ted] but authorize[d] money to be paid to the defendant * * *.' The evidence does not warrant such a finding or conclusion. It is contended that this authority or permission was extended by a letter transmitting the draft to the district by a local agent of plaintiff and by the fact that plaintiff knew, when it forwarded its draft, that it was to be delivered to defendant. The evidence cannot be so construed. The finding is contrary to the terms by which the payment was made.

The letter of demand by the district, which we have mentioned, provides the payment would be made and received on condition of subrogation of all existing rights. In fact this was clearly understood by all the parties, as witness the letter to the insurance commissioner written by defendant's authorized agent. The plaintiff had no recourse but to pay in accordance with the proof of loss and had no control over the use the school district would make of the payment. Plaintiff did not pay until it had reserved its subrogation rights. There is no basis for such a conclusion. However, this is preliminary to and not the decisive issue in the case.

In the presentation of this appeal the...