Zahn v. General Ins. Co. of America

• Decision Date: 20 May 1980
• Docket Number: No. 52465,52465
• Citation: 611 P.2d 645
• Parties: F. Anthony ZAHN and Gwendolyn R. Zahn, Husband and Wife, and Landco, Inc., a corporation, Appellants, v. GENERAL INSURANCE COMPANY OF AMERICA, an Insurance Corporation, and Hartford Accident & Indemnity Company, an insurance corporation, Appellees.
• Court: Oklahoma Supreme Court

Page 645

611 P.2d 645

1980 OK 79

F. Anthony ZAHN and Gwendolyn R. Zahn, Husband and Wife, and Landco, Inc., a corporation, Appellants, v. GENERAL INSURANCE COMPANY OF AMERICA, an Insurance Corporation, and Hartford Accident & Indemnity Company, an insurance corporation, Appellees.

No. 52465.

Supreme Court of Oklahoma.

May 20, 1980.

Appeal from a judgment of the District Court of Oklahoma County, Carmon C. Harris, Judge, ordering appellants, Zahns dismissed from the present case and also dismissing appellant Landco's first cause of action.

REVERSED.

Fellers, Snider, Blankenship, Bailey & Tippens, Terry, W. Tippens, Oklahoma City, for appellants Zahns.

Ames, Daugherty, Black, Ashabranner & Rogers, William B. Rogers, Oklahoma City, for appellant Landco, Inc.

King, Tague & Roberts, Tom King, Oklahoma City, for appellee General Ins. Co. of America.

Fenton, Fenton, Smith, Reneau & Moon, Donald R. Wilson, Oklahoma City, for appellee Hartford Acc. & Indem. Co.

WILLIAMS, Justice.

The first question presented in this appeal is whether or not the husband and wife, Zahns, appellants, may maintain an action directly against the appellees, General Insurance Company of America (General), and Hartford Accident and Indemnity Company (Hartford). We determine they may. An additional question involved is whether or not the first cause of action of appellant Landco, Inc. (Landco) is one seeking declaratory relief. We hold it is not.

Landco designed and created a series of residential lots for home construction. The Zahns purchased one of these lots from Landco and constructed a home thereon. In 1974 on two occasions the Zahns allegedly suffered personal injury and property damage as a result of flooding in their home. They sued Landco alleging that Landco was negligent in the design, construction and engineering of the development.

The present action is a follow-up action seeking a money judgment against either General or Hartford in the amount of the $50,000.00 agreed judgment the Zahns had obtained against Landco in their suit against it.

On the dates of the respective floods Landco contends it was covered with a policy of comprehensive general liability insurance issued by either General or Hartford. ¹

Subsequent to the initiation of the first suit by the Zahns against Landco, General employed counsel who entered his appearance in said action and proceeded to represent Landco for over two years. However, shortly before the scheduled trial, this counsel asked and was permitted to withdraw as attorney of record for Landco.

Thereupon General tendered the defense of Landco to Hartford and Hartford employed counsel who entered his appearance as attorney of record for Landco. A jury trial was commenced shortly thereafter with Hartford's counsel defending Landco but after three days a mistrial was declared due to the illness of that attorney and his inability to proceed with the trial.

Thereafter, a few days before the rescheduled trial date, Hartford advised Landco that it was denying that it had coverage. Landco again made demand upon General to defend it. General refused and Hartford, while agreeing to defend Landco, denied any coverage, creating what appellants allege was a conflict of interest. Landco advised each defendant insurance company that it would be necessary for it to employ its own defense counsel and that Landco would look to either General or Hartford for the payment of any judgment or compromise settlement, together with attorneys fees incurred as a result of Landco providing its own defense.

On May 18, 1977, one day before the rescheduled trial the attorneys for both the Zahns and Landco appeared before the trial court and announced the case had been settled. The following day an agreed judgment in the amount of $50,000.00 was entered on behalf of the Zahns against Landco.

On August 1, 1977, the Zahns and Landco joined as plaintiffs and as has been stated brought the present action against General and Hartford in the trial court. ² The first cause of action in the petition in the present case is stated as being brought by both Landco and the Zahns. Landco alleged the insurance companies breached their contracts by refusing to pay the judgment recovered against it. Zahns contend they are third party beneficiaries and seek to recover the amount of the judgment they have acquired.

The second cause of action, brought solely by Landco, prays that judgment be entered against the respective insurance companies, jointly and severally, and pleads that each of those defendants having at one time separately undertaken Landco's defense should be estopped now to deny that they have coverage.

The final cause of action also brought solely by Landco seeks punitive damages on the basis that the actions of the defendants, General and Hartford, were in "such extreme bad faith as to constitute a gross neglect of defendants' implied duties to deal fairly and in good faith" with their alleged insured.

The defendants, insurance companies, filed demurrers and motions to strike, all of which were overruled. Subsequently defendant General filed a motion to dismiss plaintiffs, Zahns from the case and a motion to dismiss Landco's petition. The trial court granted a motion to, and did dismiss the plaintiffs, Zahns from the case from which the present appeal arises, on the basis that they were limited to garnishment proceedings as their sole remedy for collection of their judgment against Landco. Also, the trial court found the remaining plaintiff's, Landco's first cause of action sought a declaratory judgment, a matter over which the trial court decided it had no jurisdiction and therefore dismissed it. These two rulings are the bases for this appeal. ³

In the past this Court has said that "(r)elations of parties to an insurance policy are contractual and where proceeds are payable to a third person a third party beneficiary contract exists." Christian v. Metropolitan Life Ins. Co., 566 P.2d 445, 448 (Okl.1977).

Furthermore, as concerns liability insurance, a third party's rights thereunder become vested at the time of the accident. Bossert v. Douglas, 557 P.2d 1164 (Okl.App.1976).

Appellants cite 15 O.S.1971, § 29 as authority that a third party beneficiary may enforce the provisions of the contract by which he gains his status. That section provides, "A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it."

Appellants in their brief state:

The insurance policy of defendant General specifically provides benefits for a third party (judgment creditor) (quoting):

"No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy."

Similar language is in the Hartford policy.

Appellants, Zahns, argue that a judgment has been entered determining the amount of the insured's (Landco's) obligation to them (Zahns). They further assert that the policy provision quoted supra, entitles them to maintain this (second) direct action to collect such judgment.

Appellees contend the Zahns' right to maintain a direct action against Hartford and General is dependent upon the satisfaction of one of the two conditions precedent contained in the above quoted policy provision. They say in order to rely on that provision the Zahns must either have obtained a judgment after "actual trial" or must have obtained "written agreement of the insured, the claimant and the company" as to the judgment to be entered. Since neither of these conditions have been satisfied, appellees assert the trial court's decision to sustain their motions to dismiss Zahns' action was correct. We do not agree.

Appellees cite Wright v. Allstate Ins. Co., 285 S.W.2d 376 (Tex.Ct.App.1955), in support of their proposition that the Zahns cannot maintain this action against them. Wright involved a suit against an automobile liability insurer to enforce payment of a judgment obtained by the plaintiff against the insured after the latter two had reached a compromise settlement agreement. The insurance company, which had earlier denied coverage and declined to defend its insured, contended the action could not be maintained because plaintiff's judgment was not obtained "after actual trial" as required by the "no action" clause contained in the insurance policy. The Texas Court of Civil Appeals there held, "A condition precedent to fixing liability against this insurer is a judgment following actual trial; a requirement that is not satisfied by a judgment of the kind presented here."

Despite appellees labeling the facts of the Wright decision as "strikingly similar" to those before us now, we discern the presence of one important distinguishing factor, that being the course of conduct pursued by the insurance companies here as...