188 F. 832 | U.S. Circuit Court for the District of Northern California | 1911
The bill seeks to restrain the defendant, as state insurance commissioner, from threatened interference by that officer with complainant’s business by proceedings to require it to conform to the provisions of the statutes of the state regulating the business of insurance therein. The order to show cause is met by a demurrer which challenges the bill as devoid of equity ; and the sole question presented is whether the business in which complainant is engaged is that of insurance, and so subject to the supervision of the insurance commissioner. This question depends upon the nature of the contracts the complainant issues to its patrons; that is. whether they are contracts of insurance.
As disclosed by the bill, the purposes for which the complainant is organized, as stated in its articles of incorporation, are “to aid and protect the medical profession in the practice of medicine and surgery by the defense of physicians and surgeons against civil prosecution for malpractice”; and its plan of business as therein set forth is as follows:
“The association will issue to physicians and surgeons, upon stated and agreed compensation, contracts by which it will undertake and agree to defend the holder of the contract, at its own expense, against any action brought against him for damages for alleged malpractice iü relation to or in connection with services performed, or which should have been performed, within the time covered by the contract; but the association shall not in any defense contract issued by it assume or agree to assume or pay any judgment for damages for malpractice rendered against the holder of such contract.”
Under the contract issued by it, complainant undertakes, for an agreed and stipulated annual payment in the nature of a premium, to defend the holder “against all suits for damages for civil malpractice based upon professional services rendered by himself or his agent during the term of this contract, at its own expense, not exceeding five thousand dollars in defense of any one suit, and not exceeding in the aggregate ten thousand dollars in defense of suits based on services rendered by the holder hereof or his agent within one year from the date of this contract.”
And the contract provides:
“upon receipt of notice from the holder hereof that a suit has been commenced against him for damages for civil malpractice, the company will employ a local attorney, in whose selection the holder hereof shall have a voice,*834 who, together with the company’s attorney, will defend the case without expense to the holder hereof. ,
“Such defense will be maintained until final judgment shall have been obtained in favor of the holder hereof, or until all remedies by appeal, writ of error, or other legal proceedings, shall have been exhausted, or until the above-mentioned sums shall have been expended in said defense; providing that this contract does not cover suits based upon criminal acts or suits involving the collection of fees for services.
“Said company does not obligate itself to pay or to assume or to secure the payment of any judgment rendered against the holder hereof in any suit defended by it.
“The company shall not compromise any suit or claim for malpractice against the holder hereof.”
The foregoing are the material and substantive features of the contract issued by complainant to its patrons; and the contention of the complainant is that, as indicated by its terms, it is purely a contract for personal 'services and embraces none of the essential features of a contract of insurance. The correctness of this claim must be determined by ascertaining the real nature and purpose of the contract when construed in the light of the provisions of the statute of the state declaring what shall be deemed a contract of insurance as therein defined, ignoring, if necessary, considerations arising from the mere outward semblance or form in which the contract is cast.
Section 2527 of the Civil Code provides:
“Insurance is a contract whereby one undertakes to indemnify another against loss, damage or liability arising from an unknown or contingent event.”
And section 2531 of the same Code provides:
“Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.”
Section 2532 excepts from the category of insurable contingencies drawings in a lottery or for or against any chance or ticket in such lottery drawing a prize.'
It will at once be seen that these provisions are sufficiently broad in their scope to include every contract the effect and purpose of which is to indemnify the holder against any contingent liability as being in its nature insurance; and to include as the proper subject of such contracts- any conceivable event of an uncertain or unknown nature the effect of which may give rise to liability or loss, saving only contingencies dependent upon events deemed contrary to public morals.
Wherein the contract involved is lacking in the elements of a contract of insurance as thus defined is not readily to be perceived. Very clearly to my mind it is a contract providing indemnity against a contingent liability. The liability of the holder to be sued is certainly a contingent thing; and the undertaking, in the event, of suit, to hold him -harmless, limited though it be, is quite as certainly an indemnity.
Complainant argues that the element of indemnity is wholly eliminated by the provision which exempts it from obligation to pay the judgment; and that all it contracts to do is to secure competent counsel and, at its own expense, see that the suit is properly defended. The contract is more or .less artfully drawn to put forward this idea,
It is said that, if this is a contract of insurance, then the contract by which an attorney for a stipulated retainer or fee undertakes át his own expense to defend a client in certain litigation or against a certain class of suits, or a contract by which a board of trade undertakes in consideration of an annual payment by its members to prosecute and defend at its own expense all litigation growing out of the
Complainant relies, in support of the contention advanced by it, upon Vredenburgh v. Physicians’ Defense Co., 126 Ill. App. 509, and State ex rel. Physicians’ Defense Co. v. Laylin, 73 Ohio St. 90, 76 N. E. 567, both involving a construction of the same contract, and wherein conclusions were reached in harmony with complainant’s claim that the contract, is merely one for personal services. I am unable to acquiesce in the views expressed in those cases. ■ The reasoning proceeds from a consideration of the formal terms of the contract in suit as affected by certain general definitions of the essentials- of a contract of insurance as stated in the text books; and both cases ig.nore the consideration that the liability to loss, incurred in the contingency as to which the contract relates, involves a liability beyond the naked amount of the judgment that may be recovered.
On the other hand, the views herein expressed will be found'fully sustained in the later case of Physicians’ Defense Co. v. O’Brien, Insurance Com’r, 100 Minn. 490, 111 N. W. 396, where the Supreme Court of Minnesota, interpreting the same contract in the light of a statutory definition very similar to and no broader than our own, hold it to be clearly a contract of insurance.
The application for an injunction must be denied, the demurrer sustained, and the bill dismissed; and it is so ordered.