Wisconsin Zinc Co. v. Fidelity & Deposit Co. of Maryland

162 Wis. 39 | Wis. | 1916

BaeNes, J.

The rights of the parties to'this litigation-rest upon the insurance contract which existed between them. A determination of the true intent and. meaning of that contract is therefore essential. When the language used is unambiguous, . its usual and ordinary meaning should .he attributed to it. Imperial F. Ins. Co. v. Coos Co. 151 U. S. 452, 14 Sup. Ct. 379; Rumford Falls P. Co. v. Fidelity & C. Co. 92 Me. 574, 43 Atl. 503. There are four provisions of the policy which should be particularly considered in deciding the case. Two relate to positive undertakings of the defendant; one to a like undertaking of the plaintiff; and one to a right reserved by the defendant. The defendant agreed to indemnify the plaintiff for injury to a single employee to an amount not exceeding $5,000 and to pay the expenses incurred in defending any suit' which might be brought, interest on the verdict, and taxablei costs. But no action could be maintained against defendant by the insured under or by reason of the policy unless begun to recover a loss defined thereunder after final judgment had been rendered in an action brought by the injured employee against the employer. The defendant further agreed to defend in the name and on behalf of the insured any suit brought against it for damages on account of bodily injuries to its employees. The insured agreed not to voluntarily assume any liability nor interfere in any negotiations or legal proceedings conducted by the insurer; nor, except at its own cost and expense, to settle any claim; nor to incur any expense without the consent of the company except for such immediate surgical relief as might be imperative. The insurer reserved the right to settle any claim or suit. In short, the defendant agreed to defend at its own cost any suit that might be brought, and to reimburse plaintiff to the extent of $5,000 on account of the damages that might be recovered and paid, together with interest and costs, and reserved the right to settle any claim or suit; and plaintiff on its part agreed not to make any settlement except • at its own expense.

While the vast majority of claims for personal injuries to a single individual would not involve the payment of $5,000, still this limitation on liability is an important one to the insurer and one which presumably affects the amount of premium to be paid for indemnity. Responsibility on the part of the insured beyond the amount of the premium paid has also a tendency to induce caution in providing safety appliances and devices. The provision prohibiting the insured from making settlements is of even greater importance to the insurer. The matter is left with the party who pays all' the indemnity in most cases and who pays a large part of it in the rest of them. It is pretty evident that if the insurer intrusted the matter of making settlements to its numerous policy-holders its existence would be precarious. We are all apt to be generous when it comes to spending the money of others. So long as the law countenances and to some extent encourages insurance of this character, the right of making voluntary settlements must, almost as a matter of necessity, rest with the insurer rather than with the insured. An insurance company could hardly be expected to do business on any other basis, because it furnishes the only safeguard available against the payment of excessive damages.

When the defendant assumed the defense of the action and paid the cost of the litigation and interest on the verdict and contributed $5,000 toward the payment of damages, it complied with all the obligations which it expressly assumed, unless it be held that the defendant was bound to protect the plaintiff by settling every claim where settlement conld be made for $5,000 or less. This latter suggested construction of the contract we deem to be entirely untenable. There is no' agreement on the part of the defendant to settle any claim and no duty imposed upon it to do so, unless such agreement or duty is implied or is to be inferred from the provisions which prevented the plaintiff from settling and reserved the right in the defendant to make settlement.

The plaintiff seeks to sustain its first cause of action on the theory that defendant by its contract obligated itself to settle the claim in question because settlement could be made for $5,000 or less and the plaintiff thus relieved of liability. As to the second cause of action, it is urged that defendant, having obligated the plaintiff not to settle and having reserved to itself the right to do so, was bound to exercise ordinary care, prudence, and judgment in making a settlement, and if it failed to do so it was guilty of a wrong for which recovery might be had. In this connection it is further urged that by the insurance contract the plaintiff constituted the defendant its agent for the purpose of making settlements, and that for a breach of duty in failing and refusing to make a settlement advantageous to the plaintiff in this case it is liable to its principal.

There is no liability on the insurance contract under its provisions until a judgment is recovered by an employee and is paid by the insured. Stenbom v. Brown-Corliss E. Co. 137 Wis. 564, 119 N. W. 308; Cornell v. Travelers Ins. Co. 175 N. Y. 239, 67 N. E. 578; Carter v. Ætna L. Ins. Co. 76 Kan. 275, 278, 91 Pac. 178, and cases cited; Allen v. Ætna L. Ins. Co. 145 Fed. 881, 76 C. C. A. 265, and cases cited. There is no language in the policy that can fairly be construed to mean that defendant obligated itself to settle any and all claims that might be settled for $5,000 or less. No case is called to our attention where any such construction has been placed on similar contracts, and we doubt if any can be found. One or two cases are cited as so holding, but they do not do so. The courts which have passed upon questions akin to those arising on the first and second causes of action in cases involving similar contracts, correctly hold that the parties to the contract have a right to insert such provisions therein as they see fit, so long as those provisions do not contravene public policy, and that the courts have no power to add to or subtract anything from the contract actually made, but must so interpret it as to carry out the intention of the parties. They further hold that the parties may agree, and that under such contracts they do agree, that the insurer shall have the exclusive right to settle claims and that this right may be exercised to its full extent by the insurer for its own benefit and advantage, subject to the qualification that it acts in good faith. Rumford Falls P. Co. v. Fidelity & C. Co. 92 Me. 574, 43 Atl. 503; Schmidt v. Travelers Ins. Co. 244 Pa. St. 286, 288, 289, 90 Atl. 653; Munro v. Maryland C. Co. 48 Misc. 183, 96 N. Y. Supp. 705; New Orleans & C. R. Co. v. Maryland C. Co. 114 La. 153, 38 South. 89 (see note to this case, 6 L. R. A. n. s. 562-564); Schencke P. Co. v. Philadelphia C. Co. 142 N. Y. Supp. 1143. This case was affirmed without opinion, and was again affirmed without opinion in the court of appeals on October 26, 1915. We have been favored with the briefs in that court, and from them it appears that the action was one brought to recover for failure to exercise proper care and diligence in making a settlement which would have proved advantageous to both the insured and the insurer had it been made.

The parties here might, if they so willed, agree that the defendant should settle whenever settlement would prove advantageous to the assured, or that it would exercise ordinary care in negotiating .settlements. The reservation of a right to settle is a mere option, which, however, cannot be used for fraudulent purposes. We can find nothing in the contract by wbicb defendant agreed to make any settlement, nor whereby it agreed to exercise ordinary care in the matter of negotiating settlements. It would be an arbitrary assumption to say that the parties intended that their contract should contain such important provisions and still omitted any express mention of them. The first two causes of action are based on these propositions.

There are two classes of cases relied on by’ the plaintiff, neither of which affects the questions before us. One of them has arisen where the insurer in violation of its contract obligation refuses to assume the defense of an action. There it is held that the insurance company by breaching its contract releases the assured from its obligation not to settle, and that upon such breach the assured may make any reasonable settlement that prudence and good judgment would dictate and that the insurer becomes liable for the amount paid, not exceeding the limit of the indemnity which it agreed to furnish. St. Louis D. B. & P. Co. v. Maryland C. Co. 201 U. S. 173, 26 Sup. Ct. 400; Butler Bros, v. American F. Co. 120 Minn. 157, 139 N. W. 355; Interstate C. Co. v. Wallins Creek C. Co. (Ky.) 176 S. W. 217. In the other class of cases it is held that the insurer, having agreed to assume and conduct the defense of actions brought to recover damages for injuries, assumes the obligation of conducting such defense with ordinary care, skill, and prudence, and that if it fails to do so it is guilty of actionable negligence fur which there may be a recovery. These cases are based on the unquestionably sound doctrine that where there is a negligent breach of a legal duty the injured party has a remedy. Attleboro Mfg. Co. v. Frankfort M. A. & P. G. Ins. Co. 171 Fed. 495, and cases cited. There is a legal duty to defend. Here there is ' a right reserved to settle, but no legal duty is assumed to exercise ordinary, care in making a settlement.

The question of agency is relied on and is discussed at some length. The language of the contract does not warrant the conclusion that the defendant was intended to be made the agent of the insured for the purpose of making a settlement. The relation which the parties occupied to one another forbids such a construction. If defendant was the agent of the plaintiff, then it would be its duty as such to use its best efforts to further the interests of the plaintiff. Such duty would obligate it to settle all claims that might be compromised for $5,000 or less, where there was any probability of a larger recovery in the event of suit. It would require the defendant in every case where its interest came in contact with that of the insured to disregard its own .interest. It is plain enough that under a contract of insurance like the one under consideration the interests of the insured and insurer may at times be hostile and adverse. This is such a case. It was clearly to the advantage of the plaintiff that settlement be made. If defendant believed that there was a meritorious defense to the action and that the case was one where recovery was doubtful or improbable, it was for its interest to contest the case. It might avoid liability altogether, and in the event of defeat would not be called upon to pay much more than if it settled. It either had the right to consider its own interests as being paramount or it had not. Under the language of the policy we think it had such right. If it had, there was no agency, at least in the sense claimed, because if defendant had the right to decide whether its interests would be best subserved by settling or contesting the claim, then in the nature of things it could not be the agent of some one else for the purpose of making a settlement and charged with the duty of doing so if settlement was desirable from the standpoint of the principal. The two ideas are entirely incompatible.

We hold as to the first cause of action that the contract, fairly construed, did not obligate the defendant to settle claims where settlement could be made for $5,000 or less. We hold as to the second cause of action that there was no legal duty on the part of the defendant to settle and hence there could he no breach of such a duty and that no foundation is laid for an action in tort.

This brings us to a consideration of the third cause of action. The insurance contract in question places the insured at a serious disadvantage in the matter of settling claims in. cases where only partial indemnity is afforded. The policyholder is unable to protect himself from heavy loss unless he is able to settle his liability over and above the amount for which he is indemnified, and there may be some question about his even having this right under his contract. The power of settlement given the insurer cannot be used for the-purposes of fraud or oppression, and the courts, in so far as they have passed upon the question, hold that the power conferred must not be exercised in bad faith. Some of the decisions heretofore cited imply that for such there may be a. recovery, and we entertain no doubt that this is the true rule. Indeed the defendant does not claim otherwise. The difficulty with the complaint in this particular is its paucity of allegation of specific facts tending to show bad faith. It is-argued by the appellant that this count in the complaint does nothing more than charge that there was a legal duty on the-part of the defendant to consider the interests of both parties in making the settlement, and that it.considered its own interests only and ignored those of the plaintiff and that such action constituted bad faith. If we were convinced that this-construction is correct, then we would have to sustain the demurrer, because such a conclusion would he drawn from an interpretation of the contract not warranted in law. But we-think such a construction would be rather narrow and technical. Pleadings are now construed on demurrer with exceeding liberality. No motion has been made to make the complaint more definite and certain. In deciding on whether a. good cause of action is stated in the third count we are not at liberty to look into the record on the appeal in the Mayhew Case [Mayhew v. Wis. Z. Co. 158 Wis. 112, 147 N. W. 1035] to determine whether or not the plaintiff may be able to prove a case of bad faith. We are of the opinion that the .allegations are broad enough to enable the plaintiff to prove such a case if the necessary facts to make it out exist. While •the defendant had the right to consult what it deemed to be its own interest in making a 'settlement, it could not abuse "the power vested in it and recklessly and contumaciously refuse to settle if it was apparent that in all reasonable probability its conduct would not only result in damage to the ■plaintiff but also in loss to itself. Neither could it exercise the right conferred for the purpose of perpetrating a fraud •on the plaintiff. Inasmuch as plaintiff is entitled to submit its proofs under this count of the complaint, we forbear any extended discussion of the evidence essential to establish a ■cause of action. The order of the court in effect overrules the demurrer to all three of the causes of action alleged in the ■complaint.

By the Gourt. — That part of the order overruling the separate demurrers to the first and second causes of action is reversed and the remainder of the order is affirmed, and the ■cause remanded with directions to sustain the demurrers to the first and second causes of action. No costs are allowed either party, except that respondent is required to pay the clerk’s fees.