Sachs v. Maryland Casualty Co.

Thomas, J.: The plaintiff would recover from the defendant, insuring against loss, the expense of successfully completing the defense of an action brought against him, by a servant for personal injuries. The defendant as insurer had initiated and entered upon the defense but, after issue joined, abandoned the case and asserted that it was not liable for the accident under the policy. The defendant’s argument is that, as the event showed, the employer was not legally liable to the servant, therefore, it was not liable, inasmuch as the policy is to indemnify the assured “ against loss from the liability imposed by law upon the assured.” The policy is intended to indemnify; it also contains a stipulation to defend. Under' authoritative decisions the insurer is not required to defend, but is liable to pay to the assured the sums that the litigation with the injured person shall legally impose. Although there was forcible judicial opinion to the contrary, the above rule cannot be disturbed in this court. (Cornell v. Travelers’ Ins. Co., 175 N. Y. 239; Lawrence v. General Accident Assurance Corp., Limited, 124 App. Div. 545; affd., 192 N. Y. 568.) But there is an extension of the rule to the effect that if the insurer undertake the defense he cannot assert that the claim for damages is [496] not one covered by the policy. That is just, for although the language of the policy introduces it as an agreement to indemnify, the later clauses subject a claim for an accident and an action brought thereon to the exclusive control, defense and management of the insurer. The process immediately after service must be delivered to it; the assured agrees to defend it “in the name and on behalf of the assured,” unless it elect to settle it, or to pay the assured the indemnity up to the amount limited. Correspondingly the agreement eliminates the assured from participation in litigation or negotiation. He may not voluntarily assume any liability,, nor without the consent of the company “incur any expense or settle any claim, except at his own cost, nor interfere in any negotiation for settlement or in any legal proceeding,” except to provide immediate surgical relief; when requested he must aid by procuring information, evidence, attendance of witnesses and in effecting settlements and prosecuting appeals. The assured is required to give place to the insurer in every particular. But it is said that such stipulations apply only to an “ accident covered by this policy.” The policy is so written, and furnishes the insurer an opportunity to decide whether he will undertake the defense, or, disclaiming liability, leave that question to be determined by the judgment. It can appropriate the case and oust the insured only when the policy covers it. Hence, when it takes possession it is a decision on its part that the case does fall under the policy. But its present attitude is that it can so decide, undertake the defense, then undo its decision and abandon the defense. The decisions cited above construe the policy as favorably to the insurer as is consistent with the authority reserved to it to assume the mastership of the controversy. But it should not be permitted to dominate when it will; and at will cast aside the duty to defend that goes with the jurisdiction it has assumed. The assured and his rights are subject to its election; he should not be exposed to its fitful caprice. It is not a question of technical waiver or. estoppel, but a matter of agreement. The company conditionally agrees to undertake the defense, and in that case the assured is excluded from interference. With what good faith could it assert that in defending it does not do so in compliance with the policy. But it may [497] be said, the assured continued the defense and succeeded. The judgment shows that there was no liability imposed by law. That is true. But that result was obtained presumably because the assured, to save the insurer as well as himself from damages in whole or in part, took up the defense where the company had left it. Had the insurer continued the defense, the result probably would have been the same, but that would not have established that by right it could assume the defense and abandon it unfinished. It was the right, if not the duty, of the assured to take up the defense interrupted by the insurer’s defection, and, if possible, save himself and the indemnitor. That duty the insurer had assumed and put aside. The decisions, as stated, do not permit an insurer, under such policy as that in question, to disavow liability during the progress of a defense assumed by it. (Glens Falls P. C. Co. v. Travelers’ Ins. Co., 162 N. Y. 399; Rosenbloom v. Maryland Casualty Co., 153 App. Div. 23; Brassil v. Maryland Casualty Co., 210 N. Y. 235, affg. 147 App. Div. 815; Mason-Henry Press v. Ætna Life Ins. Co., 211 N. Y. 489.) In some of the authorities cited the facts show that the abandonment of the defense left the insured in a more disadvantageous position than in the present instance. But in my judgment the assured need not prove an estoppel in pais. The insurer cannot assume to operate under a provision in its favor and then cast the burden on the assured upon the plea that the latter cannot prove that he is the worse for it. The insurer chose its position; there were alternatives; it freely selected one; it should not be permitted to toss that aside and take another. It acted under its stipulation. There is another view of the matter. The defendant refused to go forward with the litigation upon the expressed ground that the assured’s agent, Burston, had knowledge of the accident three or four days after it happened, but did not report it to the defendant until three days before the return day of the summons. The agent testified that he had no knowledge of it up to the time that he received the summons and complaint from the janitor, with whom it was left pursuant to an order for substituted service. There is no evidence that the assured had knowledge [498] of the accident, as he was absent from October 1, 1908, to January 31, 1909, and Burston had charge of the property. The order for substituted service was made on December 28, 1908, and the summons was returnable on January 7, 1909. When Burston saw the defendant’s representative the latter questioned him for the purpose of drawing the answer; it was drawn and sent to him, by whom it was verified. So the letter by Ford, defendant’s manager, remitting the papers, appears to be quite incorrect, and the ground given for their return untenable. Moreover, Burston stated that the defendant’s agent received the papers without reservation. The order of the Appellate Term should be reversed and the judgment of the Municipal Court affirmed, with costs. Jenics, P. J., Stapleton, Mills and Rich, JJ., concurred. Order of the Appellate Term reversed and judgment of the Municipal Court affirmed, with costs.