Farrell v. Merchants Mutual Automobile Liability Insurance

Blackmar, P. J.: When the summons and complaint in the action by plaintiff against Heifer was delivered to defendant on June 22, 1920, the company had knowledge that immediate written notice of the accident had not been given. The condition of the policy was broken by Heifer, and the company knew it. It was then competent for the company to stand upon its rights and disclaim liability, leaving Heifer to defend the action. [121] But the company did not take such course. It assumed the defense of the action and power over settlement, all to the exclusion of the assured. It did this by virtue of a clause in the policy. Except for the contract relation between Heifer and the company, expressed in the policy, the company had no right to meddle in the defense. I think that when the company, relying upon its rights under the policy, took the control of the litigation, including the power of settlement, out of the hands of Heifer, it waived the failure of the assured to give immediate written notice of the accident. Undoubtedly with the consent of the assured the company may assume power over the litigation and reserve the right to repudiate liability thereafter, and the consent may be either expressed or inferred from the acquiescence of the assured. It was, however, competent for the jury to find that no such consent was given in this case, for the clause in the receipt for the summons and complaint, given to Horowitz, was not brought to the attention of Heifer, and notice to him, given on the eve of the trial, nearly nine months after defendant had assumed control of the litigation, was too late. The election to treat the policy as covering the loss had already been made. If the company were ignorant of the facts upon which the invalidity of the policy depended, the assumption of the defense would not be evidence of a waiver. But Mr. Smith, the claims attorney for defendant, testified that when Horowitz handed him the summons and complaint and the question of notice was raised, Horowitz told him that he telephoned it to O’Brien’s office. The company, therefore, knew at that time that the notice given was an oral notice over the telephone and not a written notice, and yet it assumed the defense. The case at bar differs from Holland Laundry v. Travelers Ins. Co. (166 App. Div. 621; affd., 221 N. Y. 698); Mason-Henry Press v. Ætna Life Ins. Co. (211 id. 489); Morrison v. Royal Indemnity Co. (180 App. Div. 709) and Buffalo Steel Co. v. Ætna Life Ins. Co. (156 id. 453), cited by the appellant. In all these cases there was a question of the liability of the defendant under the policy on an issue which was involved in the trial of the primary action. The control by the insurance company of the action involving such issue was given to it by the policy to enable it to defend itself. But in the case at bar the issue whether notice of the accident was given by Heifer to the company was not involved in the action of the plaintiff against Heifer. The judgment in that action in no way affected that issue. Nothing that could be decided in the case of plaintiff against Heifer could [122] affect the question of the validity of the defendant’s defense that immediate written notice of the accident had not been given. In my opinion the company, knowing all the facts in a case like the present, must elect whether it will stand on its rights and disclaim liability, or whether it will waive the defense and claim the right, under the policy, to control both the defense and the settlement of the action. It is neither just nor within the true meaning of the contract expressed in the policy to take away from the assured the valuable and important right of controlling the defense and determining whether or not the case should be settled, and at the same time, knowing all the facts, reserve the right to repudiate liability on the ground that immediate written notice of the accident was not given. The judgment and order should be affirmed, with costs. Present — Blackmar, P. J., Kelly, Manning, Kelby and Young, JJ. Judgment and order unanimously affirmed, with costs.