Title: Aetna Casualty & Surety Co. v. Simpson

State: arkansas

Issuer: Arkansas Supreme Court

Document:

306 S.W.2d 117 (1957) The AETNA CASUALTY & SURETY CO., Appellant, v. Mary SIMPSON et al., Appellees. No. 5-1305. Supreme Court of Arkansas. October 28, 1957. *118 Armstrong, McCadden, Allen, Braden & Goodman, Memphis, Tenn.; Barrett, Wheatley, Smith & Deacon, Jonesboro, Mehaffy, Smith & Williams, and John T. Williams and Robert V. Light, Little Rock, for appellant. Rieves & Smith and Henry S. Wilson, West Memphis, for appellees. Pope, Pratt & Shamburger, Little Rock, amici curiae. ROBINSON, Justice. The appellees, Mary Simpson, Dorothy Lagos, and Gary Lagos, a minor, by his next friend, Dorothy Lagos, obtained small judgments against James E. Knight, Jr., for damages sustained by appellees when involved in an automobile collision. An automobile occupied by appellees had collided with an automobile owned by James E. Knight, Jr. and operated by James E. Knight, Sr. The judgments against James E. Knight, Jr. were not satisfied, and in an attempt to enforce the judgments, appellees filed this suit against the appellant herein, The Aetna Casualty & Surety Company, the carrier of James E. Knight, Jr.'s liability insurance. The appellant insurance company filed an answer alleging: "`11. Action Against Company Coverages A, B and D The appellees, plaintiffs in circuit court, demurred to the answer. The trial court sustained the demurrer. The appellant, defendant in circuit court, stood on the answer and refused to plead further. Whereupon, the court entered judgments for the plaintiffs. The defendant insurance company has appealed. It is appellant's contention that the answer states a valid defense; that neither the statutes nor the policy of insurance makes the insurance company liable as a matter of law when the facts alleged in the answer are assumed to be true, as they must be in testing the demurrer. Act No. 347 of the 1953 Acts of the General Assembly is the "Motor Vehicle Safety Responsibility Act". It appears in Arkansas Statutes as §§ 75-1401 to 75-1493, inclusive. Appellees rely on Section 75-1466, which is paragraph (f) (1) of Section 66 of the Act. It provides: Appellees also rely on Item 5 of the policy. It provides: The appellees maintain that the statute when considered in connection with the provisions of the policy precludes the insurance company from asserting a defense of non-cooperation on the part of the insured. There is no Arkansas statute which required Knight, the insured, to carry insurance prior to the collision. The Arkansas financial responsibility law is applicable only after a mishap has occurred. It is then that an automobile owner or operator must establish his financial responsibility. The Financial Responsibility Act is rather long, containing 95 sections, but it is clear that the Act does not apply to an owner or driver who has not been involved in an accident for which he may be liable in damages. Section 24 of the Act provides: Section 63 is as follows: If a person becomes subject to the provisions of the Act as provided by Section 43, on account of his failure to satisfy a judgment, as in the case at bar, then he must furnish proof of "financial responsibility". One method of doing this is set out in Section 63 of the Act. It provides for filing with the Department of Revenues a written certificate of an insurance carrier certifying that there is a policy of insurance in effect for the benefit of the person required *121 to furnish proof of financial responsibility. Section 66, par. (a) of the Act provides: Paragraph (f) (1) of Section 66 applies only to insurance required by the Act, and it is explicit in that regard. This paragraph provides, further, that "no statement made by the insured or on his behalf and no violation of said policy shall defeat or void said policy." What policy? The same section and paragraph of the Act answers the question: "The insurance required by this act." The only insurance required by the Act is insurance to prove financial responsibility after an accident has occurred and the person involved has, therefore, come within the provisions of Section 43 of the Act, such as by the failure to satisfy a judgment. The Arkansas financial responsibility law has no application whatever to an insurance policy which has not been used as proof of financial responsibility in the future. There is nothing in the pleadings in the case at bar to indicate that the policy had been used for that purpose at the time of the happening of the collision for which the policyholder was held liable in damages. Item 5 of the policy, relied on by appellees, merely provides that the insurance afforded by the policy shall comply with the provisions of the financial responsibility law to the extent of the coverage and limits of liability. This means that after the insured has by his conduct brought himself within the purview of the Act, the policy shall comply with the Act. It does not mean that the policy must comply with the Act before the Act applies to the insured. Many of the states have financial responsibility laws similar to ours, and the courts in a few of those states have rendered decisions supporting the contention made by appellees in the case at bar. Continental Ins. Co. v. Charest, 91 N.H. 378, 20 A.2d 477; Hartford Acc. & Indem. Co. v. Wolbarst, 95 N.H. 40, 57 A.2d 151; New York Cas. Co. v. Lewellen, 8 Cir., 184 F.2d 891. However, the New Hampshire case of American Mut. Liability Ins. Co. v. Ocean Acc. Guarantee Corp., Ltd., 87 N.H. 374, 180 A. 249, is not in harmony with the two above mentioned New Hampshire cases. But the weight of authority is in accord with McCann for use of Osterman v. Continental Cas. Co., 6 Ill.App.2d 527, 128 N.E.2d 624, 627, where the court said: Appellees make the further point that the appellant insurance company is estopped to assert a breach by the insured of the contract of insurance because the insurance company defended the insured in the action against him. The answer alleges: It is appellees' contention that the insurance company is liable as a matter of law, notwithstanding the reservation of rights as set out in the answer. In support of this contention appellees cite Spann v. Commercial Std. Ins. Co. of Dallas, Tex., 8 Cir., 82 F.2d 593, but the facts in that case are easily distinguished from the allegations in the answer in the case at bar. In the Spann case the question was whether there had been a cancellation of the policy subsequent to the happening of the accident. The court held that such a cancellation would not affect the rights of the injured party. Here, the answer alleges that under the terms of the policy it was the duty of the insured to cooperate with the insurance company, but instead of giving such cooperation the insured fraudulently represented the facts. The complaint alleges that the insurance company proceeded with the defense of the case only after giving the insured notice that no rights under the policy were waived. Appellees cite, also, Western Casualty & Surety Co. v. Independent Ice Co., 190 Ark. 684, 80 S.W.2d 626. There, it appears that the insurance company defended the original suit against the ice company without any reservations whatever. Appellees rely, also, on Francis v. London Guarantee & Acc. Co., 100 Vt. 425, 138 A. 780, and Moses v. Ferrel & Indemnity Co. of America, 97 Pa.Super. 13. These cases appear to be in point and sustain appellees' contention. The great weight of authority, however, sustains the contention of appellant and we believe it is the better rule. It is stated in 29 Am.Jur. 673, as follows: There is a long annotation on the subject in 38 A.L.R.2d 1148. There, at page 1161, it is said: "As noted in the original annotation, [81 A.L.R. 1382] it is a well-established rule that a liability insurer will not be estopped to set up the defense that the insured's loss was not covered by the insurance policy, notwithstanding the insurer's participation in the defense of an action against the insured, if the insurer gives timely notice to the insured that it has not waived the benefit of its defense under the policy. Support for this principle is to be found in the following cases: * * *" *123 Numerous cases from the U. S. courts and 27 states are cited in support of the text. Appellant contends that Arkansas Statute, § 66-514, providing for the payment of attorneys' fees, does not apply in this case because a Tennessee contract is involved, although it matured in Arkansas. Notwithstanding the policy of insurance is a Tennessee contract, procedural matters must be in accord with the Arkansas statutes. The statute provides that attorneys' fees shall be taxed as part of the costs. Where the policy matured in Arkansas and the action is brought in Arkansas, the Arkansas statute providing for attorneys' fees and penalties applies. John Hancock Mut. Life Ins. Co. v. Ramey, 200 Ark. 635, 140 S.W.2d 701; Watson v. Employers Liability Assur. Corp., 348 U.S. 66, 75 S. Ct. 166, 99 L. Ed. 74; United States For Use and Benefit of Magnolia Petroleum Co. v. H. R. Henderson & Co., D.C., 126 F. Supp. 626. Our conclusion is that the answer is good as against the demurrer. The cause is, therefore, reversed and remanded. MILLWEE, J., dissents.