Title: North River Insurance Co. v. McKenzie

State: alabama

Issuer: Alabama Supreme Court

Document:

74 So. 2d 599 (1954)
NORTH RIVER INSURANCE CO.
v.
James M. McKENZIE et al.
6 Div. 663.

Supreme Court of Alabama.
August 30, 1954.
Marvin Williams, Jr., Davies & Williams, Birmingham, for appellant.
Ray & Giles, Birmingham, for appellees.
LIVINGSTON, Chief Justice.
The original bill of complaint in this cause was filed by appellant, North River Insurance Company, against James M. McKenzie, Carrie McKenzie and the Bank for Savings and Trust, a corporation, in the Circuit Court of Jefferson County, Alabama, in Equity.
The bill of complaint alleged, in part, the following: Complainant, prior to May 26, 1945, issued a policy of insurance on a dwelling house owned by respondents, James M. McKenzie and Carrie McKenzie, insuring said building against loss or damage by aircraft in the amount of $2,150. On May 26, 1945, the insured building was damaged by aircraft operated by an agent of the United States Government. Thereafter, on May 11, 1948, complainant paid, advanced, or loaned to respondents, McKenzies, the sum of $2,537, being the full amount of said policy with interest thereon from the date of the accident. The McKenzies, at that time, executed to complainant an instrument called a loan receipt.
Prior to the execution of said loan receipt, both James M. McKenzie and Carrie McKenzie had instituted actions in the United States District Court against the United States Government for damages caused to them by the latter's aircraft. James M. McKenzie's suit, which alleged $7,500 damages to the insured dwelling house alone, was settled for $5,982.15 shortly after complainant insurance company and the McKenzies executed the loan receipt. The original bill further averred that a *600 part of the $5,982.15 recovered from the United States Government was deposited in respondent bank, and that a part thereof was used by respondents, McKenzies, to purchase certain real estate situated in Jefferson County, Alabama. Also, the original bill averred that the McKenzies had become trustees as to complainant for all sums received as damages to the insured building up to the amount of $2,537, and that complainant was entitled to trace said trust funds into the hands of respondent bank and into said real property.
By amendment, complainant attached a copy of the loan receipt to the original bill. Demurrers were filed to the complaint, as amended, and were sustained by the court. Complainant then again amended the bill to aver that the net recovery by respondents, McKenzies, from the United States Government for loss and damage by aircraft to the insured building amounted to $5,982.15. After the latter amendment, demurrer to the complaint was overruled. An appeal from said decree on demurrer was taken by respondents, McKenzies. This court reversed and remanded, allowing complainant thirty days within which to amend. Our decision on said first appeal, 257 Ala. 265, 58 So. 2d 581, was based upon insufficient allegations within the complaint, in that it failed to allege any consideration for the loan receipt.
Complainant then amended its bill of complaint, and set out the express provisions of the insurance policy with reference to subrogation, which provide that the "company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this company." The bill, as amended, further averred that if for any reason the loan receipt be held invalid and ineffective, then the payment of $2,537 by the insurer would entitle complainant to be subrogated to the rights of respondents, McKenzies, against the United States Government.
Complainant further amended the bill by alleging that respondents, McKenzies, shortly after the loss, advised complainant insurance company that they (the insured) would attempt to collect their entire damages from the United States Government, and that they (the insured) requested that their claim against complainant be allowed to remain in abeyance until the McKenzies could attempt to collect from the alleged tort-feasor. Thereafter, the McKenzies, as previously stated, filed suits against the United States Government. Said suits were prosecuted under the Federal Tort Claims Act, 28 U.S.C.A. §§ 1346, 2671 et seq. The amended complaint further alleged that while the said federal suits were pending, the McKenzies requested that complainant pay or advance to them the amount of the insurance policy. Complainant thereupon payed or advanced the face amount of the policy, plus interest thereon from the date of the loss to the date of payment. The McKenzies at that time executed the loan receipt.
Furthermore, the amended bill set out certain correspondence between attorney for complainant and attorney for the insured (McKenzies). The effect of said correspondence is that the attorney for the insured advised the McKenzies of the insurance company's right of subrogation, that the two attorneys agreed that the suits were properly prosecuted against the United States Government in the name of the McKenzies, and that the attorney for the insurance company would not intervene in the pending suits on behalf of said company. Also, the attorney for the insured stated that he would deem it his duty to advise the insurer's attorney of any plans prior to any final action being taken in the United States District Court. In addition, the bill, as amended, averred that despite said correspondence a settlement was made by respondents, McKenzies, with the United States Government, without any notice of knowledge of the settlement having been rendered to complainant until after said settlement had been effected. Said bill alleged that complainant did not intervene in the federal suits until after the settlement inasmuch as it had relied on the promises and assurances made by attorney for the insured. By virtue of the above allegations, *601 complainant claimed that respondents, McKenzies, were estopped to assert that the loan receipt was invalid or to contest complainant's right to subrogation by reason of its payment under the policy.
Demurrer to the complaint, as amended, again was filed by respondents, McKenzies, and sustained by the trial court. Thereafter, complainant further amended the bill by averring that the total amount recovered by the McKenzies for loss of insured property, after allowing all reasonable costs and expenses for recovering such sum, including the amount paid by complainant to said respondents, was in excess of the value of the insured property. Demurrer to the bill, as last amended, was overruled.
Answer of respondents, McKenzies, denies that the funds received from the United States Government are trust funds, or that complainant has the right to trace said funds. Said answer further denies that the amount recovered by the McKenzies from the government for damage to the insured dwelling, plus the $2,537 paid by complainant, is in excess of the value of the insured property.
Testimony was taken ore tenus before the trial court. After submission, the lower court rendered its final decree, finding in favor of the respondents, the appellees. Complainant, appellant, has prosecuted this appeal from such final decree on the merits of the cause, no application for rehearing or motion for new trial having been filed below.
Four main issues are presented upon this appeal: (1) Did $2,537 of the sum recovered by James M. McKenzie from the federal government, in the settlement heretofore mentioned, constitute a trust fund for the benefit of appellant insurance company? (2) Under the circumstances which prevailed at the time of the settlement, are the McKenzies now estopped from claiming that the burden was upon the insurer to intervene in the federal suit in order to have protected any rights it might have had therein? (3) Is the insurer entitled to be subrogated to the extent of its payment ($2,537) from the sum of $5,982.15, which James M. McKenzie recovered from the federal government by way of settlement? (4) Did the trial court err in sustaining the demurrer of respondents, McKenzies, to the bill of complaint, as amended, the decree sustaining said demurrer bearing date of October 9, 1952, and having the effect of requiring complainant to aver and prove that the total amount recovered by the McKenzies for the loss of the insured dwelling, after allowing all reasonable costs and expense for recovering said sum, including the amount paid by complainant, was in excess of the value of the insured property?
We are of the opinion that each of the stated issues must be answered in the affirmative.
Hayward v. State Farm Mut. Automobile Ins. Co., 212 Minn. 500, 4 N.W.2d 316, 318, 140 A.L.R. 1236, is much in point here. There, in a suit for damages to his person and his automobile, Hayward recovered a verdict of $7,401.93 against the tort-feasor. Prior to Hayward's suit against the tort-feasor, the Home Insurance Company of New York had paid Hayward $550, representing the damage to his automobile under a policy of collision insurance carried by Hayward, and the insurance company had taken a subrogation receipt and assignment from Hayward. State Farm Mutual Automobile Insurance Company, the tort-feasor's insurer, paid the judgment except for the $550 which the Home Insurance Company had claimed under its right of subrogation. Thereupon, Hayward sued both companies for the $550. State Farm Mutual paid the money into court and was dismissed from the suit. The question presented was whether or not the Home Company, as subrogee, could assert a right to the money paid into court.
The Supreme Court of Minnesota approached the problem by first stating that Hayward had but one indivisible cause of action against the tort-feasor. The opinion states that Hayward subrogated a part of his cause to the Home Insurance Company when he collected his collision *602 insurance, and "this was true whether or not he signed a subrogation receipt knowing what it was. Subrogation is `not dependent upon contract, privity, or strict suretyship.'" The court then emphasized that the only means which the Home Company had of recovery on its subrogated right was to have its claim included in plaintiff's cause of action against the wrongdoer. In conclusion, that opinion states as follows:
Similar reasoning is applicable to the instant case.
Illinois Automobile Ins. Exch. v. Braun, 280 Pa. 550, 124 A. 691, 692, 36 A.L.R. 1262, also is very much in point with the case before us, particularly in respect to issues (3) and (4). There, as in the present controversy, the insurer had sued the insured in order to recover a sum it had paid the latter under one of its policies. An action by the insured against the alleged tort-feasor, subsequent to payment by the insurer comprehended not only a claim for damage to a truck, the only item insured, *603 but in addition, claimed damages for the destruction of its contents, which the policy did not cover. Although the Exchange knew said action was pending, it was not aware of any negotiations for settlement between the insured and the wrongdoer. Prior to trial and without notice of or the acquiescence of the Exchange, the action was settled for $750. The insured received that sum, and a verdict was rendered by agreement in favor of the tort-feasor. Upon learning of the outcome of this litigation, the insurer brought action against the insured to recover the amount paid on the policy. The insured contended that there was no right of subrogation inasmuch as the property covered by the policy and that represented in the suit against the wrongdoer was not the same. Like argument is presented by James M. and Carrie McKenzie upon this appeal.
The Pennsylvania court, however, dismissed said contention in the following manner:
We are impressed that the foregoing reasoning is sound, and are convinced that its equity should be applied to the controversy now before us.
Illinois Automobile Ins. Exch. v. Braun, supra, also concerned another issue of paramount import to the determination of the instant case. Stated briefly: What amount is the insurer entitled to recover? Again, we refer to the opinion of the Supreme Court of Pennsylvania:
Assignment of Error No. 1 states that the trial court erred in sustaining the demurrer of respondents, James M. and Carrie McKenzie, to the bill of complaint, as amended, the decree sustaining said demurrer being dated October 9, 1952. As previously mentioned, the effect of such action by the lower court was to require the complainant insurance company to aver and prove that the total amount recovered by the insured for the loss of the insured property, after allowing for all reasonable *604 costs and expense for recovering said sum, including the amount paid by complainant to the insured, was in excess of the value of the insured property. We are of the opinion and hold that said ruling on demurrer by the trial court was error to reverse.
A contract of insurance is merely a contract of indemnity, and from its nature, the insurer, after paying to the insured the amount of a loss on a policy, is entitled to be subrogated in a like amount to the insured's right of action against the wrongdoer.
Though we are aware of no Alabama case which refers to each of the issues presented, as does Hayward v. State Farm Mut. Automobile Ins. Co., supra, Collins, Individually and for the use of the Pa. Fire Ins. Co., v. Mobile & O. R. Co., 210 Ala. 234, 97 So. 631, 633, contains language very much in point with issues (3) and (4). There, this court stated:
The charge assumed the undisputed fact that the insurance company had paid Collins the $3,500, and that when so paid, the company became entitled to such amount of Collins' claim against the wrongdoer. With reference to said assumption, this court then stated:
Furthermore, Collins, Individually and for the use of the Pa. Fire Ins. Co., v. Mobile & O. R. Co., supra, states that under such circumstances "the insurer and insured are considered as one person," as does Wyker v. Texas Co., 201 Ala. 585, 79 So. *605 7, L.R.A.1918F, 142. The reasoning of the Alabama courts seems to be in accord with the language of Hayward v. State Farm Mut. Automobile Ins. Co., supra, which holds that "by no act of either the insurer or the insured could the wrongdoer be subjected to two actions on one cause." The Alabama and Minnesota viewthat the present controversy could not have been made into a split cause of actionis followed in the majority of jurisdictions. See Van Wie v. United States, D.C., 77 F. Supp. 22.
The reasoning exhibited in Hayward v. State Farm Mut. Automobile Ins. Co., supra, concerning the insurer's rights, after payment of insurance, in the proceeds of a suit by the insured against the tort-feasor, is evidently the prevailing view. See 29 Am.Jur., § 1348, Supp. There, the following is stated:
A few cases do contain language contrary to this opinion. Practically every one of these cases, however, at one point or another, relies upon either Shawnee Fire Ins. Co. v. Cosgrove, 86 Kan. 374, 121 P. 488, or Shawnee Fire Ins. Co. v. Cosgrove, 85 Kan. 296, 116 P. 819, 820, 41 L.R.A., N.S., 719. At 116 P. 820, the Kansas court states:
Clearly, the Kansas opinions were based upon the insured having first notified the insurer that he (the insured) did not wish to solely represent the case at bar. Here, the insurer not only desired to intervene, but offered to do so, to aid in the prosecution of the suit against the wrongdoer, and to pay its share of the expenses incurred therein. In the present controversy, the insurer did not press its right of intervention; instead, it relied upon the good faith of the insured. We think the two cases to be clearly distinguishable. Both of the Kansas opinions were obviously based upon a good faith settlement having been made by the insured with the tort-feasor, after the insured had requested the insurance company to protect his own rights. The language of said cases, therefore, in regard to the burden of intervention, is not applicable to the present controversy.
See, also, Hamilton Fire Ins. Co. v. Greger, 246 N.Y. 162, 158 N.E. 60, 55 A.L.R. 921; Sun Ins. Office v. Hohenstein, 128 Misc. 870, 220 N.Y.S. 386; Washtenaw Mut. Fire Ins. Co. v. Budd, 208 Mich. 483, 175 N.W. 231. The latter cases, admittedly contra to this decision, fail to present the prevailing view, as set forth in 140 A.L.R. 1246.
In our opinion, the equitable reasoning of Hayward v. State Farm Mut. Automobile Ins. Co., supra, and Illinois *606 Automobile Ins. Exch. v. Braun, supra, should be followed in this state.
Assignment of Error No. 1 is well taken. Thus, the decree of the trial court must be, and is, hereby reversed.
Reversed and remanded.
SIMPSON, GOODWYN, and CLAYTON, JJ., concur.