Title: Bogle v. Conway
Citation: 199 Kan. 707, 433 P.2d 407
Docket Number: 44,834
State: Kansas
Issuer: Kansas Supreme Court
Date: November 13, 1967

199 Kan. 707 (1967)
433 P.2d 407
RUTH BOGLE and REX BOGLE, Appellees,
v.
DONALD G. CONWAY and HENRY E. FISHER, Appellees, and FARM BUREAU MUTUAL INSURANCE COMPANY, a corporation, Appellant.
No. 44,834

Supreme Court of Kansas.
Opinion filed November 13, 1967.
J. Eugene Balloun, of Great Bend, argued the cause, and H. Lee Turner, Max E. Eberhart, and Jack G. Duncan, all of Great Bend, and E.C. Minner and Harry A. Waite, both of Dodge City, were with him on the brief for the appellant.
Charles E. Vance, of Liberal, argued the cause, and H. Hobble, Jr., Rex A. Neubauer, Chester A. Nordling, Gene H. Sharp, and Kerry E. McQueen, all of Liberal, were with him on the brief for the appellees, Ruth Bogle and Rex Bogle.
David J. Wilson, and E. Keith Beard, both of Meade, were on the brief for the appellees, Donald G. Conway and Henry E. Fisher.
The opinion of the court was delivered by
HARMAN, C.:
This is a garnishment proceeding against the liability insurer of two automobile drivers against whom a judgment in a wrongful death action had been obtained.
The fatal incident occurred near Meade, Kansas, September 29, 1963. The automobiles were driven by Donald G. Conway and Henry E. Fisher, two of the appellees herein. Gary Bogle was *708 a passenger in Conway's vehicle, and was killed as a result of the two automobiles colliding. Details of the incident are reported at Bogle v. Conway, 198 Kan. 166, 422 P.2d 971.
The appellant, Farm Bureau Mutual Insurance Company, carried liability insurance on both the Conway and Fisher vehicles. The day following the collision a claims adjuster, on behalf of appellant, talked to both Conway and Fisher and their fathers about the possibility of a policy violation based on a racing exclusion in the policy. At that time the adjuster secured the signature of Conway to the following instrument, and also Fisher's signature to a similar one:
"Notice and Acknowledgment of Non-Waiver of Rights
"WITNESSED:
Thereafter appellees Ruth Bogle and Rex Bogle, parents of Gary Bogle, filed a wrongful death action against Conway and Fisher, which action was defended throughout by attorneys retained by appellant. A jury was waived and the action eventually proceeded to trial by the court June 14, 1965, as a result of which judgment was rendered against Conway and Fisher for $25,493.99. Post-trial motions were denied and on December 15, 1965, a notice of appeal to this court by Conway and Fisher was served. No supersedeas bond in connection with the appeal was furnished. The judgment not having been paid, on February 8, 1966, an order of garnishment was issued and served upon appellant as garnishee.
Appellant filed its answer in the garnishment proceeding. It *709 admitted that its policies to Conway and Fisher were in effect at the time of the collision and it further alleged:
Appellant's exhibit A was the September 30, 1963, instrument hereinbefore set forth.
Appellant then alleged by reason of clause K it was not obligated under its policies and it denied all liability, and demanded a jury trial.
Appellees Ruth and Rex Bogle and appellees Conway and Fisher filed responsive pleadings taking issue with the garnishee's answer upon various grounds. Conway and Fisher admitted the execution of the instrument entitled "Notice and Acknowledgment of Non-Waiver of Rights," but attacked its binding effect for several reasons. Additionally they alleged that on January 7, 1966, appellant mailed to each of them a letter entitled "Disclaimed Notification." The one written to Conway is appended to this opinion; that written to Fisher was identical except as to name of the policyholder and policy number.
Appellant took depositions, including those of Conway, the fathers of both Conway and Fisher, the highway patrolman who investigated the collision, and appellant's claims adjuster. Answers *710 to requests for admissions of fact by both sides were on file in the case. Additionally the parties stipulated that the testimony of Conway and Fisher in the wrongful death action could be considered as evidence in the garnishment proceeding.
All appellees filed their motions for summary judgment against appellant, and, based on the foregoing state of the record, the trial court on June 24, 1966, sustained the motions and entered judgment for appellees Ruth and Rex Bogle and against appellant for the amount of the Bogles' judgment against Conway and Fisher. This appeal is from that ruling and judgment.
The judgment in the wrongful death action was reviewed in this court and on January 21, 1967, was affirmed (Bogle v. Conway, supra.
The principal question upon this appeal is the construction and effect to be given the instrument entitled "Notice and Acknowledgment of Non-Waiver of Rights" based upon the exclusionary clause K in the insurance policy, this being the defense relied upon by appellant in its answer in garnishment. Appellant urges the instrument is valid and enforceable and bars recovery under the policy. Appellees Ruth and Rex Bogle contend it is of no effect, relying on two of our decisions. Appellant counters that the two decisions are distinguishable from the case at bar and suggests reexamination.
The first of the decisions is Snedker v. Derby Oil Co., Inc., 164 Kan. 640, 192 P.2d 135. That action was one in garnishment against an insurance carrier following a money judgment for damages. This court first stated:
and further stated:
*711 In the above case neither a disclaimer nor a reservation of rights by way of notice or contract was involved and no distinction between the two was made.
The second decision relied upon by appellee is Henry v. Johnson, 191 Kan. 369, 381 P.2d 538, decided May 11, 1963. This, too, was a garnishment proceeding against a liability insurer based on a judgment against its insured arising out of an automobile collision. There a default judgment was rendered against the insured, who had not notified his insurance carrier of the pendency of the suit prior to the entry of the default judgment, contending he had not received a summons and did not know of the action himself. Later, after the insured had learned of the judgment and had notified his insurance carrier, the carrier wrote the insured the following letter under date of November 3, 1958:
"Dear Mr. Johnson:
The insurance carrier, representing its insured, then sought to have the default judgment set aside, but was unsuccessful, and the garnishment ensued. The garnishee carrier defended upon the basis of the letter quoted above. In holding against the garnishee this court stated:
This court considered the letter of reservation vague and ambiguous and insufficient within the meaning of the language used in Snedker. The court further pointed out that the insurer, prior to the filing of the suit, had had notice of its insured being in the collision and had investigated the collision, and both before and after the execution of the reservation of rights letter, had actively participated in the defense of other legal proceedings arising from the collision.
Appellant contends a different test should be applied to contractual nonwaiver and reservation of rights agreements from that applicable to unilateral notices of reservation of rights. We see no reason for making any distinction. In any event, the position of the *713 insurance carrier in not wishing to waive nor be estopped to set up its rights by defending the action against the insured, to be effective, must be made clear to the insured so that he may make an intelligent decision whether to consent to the assumption of his defense and the control of his lawsuit by the carrier, or to take another course. It matters little, in our opinion, whether the insurer states that position in a unilateral notice to its insured or in a bilateral agreement with the insured. The relationship between the insured and his insurer remains contractual in nature. If unilateral notice is employed and the insured makes no objection to his further defense of the action by his insurer, his consent may be inferred from such acquiescence (See 7A Appleman, Insurance Law and Practice [1962], § 4694). In either case, the insured must be fairly and timely informed of the insurer's position. That information should include the basis for the position taken by the insurer. Only then is the insured in a position to make his choice as to the course to pursue in protecting himself. The insured may or may not wish to permit the insurer to carry on his defense under its contract obligation to do so. We think that is the import underlying Henry v. Johnson. (See annotation and cases cited at 38 A.L.R.2d 1148 and A.L.R.2d Later Case Service; also 7A Appleman, Insurance Law and Practice [1962], § 4694.)
We turn now to the September 30, 1963, instrument upon which appellant relies. It is more vaguely and ambiguously drafted than that held insufficient in Henry. It makes no mention of any exclusionary clause in the policy or of any purported factual basis upon which a denial of coverage might be predicated; it does not tell what right of the insurer to deny liability was contemplated, nor why; it contains no reason or basis for the statements which are made, and finally, concededly, no disclaimer of liability is stated.
That a better notice could have been drafted is apparent when we examine the formal disclaimer notification dated January 7, 1966. Had such a notice been timely given so as to be effective if otherwise sufficient we might have a different question before us.
Appellant argues it should not be necessary for an insurer to detail fully in a reservation instrument all of its rights inasmuch as all the parties want to do is maintain the status quo. Much more is involved: the parties are hardly upon equal footing absent information to the insured as to what that status quo is and means. It has been said that good faith, the essence of insurance contracts, "demands *714 that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting," (Merchants Ind. Corp. v. Eggleston, 37 N.J. 114, 122, 179 A.2d 505), and we have adhered to that philosophy in construing policies and related papers prepared by insurance carriers (Henry v. Johnson, supra).
Appellant urges it should be permitted to operate (defend the action) under the Non-Waiver of Rights Agreement to wait and see if it is liable under the policy. It points out that in many cases the insurer may not know until final conclusion of the litigation whether it is liable or not. We have no quarrel with this theory provided the insured is adequately and timely informed of the insurer's position.
This case illustrates why that position must be made clear, bearing in mind the duty of the insurer to fulfill its policy-contracted obligation of defense with the utmost loyalty to its insured. To start with, by coincidence, here one carrier has the insurance on both vehicles whose drivers are charged with separate acts of negligence and who have a different status with respect to the person killed in the collision. Beyond this, such a case presents the possibility of a conflict of interest between the rights of the insurer and its insured. Conceivably the drivers could be held liable for damages while engaging in a race, the establishment of which race would be a policy defense to the insurer. In other words, a policy defense could be developed at the expense of the insured. We would want it understood we make no intimation that such was attempted in the principal action or that a good faith defense was not afforded the insured. We merely point up the importance of the requirement of adequate, timely information of the insurer's position so as to avoid any possibility of conflicting interests.
Appellant further contends the doctrine of estoppel to assert a policy defense should not be applied because there is no showing of prejudice resulting to either Conway or Fisher from its handling of their defense. In Henry v. Johnson, supra, prejudice was assumed without discussion of the subject. We approve this as the better rule because, as said in Merchants Ind. Corp. v. Eggleston, supra, since the course cannot be rerun, it would be futile to attempt to prove or disprove that the insured would have fared better on his own.
We hold then that the September 30, 1963, instrument did not fairly inform Conway and Fisher as to appellant's position and *715 hence was ineffective to reserve to appellant the right to disclaim liability under its policies and save it from the bar of waiver or estoppel in the garnishment proceeding. Therefore, the trial court correctly rendered summary judgment against appellant.
In arriving at this conclusion we have not overlooked appellant's contention that such rendition was improper because there remained genuine issues of material fact. In our view, under the issues formed by the pleadings, once the nonwaiver instrument is held to be ineffective, the proceeding is determined.
The judgment of the trial court is affirmed.
APPROVED BY THE COURT.
APPENDIX
"Disclaimer Notification
"Dated this 7th day of January, 1966.