Opinion ID: 1838947
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Heading: the national development of legislation permitting direct tort suits by injured persons against tortfeasors' insurers

Text: The right of an accident victim to bring an action directly against the tortfeasor's insurer has undergone considerable change since the turn of the century. Early on, the rule was clear that the insurance fund could not be reached by an injured party in a direct suit against the insurer (even after judgment against the insured), the theory being that the contract of insurance was limited in its scope to the insurer and the insured, and did not constitute a contract for the benefit of the injured party. James & Thornton, The Impact of Insurance on the Law of Torts, 15 Law & Contemp. Probs. 431, 435 (1950). Thus the injured party could not directly invoke its benefits. Id. See Bain v. Atkins, 181 Mass. 240, 63 N.E. 414 (1902); Clark v. W.R. Bonsal & Co., 157 N.C. 270, 72 S.E. 954 (1911). Efforts were made, however, to reach the insurance fund through garnishment proceedings against the insurer as garnishee or by equitable proceedings seeking to require the insurer's indebtedness to the insured to be applied pro tanto to the satisfaction of the insured's indebtedness to the plaintiff. James & Thornton, supra at 436. In some cases the plaintiffs were successful. The Minnesota Supreme Court in Anoka Lumber Co. v. Fidelity & Casualty Co., 63 Minn. 286, 65 N.W. 353 (1895), for example, construed the insurance policy as one of insurance against liability, rather than a contract of indemnity, and concluded that the injured party could reach the insurance fund once the insured's liability to the injured party had been established by final judgment. See also Hoven v. Employers' Liability Assurance Corp., 93 Wis. 201, 67 N.W. 46 (1896). The insurers, however, got around the effect of such decisions by simply putting suitably drawn no action clauses in their policies. These provided in substance: No action shall be against the company as respects any loss under this policy unless it shall be brought by the insured, himself, to reimburse him for loss actually sustained and paid by him in satisfaction of a judgment after trial of the issue. James & Thornton, supra at 436. Confronted with this language, the courts generally took the view that the policy was one of indemnity against loss rather than of insurance against liability. See Luger v. Windell, 116 Wash. 375, 199 P. 760 (1921). Accordingly, the conclusion usually followed that garnishment proceedings by the injured person could not be maintained against the insurer and equitable remedies could not be used to reach the fund. See Allen v. Aetna Life Ins. Co., 145 F. 881 (3rd Cir.1906). Although policies that did not contain the no action clause were generally construed to be policies of insurance against liability rather than for indemnity against loss, most policies were written with the no action clause, and an injured claimant could rarely obtain relief against the insurer. James & Thornton, supra at 436; Compare Carter v. Aetna Life Ins. Co., 76 Kan. 275, 91 P. 178 (1907) with Blanton v. Kansas City Cotton Mills Co., 103 Kan. 118, 172 P. 987 (1918). Thus, anomalously, if the insured was solvent so that a judgment of damages could be collected against him, the insurance company would pay, but if the insured was insolvent so that the judgment was uncollectable, the company did not have to pay. See Luger v. Windell, 116 Wash. 375, 199 P. 760 (1921); Shea v. United States Fidelity Co., 98 Conn. 447, 120 A. 286 (1923); James & Thornton, id. But see E. Sawyer, Automobile Liability Insurance 2-3 (1936) noting that many companies probably did not choose to take full advantage of the unjust legal situation. Remedial legislation was brought forth to solve the difficulty at least in part. The general effect of the legislation was to permit the injured party to sue the insurer directly once the insured's liability was established by final judgment, any clauses to the contrary being ineffective. James & Thornton, supra at 437; See Jackson v. Citizens Casualty Co., 277 N.Y. 385, 14 N.E.2d 446 (1938). Such statutes provide that no policy of insurance against loss or damage shall be issued unless it contains a provision that the bankruptcy or insolvency of the person insured shall not release the insurer from the payment of damages and that, after judgment has been obtained against the insured, in case execution is returned unsatisfied, an action can be maintained by the injured person directly against the insurer. James & Thornton, id. Early legislative efforts focusing on making a bankrupt employer's insurance available to his injured employees were soon engulfed in the larger movement for worker's compensation. See Bradbury's Workmen's Compensation Law (3d ed. 1917) 53-55; Michelbacher and Nial, Workmen's Compensation Insurance (1925) 95-108. With the advent of the automobile and the consequent increase in the amount of liability insurance, came a demand for legislation enabling personal injury creditors of an insolvent tortfeasor to reach his insurance money. See Crobaugh and Redding, Casualty Insurance (1928) 280, 282-83; Huebner, Property Insurance 421 (1922); Vance, Insurance § 275 (2d ed. 1930). The legislatures of twenty-two states responded with statutes permitting a direct suit against the insurer despite the insolvency of the insured. Comment, Legislative Efforts To Make Insurance Guarantee the Payment of Tort Claims, 46 Harv.L.Rev. 1325, 1326 (1933). The statutes of Massachusetts and New York have furnished models for most jurisdictions. Id.