Opinion ID: 1290650
Heading Depth: 1
Heading Rank: 3

Heading: Assertion of debtor's defenses

Text: The third certified question involves the insurer's standing to assert the comparative negligence of the bank and any other defenses which the insured failed to assert in the action resulting in a default judgment, in light of the fact that all of the insured's officers had resigned and all business operations had ceased prior to the bank's action against the insured. Relying upon the provisions of W.Va.Code, 45-1-3 [1931], [6] the insurer contends that it may assert the insured's defenses against the bank in the garnishment proceeding and that the default judgment against the insured is not binding upon the insurer because it was not a party regularly served with process in the action in which the judgment was obtained. We disagree. W.Va.Code, 45-1-3 [1931] by its terms applies only to a surety, guarantor or indorser (or his committee or personal representative)[.] The insurer argues that it is a surety. It is not. (It also is not a guarantor nor an indorser). It is an indemnitor against loss. An indemnitor against loss, as opposed to an indemnitor against liability, is not a surety. State ex rel. Copley v. Carey, 141 W.Va. 540, 549, 91 S.E.2d 461, 467 (1956), observes the vital distinction between a contract of suretyship and a contract of indemnity against loss: in the former the surety is liable along with the principal to the third party; in the latter the indemnitor against loss is liable only to the indemnitee for a loss sustained by him. Indeed, the insurer in the case now before us relies upon its limited scope of liability as an indemnitor against loss in order to defeat the third-party-beneficiary cause of action, but, with respect to asserting defenses, inconsistently argues, in essence, that it is an indemnitor against liability. Under the terms of the employee fidelity insurance policy, however, the insurer's responsibilities clearly would not have included defense of the underlying lawsuit against the insured. In Employers' Liability Assurance Corp. v. Citizens National Bank, 85 Ind. App. 169, 178, 151 N.E. 396, 399 (1926), the court contrasted employee fidelity insurance and suretyship: [W]hatever the form of the contract, it is well established that guaranteeing the fidelity of employees and persons holding positions of trust is a form of insurance, and that such a contract is subject to the rules applicable to insurance contracts generally, and not to the rules applied to ordinary sureties for accommodation. The insurer's reliance on W.Va.Code, 45-1-3 [1931] is, therefore, misplaced. As a garnishee, what defenses may an indemnitor against loss assert? A garnishee may interpose such objections and defenses, of law or fact, as may be necessary for the protection of his interest, but ordinarily may not set up matters which affect the defendant only.... He cannot present the defense that the defendant does not owe the attaching creditor, especially where there has been a judgment against the defendant in favor of the attaching creditor. 38 C.J.S. Garnishment § 196 (1943). Ordinarily, the only adjudicable issue [in a post-judgment garnishment proceeding] is whether the garnishee is liable to the judgment-debtor, and if so, the amount due. Butler v. Butler, 219 Va. 164, 166, 247 S.E.2d 353, 354 (1978). The garnishee may, of course, defend on the ground that no moneys are due by it to the judgment debtor, [citation omitted], but may not attack the validity of the judgment on which the attachment issues. Gorn v. Kolker, 213 Md. 551, 553, 133 A.2d 65, 67 (1957). [B]oth the garnishee and the judgment debtor [7] may appear to contest the condemnation of the funds garnished. [citation omitted] But neither can contest the claim merged in the judgment. Id., 213 Md. at 553-54, 133 A.2d at 67. The rationale for ordinarily denying the garnishee the right to challenge the validity of the existing judgment is that the garnishee is, vis-a-vis the judgment creditor, a mere stakeholder of the debt owed by the garnishee to the judgment debtor. See Baltimore & O.R.R. v. Vanderwerker, 44 W.Va. 229, 235-36, 28 S.E. 829, 831 (1897). The judgment itself is conclusive proof of the judgment debtor's obligation to the judgment creditor. Fico, Inc. v. Ghingher, 287 Md. 150, 159, 411 A.2d 430, 436 (1980). In answer to the third certified question we, in summary, hold that an indemnitor against loss (the insurer) ordinarily may not, in a garnishment-in-aid-of-execution proceeding, assert defenses against the judgment creditor (here, the bank) which the indemnitee/judgment debtor (the insured) failed to assert, such as the comparative negligence of the judgment creditor (the bank). Having answered the certified questions, we dismiss this case from the docket of this Court. Certified questions answered; case dismissed.