Court Opinion

ID: 8006103
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:53:29.598062+00
Date Added: 2024-06-11T16:35:38.707579
License: Public Domain

Hough, J.
It is urged by the defendant that the contract of July 18th, 1864, altered the relations of the reassured and re-insurers, as they existed under the policies of re-insurance, and irrevocably committed to the United States Insurance Company, the defense of the suit brought by Hening & Woodruff against it in the circuit court of the United States, and made said company a trustee as to the policies of re-insurance held by it; that the contract of July 24th, 1872, by which it stipulated for the assignment of said policies in satisfaction of any judgment which might be recovered against it, rendered said company incapable of further conducting such defense; that it was a fraud in law upon the rights of the defendant; that the cause was really settled at the time it was tried, and the judgment obtained therein a collusive one and not binding upon the defendant.

tílhVanHSte thehconatraSct° t¡oeSme»nt: no'

As much of the argument of counsel has been directed to a consideration of the legal effect of the contract of July 18th, 1864,may be wel1 to briefly advert to the nature of the duties and obligations arising out of the relation of insurer and re-insurer, which existed between the United States Insurance Company and the defendant at the time that contract was entered into. A contract of re-insurance creates no privity between the re-insurer and the original assured. Herckenrath v. American Mutual Ins. Co., 3 Barb. Ch. 63. The re-assured is not obliged, in order to maintain his action against his re-insurer, to show that he has *534paid the ’loss. He may at once resort to his action against the re-insurer, and to such action the re-insurer may make the same defense which the re-assured could make against the original assured; or, the re-assured may await a suit by the first assured, give notice of it to his re-insurer, and, on being subjected to damages, recover them, together with the costs and expenses of the litigation against the re-insurer. Strong v. Phoenix Ins. Co., 62 Mo. 298; Eagle Ins. Co. v. Insurance. Co., 9 Ind. 443; Hone v. Mutual Safety Ins. Co., 1 Sandf. 137. In the case of the New York State Marine Ins. Co. v. Protection Ins. Co., 1 Story C. C. Rep. 458, Judge Story, in commenting upon the relation sustained by the re-insurers to the re-assured,' said : “If notice of a suit, threatened or pending, upon the original policy, be given to the re-assurers, they have a fair opportunity to exercise an election whether to contest or admit the claim. It is their duty to act upon such notice, when given, within a reasonable time. If they do not disapprove of the contestation of the suit, or authorize the party re-assured to compromise or settle it, they must be deemed to require that it should be earned on; and then, by just implication, they are held to indemnify the party re-assured against the costs and expenses necessarily and reasonably incurred in defending the suit.”
In the case of Strong et al v. The Phoenix Ins. Co., 62 Mo. 299, this court, in commenting upon the foregoing observations of Judge Story, said: “Tf a bona fide judgment is rendered against the original insurer, and he has contested the matter in good faith for the protection of the re-insurer, and the latter is bound to pay the costs and expenses incurred for his benefit, why is he not equally bound by the judgment? It would be a singular position to take, to say that the re-insurer was bound by the incident and not by the principal. The contest is carried on by his consent or acquiescence, and for his benefit and protection, and if good faith is observed, can there be any reason why the identical question should be litigated *535twice? The re-assured and the re-insurer stand in the precise relation of all other parties, where there is a liability over, and the result of one litigation binds or concludes both.” It will thus be seen that in all cases where the re-insurers do not, after notice of suit threatened or begun on the original policy, disapprove the contestation thereof, the re-assured shall thereby be deemed to have been required by them to defend the same, and such defense when made in good faith, for the protection of the re-insurers, will render any judgment obtained by the original assured in such suit, binding upon the re-insurers, as to all matters which could have been litigated therein, and make them liable also for the costs and expenses of the litigation. It necessarily follows that in all eases where the re-insurers fail, after notice, to participate in the defense, the original insurer, by operation of law, becomes sub modo their agent for the management of such defense, and in the conduct thereof is bound to exercise the utmost good faith: and any judgment against .him, collusively obtained, would not support a recovery over against the re-insurers.

2.-; agree-merit for resistanee construed,

Such being the relations which the law established between the re-assured and the re-insurers at the time the contract of July 18th, 1864, was entered in- ° ' * to, let us examine the terms of that contract and see wherein it varied their respective duties and obligations. The contract begins by reciting the claim of Hening & Woodruff against the United States Insurance Company for the sum of $120,000, for cotton burned on the 9th day of June, 1864; also an existing liability on the part of the defendant, and other companies, to the United States Insurance Company, as re-insurers of that company; the belief of all said companies that the claim preferred was illegal and unjust, and a desire that it should be resisted : and in consideration thereof it was agreed that the United States Insurance Company should employ such counsel as it saw proper to manage the defense, and in the event it should succeed in such defense, the re-insurers agreed to *536pay their pro rata proportion of the attorneys’ fees and costs, and in the event the United States Insurance Company should fail in said defense they agreed to pay their. pro rata proportion of the judgment, attorneys’ fees and costs.
It is perfectly plain that under this contract the United States Insurance Company undertook no duty which the law would not have imposed upon it under the circumstances recited in the preamble, if the foregoing contract had never been made. In the absence of any- such agreement, it would, under the circumstances, have been its duty to employ counsel and make a faithful defense. It is equally plain that the defendant incurred no obligation which the .law did not impose upon it as re-insurer, saving and excepting the stipulation to pay its share of the expenses of the suit, in the event the defense was a successful one: for it was already bound to pay its proportion of any judgment which should be fairly obtained against the United States Insurance Company, together with its share of the expenses. Such liability was one of the existing facts recited in the preamble. With the exception noted, therefore, this contract is nothing more than a recital of the then existing condition of things, and an endui’ing memorial thereof. This contract does not, in any particular, supersede the contracts of re-insurance, but simply recognizes the duties and obligations flowing from the policies and arising out of the circumstances of the case. The additional obligation assumed by the re-insurers in respect to the fees of counsel, was supplemental in its nature and did not in any way affect the policies. It could as well have been entered into by itself on a simple notice to defend, and in such case it is plain that the policies would have remained unaffected. If the re-insurers, under the circumstances recited in the contract, had entered into no agreement with the United States Insurance Company for the defense of the suit, the defense thereof would have been as fully committed to that com*537pany as it was by the terms of the contract. But it is very clear that in such case the re-insurers would not, by their silence or inaction, have irrevocably committed such defense to the re-assured. A failure to come in in the beginning, would have constituted no abandonment of their right to defend. At any time during the progress of the cause, they would have been entitled, as parties who were to be bound by the judgment, to interfere for the protection of their own interests. So, under the contract, the defense of the suit was committed to the United States Insurance Company, but not irrevocably so. There was no stipulation for the exclusive right to defend the suit, nor was there any consideration for such a grant of authority. The United States Insurance Company gave nothing, promised nothing, for the exclusive and irrevocable power and authority to defend against the claim of Hening & Woodruff, and we strongly incline to the opinion that after the agreement to make common cause in the defense of the suit, and the stipulation that the United States Insurance Company should employ the attorneys and the re-insurers should fehare the expense of their employment, the attorneys employed represented the re-insurers as well as the re-assured. They were then as fully identified with the cause as it was possible for them to be: as much so as if they had themselves employed the attorneys and the United States Insurance Company had, under an agreement to that effect, contributed its share of the expense. If this view be correct, it is quite evident that the re-insurers are conclusively bound by the judgment rendered against the United States Insurance Company, notwithstanding the agreement of July, 1872.
But conceding that the attorneys employed under the agreement of July 18th, 1864, were not the attorneys of the re-insurers, and did not represent them, but were the attorneys solely of the United States Insurance Company, the re-insurers were clearly at liberty to participate in' the defense of the suit whenever they felt it to be their inter*538est to do so, notwithstanding the contract of 1864. The United States Insurance Company was, at most, the agent only of the re-insurers to make defense for them, so far as their interests were concerned, and a permanent pecuniary interest in the result of the litigation on the part of said company, was not essential to the creation or continued existence of such agency. ' Such agency might, with equal propriety, have been created and continued until the close of the litigation, although the United States Insurance Company had re-insured its entire risk. ‘ The creation of this agency, conceding it to be such, and this is the most that can reasonably be claimed by the defendant, was undoubtedly founded upon the trust and confidence reposed by the re-insurers in the purpose and undertaking of the United States Insurance Company to honestly, and in good faith, defend the suit; and the real inquiry at- last is, whether such defense was made, or whether the trust was disappointed and the confidence abused? and this brings us to a consideration of the nature and effect of the contract of July 24th, 1872, which contract, the defendant contends, disabled the United States Insurance Company from making a genuine defense.

3.--; compromise agreement construed.

This contract has been denominated a “ contract of settlement,” and declared by the counsel for defendant to be a settlement of the controversy involved . . ^ m the litigation between Plemng & Woodruff and- the United States Insurance Company. This, we think, is an erroneous view of that contract. The contract did not settle the controversy; that was left to be settled by an actual trial of the suit then pending in the circuit court of the United States. The contract simply provided for the satisfaction, in a designated way, of any judgment that might be recovered against the insurance company. This-could be done and still the suit could be fairly and honestly defended. This is no unusual thing in litigation. Parties not unfrequently agree that in the event of a recovery the judgment shall be satisfied in-a particular way. *539No duty, the performance of which the re-insurers had a right to demand of the United States Insurance Company, was required to he violated or neglected by the terms of this contract. It created no conflict between the duty of the.United States Insurance Company and its interest. No right of the re-insurers was bartered away; all the re-insurers had a right to demand of the United States Insurance Company was an honest defense, and this contract did not disable them from making such defense. It was not essential, in order to make such defense, that it should have a substantial interest in the controversy. Eor, if that be so, and an insurer re-insures his entire risk, and the re-insurers fail to come in and defend, after notice to do so, no judgment can be obtained which will be binding on the re-insurers. The validity of the judgment, for the purpose of a recovery over, does not depend upon the absolute interest of the original insurer, but upon the fact that the suit against him has been honestly and fairly defended. Plaintiffs offered to show that such a defense was made by the eminent counsel who defended the original suit, notwithstanding the contract of July 24th, 1872, but the testimony was excluded at the instance of the defendant.
Furthermore, it clearly appears that for about a month before the trial of said cause the defendant was fully aware of the existence of the contract of July, 1872, extinguishing the substantial interest of the United States Insurance Company in the controversy then pending in the United States court, and having taken no steps to interpose a defense for itself, or to prevent any further defense of said cause by said company, it is not now at liberty to deny its capacity to make such defense. Disqualified to make the defense it certainly was not, but if the defendant felt that all inducement to a vigorous and faithful defense was destroyed by reason of the divestiture of its interest in the subject matter of the controversy, and it did not wish to risk the issue of a tri'al under such circumstances, as a party who was to be bound by the judgment, it certainly *540had the right to bring that fact to the attention of the United States court and to assume control of the litigation for the protection of its own interests. Having failed to do so, it must be considered as having acquiesced in the right of the United States Insurance Company to make the defense, and in the absence of all testimony of any fraud or want of good faith on the part of said company, or its attorneys in making such defense, it must be held bound by the„result of the suit. And this view of the case is substantially presented by the second and fourth instructions asked by the plaintiffs.
We agree with the court of appeals in thinking that the case was tried on a theory, prejudicial to the rights of the plaintiffs, and that no material error was committed against the defendant.

4 _: measure of damages.

We see no error in the rule adopted by the circuit court as to the measure of damages. The extent of the Uability of the re-insurer is not contingent upon the amount paid by the re-assured, nor upon any payment whatever by him. When a loss occurs which is covered by the policy of re-insurance, the re-assui'ed is entitled to recover, from the re-insurer, not what he has paid, but all that he has become liable to pay by reason of such loss. This is a necessary consequence of the rule that the re-assured may maintain an action against the re-insurer without showing that he has paid the loss. Strong v. Phœnix Ins. Co., 62 Mo. 289; Hone v. Mutual Safety Ins. Co., 1 Sandf. 137; New York State Marine Ins. Co. v. Protection Ins. Co., 1 Story C. C. 458; Eagle Ins. Co. v. Lafayette Ins. Co., 9 Ind. 443; Blackstone v. Alemannia Fire Ins. Co., 56 N. Y. 104; Herckenrath v. American Mut. Ins. Co., 3 Barb. Ch. 63; Carrington v. Commercial Fire & Marine Ins. Co., 1 Bosw. 152. We are of opinion, therefore, that the judgment of the court of appeals should be affirmed.
All concur.
Affirmed.