On Rehearing. In response to an application for rehearing, we have considered it advisable and appropriate to determine the effect of sections 8376 and 8377, upon the cooperation clauses in the contract of insurance. We pretermitted a consideration of this question in the former opinion. So now entering upon a discussion of that subject we desire to make the following comments:
For the reasons heretofore stated, we feel in a measure bound by the decisions of the Supreme Court of Massachusetts on the construction of this law, and heretofore referred to. While those decisions do not directly and specifically refer to this particular clause of *Page 310 the insurance contract, the expressions of the court are such as to indicate clearly what that court understood the law to mean in respect to it.
Again referring to them, we find the following pertinent statement made in the case of Lorando v. Gethro, supra, and quoted with approval in our case of Globe Indemnity Co. v. Martin, supra: " 'A further important feature of the statute is to give to the person injured by the conduct, against loss from which the assured is insured by his policy of insurance, a certain beneficial interest in the proceeds of that policy.' * * * 'The insurer, by issuing a policy of casualty insurance, impliedly agrees to be governed by the terms of the statute and to consent that his obligation to the insured shall, to the extent of a judgment recovered by a third person against the assured for a casualty covered by the insurance, be hypothecated for the benefit of such third person.' " Our court further said: "We approve these observations as to the purpose and effect of such a statute. It is therefore plain that the statute is not one merely of a remedial character as to procedure, but one affecting the liability of the insurer andthe rights of the insured, as well as one injured by the conduct, against loss from which the assured is insured in his policy." In the Massachusetts case there is also the following statement: "Whatever conditions are imposed by that contract, whether as to written notice by the insured to the insurer of any accident and claim, the delivery to the insured of summons in case of action instituted, as to time of bringing action on the policy, or otherwise, are left in full force, unaffected by this clause." This has reference to the clause making the liability of insurer absolute as affecting the constitutionality thereof. The Massachusetts court also considered the act in other aspects not here material in the case of Cogliano v. Ferguson, supra, in 1923.
The question we have to consider is whether the co-operation clause is effective as a defense to an action by the injured party without participation by him in the failure to co-operate. This court, following the Massachusetts court, has construed the provisions in our Code, § 8376, making absolute the liability of the insurer at the time of the loss, to mean that the amount of the liability is so fixed and then only when the loss is judicially determined. Fed. Auto Ins. Ass'n v. Abrams, supra.
This provision making liability absolute (as follows: "The liability of the insurance company shall become absolute" [when the loss occurs]) signifies a purpose to create in the injured person a vested interest at the time of the casualty, though it is not then "fixed."
The Ohio act in the language of our statute, and being considered by its courts, was held in one case to apply only in favor of one who received personal injuries, and therefore did not apply in favor of a husband on a judgment for injuries to his wife. New Amsterdam Cas. Co. v. Nadler, 115 Ohio St. 472,154 N.E. 736. This case sheds no light on our question now under consideration. This case referred to the fact that the act was adopted from Massachusetts. In another Ohio case (Stacey v. Fid. Cas. Co., supra), it was held that it was a defense available to the insurer, in a proceeding by the injured party, that notice of the accident was not given as required by the policy. It contains a statement to the effect that the injured party could only recover such as the insuredcould have recovered. There is a clause in the several acts in question which logically leads to that result, as follows (section 8377): "The insurance money provided for in the contract of insurance between the insurance company and the defendant, applied to the satisfaction of the judgment." In another case in Ohio (U.S. Cas. Co. v. Breese, supra) a clause similar to the one in question contained in a policy was also interposed as a defense. The policy there was issued pursuant to a city ordinance requiring it, and providing that an "action may be maintained by the injured person against the insurance company direct 'under the terms of the policy' for the amount of the judgment in said action. * * * It will thus be seen that the city ordinance explicitly makes the right of recovery dependent upon the terms of the policy * * * held by the operator of the motorbus." The rights of the injured party are limited to the rights of the insured. This opinion was cited by the court in Stacey v. Fid. Cas. Co., supra.
By a statute in New York (Consol. Laws, c. 78, § 109) it was required that the policy shall contain the following clause: "In case of such insolvency or bankruptcy an action may be maintained by the person injured against the company under theterms of the policy." While lack of co-operation in one case in that state was not sustained on the issue of fact, Roth v. N. A. M. C. Co., 202 App. Div. 667, 195 N.Y. S. 865, in the other it was sustained, resulting in a reversal, Schoenfeld v. N.J. F. P. Ins. Co., 203 App. Div. 796, 197 N.Y. S. 606. New York did not have a law similar in all respects to the Alabama statute, but it stipulated that the rights of the injured party were "under the terms of the policy." It was also held by a divided court that the cause of action under that statute and with that clause was derivative and not primary, and did not create a fixed interest until after execution unsatisfied.
Our construction of the sections (8376 and 8377) taken together is that they mean that while the injured party acquired a vested interest, it was in the nature of an hypothecation of the amount (if any) due by the insurer to the insured, and that the terms of the policy imposing obligations on the insured are effective as against the injured party. Such *Page 311 seems to be the opinion of the Massachusetts and Ohio courts. It is as though such liability as may exist under the policy had been expressly transferred by the assured to the injured person, immediately upon the happening of the casualty. In such event, while the rights of the injured party are immediately thereby vested, they become vested in the nature of an assignee of any other hypothecated claim, subject to the rights of the insurer as stipulated therein, not in conflict with the statute. Otherwise the (so-called) hypothecation does not change the terms of the contract. It is our view that this interpretation is necessary to save the constitutionality of the act, so as to enable parties freely to stipulate the terms of their contract.
We have also reconsidered our former opinion on the facts, and after deliberate reconsideration, we adhere to the former opinion to the effect that appellee did not show such a breach of the terms of the clauses of the contract under consideration so as to defeat a recovery by her.
The application for a rehearing is therefore denied and overruled.
ANDERSON, C. J., and SAYRE, THOMAS, and BOULDIN, JJ., concur.
GARDNER, J., concurs in the interpretation of sections 8376 and 8377, but dissents from the conclusion of the court on the facts.
BROWN, J., not sitting.