I vote for an affirmance of the order of the Appellate Division which granted a new trial. I assume that the first stipulation of the contract by which the defendant agreed to indemnify the plaintiff against liability *Page 251 for accidents specified in the policy, standing alone would not obligate it to indemnify the plaintiff for the expenses of resisting suits in which the plaintiff was not legally liable. But in addition to the agreement for indemnity against liability the policy contained this further covenant on the part of the defendant: "This company shall have sole right, and it shall be its duty to negotiate settlements and adjustments of all claims made against the insured, and covered by this policy. If legal proceedings be commenced to enforce such claim or claims against the insured, this Company may pay the insured the full amount for which it can be held liable in respect of such claim or claims,failing which it shall defend said proceedings on behalf of theinsured, and shall have control of such defense." The plaintiff had manufactured and erected the structural iron work in a large building in the city of New York, which building, during its course of construction, collapsed causing the death of a number of persons and severe injury to many more. For this accident a number of suits were brought against the plaintiff with other parties, the charge against the plaintiff being the defective character of his work. The defendant was notified of the prosecution of these actions. It disclaimed liability and refused to defend them or to pay the insurance. Thereupon the plaintiff, at his own expense, successfully contested the claims and it is for the expense of such contests that he seeks reimbursement from the defendant. There is no serious controversy as to the proposition that these claims were of such a character that had the allegations of the complaints founded therein been true they would have fallen within the terms of the policy and the defendant would have been obliged to indemnify the plaintiff for his liability on account of this accident. The defendant covenanted in express terms to defend all legal proceedings brought against the insured on "claims made against the insured and covered by this policy." If these suits fall within the terms of this covenant, then the defendant, by refusing to defend them, committed a breach of the covenant for which it *Page 252 is liable apart from the other stipulations of the policy, and the order of the Appellate Division was correct. If the claims did not fall within this covenant, then there was no breach, and the judgment of the Trial Term was correct. I think the claims fell within the terms of the covenant. It is no part of the definition of the term "claim" that the demand should be well founded. A claim is "the assertion of a liability to the party making it to do some service or to pay a sum of money." (1 Bouv. Law Dict. 332.) It is defined by Judge STORY (Prigg v. Penn., 16 Peters, 539) as "a demand of some matter as of right, made by one person upon another to do or to forbear to do some act or thing, as a matter of duty." It is contended, however, that the obligation to defend claims against the plaintiff was qualified by the condition that it should be a claim covered by the policy, and it is further contended that unless the claim was valid it was not covered by the policy. The first proposition is doubtless true, but it is on the second proposition that the whole controversy turns. I insist that a claim is covered by the policy when it is of such a character that if established the defendant, under the terms of the policy, would be liable for its payment. An action brought on a promissory note is none the less a claim on a promissory note because on the trial of the action the plaintiff is defeated, either by proof that the defendant never signed the note or that he had paid it. If the defendant's construction of this covenant is to prevail it leads to this most incongruous result. It says that it agreed to defend only valid claims, that is to say, claims which might be successfully established. In other words, it agreed to defend only indefensible claims, and if the claims could be successfully defended then there was no obligation on its part to defend them. Surely we should hesitate before giving the covenant any such remarkable construction. But we are not wanting in authority on the point. In Trustees of Newburgh v. Galatian (4 Cowen, 340) the defendants gave a bond indemnifying the plaintiffs against all actions, suits, costs, etc., for or by reason of the construction of a road. The action was brought to recover for expenses incurred by *Page 253 the plaintiffs in the defense of a groundless suit brought in consequence of the improvement made. It was held that it was sufficient to bring the case within the condition of the covenant of indemnity that the plaintiffs were prosecuted for acts done in the prosecution of the work, whether the claim against them was well founded or not. This case has never been overruled but has been cited with approval by this court in Corcoran v. Judson (24 N.Y. 106). The same doctrine was held in Chilsen v.Downer (27 Vt. 536) where, on a bond indemnifying against liability for costs and expenses in consequence of levying an attachment on certain property, plaintiffs were allowed to recover the expense of a suit against them in which they succeeded.
There is another question in this case which, though not requisite to be authoritatively decided, it is necessary to consider, for on what is claimed to be its proper answer great stress is laid by the appellant, that is, how far an adverse determination in the action defended by the plaintiff would affect the defendant when the former made his claim upon it. It is asserted that a recovery against the plaintiff would not be any evidence in an action by him against the defendant. Now, I think the law is well settled to the contrary. The general rule seems to be that where one party either by express contract or by a rule of law is obliged to indemnify another against some liability, if the party indemnified gives notice to his indemnitor of the institution of an action against him for such liability, the indemnitor is concluded by the recovery of the judgment against the party indemnified. There are numerous cases in this state supporting this doctrine. (See 2 Sedgwick on Damages, § 805; Kip v. Brigham, 6 Johns. 157; S.C., 7 Johns. 168; Beers v. Pinney, 12 Wend. 309; Thomas v.Hubbell, 15 N.Y. 405; Konitzky v. Meyer, 49 N.Y. 571;Dubois v. Hermance, 56 N.Y. 673; Village of Port Jervis v.First National Bank, 96 N.Y. 550; Carleton v. Lombard, Ayres Co., 149 N.Y. 137.) In Thomas v. Hubbell (supra) this court said: "It is, however, well settled, that where parties sustain the relations which existed *Page 254 between the parties to this suit, that the party entitled to be indemnified may throw upon the indemnitors the burthen and risk of the primary litigation, by giving to them the opportunity of defending the original suit. It then becomes the defense of the indemnitors, and they are concluded by its result, at least in the absence of fraud or collusion between the prosecuting party and him whom they are bound to defend." In Konitzky v. Meyer (supra) it is said: "The position of the counsel, that an underwriter is not bound by a suit brought against the party he is bound to indemnify, in the absence of a provision in his contract to that effect, cannot be sustained either upon principle or authority. The law is otherwise." The case ofInsurance Companies v. Thompson (95 U.S. 547) is strictly in point. There the plaintiffs in error insured the defendants in error against loss by fire on distilled spirits in a bonded warehouse, as to which the defendants had given a bond to the United States to secure the payment of the tax. The companies contended that because the spirits were destroyed by fire the government could not recover the tax. It was held that a recovery by the government of a judgment against the insured on their bond was conclusive on the companies, they having received notice of the suit and having declined to defend it. Hence, in case of a recovery against the plaintiff all he would have to do in an action against the defendant for indemnity against that recovery would be to show that the claim against him was of a character falling within the terms of the policy and the judgment against him would conclude the defendant on the question of liability. Therefore, the argument that it is unreasonable to attribute to the defendant an obligation to defend every baseless or ill-founded claim against the plaintiff entirely falls when it is considered that those claims, baseless and without merit as they might be, if unsuccessfully defended by the plaintiff would conclusively impose liability against the defendant for the amount recovered on them. The expenditure made by the plaintiff has directly inured to the benefit of the defendant. Had he failed to vigorously contest the claims *Page 255 the defendant would be mulcted in many times the sum now sought to be recovered from it. If the covenant to defend is equally capable of two constructions it should be construed most favorably to the insured. This is an elementary rule. Within this rule (I think it is not at all necessary to invoke the rule) the defendant broke its covenant in failing to defend the suits against the plaintiff and is liable for the damages caused by such breach.
There is this further consideration to be borne in mind in construing the agreement of the policy with reference to defending suits. It is not only an agreement independent of that for indemnity against claims, but by it the defendant acquired additional rights as well as assumed additional obligations. As we have recently decided in the case of Dunn v. Uvalde AsphaltPaving Company (175 N.Y. 214) a party indemnified is not bound to await the adverse decision of an action brought against him, but may pay the claim even without suit, of course taking the risk of establishing in the action against his indemnitor the facts on which the liability proceeded as well as the reasonableness of the amount paid. By the agreement referred to the plaintiff lost this right and absolutely surrendered his defense of claims to the insurance company. As for example, the policy provided that the liability of the company to the plaintiff on a single claim should not exceed the sum of five thousand dollars. The plaintiff might be sued for a sum far in excess of five thousand dollars (in this case each claim exceeded that amount). If he deemed the claim well founded he might be willing to effect a settlement by paying a less sum and taking his chance of proving the propriety of the payment in his action against the defendant. But of this right he was deprived by the terms of the policy. The defendant alone could determine whether the case was to be settled, and by an unwise contest the plaintiff might be mulcted in a sum largely in excess of his insurance, liability for which could have been avoided had he been permitted to negotiate for an adjustment of the claim. Therefore, the plaintiff surrendered substantial rights in consideration *Page 256 of the defendant's covenant to assume the defense of suits and that covenant should receive a fair and reasonable construction.
PARKER, Ch. J., BARTLETT, J. (and GRAY, J., in memorandum), concur with O'BRIEN, J.; VANN and WERNER, JJ., concur with CULLEN, J.
Order reversed, etc.