— This suit is on a policy of indemnity insurance against damages arising from personal injuries.- Because the plaintiff and defendant could not agree as to which of them should pay $150 in settlement of a personal injury case for $4000, this court must determine which of them shall bear the burden of paying $3000, with interest and costs for the same claim.
So far as necessary to a decision of this case, the facts are these: The policy in question provides that the defendant shall indemnify the plaintiff against loss by reason of liability imposed upon it by law for damages on account of bodily injuries accidentally sustained; that it will defend in the name and on behalf of the insured any suit which may be brought at any time against it on account of such injuries, including suits that are groundless, false or fraudulent; that it will pay the costs of such suit taxed, against the insured, with interest on the judgment and expenses incurred for investigations, negotiations or defense. The policy further provides that the insured shall not voluntarily assume any liability, settle any claim, or incur any expense without the consent of the company; that no action shall lie against the company to recover for any loss except for loss actually sustained and paid by the insured in money in satisfaction of a judgment after trial of the issues.
*322While this policy was in force, one D. 0. Perry was in April, 1909, injured while in plaintiff’s employ and working in its mill by reason of alleged defective machinery. No suit was brought for such injury until on November 2, 1911, two and half years after the injury, although it appears that said Perry was making some claim to this plaintiff for his injury prior to that time.. He then brought suit against this plaintiff for $4000, based on its negligence. On summons being served on this plaintiff, defendant in that case, it at once mailed the summons to this defendant at its Kansas City, Missouri, address. This defendant promptly replied, notifying plaintiff that i£ had never received any notice of Perry being injured. To this plaintiff made no reply, and, on November 17,1911, the defendant- by its attorneys again wrote this plaintiff as follows: “In the matter of the case of David O. Perry v. Carthage Stone Company, returnable to the November Term, 1911, circuit court for Jasper county, Missouri, we, as local attorneys for the Traveler’s Insurance Company are instructed to notify you that the company has been waiting to hear from you as to whether or not this case was ever reported to the Traveler’s Insurance Company; that they have no record of it and to date have not received any information from Mr. Logan as to whether the case was reported at the time. Pending the receipt of this information, they instruct us to advise your company and Mr. Logan on behalf of the Traveler’s Insurance Company that the Traveler’s Insurance Company will file through us the necessary pleadings in the case to protect against a default but that our action in so doing shall not be a recognition of liability on the part of the Insurance Company for the case, and shall be without prejudice to the rights of either party.” The Mr. Logan referred to was the secretary and general manager of the plaintiff company. To this the present plaintiff, defendant in that case, made no response *323and the case drifted along until January 5,1912, when this defendant notified plaintiff that it had, as before stated, appeared by its attorneys on notice to this plaintiff that it did not admit liability by so doing and did so to prevent the case going by default until it could determine its liability to plaintiff on account of the claimed injury, and adds: “We have been instructed by the Traveler’s Insurance Company to withdraw as attorneys in that case, and to notify you that it will be necessary for you to employ attorneys to look after and defend that case, as the Traveler’s Insurance Company has decided that it is not liable to you for the injuries alleged and sued for in that case. So you are hereby notified that we, as attorneys for the Traveler’s Insurance Co., will not.appear further in that case in the defense thereof, and that, if you desire to defend in that case you will employ attorneys to defend in your behalf.” The attorneys for this defendant formally withdrew from the case on February 19, 1912. This plaintiff, though defendant in that action, paid no attention to the case and it drifted along. About April 5, 1912, a representative of this defendant went to Carthage, Missouri, for the purpose of further investigating the status of this damage suit, repeatedly sought an interview with Mr. Logan, the plaintiff’s manager, who refused to see him but said, when called over the telephone, that he had already given all the information he had to give. In this conversation over the telephone, defendant’s representative told Mr. Logan he had interviewed Mr. Perry’s attorney and explained to him why his company had refused to defend the case on account of receiving no notice of the injury until after suit was brought and that Perry’s attorney had told him the case could be settled for $150. This evidence as to Logan’s refusal to interview this representative of defendant and what was said over the telephone was *324excluded by the court, but is here in the form of a deposition.
On the return of this representative of the defendant to- Kansas City, Missouri, this defendant wrote, under date of April 8, 1912, and plaintiff received the following letter: “I wish to formally advise you that the case of Perry against your company can be settled for $150. Inasmuch as the Traveler’s Insurance Company have declined the defense of this case, of which fact you have heretofore been informed, I desire to say that that company by way of compromise offers to pay one-half of the suggested amount of $75, for a release and a stipulation for dismissal in the ease.”
“I wish also in this connection to advise you that it is your duty to mitigate the damages as much as possible, and that your claim against the Insurance Company can only be for such amount as was necessary for you to pay in settlement of the case. ’ ’ , This letter was also excluded by the court. To this plaintiff made no reply and to'ok no action in the defense of the case whatever. At the next term of - the circuit court, on June 13,1912, a default was taken in the case of Perry against this plaintiff, and on inquiry of damages a judgment was entered for $3000. On July 8, 1912, this default judgment was, on the application of the then defendant, plaintiff here, set aside on the ground that said Perry had agreed with this plaintiff, the Carthage Stone Company, not to prosecute the case to judgment, provided this plaintiff had to suffer the loss. The case then went over to December, 1912, and, being again reached on the docket, a default was again entered and damages assessed and judgment rendered for $3000. A vigorous attempt was thereafter made by the then defendant to again have the default judgment set aside on the ground that the plaintiff, Perry, had solemnly agreed not to take any judgment against this plaintiff and led the then de*325fendant to believe that he had dismissed said case, thereby misleading this plaintiff, the defendant there, and preventing its making a meritorious and valid defense which it swore it had thereto. The refusal of the Court to set aside this second default judgment in Perry v. Carthage Stone Company was the basis of the appeal of that case to this court; 173 Mo. App. 414, 158 S. W. 887.
The present plaintiff was thereupon compelled to pay the $3000 judgment so taken against it by default with the interest and costs, and thereupon brought this suit on the policy of indemnity insurance to recover the amount so paid. The petition alleges the terms of the policy; the injury to Perry during its life; his bringing suit and the defendant’s refusal to defend same on notice; the judgment against this plaintiff and its subsequent payment. The answer sets up that no notice of the injury was given to the defendant; that Perry’s injuries were the result of his own negligence and pleaded the foregoing facts as to plaintiff’s neglect and refusal to éither defend or settle the case on the notice given to it. The plaintiff replied by general denial which included a denial that it was not negligent in causing Perry’s injury and that Perry was negligent. On the trial, plaintiff, in order to avoid the effect of the default judgment against it, assumed the burden of trying the Perry case de novo and proving its own negligence in causing Perry’s injury and disproving Perry’s negligence either as causing or contributing to his injury, using Perry as a witness for that purpose. It also admitted that its failure to defend the Perry suit was largely due to Perry’s repeated promises to it that he would not collect anything off of this plaintiff which would be a loss to it.
The question of plaintiff’s failure to give notice to defendant of Perry’s injury was contested and resolved against the defendant by the jury. This is *326binding on ns and we will not say that the finding is even against the weight of the evidence, though we can say that defendant’s claim on this line appears to have been in good faith and that the notice' which plaintiff swore, and the jury found, was mailed to defendant at its Kansas City, Missouri, address was either lost in the mail or mislaid by some clerk and failed of its purpose in affording the defendant an opportunity to investigate the facts of the injury soon thereafter. [Nat. Paper Box Co. v. Aetna Life Ins. Co., 170 Mo. App. 361, 370, 156 S. W. 740, and cases cited.]
These matters are mentioned chiefly as bearing on the question which we think is decisive of this case, to-wit, plaintiff’s failure to settle the Perry injury suit for $3:50, on defendant’s notice and permission to do so, as defendant offered to prove, and to thus limit defendant’s liability to it to that amount. Learned counsel for plaintiff does not controvert the general principle that it is the duty of one having to pay damages for which it intends to hold another liable to mitigate and minimize the damages paid so far as it can reasonable do so. They further concede that this principle is applicable to indemnity insurance contracts and the insured’s duty to settle claims against it on the most advantageous terms when it can do so without losing any of its own rights to recover against the insurer. On this point both parties cite Fidelity & Casualty Co. v. Southern Ry. News Co. (Ky.), 101 S. W. 900, as follows: “Resting this defense upon the ground that the news company was obliged to minimize in every reasonable way the damage it might recover under its contract, there is no dispute about the correctness of the legal proposition .that it is the duty of one whose contract rights are violated to do all reasonable within his power to mitigate the damage and lessen the amount of his loss. [Sutherland on Damages, sec. 88.] And if in the case before us tbe *327news company had been permitted to exercise its own judgment and discretion in tbe matter, and it could have settled the loss for $2500, but without reasonable excuse failed or refused to do so, we would have no hesitation in holding that its recovery against the insurance company must be limited to the sum for which the claim against it could have been settled.” See also this same case in 83 S. W. 620. In commenting on this authority, plaintiff, in its brief, says: “There is another reason why the rule has no application in this case. Wherever a person under the general rule now under consideration has paid a sum to mitigate his damages, he has had the right to recover that sum from the wrongdoor, but in this case appellant required the respondent to release one-half of its claim against it for damages. If the appellant had said — the case can be settled for $150 and you may settle for that amount and we will litigate the question as to whether it was our duty to defend the case, and if the issue is found against us we will agree that the judgment may be for $150 and your costs to date, and then respondent had refused to settle but let -judgment go by default for a larger sum; another question would! be presented.”
Plaintiff also concedes that although the policy provides that no liability arises except “for loss actually sustained and paid by him in money in satisfaction of a judgment after trial of the issues,” yet, if the insurer refused to defend this case after notice to it to do so, it thereby violated its contract and waived the condition requiring a trial of the issues and that the insured was then privileged to settle the case on the most advantageous terms and recover from the insurer the amount so paid. [Butler v. American Fidelity Co., 120 Minn. 157, 139 S. W. 355, 44 L. R. A. (N. S.) 609; St. Louis Dressed Beef & Pro. Co. v. Maryland Casualty Co., 201 U. S. 173, 50 L. Ed. 712.] The purport of these cases is that the refusal of the insurer *328to defend a case with, the insurer’s knowledge of that fact gives the insured a right to make settlement of the case or to try it in good faith, having in view the principle that the insured should so deal with the case as to minimize as much as reasonable the damages to be charged against the insurer. In such case the insured should not of course be chargeable for any honest error of judgment or for any mistake made while acting in good faith. [Butler v. American Fidelity Co., supra.]
The privilege given by the insurer becomes a duty by the insured. The duty cast on the “holder” or owner of property to minimize the damages to which he intends to hold another, presupposes that such holder is without blame and exists even in favor of a wrongdoer and does not arise because or after the holder undertakes-to minimize the damage and is negligent in the manner or means of doing so. It is stated in 13 Cyc. 71, that: “Where an injured party finds that a wrong has been perpetrated on him, he should use all reasonable means to arrest the loss. He cannot stand idly by and permit the loss to increase, and then hold the wrongdoer liable for the loss which he might have prevented. ’ ’ And, in 1 Sutherland on Damages (3 Ed.), sec. 88, that: “The law imposes upon a party injured by another’s breach of contract or tort the active duty of using all ordinary care and making all reasonable exertions to render the injury as light as possible.” This rule applies to injuries arising either from tort or breach of contract. [13 Cyc. 72 & 75; 1 Sutherland on Damages (3 Ed.), sec. 90.]
Applying these principles to the present case, we find that this defendant declined to defend the Perry damage case and so notified this plaintiff, giving its reasons therefor based on the claimed failure of the plaintiff to give it notice of the injury promptly after its occurrence. Defendant further notified plaintiff that it would have to look after and defend that case. *329After so doing, the defendant, by its letter of Apñl 8, 1912, heretofore set ont, notified this plaintiff, the defendant in the Perry case, that snch case could be settled for $159. The letter then contains two distinct-propositions. The defendant, as insurer, offered to pay one-half of this amount and make a complete and final settlement of the whole matter. It further notified the plaintiff in case this compromise proposition was not acceptable, that it was this plaintiff’s duty to. mitigate the damages as much as possible and1 that its claim against the defendant insurance company could only be for such amount as it was necessary for it to pay in settlement of the case, to-wit, $159.' It seems plain to us that this letter and notice not only gave this plaintiff the privilege of settling this suit for $150, (its refusal to defend did that) but distinctly warned it that it was its duty to do so in order to mitigate the damages as much as possible and that its claim against the insurance company would be limited to that amount. Had this plaintiff acted on this letter and, declining the compromise feature of it, had settled the case for $150, we think no court would have hesitated a moment to have said, under the facts here shown, that the plaintiff was privileged to do so and would have denied the present defendant any defense on the ground that the plaintiff had settled the claim without its consent. It was unreasonable to say the least for plaintiff to refuse to pay $150 in settlement and without doing anything permit judgment to go by default for $3000. It is true that this defendant would have preserved its right to defend against any claim by plaintiff because of the claimed failure of plaintiff to give it notice of the injury promptly after its occurrence, but that is a right which we think it had a right to preserve. Had this defendant paid the $150 in settlement of the claim, as plaintiff contends it should, it would have had no right whatever to recover back or to make itself whole, however just and true might be *330its claim that no notice of the injury had1 been given to it. All the books hold that the relinquishment of a claim or defense is a thing of value — a valuable consideration — regardless of how worthless it may prove to be at the end of a lawsuit. The final determination has no such retrospective effect. These parties were not on an equality (except as to the proposed compromise which plaintiff could rightfully decline) with reference to the payment of the amount necessary to a settlement of this case. The plaintiff could (on declining the compromise feature for each to pay one-half in full settlement) recover from the defendant the amount so paid, provided it could make good, as it afterwards did, its claim that it had given notice to defendant of this injury. The defendant by so doing would have lost its defense.of nonliability and been put the amount so paid without chance to recover.
We do not say that this plaintiff might not under the circumstances here have refused to pay the $150 offered in settlement had it done so in good faith on the ground that the amount was unjust and excessive, or that it had a good and meritorious defense against any liability to Perry and had thereafter interposed such defense in the trial of that case. The fact that on the trial of such issues the court or jury might have found against such claim and rendered a judgment largely in excess of the offered settlement, even up to $3000, would not have necessarily prevented this plaintiff from recovering in this action the amount of such judgment with costs and expenses of defending that suit. Such action by the plaintiff might have raised a question of negligence or lack of good faith. The court in order to meet plaintiff’s view as to why it had not defended the Perry damage case gave an instruction, “C”, to the effect that when this defendant notified this plaintiff that it would not defend the Perry suit and that plaintiff should defend the same by its own attorneys, that it then became and was this plaintiff’s *331duty to make all the defenses it honestly could against the claim of Perry both as to his right to recover and the amount of the recovery; and that if it be found that plaintiff did not make a defense to such suit which it could have made honestly but let judgment go by default, then plaintiff is not entitled to recover in this case. The plaintiff was thereby excused from making any defense in that case because it knew it had no honest defense to make. If it knew this, why should it refuse to pay $150, which Perry offered to accept in settlement of the case, and let judgment go against it by default for $3000? In the Perry case this plaintiff, though sued for $4000 and warned by a previous judgment by default, set aside as a favor to it, as to the amount of damages the court would allow, refused to pay the $150 offer with no intention to raise any defense in that case and soon thereafter let judgment go by default for $3000 knowing that it would have to pay such judgment. By its refusal either to settle or defend, it chose to make the insurer’s liability to it $3000 instead of $150.
We think the facts of this case clearly bring the plaintiff within the rule conceded by it, that a person under the general rule now under consideration should pay a sum to mitigate his damages when he has the right to recover that sum from the wrongdoer; and that this defendant did in effect say to the plaintiff that this case can be settled for $150 and you may settle for that amount and we will litigate as to whether it was our duty to defend the case and if the issue is found against ns, the judgment may be for $150 and your costs to date.
The defendant offered testimony to prove that the Perry case could have been settled for $150 after defendant here had notified the plaintiff that it would not defend the case, all of which was refused. This, it is apparent from what we have above stated, was error. Defendant requested an instruction, “D”, *332along this line, hut, as all the evidence on which it was based was excluded, the court could not give the same. If - on another trial defendant’s evidence shows the facts as it now contends, and the same are not admitted or uncontradicted, an instruction along this line will he proper.
For the error of the court in refusing to submit testimony as to the alleged offer of settlement, it becomes necessary to reverse the judgment and remand the cause.
Robertson, P. J., concurs in holding that the rule as to mitigation of damages applies in this case, and in the result. Farrington, J., dissents in a separate opinion and deems the majority opinion in conflict with certain decisions of the Supreme and other appellate courts therein specified.The cause is therefore certified to the Supreme Court.