Loftin v. United States Fire Insurance

Felton, Chief Judge, and Frankum, Judge,

dissenting. The policy provision as to duty to defend is plain and unambiguous. It is: “With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the company shall (a) defend any suit against the *298insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent. . .” (Emphasis added). Stated otherwise the above provision means that the insurance company agrees to defend any suit against the insured which shows upon its face a state of facts which brings the case within the coverage of the policy. The major premise is that the policy obligates the insurance company to defend any suit against the insured which alleges facts showing policy coverage and the liability of the company to pay the judgment if one should be obtained. As to meaning of “such injuries,” see Marshall’s U. S. Auto Supply v. Maryland Cas. Co., 354 Mo. 455, supra. Wilson v. Maryland Cas. Co., 377 Pa. 588 (105 A2d 304, 50 ALR2d 449).

The decisions are overwhelming to the effect that under such a policy the company is bound to defend if the allegations of the suit against the insured show policy coverage, and it makes no difference whether the company knows true facts which make the case groundless or fraudulent. The agreement to defend groundless or fraudulent actions where the suit shows coverage is superfluous as there would be a duty to defend even groundless suits if the suits showed coverage. If knowledge of the true facts does not relieve the insurance company of the duty to defend in such a case we cannot see why it would obligate the insurance company to defend where the suit did not show coverage. It did not agree to do so and the contract cannot be so construed. In McGettrick v. Fidelity &c. Co. of N. Y., 264 F2d 883, 886, it is stated that in cases alleging facts not covered by the policy there is no express agreement as to the duty to defend and that the rights of the parties must be determined by fairly construing the insurance contract in such a way as to carry out its intended purpose. This is the primary fallacious rationale in the majority opinion. The court stated in McGettrick v. Fidelity &c. Co. of N. Y.: “The conclusion that because the insurance company is bound to defend a suit alleging a claim covered by its policy, when in fact the incident giving rise to the claim was outside the scope of, or was expressly excluded from coverage, therefore the company is excused from defending a suit *299alleging facts not covered by the policy, is a non sequitur. In the former case, the express agreement to defend is controlling. In the latter case, there is no express agreement as to the duty to defend, and the rights of the parties must be determined by fairly construing the insurance contract in such a way as to carry out its intended purpose.” Such reasoning is utterly fallacious. If a contract stipulates that we will buy all of the Elberta peaches one produces, the obligation to buy other varieties is positively excluded. An agreement to defend suits showing coverage on their faces is not an agreement to defend any other kind and is a contract that there is no duty to defend any oth&r kind. This is not an ambiguous contract nor one in which the intention of the parties is not clear from the express terms of the agreement. Why should knowledge of the truth be denied an insurance company as an escape in one kind of case and in another be forced on it against its express agreement? What has become of the old axiom, “expressio unius est exclusio alterius” (the expression of one thing is the exclusion of another) ? See Black’s Law Dictionary (4th ed.); 17 C.J.S. 730, Contracts, § 312; 3 ALR Dig. 720, Contracts, § 214; 12 Am. Jur. 765, Contracts, § 239; 3 Corbin on Contracts 276, Ch. 25; 2 Elliott on Contracts 815, § 1533, and cases cited therein. “The court will not, by inference, insert in a contract implied provisions with respect to a subject for which the contract has expressly provided.” Broom’s Legal Maxims (8th ed.), p. 510. “An obligation should not be. implied in a written contract, unless, on considering the express terms reasonably, an implication necessarily arises that both parties must have intended that the obligation should exist. A court when called upon to imply an obligation which is not expressed must take care that it does not make the contract speak where it was intentionally silent, and above all that it does not make it speak entirely contrary to what, as it may be gathered from the whole terms and tenor of the contract, was the intention of the parties.” Ibid., p. 518. An agreement to defend one kind of lawsuit cannot mean an obligation to defend two kinds. In Hardware Mut. Cas. Co. v. Hilderbrandt (1941, CA 10th Okla.) 1191 F2d 291, the court stated a hypothetical case in an effort to show that it would be *300unconscionable for an insurance company not to be held obligated to defend when the insurance company knew that the true facts would have shown coverage while the suit alleged facts showing no coverage. The following hypothetical case was stated (p. 299): “A owns two automobiles, a Ford and a Nash. The Ford is covered by the policy of the company but the Nash is not. A, while driving the Ford, negligently injures a third party and this party brings an action for damages alleging that A was driving the Nash. A notifies the company of the accident, furnishes it a copy of the petition, and explains to it that the car actually involved in the accident was the Ford and not the Nash. The company shuts its eyes to the information given to it by A as to the car actually involved in the accident, relies solely upon the allegations of the petition, makes no investigation of the facts and circumstances, denies liability and refuses to defend except upon a non-waiver which A declines to give. A undertakes the defense of the action with counsel of his own and negotiates a prudent settlement for a stipulated sum which he pays, and then makes demand upon the company to reimburse him which it declines to do, taking the position that there is no coverage as reflected by the allegations of the petition.”

The above hypothetical case may have some relevancy under the policy terms involved in the Hilderbrandt case because there the insurance company did not confine its duty to defend to cases where policy coverage was alleged in the suit. There the policy provided (p. 293): “The Company . . . agrees ... to defend in his name and behalf any suit against the assured seeking damages on account of such injury, even if such suit is groundless, false or fraudulent. . .” “Such injury” refers to the obligation to insure the insured against liability imposed by law for damages for death or bodily injuries accidentally sustained on the hotel premises by any person or persons other than employees of the insured. So the hypothetical asked by the court in the Hilderbrandt case is not relevant in this case (and it was not relevant in the McGettrick case) because in that case the insurance company did not agree exclusively to defend suits which alleged coverage, as the company did in the *301McGettrick case and in the instant case. So we shall attempt to answer the hypothetical under the provisions of the instant policy as the majority seems to count on it in its decision. If the agreement to defend applies only to suits which alleged coverage the insurance company has a perfect right to stand on that contract so long as the allegations in the suit showed no coverage. The insurance company owed nobody a duty to have the allegations changed. It would have been obligated to defend if the allegations had been changed and it was notified in time to defend. The simple answer to this argument is first, that so long as the policy provision was not against public policy the insurance company could stand on its contractual rights; second, in such circumstances the insured in the exercise of sound judgment and ordinary prudence could advise the plaintiff of the mistake as to the particular automobile involved so that the suit could be amended to show coverage. The insured could do this without breaking faith with the insurance company in the matter of cooperation. If he stuck to the truth he could insist on the insurance company’s defending the suit. He would not have to jeopardize his position of being without fault in the incident giving rise to the suit. He coüld still say that it was the covered automobile that was involved and still deny liability. When the insurance company refused to defend, the insured should look after his own interest and get his own attorney. We presume that he would have one who would have the integrity and character to advise him to endeavor to have the plaintiff know the truth and amend the suit. Any other conclusion would stultify the principles of justice and destroy the time-honored rights of parties to contract within the bounds of public policy and the faith in courts of justice which are the foundations of our faith in the doctrine of government by law as opposed to government by men in misguided efforts to circumvent the rales of law to do what seems to be justice in an individual case. It is simply impossible to make any reasonable application of the Hilderbrandt facts to those present in the Mc-Gettrick case.

Another unfounded statement in the McGettrick case is as follows: “The language of the policy says nothing about state*302ment of claims, or allegations in pleadings filed in lawsuits. . .” The policy in that case provides: “As respects the insurance afforded by other terms of this policy the company shall (a) defend any suit against the insured alleging such injury . . . and seeking damages on account thereof, even if such suit is groundless.” (Emphasis supplied). To quote the provision of the policy is alone sufficient to refute the court’s statement.

In Liberty Mutual Ins. Co. v. Atlantic C. L. R. Co., 66 Ga. App. 826 (19 SE2d 377), there was no agreement to defend only suits showing policy coverage. In Mass. Bonding Ins. Co. v. Roessler (Tex. Civ. App.) 112 SW2d 275, the policy provision was different from the instant one in that in that case the insurance company promised “to defend . . . suits brought on account of such claims, whether or not they are groundless. . .”

In Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, the report of the case does not show that the allegations of the injured party’s petition were not within the coverage of the policy.

Morgan v. New York Cas. Co., 54 Ga. App. 620, supra, is not contrary to the position here taken.

In Marshall’s U. S. Auto Supply v. Maryland Cas. Co., 354 Mo. 455, supra, the allegations, rather than the true facts, controlled the duty to defend.

In Wilson v. Maryland Cas. Co., 377 Pa. 588, supra, the court construed the exact provision here involved to mean that the allegations controlled and not the true facts.

We construe the ruling in University Club v. American Mutual Life Ins. Co. of Boston, 124 Pa. Super. 480, supra, to mean that the suit alleged coverage under the policy.

The duty of defending groundless suits does not extend obligation to suits outside coverage. Wilson v. Maryland Cas. Co., 377 Pa. 588, supra; Socony-Vacuum Oil Co. v. Continental Cas. Co., 144 Ohio St. 382 (59 NE2d 199) (dictum); Gilmore v. Royal Indem. Co., 31 Ohio Ops. 287; Soper v. Fidelity & Cas. Co., 101 NYS2d 581 (198 Misc. 1117); Ocean Accident &c. Corp. v. Washington Brick &c. Co., 148 Va. 829 (139 SE 513); Boyle v. National Cas. Co., 84 A2d 614, 616. See also cases cited in *303Marshall’s U. S. Auto Supply v. Maryland Cas. Co., 354 Mo. 455, supra.

The second of the principal fallacies in the majority opinion is the erroneous conception of what is a groundless suit. In our opinion a groundless suit is one that affects the liability of a defendant and not one which merely alleges some false facts which apply to the coverage of an insurance policy. False facts pertaining to coverage might not cut any figure at all insofar as the liability of a defendant to a plaintiff is concerned. For example, a defendant may have injured a plaintiff by the negligent operation of a Ford automobile which was not covered by an insurance policy, whereas the facts in the case may have shown that the defendant injured the plaintiff in the negligent operation of a Chevrolet automobile which was not covered by an insurance policy. The divergent facts in the case would not affect the liability of the defendant for negligence. A groundless suit is one which states false facts upon which the liability of a defendant is based. Whether.the facts show coverage or not has nothing to do with the liability of the defendant. The majority opinion in its beginning makes the following statement: “The insurer must defend these suits for the reason that it has expressly obligated itself to do so by the insurance contract containing the common provision that the insurer will defend even groundless, false or fraudulent suits,” and the opinion cites five cases to support its statement. We do not agree that any one of the cases cited in support of the statement actually supports it. The first citation does not support it for the reason that the duty of the insurance company to defend is based on an erroneous interpretation of the provisions of the policy and is not based on the agreement to defend groundless suits. The cases cited either do not have the same provision involved in the instant policy or they are cases which allege coverage. The majority gives as an example of a groundless suit one which alleges injury and damages arising out of the use of an insured automobile, when in truth the automobile involved was another automobile owned by the insured and not covered by the policy. This is not a groundless suit under the true meaning of the words “groundless suit.” Another example given by the ma*304jority is a suit alleging that the insured automobile was being driven by the wife of the insured, which would be covered by the policy, when in truth, the automobile was being driven by an employee in the insured’s business, under which facts the insured’s liability is excluded. This is not a groundless suit because the defendant in the case would be liable whether the incident was covered by the insurance or not.

The following cases are in accord with the above opinion, that where there is a conflict between the allegations in a suit against the insured and the true facts as known to or ascertainable by the insurer the allegations in the complaint determine the insurer’s- duty to defend: Equity Mut. Ins. Co. v. Southern Ice Co., 232 Ark. 41 (334 SW2d 688); Lamb v. Belt Cas. Co. (1935) 3 Cal. App. 2d 624 (40 P2d 311); Remmer v. Glens Falls Indem. Co. (1956) 140 Cal. App. 2d 84 (295 P2d 19) (dictum); Boyle v. National Cas. Co., 84 A2d 614, supra; Fesenden School, Inc. v. American Mut. Liability Ins. Co. (1935), 289 Mass. 124 (193 NE 558); U. S. Fidelity &c. Co. v. Yazoo Cooperage Co. (1930) 157 Miss. 27 (127 S 579); Southern Farm Bureau Cas. Ins. Co. v. Logan, 238 Miss. 580 (119 S2d 268); Goldberg v. Lumber Mut. Cas. Ins. Co. (1947) 297 NY 148, (77 NE2d 131); Lee v. Aetna Cas. &c. Co. (1949, CA2d NY) 178 F2d 750; Bloom-Rosenblum-Kline Co. v. Union Indem. Co. (1929) 121 Ohio St. 220, supra; Gilmore v. Royal Indem. Co., 31 Ohio Ops. 287, supra; Thomas v. American Universal Ins. Co. (1952) 80 RI 129 (93 A2d 309); Heyward v. American Cas. Co. (1955 DC SC) 129 FSupp. 4; General Ins. Corp. v. Harris (Tex. Civ. App.) 327 SW2d 651; Albuquerque Gravel Products Co. v. American Employers Ins. Co. (CA 10 NM) 282 F2d 218; Lawrence v. Northwest Cas. Co., 50 Wash.2d 282, supra; Wilson v. Maryland Cas. Co., 377 Pa. 588, supra; Socony-Vacuum Oil Co. v. Continental Cas. Co., 144 Ohio St. 382, supra; Soper v. Fidelity & Cas. Co., 101 NYS2d 581, supra; Ocean Acci. &c. Corp. v. Washington Brick &c. Co., 148 Va. 829 supra; Marshall’s U. S. Auto Supply v. Maryland Cas. Co., 354 Mo. 455, supra. See also, 7A Appleman, Insurance Law and Practice, § 4683.

We think the provision in the insurance policy is clearly un*305ambiguous and easily understandable in the words used. We do not think that this court, or any other court has any right to alter the plain and unambiguous provision of a contract so long as the same is not violative of the public policy of this State. We think that the judgment of the trial judge should be affirmed.