FIREMAN'S FUND INSURANCE COMPANY and the Insurance Company of the State of Pennsylvania,
v.
NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY.
No. 534.
Supreme Court of North Carolina.
February 3, 1967.*516 Dupree, Weaver, Horton, Cockman & Alvis, Raleigh, for plaintiff appellants.
Broughton & Broughton, Raleigh, for defendant appellee.
LAKE, Justice.
Each of the plaintiffs, by its policy, contracted with Jerry Denning to do two different things. First, it contracted to pay on his behalf all sums for the payment of which he became legally liable, because of bodily injury sustained by any person arising out of the use of an automobile not owned by him, to the extent that such liability exceeded other valid and collectible insurance and did not exceed the limit fixed by its policy. Second, it contracted to defend, at its expense, on his behalf, any suit, even though groundless, brought against him, alleging such bodily injury and seeking damages payable under the terms of the policy.
It will be observed that the first of these undertakings requires the plaintiff company to step into the shoes of Jerry Denning and pay a sum for the payment of which he became liable. The second undertaking is not of that nature. In the performance of it the company does not step into the shoes of the policyholder. Its liability under that undertaking is not contingent upon the existence of a liability on his part, and its performance of that undertaking does not impose any liability upon him. That undertaking is absolute.
The attorneys employed to defend such suit were selected by the company and looked to it for their compensation. At no time did Jerry Denning have any liability to the attorneys. He made no payment to them. He, therefore, never had a right of recovery, against any person or organization, because of fees paid to these attorneys. Consequently, the subrogation provisions of the policies issued to him by the plaintiffs have no application, since they provide only that the issuing company will be subrogated "to all the insured's rights of recovery" for any payment made by the company.
The plaintiffs are, therefore, not entitled to recover of the defendant in this action unless, as a matter of law, apart from these subrogation clauses, there is a right in the plaintiffs to such recovery.
It is elementary that provisions of an insurance policy, if ambiguous, are to be construed in favor of the insured. Anderson v. Insurance Co., 266 N.C. 309, 145 S.E.2d 845; Walsh v. Insurance Co., 265 N.C. 634, 144 S.E.2d 817; Mills v. State Life & Health Insurance Co., 261 N.C. 546, 135 S.E.2d 586.
The policy issued by the defendant provided, "with respect to such insurance as is afforded by this policy for bodily injury liability," the defendant would defend *517 any suit against the insured (i. e., Jerry Denning), alleging such injury and seeking damages on account thereof, the expenses of defending such suit to be "in addition to the applicable limit of liability of this policy." When this provision in the defendant's policy and the above mentioned "excess insurance" provisions of the plaintiffs' policies are construed in favor of Jerry Denning, it is apparent that the "excess" clauses of the plaintiffs' policies relate to the amount to be paid in discharging the liability, if any, of the insured to a third party claimant. Irrespective of the existence of other insurance available to Jerry Denning, each of the plaintiffs, by its own policy, came under a duty to him to defend on his behalf a suit against him by a third party claimant, even though groundless, if in such suit the third party claimant alleged facts which, if true, imposed upon Jerry Denning a liability to such claimant within the coverage of such plaintiff's policy.
If the complaint of Edith Denning alleged a right to recover damages within the liability coverage afforded to Jerry Denning by the policy issued by either plaintiff, its duty to defend on his behalf, at its expense, such suit was absolute and was separate and apart from any right in him to call upon the defendant for such a defense. He was entitled under the several policies to demand of each, or all, or any two, of the companies a full and complete defense against the suit so brought against him. As to him, none of the three promises to defend was "excess" protection or secondary to the undertaking of either of the other two companies, assuming the claim of Edith Denning to be within the liability coverage of all of the policies.
These contractual obligations of the three insurance companies to defend a suit brought against Jerry Denning do not arise out of a single contract to which all three companies are parties either jointly or severally, or primarily or secondarily. The obligation of each company arises out of its own, separate contract and is an absolute, unqualified undertaking to defend on behalf of Jerry Denning a suit brought against him.
It was the defendant in this action, not the plaintiffs, who brought to a conclusion the suit of Edith Denning against Jerry Denning. It did so without any loss or liability to Jerry Denning. He has paid no attorneys' fees and never incurred an obligation to do so. Under these circumstances, the record shows no damage sustained by Jerry Denning as a result of the defendant's original refusal to defend on his behalf the suit brought by Edith Denning. Jerry Denning, therefore, did not have and does not have a right to recover damages from the defendant. Since the second theory of the plaintiffs' complaint is that they are, by operation of law, "subrogated to the right of Jerry W. Denning against the defendant," their right of recovery in this action can rise no higher than his.
The record in this action does not show anything concerning the nature and extent of the services rendered by the attorneys employed by the plaintiffs except: They "appeared" for Jerry Denning, from which it may be inferred that they filed answer on his behalf; they took an adverse examination of Edith Denning, by which they determined to their satisfaction that her claim was not within the liability coverage afforded to Jerry Denning by the policies of the plaintiffs; and they, thereupon, moved for and obtained leave of the court to withdraw as counsel for Jerry Denning. There is in this record nothing to indicate that the defendant received the benefit of any legal research or of any investigation made by the attorneys, or that the defendant's settlement and disposition of the Edith Denning suit was facilitated in any way by the services of the attorneys so employed by the plaintiffs. Thus, the plaintiffs are not entitled to recover upon any theory of benefits derived by the defendant from such services.
*518 It is to be noted that in her suit Edith Denning demanded damages far in excess of the maximum amount which the defendant would, by its policy, have been obligated to pay upon any judgment recovered by her against Jerry Denning. The plaintiffs, therefore, had an interest of their own to protect in her action and were entitled to employ attorneys to participate in its defense for that purpose. Fees paid to attorneys employed for such purpose could not have been recovered from the defendant if the defendant, itself, had also undertaken the defense of the action on behalf of Jerry Denning. See McCabe v. Assurance Corp., 212 N.C. 18, 192 S.E. 687.
Upon this record, we do not reach and do not undertake to decide the interesting question of the right of an "excess" liability insurer to recover from a "primary" liability insurer its expenditures in defending to a conclusion an action against a person insured by both upon a claim within the coverage of the policies of both, the "primary" liability insurer having failed to settle or to defend the action. That question has not yet been determined by this Court. The authorities from other jurisdictions are in conflict. Holding that the "excess" insurer is not entitled to recovery from the "primary" insurer in absence of a specific contractual provision, see: United States Fidelity & Guar. Co. v. Tri-State Ins. Co., 10 Cir., 285 F.2d 579; Continental Casualty Co. v. Curtis Pub. Co., 3 Cir., 94 F.2d 710; United States Fidelity & Guaranty Co. v. Church, 107 F. Supp. 683. Allowing recovery by the "excess" insurer, see: American Surety Company of N. Y. v. Canal Ins. Co., 258 F.2d 934; Employers' Liability Assur. Corp. v. Indemnity Ins. Co., 228 F. Supp. 896; Continental Casualty Co. v. Zurich Insurance Co., 57 Cal. 2d 27, 17 Cal. Rptr. 12, 366 P.2d 455, reversing Financial Indemnity Co. v. Colonial Insurance Co., 132 Cal. App. 2d 207, 281 P.2d 883; National Farmers U. Prop. & Cas. Co. v. Farmers Ins. Group, 14 Utah 2d 89, 377 P.2d 786. See also: 7A Appleman, Insurance Law and Practice, § 4691, and American F. & C. Co. v. Pennsylvania T. & F. M. Cas. Ins. Co., 5 Cir., 280 F.2d 453, footnote 11, in which other authorities pro and con are collected.
Since, upon the facts in this record, the trial court properly held that the plaintiffs are not entitled to recover any amount from the defendant on account of attorneys' fees paid by them, it was not necessary for the trial court to determine the reasonableness of the fees so paid, or to determine what portion thereof was paid for services rendered in establishing that the claim of Edith Denning was not covered by the policies issued by the plaintiffs. The assignment of error with reference to the court's failure to find that the amount so paid by the plaintiffs was the reasonable value for services rendered by the attorneys in defending the action is, therefore, not sustained. This is not to be deemed a suggestion that the fees exceeded the value of the services rendered by the attorneys to the plaintiffs.
Affirmed.