According to the allegations of the complaint the defendant, on the 10th of December, 1918, issued to the plaintiffs a policy of automobile insurance indemnifying them to the extent of $5,000 against loss by reason of an accident resulting in injuries or death to any one person; that the policy provided, among other *Page 250 things, if an accident occurred immediate notice of the same should be given to the insurance company, and if an action were brought against the assured to enforce a claim on account of such accident, they would forward to it the summons or other process served; that the company would, at its own cost, investigate all accidents and defend all actions, even if groundless, of which notice were given, unless it elected to settle the claim or action; that it would not be responsible for any settlement made or any expenses incurred by the assured, unless such settlement or expenditures were first specifically authorized in writing, except that the assured might provide, at the time of the accident, at the expense of the company, such immediate surgical relief as was imperative; that thereafter, while the policy was in force, and the plaintiffs were driving or in control of the automobile mentioned therein, it ran into one Jane O'Neill and caused her personal injuries, to recover for which she brought an action for $40,000, damages alleged to have been sustained, and her husband, James O'Neill, also brought an action to recover $10,000 for loss of her services; that the assured complied with the conditions of the policy by giving the company notice of the accident and delivering to it the summons and other papers served for the commencement of the actions; that the company thereupon took charge of the defense of the actions, appeared for and represented the plaintiffs herein (the defendants therein), prepared the actions for trial and assumed entire charge of the defense; that after the actions had been commenced and prior to the trial of the same, these plaintiffs made a full and fair statement to the company of all the circumstances known to them concerning said accident, which facts were verified by its own investigation, and these plaintiffs and this defendant reached the conclusion that the actions ought to be settled; that the injuries sustained by Mrs. O'Neill were much more serious than had at first been thought; that *Page 251 before the trial of the actions, and after this defendant had ascertained the facts connected with the accident, these plaintiffs were informed that a settlement of both actions could be had for $6,500, and the insurance company was advised of that fact; that it agreed with these plaintiffs that the actions should be settled and that the offer made for that purpose ought to be accepted; that if such settlement were made it would pay $3,500 if these plaintiffs would pay the balance, which they refused to do, insisting that the insurance company should pay the full amount of its liability under the policy ($5,000) and they would pay the balance ($1,500); and that the insurance company declined the proposition and insisted upon a trial.
The complaint further alleged that both actions were tried and a verdict rendered in favor of Mrs. O'Neill for $20,000 and in favor of Mr. O'Neill in the sum of $500.
The insurance company paid the full amount of its liability, $5,000, and these plaintiffs, in order to prevent their property being levied upon under an execution, paid the balance of the judgments, $15,500, and then instituted this action to recover $14,000, the difference between what it had to pay and what it would have paid if the settlement had been made.
After the service of the complaint the defendant moved for a judgment dismissing it, upon the ground that it did not state facts sufficient to constitute a cause of action. The motion was granted and judgment entered to that effect, which, on appeal, was reversed by the Appellate Division and the motion for judgment denied.
The judgment of the Appellate Division must be reversed and that of the Special Term affirmed. The complaint does not state a cause of action. The most that can be said of the facts pleaded, giving the plaintiffs the most favorable inference to be drawn therefrom, is that such facts made it "reasonably probable" that *Page 252 Mrs. O'Neill and her husband would recover more than the sum of $6,500, the amount at which they had agreed to compromise and settle their respective claims.
There are no allegations in the complaint to the effect that the insurance company was negligent either in investigating the facts connected with the accident, or in the defense of the action, not a suggestion that it was guilty of fraud or misrepresentation in any way. A contract of insurance, like other contracts, is to be construed according to the sense and meaning of the terms which the parties have used; and if such terms are clear and unambiguous, they are to be understood in their plain, ordinary and popular sense. (Imperial Fire Ins. Co. v. CoosCounty, 151 U.S. 452; Drilling v. New York Life Ins. Co.,234 N.Y. 234.) The terms here used are clear and unambiguous. The intent of the parties, if the language used be given a reasonable construction, cannot be misunderstood. There is nothing in the policy by which the insurance company obligated itself to settle, if an opportunity presented itself. It was given the option to settle, if it saw fit to do so, or to try the action, as it preferred. It, however, was under no legal obligation, either express or implied, to compromise or settle the claims prior to the trial. The plaintiffs, when they accepted the policy, did so with full knowledge of the fact, if an action were brought, that they surrendered to the insurance company absolute, full and complete control of it, including the settlement or trial. (Rumford Falls Paper Co. v. Fidelity Casualty Co., 92 Me. 574;Schmidt v. Travelers Ins. Co., 244 Penn. St. 286.) They also knew there was no provision in the policy which obligated the insurance company to pay any amount whatever prior to the rendition of a judgment. The policy was one indemnifying them "against loss or liability imposed by law." The loss or liability here provided for contemplated the liquidation of a claim, if one were made, by the rendition of a judgment unless *Page 253 the insurance company saw fit to exercise the option which it had to settle and compromise without a trial.
It is true the insurance company realized, prior to the trial, that the terms under which a settlement could be had were favorable ones and that the same ought to be accepted. It so advised the plaintiffs in writing. The advice thus given imposed upon it no legal obligation to make the settlement. It knew that its liability was limited to $5,000, and while it offered to pay $3,500 towards a settlement, that did not impose upon it the obligation to pay the full amount of the policy prior to the trial. The probability that judgments much larger than $6,500 would be recovered was as well known to the plaintiffs as to the insurance company. Each of the parties had full knowledge of all the facts. It is not suggested that the plaintiffs were misled by reason of the suppression of any of the facts by the insurance company or any fraud practiced upon them by it.
The case in principle cannot be distinguished from McAleenan v. Massachusetts Bonding Insurance Co. (173 App. Div. 100; affd., 219 N.Y. 563); Levin v. New England Casualty Co. (101 Misc. Rep. 402; affd., 187 App. Div. 935, which, in turn, was affirmed by this court, 233 N.Y. 631).
The insurance company, in refusing to settle the actions, did what it had the legal right to do under the terms of the policy.
It follows, therefore, that the order of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and the Appellate Division.
HISCOCK, Ch. J., HOGAN, CARDOZO, POUND, CRANE and ANDREWS, JJ., concur.
Order reversed, etc. *Page 254