Opinion
No. 3323.
May 5, 1942.
An insurer against liability is liable to his assured for negligence in not seasonably settling a claim, and this liability rests upon a breach of the duty of reasonable care: the assured's remedy is not in equity for exoneration but by an action at law for negligence. Such right of action accrues only after the plaintiff has suffered injury by payment and the possibility of his being compelled to pay is not itself an injury. Hence an assured, after the insurer has paid the full limit of the policy in partial satisfaction of a judgment against the assured can maintain no action at law until he has paid the excess judgment or at least until his financial status is such that the excess judgment is collectible. A declaration by the assured in such case which alleges only a debt is insufficient, and states no cause of action. The duty owed by the insurer in such case is to use reasonable judgment and decide whether to run the risk of a verdict in excess of the amount of the policy.
CASE, for negligence. Prior to and on July 22, 1937, the plaintiff was insured by the defendant under an automobile policy limited in the sum of five thousand dollars for injuries to any one person. On that date, Ann Moran was injured when she was struck by the plaintiff's car on a street in Nashua. She sued the plaintiff for $25,000 and recovered a verdict for $12,000. Upon transfer to this court, the defendant's exceptions were overruled, after which judgment went for the plaintiff Moran. The defendant herein paid $5,000 with interest and costs, leaving a deficiency of $7,060.70, of which Dumas has paid nothing, though execution has issued and demand has been made on him.
In this action the plaintiff Dumas seeks to recover $7,060.70, interest, costs and expenses on the ground that he has suffered damages in that amount because of the negligence of the insurer in failing to settle within the limits of the policy when that could have been done "if said defendant had exercised due care." In advance of trial, Lorimer, J., transferred the following questions: (1) Whether Dumas can maintain any action at law or equity before he has paid any part of the outstanding judgment; (2) Whether, if he has a right of action, that right is legal or equitable. Further facts appear in the opinion.
Edward J. Lampron (by brief and orally), for the plaintiff.
Wyman, Starr, Booth, Wadleigh Langdell (Mr. Louis E. Wyman orally), for the defendant.
The questions transferred will be answered in reversed order.
(1) The defendant claims that the right of action, if one exists, is equitable. It is argued that the defendant's obligation, if it has any, is one of indemnity and that the insured is seeking exoneration. But the defendant did not contract to indemnify the plaintiff with respect to his liability beyond the stipulated sum of $5,000, and it has performed that contract of indemnity in full by the payment of that sum, with interest and costs, and has presumably paid the expenses of the defence of the suit brought by Ann Moran. Its further liability, if any, rests upon a supposed breach of the duty of reasonable care in trying the Moran suit, rather than settling it. The remedy for such a breach is at law, not in equity. The rule of Sanders v. Insurance Co., 72 N.H. 485, does not apply except in cases where indemnity is involved. Duncan v. Casualty Co., 91 N.H. 349.
(2) A right of action for negligence accrues only when the plaintiff has suffered an injury. The possibility of injury is not injury itself. White v. Schnoebelen, 91 N.H. 273, 274, 275, and cases cited. In the case before us the injury will remain merely possible and conjectural until the plaintiff has paid the excess judgment (Cavanaugh v. Corporation, 79 N.H. 186) or at least until his financial status is such that the excess judgment is sure to be collected (Douglas v. Company 81 N.H. 371). The mere existence of an outstanding judgment, which may never be paid, is not a legal injury, for the essence of the injury in such a case is pecuniary loss. State c. Insurance Co. v. York, 104 Fed. (2d), 730, 734. What the plaintiff owes may reduce the appearance of his net worth on an accountant's balance sheet, but unless he pays his debt he is not out of pocket. The declaration is insufficient in alleging only a debt, and states no present cause of action.
Since the declaration may be amended in this respect, it may be proper to consider the defendant's argument that the declaration is defective in charging only "that if said defendant had exercised due care it could have settled said suit within the limits of said policy and thus saved the plaintiff from any financial responsibility for said accident; that said defendant recklessly, carelessly, and negligently failed to settle said suit." The question at this point is whether this is a sufficient allegation of negligence.
By the terms of the policy the defendant was obligated to defend the suit of Moran v. Dumas, but the company was given "the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the company." The company had the control of the matter of settlement, and because of that control it was bound to use reasonable care. Cavanaugh v. Corporation, supra; Douglas v. Company, supra. In substance the declaration says that the defendant negligently failed to settle.
The defendant had no positive duty to settle within the coverage, even if such settlement was possible; stated conversely, the defendant did not insure the plaintiff against a recovery of over $5,000. The duty owed was to use reasonable judgment in deciding whether to run the risk of an award in excess of that sum. Whether such judgment was used depends upon many facts involving consideration of the whole judicial process. The declaration fails to allege a single fact which is colorable as bearing upon the question of judgment. The generality of the allegation of negligence, however, is not necessarily fatal, since the defendant may have a specification in the discretion of the trial court. Merritt v. Company, 71 N.H. 493; Chesley v. Dunklee, 77 N.H. 263, 267; Brown v. Barnard, 91 N.H. 58. It is impossible to prophesy what might be the sufficiency of the facts to be alleged if any specification is filed.
Case discharged.
All concurred.