Opinion
December 11, 1914.
M.J. Wright, for the appellant.
Edward Sandford, for the Utah Consolidated Mining Company.
Walter H. Dodd, for the respondent Buffalo Housewrecking and Salvage Company.
Frank Verner Johnson, for the respondent Putnam Coal and Ice Company.
John Burlinson Coleman, for the respondent La Salle County Carbon Coal Company.
Thomas B. Hardin, for the respondent Chehalis River Lumber and Shingle Company.
Arthur W. Clement, for the respondent Wheeler.
Benjamin Reass, for the respondent Thatcher.
On December 16, 1912, in proceedings instituted under section 63 of the Insurance Law, the Empire State Surety Company was adjudged insolvent and the Superintendent of Insurance was directed to take possession of its property and liquidate its affairs. The surety company issued policies insuring against liability for damages from accidents suffered by employees of the assured and others. At least some of the policies also expressly insured against "the cost of defense in any suit" brought against the assured upon a claim for damages of the character insured against. In the form of policy appearing in extenso in the record, the provisions of which the uncontradicted statement of counsel for one of the respondents shows to have been common to all policies covering the claims involved on this appeal, it is provided that the company shall at its own cost defend, in behalf of the assured, any such suit unless it shall elect to settle; also that the assured shall not, without the previous consent of the company, incur any expense, or settle any claim, nor interfere in any negotiation for settlement or in any legal proceeding for the collection of the loss insured against. Each policy also, in substance, provided that no action should lie against the surety company unless brought by the assured to reimburse himself for moneys actually paid in settlement of a claim against the assured, either after final judgment in a suit brought against him, or after settlement of the claim asserted in behalf of the injured party before or after judgment thereon, but then only on the written approval of the Empire Company.
In the case of each of the claims in question an accident had occurred prior to December 16, 1912, which was or might have been within the terms of the policy, and a suit was pending against the assured on said date to recover the damages resulting from such accident. In the case of the respondents Chehalis River Lumber and Shingle Company, La Salle County Carbon Coal Company, Edwin H. Thatcher, and Putnam Coal and Ice Company, judgments had prior to December sixteenth been obtained against the assured, but an appeal had either been taken or was contemplated. In no other case had a judgment against the assured been obtained on December 16, 1912. In none of the cases had the assured prior to December 16, 1912, actually satisfied his liability for the accident, although all assert and produced evidence tending to show that the claims had been discharged by the assured by payment in full by or settlement subsequent to December sixteenth.
Many holders of policies similar to the above filed claims with the Superintendent, who rejected them, including the eight claims represented by the respondents on this appeal. On motion to confirm the report the learned justice at Special Term held that the claims were contingent, and that the surety company was not liable thereon on December 16, 1912, the date of the insolvency order, but by virtue of the discretion with which the court is invested under section 63 of the Insurance Law he extended until December 31, 1913, the time within which the claimants might prove the happening of events which would perfect their claims as debts of the Empire Company. If we were to follow the ruling below and hold that the claims in suit were contingent, it would be difficult to sustain the order appealed from, for such a ruling would be tantamount to fixing different and discriminatory dates within which contingent and unprovable claims might be ripened and permitted to participate in the division of the fund, a result completely out of harmony with the established principles of justice governing the distribution of the assets of insolvents prevailing either in courts of equity or wherever jurisdiction over such distribution is exercised. It is doubtful whether the Legislature itself could establish a rule so offensive to the rights of others interested in the fund. ( People v. Metropolitan Surety Co., 205 N.Y. 135, 145; Lothrop v. Stedman, 13 Blatchf. 134.) In the case of People v. Commercial Alliance Life Ins. Co. ( 154 N.Y. 95) it was held that the claims of policyholders of a life insurance company should be determined as of the date of the commencement of the insolvency proceedings against the company, and, overruling a number of previous cases, decided that where the death occurred subsequent to that date claimants could not prove for a death loss, but for the surrender value of the policy only. This was but an application of the general and equitable rule that "equality is equity," and brought the law in this State into harmony with that of other jurisdictions. Having regard for the nature of the contract of life or fire insurance there can be no doubt of the correctness of the decision. But I do not think that the equitable rule is so indiscriminating as to fail to distinguish between claims which are wholly contingent, having in fact no basis on which to rest at the time when jurisdiction is assumed over the fund, and claims which are merely unliquidated, or where the determinative circumstance has in fact occurred and what remains to be done relates merely to its judicial ascertainment or to the ascertainment of the resultant damages. In this respect, however, it will be noticed that the losses involved in the four claims hereinbefore specifically named had been reduced to judgment before the liquidation order was entered. Subdivision 3 of section 63 of the Insurance Law, passed some years after the decision in the Commercial Alliance Life Ins. Co. case, provides: "The rights and liabilities of any such corporation, and of its creditors, policyholders, stockholders and members, and of all other persons interested in its assets, shall, unless otherwise directed by the court, be fixed as of the date of the entry of the order directing the liquidation of such corporation * * *." (See Consol. Laws, chap. 28 [Laws of 1909, chap. 33], § 63, subd. 3, added by Laws of 1909, chap. 300, as amd. by Laws of 1912, chap. 217.) In my opinion these words are no more than a codification of the rule of procedure in equity, precedents for which must be within the memory of every practitioner of experience. The term "rights and liabilities" is very broad, and as used in the statute I cannot construe "liabilities" to mean debts, a meaning which has sometimes been given to it where the situation so required. To give it that interpretation here would force us to hold that the words "unless otherwise directed by the court," were practically meaningless because the court could not, at least as I have shown, without violating a basic principle of right, fix different dates for the recognition of different debts, or different classes of debts, as claims upon the fund. In the case of each of the claims before us the loss insured against had happened. This was exactly what had not occurred in the Commercial Alliance Life Ins. Co. case. To assure itself of greater protection, the surety company in the policies on which the present claims are founded, provided that "no action shall lie" against it, unless to reimburse the assured for the actual payment of a judgment obtained against him or in satisfaction of a compromise or settlement of the loss before or after judgment, and with the company's consent. Many cases may be found where this or a similar provision has been successfully invoked by the insurer in actions on the policy, and doubtless in opinions in such cases phrases can be found to the effect that until the happening of the stipulated event the insurer is under no liability to the assured. But such decisions are not, I think, controlling upon us in this matter. Between the incurring of the loss insured against and the right of the insured to sue the insurer therefor, there is a substantial distinction, one which lies at the very root of the question before us. It needs but little imagination to infer that the situation and equities of these claimants are of a class which was clearly in the mind of the Legislature when section 63 was adopted, and that by that section it was its intention to confirm the court's original equitable jurisdiction commonly exercised in similar cases, or at least to confer upon the court discretion to grant such claimants an opportunity to ripen their claims into debts before they should be excluded from participation in the assets of the company.
I do not regard the cases of People v. Metropolitan Surety Co. ( 205 N.Y. 135) or People v. Metropolitan Surety Co. (211 id. 107) as determinative of the present. In the former the company gave bond to pay a judgment if obtained, and none had been obtained at the time of the insolvency; in the latter the company gave bond under a statute where recovery of a judgment in an action prescribed by and conducted in accordance with the provisions of the statute was the condition on which liability under the bond attached. The principle of these cases, as I read them, is totally different from that on which rests the admission of the claims in question to rank as "liabilities." In neither case was section 63 of the Insurance Law referred to or considered.
There is another ground, however, on which I think we may confidently place our decision that the several claims in question were not contingent. When the liquidation order was entered the surety company became civiliter mortuus and its business came to an end. ( Carr v. Hamilton, 129 U.S. 252; People v. Metropolitan Surety Co., supra, 141.) From that moment it became impossible for it to perform its obligation to defend at its own cost any action brought against the assured for the recovery of damages on account of an accident or other loss covered by the policy. It would be astonishing if in this situation it should be held that the company or those representing its interests, could be permitted to insist that the assured should at its own risk and cost, and as a condition of being permitted to share in the assets of the insolvent company, proceed to do the things that the company had bound itself to do; or, having thus become incapacitated to do anything itself, that the company should be permitted, as conditions precedent to the right of the assured to any claim for loss under the policy, to urge the performance by him of provisions which prevented the assured from assuming either to defend himself or to incur any expense in that regard or to settle any claim arising on account of the loss. The law is not so unreasonable as to require such a holding. The clauses of the policy which gave to the company the right to insist that a judgment for the loss be first obtained against the assured and which prevented the assured from settling the claims without the company's consent and which bound the company to assume at its own cost the defense of actions brought against the assured, were substantial conditions of its contract, and when it became impossible for the company to perform these obligations, such clauses of the contract were no longer available. ( St. Louis Beef Co. v. Casualty Co., 201 U.S. 173; Brassil v. Maryland Casualty Co., 210 N.Y. 235; Glens Falls Portland Cement Co. v. Travelers' Ins. Co., 162 id. 399.)
The orders should be affirmed, with ten dollars costs and disbursements.
INGRAHAM, P.J., LAUGHLIN, SCOTT and DOWLING, JJ., concurred.
Order affirmed, with ten dollars costs and disbursements.