Strong v. Phœnix Insurance

Wagner, Judge,

delivered the opinion of the court.

This was an action upon a policy of insurance, brought by the plaintiffs as assignees of the party to whom the policy was issued. It appears from the petition, that in April, 1864, The United States Insurance Company, by its open policy, caused the firm of Henning & Woodruff to be insured, lost or not lost, upon all shipments made to them at and from all ports and places on the Mississippi river and its tributaries, against the perils of the seas, rivers, fires,.jettisons, and assailing thieves; that on the 9th of June, 1864, the firm of William Butler & Co., a firm identical with Henning A Wood-ruff, shipped on the steamer Progress 700 bales of cotton, of *293 the value of $280,000, at the mouth of Red River, to be delivered at Cairo; and that in the latter part of the same day the cotton was destroyed by fire, which was one of the perils insured against by the United States Insurance Company.

It is further alleged, that on the first of November, 1863, the defendant, the Phoenix Insurance Company, issued to the United States Insurance Company a policy of re-insurance, whereby it caused the United States Insurance Company to be insured, lost or not lost, in respect to all cargo risks taken or to be taken of the United States Insurance Company, from any point to any point on the Mississippi river and tributaries below St. Louis, as to any excess of such risks over $60,000, and not exceeding $80,000; that the risks, against which the defendant thus re-insured the United States Insurance Company were among other things, those of the seas, rivers and fires. There was an averment of loss by which the defendant became liable for the amount of the re-insurance, and that the fact of such loss was communicated to the defendant.

The petition then contained certain allegations relating to legal proceedings in the circuit court of the United States by Henning <fc Woodruff against the U. S. Insurance Company, which allegations were as follows: “ And the said defendant 'then and there, to-wit, at St. Louis, on the 18th of July, 1864, did request aud counsel the said United States Insurance Company to resist the demand of the said Henning & Woodruff against the said United States Insurance Company in respect of the said cotton so destroyed by fire as aforesaid on board of the said steamer Progress ; and thereupon the said United States Insurance Company did resist the demand of the said Henning & Woodruff, and did defend, the same, and after a tedious litigation, to which the defendant was from first to last privy, the said Henning & Wood-ruff, by their surviving partners, Henning & Pearce, did recover against the United States Insurance Company, on the 24th of September, 1872, by the judgment of the circuit court of the United States, for the district of Missouri, at the Sep *294 ternber term, 1872, thereof, as well the sum of one hundred and seventy-eight thousand two hundred and eighty dollars for their damages, as their costs in that behalf expended, on account of the said loss of the said cotton, so as aforesaid destroyed by fire on the steamboat Progress, on the 9th of June, 1864, all of which will and doth appear by the record of said judgment in said court remaining. And the amount so recovered as damages, as aforesaid, was made up and composed of the principal sum of one hundred and twenty thousand dollars ($120,000), and interest thereon from the 21st of August, 1864.”

The foregoing allegations were by the court stricken out..

After these allegations were stricken out of the petition, the defendant answered, denying all its material averments, admitting, however, the execution and delivery of their own policy of're-insurance. A certain agreement or stipulation was then introduced by the plaintiffs, signed by certain re-insuring companies, the defendant among the number, which stated that a claim was made upon the II. S. Insurance Company, under an open policy and agreement of Henning & "Woodruff with said insurance company, for the sum of one hundred and twenty thousand dollars for cotton burned on the steamer Progress, on the Mississippi river, on or about the 9th day of June, A. D., 1864; and as each of .the companies, signing the agreement, was bound and liable to the United States'Insurance Company to the amount of twenty-thousand dollars on cotton, for which .it was liable, as re-insured to it, to that amount each ; and as it was believed both bv the United States Insurance Company and the re-insuring-companies, that said claim was illegal and unjust, and that they desired that the same should be resisted and defended ; they, therefore, for that purpose, in consideration of the premises, agreed with the United States Insurance Company that it should retain and employ such counsel as it might deem .proper to consult, and manage the defense, and that, in case the United States Insurance Company was successful, and should not be made liable for the claim, then they would *295 each pay their pro rata proportion of the attorneys’ fees and costs; and in case the United States Insurance Company should fail in its defense and be made liable by the judgment of the court, they would each pay their equal pro rata proportion of such claim and judgment, and of the attorneys’ fees and costs. After the submission of this agreement, some parol evidence was heard, and the plaintiffs then offered the record of the suit and judgment in the United States Court between Henning & Pearce as plaintiffs, and 'the United States Insurance Company as defendant. This record was excluded by the court, and the plaintiffs took a non-suit; which the court refused to set aside.

• From the foregoing statement it will be seen, that the material issues in the ease involve the action of the court in' striking from the pleadings the allegations relating to the record of the suit.in the United States Court, and in excluding the same record when offered by the plaintiffs at the trial.' In the first place, the record of the judgment was set up in the petition, and after it was stricken out it was offered in evidence on the trial. The rule is well settled, that where the record is admissible for any purpose, it maybe used in either of those modes. It may be inserted in the pleadings, or it may be introduced in evidence with the same effect. .The general principle is, that parties only are concluded and bound by a judgment, but the term “parties” is not restricted so as to exclude all who do not appear upon the record; but it includes all who have a direct interest in the subject matter of the suit, and have a right, and have also had an opportunity to make a defense or control the proceedings. (State vs. Coste, 36 Mo., 438 ; 1 Greenl. Ev., § 523.) The rule may be succinctly stated thus.: Where one is bound to protect another from a liability, he is bound by the result of a litigagatiou to which sueh other is a party, provided he had notice of the litigation, and opportunity to control and manage it. This is the doctrine deduced from the whole current of authorities on this subject. The qualification, however, is, that where it is sought to make the judgment an estoppel, *296 the litigation must have been carried on without fraud or collusion, and conducted in a reasonable manner. (Mois Le Blanch vs. Wilson L. R., 8 Com. Pl., 227; 2 Phil. Ev., 4th Am. ed., 9, note.) The rule is so well established, and the authorities are so numerous that it is unnecessary to cite them. One of the latest cases, however, in the highest court of this country, may be noticed. In Robbins vs. The City of Chicago ( 4 Wall., 657 ; S. C., 2 Black., 418 ), one Woodbury had recovered a judgment for a large sum against the city of Chicago, as damages for personal injuries caused by falling into a hole or an area in the sidewalk, dug or made by Robbins in front of his premises,, and. by him negligently left unguarded. The city paid the judgment and sued Robbins for the amount so paid. When the Woodbury action was pending, the attorney for the city applied to Robbins to assist him in procuring testimony, and Robbins did so. On the day of the trial, and before the trial was commenced, the same attorney notified Robbins that the cause was about to be tried. On these facts it was held that Robbins was bound by the judgment obtained by Woodbury against the city. It was expressly so held on the principle stated in the opinion, that Robbins “ knew the suit was pending and could have defended it.” In writing the opinion of the court, Mr. Justice Clifford said: “Knowledge of the pendency of the suit in the most authentic form was brought home to him (Robbins), and the legal presumption is, that he was answerable over to the corporation, and if so, it must also be presumed, that he knew that he had a right to defend the suit.”

But there is a question underlying this, and that is, to find and determine in what relation the insured stood to the re-insuring company, the defendant. Mr. Parsons says that, in all cases of re-insurance, whatever may be their ground, the re-insured stands, as to his insurers, in the same relation in which the original insured stands to him. The re-insurers may make the same defenses against him, which he conld make against the original insured. (1 Pars. Mar. Ins., 299.)

The contract of re-insurance is totally distinct from, and unconnected with, the primitive insurance; the original assured *297 having no kind of claim against the re-insurer, and the reassured remains solely liable on the original insurance, and alone has a claim against the re-insurer. Therefore, where the original insurer becomes bankrupt, and the assured only gets a small dividend out of his estate, the re-insurer is still liable to pay the whole amount of the re-insurance to the assignees of the original insurer, without deducting the dividend ; and the original assured has no claim upon them in respect of the money so paid. (1 Arnold Ins., § 119 ; 3 Kent Com., 279.) It thence follows, that there is no privity between the original assured and the re-insuref, and that the liability over of the re-insurer is exclusively and solely to the re-insured.

We cannot find any case where this precise question now presented has ever been determined, but there are eases involving similar principles.

In the ease of the N. Y. St. Mar. Ins. Co. vs. Protec. Ins. Co. ( 1 Sto., 158 ), the plaintiffs in the action had insured the brig Evelina for a certain voyage, and afterwards re-insured in the defendant’s corporation. During the voyage insured, the vessel sustained damage by perils insured against, and the owners claimed of the insurers, the plaintiffs, a total loss which they refused to pay; and an action being brought, it was decided that- there was a liability for a partial loss only. The plaintiffs then claimed of their re-insurers, the defendants, the amount they were obliged to pay to the owners by reason of the judgment, and also the costs and counsel fees incurred in defending the suit. The defendants, the re-insurers, paid the judgment, but refused to pay the counsel fees and the expenses of the suit; the court held that they were liable and gave judgment for-the plaintiffs. Mr. Justice Story examined the ease with his accustomed learning and affluence of argument, and in his opinion, said: “This is a case of reassurance, and nothing is clearer upon principle and authority than that, in such a case, the re-assurers are entitled to make the same defense, and to take the same objections, which might be asserted by the original insurers, in a suit upon the *298 ■ first policy. -The consequence would seem to be, that, as no voluntary payment by the original insurers would be bin dr •ing or obligatory upon the re-assurers, they are compellable to resist the payment; and to require the proper proofs of loss from the' assured in a regular snit against them, so as to protect themselves by a bona fide judgment to the amount of the recovery against them, under their re-assurance ” * * * .“Now, it is precisely in this view, that the consideration of .notice of the suit becomes most important, even if it be not, .(as I am not prepared to say that it is) indispensable. If no> •tice of a suit threatened, or pending upon the original policy, :be given to the re-assurers, they have a fair opportunity to exercise an election, whether to contest or admit the claim. It is their duty to act upon such notice, when given, within a reasonable time. If they do not disapprove of the contestation of the snit, or authorize the party re-assured to compromise or settle it, they must be deemed to require that it .should be carried on, and then, by just implication, they are held to indemnify the party re-assured against the costs and expenses necessarily and reasonably incurred in defending the suit. If they decline to interfere at all, or are silent, they have no right afterwards to insist that the costs and expenses of the suit ought not to be borne by them, as they are exclusively, under such circumstances, incurred for the benefit of the re-assurers, and are indispensable for the protection of the party re-assured.”

In Hastee vs. DePeyster ( 3 Caines, 190 ) it was decided, that the re-assurer was liable to the assurer for all costs, bona fide expenses, etc., incurred in defending the suit, by the original underwriters, especially when, with notice of its going-on, he stood by, and did not offer to settle; for as the reassurer was entitled to every defense against theinsurer which he might urge against the primitive assured, it became necessary for the original underwriter to show he had been obliged ;to pay on a just claim against him, and he would be entitled to interest on all he had expended and paid.

*299 Now, it seems to me that these cases are not only satisfactory, but that they are conclusive of the question here involved. If a bona fide judgment is rendered against the original insurer, and he has contested the matter in good faith for the protection of the re-insurer, and the latter is bound to pay the costs and expenses incurred for his benefit, why is he not equally bound by the judgment? It would be a singular position to take, to say that the re-insurer was bound by the incident and not by the principal. The contest is carried on by his consent or acquiescence, and for his benefit and protection, and if good faith is observed, can there be any reason why the identical question should be litigated twice?

The re-ássured and the re-insurer stand in the precise relation of all other parties, where there is a liability over, and the result of one litigation binds or concludes both. There is but one matter in issue which is alike coinmon to both, and that is, whether a loss has occurred, and a debt has accrued to the original insured.

Tbs defense is the same, whether made by the primitive insurer or the re-insurer.

If the insurer fails in his defense, he has his recourse over against the re-insurer. The re-insurer is bound to protect the original insurer to the extent of his policy. Both then are equally alike interested in the determination of the suit. The re-insurer then comes precisely within the rule heretofore‘laid down, that where one is bound to protect another from a liability, he is bound by the result of a litigation to which such other is a party, provided he had notice of the ■ litigation, and an opportunity to manage and control it.

There was evidence tending to show that the defendant had notice of the suit brought by Henning & Pearce, as surviving partners of Henning & "Woodruff, and there was an allegation in the petition, which was stricken out, that they were privy to that suit, and assisted in its management. The bourt further excluded the testimony of Mr. Bodley, to show that defendants had due notice, and then ruled out the judgment.

*300 In all this, we think, there was manifest error, and the judgment should be reversed and the cause remanded. Judges Napton and Sherwood concur. Judges Tories and Hough absent.