
    Richard S. White and Others, Respondents, v. The Maryland Casualty Company, Appellant.
    Second Department,
    June 17, 1910.
    Insurance—indemnity insurance — assignment of policy—party— misjoinder of plaintiffs—pleading—waiver—settlement of action— complaint.
    A policy of indemnity insurance cannot be assigned without the consent of the insurer.
    Where the complaint in an action on a policy of indemnity insurance alleges that the policy was issued by defendant to a partnership; that one of its employees was injured and began an action; that during the pendency of the action one of the partners died; that a new firm which is made a party plaintiff was formed to take over the business and settle the case, but fails- to allege that any rights or interest in the policy or in the claim of the members of the partnership thereunder have been acquired by the new firm, there is a misjoinder of parties plaintiff and the complaint is demurrable.
    The benefits of the policy did not extend to the successor of the insured, although it was organized for the express purpose of taking over all the assets and business.
    Conclusions of counsel as to the legal effect of provisions of the written instrument should not he substituted in a pleading for the instrument itself..
    A denial of liability by the insurer and a refusal to defend an action do not constitute a waiver of a provision of the policy limiting the time within which an action may he commenced thereunder.
    An insured who settles a pending action assumes the risk of showing to the . insurer both the reasonableness of the settlement and his liability for the injuries, and circumstances showing such facts should be pleaded.
    Complaint examined, and held, not to allege facts sufficient to constitute a cause of action.
    
      Appeal by the defendant, The Maryland Casualty Company, from an interlocutory judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county, of Kings on'the 14th day of January, 1910, upon the decision of the court, rendered after a trial at the Kings County- Trial Term, overrilling a demurrer to the amended complaint.
    The. amended complaint alleges that on the 13th day of April, 1903, the defendant issued a policy of insurance by which, it 'undeiv. took and agreed, to indemnify John C. Orr & Co., a copartnership composed of the plaintiffs Bichard S. White, Henry S. Orr and one John C. Orr, now deceased, for the term of one year, commencing on April 24, 1903, against loss for damages on account of bodily injuries, accidentally suffered within the life of the policy-by any person or persons not employed by said copartnership, occurring within the lumber yard occupied by it, not to exceed $5,000 for an accident resulting in injuries to one person and further'to defend at its own cost any suit or proceeding brought against the assured to enforce a claim for such damages, or settle the same if it should decide to pay said sum of $5,000; that on or about March 31, 1904, one Paul Williams (not an employee of the assured) accidentally suffered some bodily injuries within said lumber yard by being •struck by a piece of timber and .by timber he was handling falling upon him; that on June eighth following he commenced án action against the firm of John C; Orr& Co., John C. Orr, Bichard S. White and others; “ that the ground of said action was the said accident, and the same was brought to recover the sum of $40,000 as damages claimed therefor under a claim of loss under common law or statutory liability of said defendants ; ” that John C. Orr died on December 16, 1906, and thereafter Henry S. Orr was made a party defendant, the action discontinued as to all parties except said Bichard S. White and Henry S-. Orr, and continued against them as the sole surviving partners of said copartnership ; that on July 5, 1905 the plaintiff, the John C. Orr Company, took over the business of the said John C. Orr & Co., and became the successor in business of said firm. Then follow these allegations:
    
      “ VIII. That thereupon the defendant herein,. The Maryland Casualty Company, being notified of the pendency of said suit and action against the said John G. Orr & Company disclaimed and denied all liability under said policy of .insurance and repudiated the same and declined and refused to fulfill its said agreement of insurance and notified the said John 0. Orr & Company to that effect and declined to defend said suit except upon condition that the damages recovered therein should be paid by the insured, the said John C. Orr & Company; that thereafter said action proceeded and was defended by said John C. Orr & Company and by the plaintiff, The John C. Orr Company, who on and after July 5th, 1905, undertook the defense of said action under an agreement , with its predecessor, the said firm of John C. Orr & Company, made in that behalf, and the said'cause of said Williams against the plaintiffs, White and Orr, came on to be heard in the Supreme Court, Kings County, and was three times tried before a court and jury; that on the first and second of said trials the questions- of fact in the case were left by the Trial Judge to the jury, and the jury disagreed ; that on the third trial the complaint was dismissed and from the judgment of dismissal the defendant appealed to the Appellate Division of the Supreme Court; that such appeal being pending and on or about the 29th day of December, 1908, the plaintiffs hérein compromised said action and settled the same for the sum of Fifteen hundred dollars ($1,500), which they paid to the said Williams or his attorneys in full settlement thereof, and on behalf of and for the account of the said firm of John O. Orr & Company and for its relief and exoneration to that extent and as part of its liabilities, under said agreement between them.
    “IX. That said sum of $1,500 was a reasonable sum to pay for the compromise and settlement of said action and the said settlement and compromise was a prudent one to make under the circumstances. * * *
    “ XI. That the assured firm of John C. Orr & Company and the said The John C. Orr Company at all times complied with all the conditions of said contract on the part of ■ the assured to be performed, except as the same were waived by the acts and declarations of defendant in disclaiming and denying its liability under said policy of insurance and in declining and refusing to fulfill its agreement of insurance and to defend said suit and in repudiating said agreement as aforesaid.” ' '
    Then follow allegations of the amount expended in said action by the plaintiffs, a demand for repayment thereof and its refusal by the defendant, and a demand for judgment for .$3,792.42, of which $1,500 represents the amount paid in compromise of the action, and $2,292.42 the expenses incurred and paid in said action.
    The insurance policy is not set out in the pleading, nor is a copy ■ attached thereto. The third and seventh óf its provisions only are alleged as follows:
    “ Y. That among the provisions of said policy of insurance were the following, numbered, ' 3 ’ and '7,’ which are stated therein as conditions to be observed by the insured, and which were waived by¡ defendant as hereinafter set forth, namely :
    “ '3. The assured shall not settle any claim except at his own cost, nor incur any expense, nor interfere in any negotiations for settlement or in any legal proceeding, without the consent of the company previously given in writing.’
    “ ' 7. No action shall lie. against the. company as respects any loss under this: policy unless it. shall be brought by the assured himself to reimburse him for loss actually sustained and paid by him in satisfaction of a judgment within sixty days from the date of such judgment, and after trial of the issue. No such action shall lie unless brought within the period within which a claimant might sue the assured for damages, unless at the expiry of such- period there is such an action pending against the assured, in which case an action . may be brought against the company by the assured within sixty days after final judgment has been rendered and satisfied as above. The company does not prejudice by this clause any defenses to such action which it may be entitled to make under this policy.’ ”
    The waiver referred to as " hereinafter set forth ” is the denial of liability and refusal to defend alleged in the 8th subdivision hereinbefore quoted.
    
      James J. Mahoney, for the appellant.
    
      Alfred B. Cruikshank, for the respondents.
   Rich, J.:

I do not see how under the allegations of the amended complaint the plaintiff, The John 0. Orr Company, can be held to be a proper party to this action. That company was not in existence when the policy of insurance was issued, nor for more - than a year after it expired. There is no allegation in the complaint that any rights or interest in the policy, or in the claim of the members of the' copartnership thereunder, was ever acquired by the John C. Orr Company, and it has been held that a policy of indemnity cannot be assigned without the consent of the insurer. (Lett v. Guardian Fire Insurance Co., 125 N. Y. 82; Cremo Light Co. v. Parker, 118 App. Div. 845.) If the John C. Orr Company did aid in the defense of the Williams action, and advanced some of the money paid in'settlement thereof under an agreement with or at the request of the assured, a cause of action might have been created thereby against the surviving members of said partnership, but not against .the defendant, whose contract of insurance was a personal one and limited to the firm of John C. Orr & Co. Its benefits did not extend to their successor, although organized for the express purpose of taking over all the assets and business of the former (Cremo Light Co. v. Parker, supra), or to their creditors. The complaint contains no allegation of a cause of action against the defendant in behalf of the John C. Orr Company, and there is consequently a misjoinder of parties plaintiff, because there has been injected into the action as a party plaintiff one who is not entitled to sue, and the complaint is demurrable. (Code Civ. Proc. § 488 ; Havana City Railway Co. v. Ceballos, 49 App. Div. 263.) The cases of Winne v. Niagara Fire Ins. Co. (91 N. Y. 185) and Lewis v. Guardian Fire & Life Assur. Co. (181 id. 392), cited by the respondent as sustaining the contention that the John C. Orr Company is an “ equitable assignee ” and, therefore, a proper party plaintiff, do not sustain the contention and are not in point. In both of those cases the rule declared applied only to a mortgagee of the insured property to whom, by the terms of the policy, the loss, if any, was payable to the extent of his interest under his mortgage. While the conclusion 1 have reached requires a reversal of the interlocutory judgment, I think it may be advisable that we consider the question as to whether the complaint contains facts sufficient to constitute a cause of action.' The facts averred rest largely upon the conclusions of the pleader. While the policy contained at least seven provisions, separately numbered, but.two are set forth. The conclusions of counsel as to the legal effect of different provisions of a written instrument ought not to be substituted in a •pleading for the instrument itself. The only two provisions of the policy set forth prohibit the assured settling any claim except at his own cost, and from incurring any expense without the consent of the defendant previously given in writing, and provide that no action shall' lie for any loss under the policy unless brought by the assured himself to reimburse himself for loss actually sustained and paid by him in satisfaction of a judgment after the trial of the issues . and within sixty days from .the date of such judgment, with a further clause limiting the time within which the action may be brought to the period within which the party injured might commence an action against the assured for damages,-or if at the expiration of such period an action was pending against the assured, then within sixty days after the entering and satisfaction of such" judgment. Concededly the plaintiff did not comply with these conditions. Williams was injured March 31, 1904. The statute barred his cause of action against the assured on March 31, 1907, (See Code Civ. Proc. § 383, subd. 5.) An action was pending at that time, which was compromised and settled on December 29, 1908. This action was not commenced until July 6y 1909, and some months after it was barred by the contract limitation, and whatever payment was made in the compromise was not paid after judgment. It is sought to avoid this by an alleged waiver, based upon the defendant’s denial of liability and refusal to defend the pending action. The “acts and declarations” of the defendant in disclaiming and denying its liability are not alleged. ' The. allegation is but the conclusion of the pleader, with the single exception that it is alleged that the defendant declined to defend said action. I do not think that such a denial of liability constituted' a waiver. The declination or refusal to defend was not absolute, but based upon the condition that damages recovered in the action should be paid by the assured. This was the defendant’s legal right under the provisions contained in the'7th subdivision of the policy, that before any liability attached to the defendant a judgment must not only have been recovered against the assured but must have been actually paid by them within sixty days from its entry. The provision of the policy as to defending actions was clearly for the benefit of the defendant, who could not be compelled to defend an action in which the assured were not legally .liable to the plaintiff therein. ¡Nowhere in the complaint is there an allegation of the legal liability of the assured to Williams, and under such circumstances they could not settle without the defendant's consent, and try the question of their liability to Williams in an action against the defendant. Its liability rests upon a judgment in the action rendered against the assured after trial of the issues. This provision became operative when the question of liability arose. Denial of such liability by the defendant did not waive the conditions, but rather called them into operation. Denial of liability is not of itself a waiver of any of the provisions of the policy, and could not have the effect of converting an indemnity against loss into an agreement to pay any sum that the assured saw fit to pay before judgment. The defendant did not undertake to indemnify .the John C. On-Company, and limited its liability under the agreement with John C. Orr & Co. to the payments made by them in satisfaction of a .judgment after trial of the issues. Even if this were otherwise, a denial of liability and a refusal to defend would not be a waiver ,of the provision limiting the time within which, this action should be commenced against the defendant. (Allen v. Dutchess County Mut. Ins. Co., 95 App. Div. 86.) The respondents’ contention that “ a party indemnified may hold his indemnitor for money paid for a prudent settlement ” ignores the fact that a legal liability on the part of the person indemnified must exist, and the amount paid must be reasonable. A party so paying assumes the risk of being able to prove the facts upon which his liability depends as well as the reasonableness of the amount which he pays. (Dunn v. Uvalde Asphalt Paving Co., 175 N. Y. 214, 218.) This being the rule, it is. necessary that facts tending to show such conditions be pleaded.

The complaint does not allege facts sufficient to constitute a cause of action, and the interlocutory judgment must be reversed and the demurrer sustained, with costs.

Jenks, Buee, Thomas and Cabe, JJ., concurred.

Interlocutory judgment reversed, with costs, and demurrer sustained, with costs.  