
    Mayor, Lane & Company, Respondent, v. Commercial Casualty Insurance Company, Appellant.
    First Department,
    November 12, 1915.
    Insurance — indemnity against loss from ownership or use of automobile— warranty as to use of automobile construed — breach of contract by insurer to defend action against assured—waiver of right to preclude assured from making settlement — settlement of action by assured before judgment—action by assured against insurer for amount paid in settlement of action—amount of settlement not binding on assured without further proof —liability of insurer for expense of assured in defending action.
    Where a policy of indemnity insurance against loss and expense resulting from claims for damages by reason of the ownership, maintenance or use of an automobile truck, after containing a general warranty that the trubk was to be used for “delivery” purposes, recited that: “None of the Automobiles herein described are rented to others or used to carry passengers for a consideration, actual of implied, except as follows; ” and no exceptions were stated, said provision should be construed as a warranty merely that the truck was not rented at the time the policy took effect, and does not preclude the assured from maintaining an action against the insurer for damages paid to a person in settlement for injuries by the truck which, after being stored with a garage company, had been sent out by it in charge of a chauffeur hired by it.
    Evidence held insufficient to justify the court in holding, as a matter of law, that the chauffeur was the servant of the assured and engaged in its business at the time the truck inflicted the injuries.
    Where the insurer fails to perform its contract duty to defend an action brought against the assured, it waives the right to the benefit of provisions precluding the assured from settling without its consent and limiting its liability to losses sustained by the assured by judgment after the trial of the issues.
    A provision of an indemnity ■ policy that no action shall lie against the insurer to recover for any loss or expense to the assured under the policy, unless it shall be brought for loss or expense actually sustained “after actual trial of the issue” is satisfied where the assured refrains from settling an action against him until after a complete record of the facts relating to his liability has been made by the presentation of all of the evidence, especially where the insurer has broken his contract by refusing to defend the action brought against the assured.
    When the assured settles an action before judgment, he assumes the risk in an action against the insurer of showing not only a liability covered by the policy, but the amount of the liability, and the recovery against the insurer may be limited by the loss sustained, even though the evidence may show that the settlement was for less than the liability. Hence, in an action by an assured against the insurer to recover the amount paid by the plaintiff in settlement of an action after the close of the evidence, but before judgment, it is error for the court to hold as a matter of law that the settlement is binding on the assured, without other proofs.
    In such an action the insurer is liable for the reasonable expenses incurred by the assured in defending the action.
    Ixgraham, P. J., and Clarke, J., dissented in part, the former with memorandum.
    Appeal by the defendant, Commercial Casualty Insurance Company, from a determination of the Appellate Term of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of May, 1915, affirming a judgment of the City Court of the City of New York in plaintiff’s favor, and also an order denying defendant’s motion for a new trial. An appeal is also taken from a judgment entered in the office of the clerk of said court on the 21st day of May, 1915, which affirmed the original judgment and order.
    
      Henry Siegrist [Otto D. Parker with him on the brief], for the appellant.
    
      Walter L. Post, for the respondent.
   Laughlin, J.:

This is an action on an indemnity insurance policy issued by the defendant to the plaintiff on the 14th day of May, 1912, by which it insured the plaintiff ‘c Against Loss and Expense Resulting From Claims Upon The Assured Eor Damages on account of bodily injuries, including death accidentally suffered by any person or persons, by reason of the ownership, maintenance, or use of ” an automobile truck owned by the plaintiff, for the period of one year from the nineteenth day of June thereafter. The policy provided that eleven warranties were made a part of the contract, and that they “ are acknowledged and warranted by the Assured to be true upon the acceptance of this Policy, except such as are declared to be matters of estimate only.” The first warranty was with respect to the name of the assured; the second, its address; the third, that it was a New York corporation, and that its occupation was “Wholesale Plumbers Supplies;” the fourth was with respect to the number of automobiles owned by the assured; the fifth, the number of chauffeurs employed by the assured; the sixth, where the automobiles are principally used; and the seventh, where they are principally kept. The eighth was to the effect that the schedule to be filled out in the blank following the printed matter in that warranty contains a full description of the automobiles to be covered by the policy “ and a full statement of the uses to which each is to be put.” That blank space was filled out with a sufficient description of the track, and under the heading, “Use-to which Automobiles are to be-put,” was filled in the word “Delivery.” The printed matter in the ninth was as follows: “None of the Automobiles herein described are rented to others or used to carry passengers for a consideration, actual or implied, except as follows: ” and in the blank space following was inserted: “No exceptions.” When the policy was issued and when it took effect the truck was used by the plaintiff for delivery purposes in its own business; but in the month of February thereafter it put the truck in storage with the New York Auto Garage Company, under an agreement by which it was to pay ten dollars a month for storage, and the garage company was to be at liberty to rent the truck, in which event it was to pay the plaintiff an agreed price per day or hour; but no agreement between plaintiff and the garage company with respect to the employment of a chauffeur, or payment for his services, when the truck should be rented. It appears that plaintiff did not continue any chauffeur in its employ after storing the truck. Counsel for plaintiff offered to stipulate that the garage company on occasions rented the truck and hired a chauffeur to operate it for the plaintiff, but this was not acceptable to the defendant; and finally a stipulation by defendant to the effect that the garage company paid for the services of the chauffeur when the truck was rented and charged the same to the plaintiff, and that the latter reimbursed it therefor, and that the plaintiff on' some occasions after thus storing the truck, used it itself, and that on such occasions the garage company procured a chauffeur for the plaintiff and charged it for his services, was accepted by plaintiff.

On the 24th day of April, 1913, one Schaefer was injured by the truck, which had been sent out by the garage company in charge of a chauffeur hired by it, to deliver laundry for the Morgan Steam Laundry Company. It appears by the testimony of the chauffeur that he was paid by the garage company. Schaefer sued the plaintiff for the damages caused by the injuries, and it gave the defendant notice to defend in accordance with the provisions of the policy; but the defendant refused to defend, and assigned as one of the reasons therefor that there was a breach of the warranty in the policy with respect to the use of the truck, claiming that the- plaintiff had warranted that the truck was not to he rented to others. On a former trial the complaint was dismissed on that theory, and the Appellate Term reversed, holding that the provisions of the ninth warranty relate to the lime the policy was issued, and do not constitute a warranty that the truck was not to be rented subsequently. (Mayor, Lane & Co. v. Commercial Casualty Ins. Co., 150 N. Y. Supp. 624.) We are of opinion that the ninth warranty does not bar the maintenance of this action, and that in view of the eighth warranty, which was general with respect to the use to which the truck was to be put for delivery purposes, and of the rule of strict construction against the insurance company which is applicable to such a policy, the ninth warranty-should be construed as a warranty merely that the truck was not rented at the time the policy took effect. The case is clearly distinguishable on the facts from Hygienic Ice & R. Co. v. Philadelphia C. Co. (162 App. Div. 190) where a divided court expressed the opinion that a warranty with respect to the use of vicious horses although in the present tense should be deemed a continuing warranty as to use, emphasis being placed upon the fáct that as the horses to be used were not described in the policy the use was not limited to those then employed.

On the refusal of the defendant to defend the action brought by Schaefer, the plaintiff defended and interposed an answer denying the allegations of the complaint in that action to the effect that the chauffeur in charge of the truck at the time of the accident was in its employ. The pleadings in that action were introduced in evidence on the trial of this action, the complaint being introduced by the plaintiff and the answer by the defendant. After the close of the evidence in the action brought by Schaefer and before it was submitted to the jury, the plaintiff settled with him for $850. On the trial of this action, the court ruled, in effect, as matter of law that that settlement was binding on the defendant without other proof ; and the only questions submitted to the jury were with respect to an additional claim made by the plaintiff for its expenses in investigating and defending against the claim made by Schaefer. This we think was error in any view of the case. The learned counsel for the appellant contends that in no event can the defendant be held liable, either for the settlement made with Schaefer or for the amount of the plaintiff’s liability to Schaefer, and he predicates that contention on provisions of the. policy therein designated conditions 0 and D. Condition C, which is headed “ Co-operation of Assured—Expense,” provides as follows: “The Assured, whenever requested by the Company, shall aid in effecting.settlements, securing information and evidence, the attendance of witnesses and in prosecuting appeals; but the Assured shall not voluntarily assume any liability or interfere in any negotiation for settlement, or in any legal proceeding, or incur any expense, or settle any claim, except at the Assured’s own cost, without the written consent of the Company previously given, except that the Assured may provide at the Company’s expense such immediate surgical relief as is imperative at the time of the accident.” Condition B, which preceded condition C, required the assured to immediately forward to the company every summons or other process served upon it to enforce a claim for damages covered by the policy, and provides that “ the Company will, at its own cost, defend such suit in the name- and on behalf of the Assured.” The defendant was guilty of a breach of its contract in failing to defend the Schaefer action. We are of opinion that condition 0, forbidding a settlement without the written consent of the company, should be limited to cases in which the company performs its contract obligations with respect to defending an action. This is indicated by the heading and context which relate to “ co-operation ” by the assured; and like provisions of a similar policy have been so construed. (Upton Cold Storage Co. v. Pacific Coast C. Co., 162 App. Div. 842-845; Matter of Empire State Surety Co., 214 N. Y. 553, 564, 565.) Condition D, which is headed “Assured’s Right of Recovery,” is as follows: “No action shall lie against the Company to recover for any loss or expense under this policy unless it shall be brought by the Assured for loss or expense actually sustained and paid in money by the Assured after actual trial of the issue, nor unless such action is brought within two years after payment of such loss or expense.” Condition M provides that the liability of the defendant for loss on account of an accident resulting in bodily injuries or death to one person is limited to $5,000; that the company will, as provided in conditions B and 0, “ pay the expense of litigation in addition to the sum herein limited and will also pay all costs taxed against the Assured in any legal proceeding defended by the Company.” We are also of opinion that condition D should not he construed as relieving the defendant from any liability to the plaintiff -unless the action is permitted to be prosecuted to judgment. If the defendant, notwithstanding its breach of the contract, were entitled to the benefit of the provisions of this condition limiting its liability to loss or expense actually sustained and paid “ after actual trial of the issues,” still, I think, in view of the rule of strict construction which obtains against the insurer, these provisions should be deemed satisfied when, as here, the assured refrained from settling until after a complete record of the facts relating to its liability was made by the presentation of all the evidence. In view of the first general provisions herein quoted, with reference to the indemnity intended to be given to the assured, the phraseology is not appropriate to require that the assured should refrain from paying until after judgment. In many indemnity policies that have come before the courts the liability of the insurer is limited to loss sustained and paid by the assured after final judgment. (See Upton Cold Storage Co. v. Pacific Coast C. Co. supra; Brassil v. Maryland Casualty Co., 147 App. Div. 815; Rosenbloom v. Maryland Casualty Co., 153 id. 23; White v. Maryland Casualty Co., 139 id. 179.) I am of opinon, however, that the Court of Appeals, by a decision not cited by either counsel, has finally disposed of this point by holding that where the insurer fails to perform its contract duty to defend, it waives the right to the benefit of provisions precluding the assured from settling and limiting its liability to losses sustained by the assured by judgment after the trial of the issues. (Matter of Empire State Surety Co., supra.) The insurer is not prejudiced by a settlement made by the assured of a liability covered by the policy. It undertook to indemnify him against such liability and also to defend the action. Having failed to defend, its liability and the extent thereof would have been conclusively determined by a judgment against the assured where it had notice to defend. When, however, the assured saw fit to settle before a recovery, he assumed the risk in an action against the insurer of showing not only a liability covered by the policy but the amount of the liability, and the recovery against the insurer would be limited by the loss sustained, even though the evidence might show that the settlement was for less than the liability. (Dunn v. Uvalde Asphalt Paving Co., 175 N. Y. 214; White v. Maryland Casualty Co., supra; Cornell v. Travelers’ Ins. Co., 175 N. Y. 239.) The trial court, therefore, erred in holding that the defendant was liable for the amount paid by plaintiff in settlement of the action brought against it.

Moreover it cannot be held on the evidence in this record, as matter of law, that the chauffeur was the servant of the plaintiff and engaged in its business at the time the truck inflicted in j mies upon Schaefer, especially in view of plaintiff’s verified answer in Schaefer’s action denying that he was its servant and engaged in its business. (See Kellogg v. Church Charity Foundation, 203 N. Y. 191.) The facts upon which that question depends were not fully developed on the trial.

The defendant, however, was clearly liable for the reasonable expenses incurred by the plaintiff in defending the action, and the evidence warrants the verdict of $950 rendered therefor.

The determination of the Appellate Term and the judgment of the City Court should, therefore, be reversed and a new trial granted, with costs to appellant to abide the event, unless the plaintiff shall stipulate to reduce the recovery to $950, in which event the judgment should be modified accordingly, and as so modified it and the determination should be "affirmed, without costs.

Scott and Dowling, JJ., concurred.

Clarke, J.:

I vote to reverse and to dismiss the complaint.

Ingraham, P. J.:

I concur with my brother Laughlin in his construction of this agreement, except as to the clause which prohibits a settlement with any one claiming damage for personal injuries except with the written consent of the defendant. I think it is clear that the defendant was bound to defend the plaintiff against a claim made against it for personal injuries resulting from an accident, whether the plaintiff was liable or not, and the defendant is, therefore, responsible .for the expense of defending the Schaefer action. The company having broken its contract in regard to defending the action, the plaintiff could go on and defend and, if Schaefer obtained a judgment, the defendant would be responsible and also responsible for the expense of defending the action. The plaintiff , however, instead of submitting the question as to its liability, before the trial was ended voluntarily settled with Schaefer, and for the amount paid in pursuance of such a voluntary settlement I do not think the defendant is liable. To hold it to such a liability, it seems to me, would be a violation of condition “ D ” annexed to the policy, that “no action shall lie against the Company to recover for any loss or expense under this policy unless it shall be brought by the Assured for loss or expense actually sustained and paid in money by the Assured after actual trial of the issue, * * * ” and also condition “C,” which expressly provides that “ the Assured shall not voluntarily assume any liability, * * * or settle any claim, except at the Assured’s own cost, without the written consent of the Company previously given.” I think, therefore, the judgment should be reduced to the amount of the cost of defending the Schaefer action and, as so modified, affirmed, without costs to either party on this appeal.

Determination and judgment reversed and new trial ordered, with costs to appellant to abide event, unless plaintiff stipulates to reduce recovery as stated in opinion, in which event judgment, as so modified,- and determination affirmed, without costs. Order to be settled on notice.  