
    AMERICAN INDEMNITY CO. v. FELL-BAUM.
    (No. 3602.)
    (Supreme Court of Texas.
    June 28, 1924.)
    Insurance &wkey;c5l4 — Insurer, assuming to defend action, liable to insured, though judgment not paid.
    Insurer agreeing to settle or defend suits, by assuming to defend action, was made unconditionally liable for any judgment rendered against insured up to amount of indemnity, and insured was not compelled to pay judgment in order to recover from insurer, Jby reason of clause in policy that no action should lie against insurer unless judgment against insured was actually paid.
    Error to Court of Civil Appeals of Fourth Supreme Judicial District.
    Suit by Ernest Fellbaum against the American indemnity Company. From a judgment of the Court of Civil Appeals (225 S. W. 873), affirming a judgment for plaintiff, defendant brings error.
    Affirmed.
    Arnold & Cozby, of San- Antonio, for plaintiff in error.
    Randolph Carter, Perry J. Lewis, H. C. Carter, Champe G. Carter, and McAskill & Mauermann, all of San Antonio, for defendant in error.
   CURETON, C. J.

On September 27, 1915, and prior thereto, M. D. Carr, now deceased, was a contractor engaged in constructing a bridge in San Antonio. In the prosecution of this work he negligently made a deep excavation at one end of the bridge, and, on the date named, Miss Douglas Stough, while walking along the avenue where the bridge was being constructed, fell into the excavation and suffered injuries, for which she brought suit against M. D. Carr. Prior to the date of the accident the American In,-domnity Company had prepared, executed, and issued to M. D. Carr, for a valuable consideration, a certain policy of insurance indemnifying Carr against accidents and injuries of like kind and character as the accident and injury to Miss Douglas Stough. The policy limited the liability of the indemnity company to $5,000 on account of any accident to any one person. This policy was in existence and in full force and effect at the time of the accident named. Due notice of the.accident was given to the company. The indemnity company conducted negotiations for the settlement of Miss Douglas Stough’s claim against Garr, but no settlement was ever made. A suit against Carr was filqd February 25, 1916, and. he was served with citation, and notice of ,the suit was sent to the American Indemnity Company. The American Indemnity Company appeared in answer to the suit against M. D. Carr. Subsequent *to the filing of the suit, and before the case was tried, Carr died. Ernest Fellbaum, after certain proceedings not necessary to be discussed, be'came the administrator of his estate. On October 21, 1916, an amended petition was filed in the original suit, setting up the death of Carr and impleading Fellbaum, the administrator, and praying judgment against him for $20,000-damages. This suit was pursued, and on March 3, 1917, Miss Douglas Stough recovered a judgment against Fellbaum, as administrator of the estate of Carr, for the sum of $4,000, with 6 per cent, per annum interest from the date of the judgment until paid and all costs of court. The indemnity company, through its attorneys, appeared and conducted the defense in said cause for said Carr and for said administrator, and had complete charge of the defense. No appeal was ’taken from the judgment, and it became final. On March 12, 1917, the claim of Miss Douglas Stough, based on this judgment, was filed with Fell-baum, the administrator, and allowed by him as a valid claim against the estate. A-certified copy of the judgment was thereupon duly filed in the administration proceedings which were pending in Travis county, and the claim duly noted on the claim docket. The allowance of the claim was approved and classified by the probate judge.

Certain other matters are shown with reference to thisjclaim, but for the purposes of this opinion it is not necessary to notice them.

The policy issued by the American Indemnity Company contained, among other provisions, the following:

“This insurance is subject to the following conditions:
“Limits. A. The company’s liability on account of an accident to one person is limited to five thousand and no/100 -dollars ($5,000.00), and, subject to the same limit for each person, the company’s total liability for an accident to more than one person is limited to ten thousand and no/100 dollars ($10,000.00).
“Reporting Accidents. B. Upon the occurrence of an accident the assured shall give to •the company, or to its duly authorized agent, immediate written notice thereof, with the fullest and most accurate information obtainable, and the company, at its own expense, will make such investigation as'.it may deem necessary.
“Reporting Claims. If a claim is made on account of an accident, the assured shall give like notice thereof, and the company, at its own expense, will settle or contest the same.
“Reporting Swits. If a suit is brought on account of an accident, the assured shall forward immediately to the company, or to its duly authorized agent, every process and paper served on him. The company, at its own expense, will settle or defend -said suit, whether groundless or not; the moneys expended in said defense shall not be included in the limits of the liability fixed under this policy. The assured shall not assume any liability, nor interfere with any negotiation for settlement or any legal proceeding, nor incur any expense nor -settle any claim except at his own cost, without the written consent of the company.
“Co-operation of Asswred. O. The assured shall render to the company at all times all cooperation and assistance in his power.
* * * * * * if 4
“Right -of Recovery. L. No action shall lie against the company for any loss or expense under this policy, unless it shall be broug-ht for loss or expense actually sustained and paid in satisfaction of a final judgment, within ninety days from the date of said judgment and after trial of the issue.”

The indemnity company not having paid the administrator the amount of judgment recovered by Miss Douglas Stough against him, the administrator brought this suit against the indemnity company. One of the defenses, and the only one necessary to be here considered, was predicated upon subdivision L above quoted, and, briefly stated, was that, since the administrator had not actually paid the Miss Douglas Stough judgment, the company was not due the administrator anything on the policy.

The trial court rendered judgment for the administrator. This judgment was affirmed by the Court of Civil Appeals. 225 S. W. 873.

We think the particular defense named above, to the effect that the administrator had not paid the Miss Douglas Stough judgment, without merit. In this case the indemnity company had taken charge of the adjustment of the original claim of Miss Douglas Stough, had had charge of the litigation, and managed the suit, contesting the same until final judgment was rendered. This the company had the right to do under subdivision B of the policy, quoted above. Under this subdivision the company expressly agreed that when a claim was made on account of an accident covered by the policy the compahy would, at its own expense, set-tie or contest the same, or “will settle or defend said suit, whether groundless or not.”

The insistence of the company is that clause L, quoted above, must be read into and dominate and control the rights of the parties as defined and set forth in subdivision B. We do not think so. It is to be noted that in subdivision B the company stated that it would settle or defend any suit, whether groundless or not. The agreement of the company to “defend” the suit is in the same paragraph, clause, and sentence with the word “settle.”

In subdivision B the agreement of the company to settle or defend is absolute and unqualified. If the purpose of the contracting parties was to state that the conjpany would settle provided the assured would first pay out his own money in settlement of any claim against him, or that the company would defend a suit provided that ultimately and finally the defendant would first pay any judgment which might be the result of its failure to successfully defend,'and that then the company would pay, the expression of such a purpose undoubtedly would have been placed in subdivision B in connection with its unqualified obligation to- settle or defend.

Under subdivision B the company has undertaken to set forth its obligation to the assured and to prescribe those things necessary to he done by the assured to make mature and effective the obligation of the company. The assured is required to give the company notice of the accident leading to a claim for damages, with full and accurate information, with the privilege on the part of the company to make still further ipvestigation if it deems it necessary. The assured is required to give notice of all claims predicated upon any accident. When these things have been done, then the obligation arises for the company to either settle or contest the same. The policy then provides that, if suit is brought, the assured must forward to the company every process and paper served on him, and the company agrees then, at its own expense, to either settle or defend the suit, whether groundless or not. It is provided that the money expended in the defense shall not be included in the limits of the liability fixed under the policy. However, the assured cannot assume any liability or interfere with any negotiations for settlement or any legal proceed-, ings, nor incur any expense, nor settle any claim, except at his own cost, without the written consent of the company. In other wo'rds, the effect of it is to turn the defense of the ease against the assured completely over to the indemnity company. The company undertakes to relieve the assured of all trouble with reference to the matter, and undoubtedly of all liability b for the suit, to the extent of the limit specified in the policy. The eompapy’s obligation is manifestly to defend successfully, not imperfectly nor unsuccessfully, else its obligation is to settle. It is true that the provision does not say that if the indemnity company fails in its defense, and judgment is rendered against the assured, it will pay the judgment; but we believe that this was the purpose and intention of the parties when the contract was made.

It appears to us that the judgment obtained in the suit of Miss Douglas Stough against the administrator may have been binding .under the general rule on the indemnity company; in other words, that the indemnity company, in so far as making that judgment conclusive, was a party to that suit. It had a right' to make the defense, control the proceedings, examine and cross-examine' the witnesses, and though not technically a party, it was SO’ connected with the litigation by its interest in the result and by its active participation that it is bound by the judgment. 15 R. C. L. §§ 481, 483. The authority cited in the last section named states:

“The courts look beyond the nominal parties, and treat all those whose interests are involved in the litigation and who conduct and control the action or defense as real parties, and hold them concluded by any judgment which may be rendered, as, for example, those who employ counsel in the case, assume the active management of the proceeding or defense, or who pay the costs and do such other things as are generally done by phrties. In other words, by participating in the proceedings one is estopped by the judgment as to any questions actually litigated and decided, therein.”

See, also, 4 Joyce on Insurance (2d Ed.) § 2S00, pp. 4812 and 4813.

While the authorities are in conflict, we think the best-considered cases hold that the indemnity company, by entering upon the defense of the Miss Douglas Stough suit, waived the provisions of clause L, or, as it is commonly called, the “no action clause.” Patterson v. Adan, 119 Minn. 308, 138 N. W. 281, 48 L. R. A. (N. S.) 184; Sanders v. Frankfort Marine, etc., Ins. Co., 72 N. H. 485, 57 Atl. 655, 101 Am. St. Rep. 688; Davies v. Maryland Casualty Co., 89 Wash. 571, 154 Pac. 1116, 155 Pac. 1035, L. R. A. 1916D, 395, 398. It is unnecessary to quote from these eases, since they are directly in point and available.

Time does not permit us to discuss the line of cases holding to the contrary. We have read and considered them, and reached the conclusion that the cases cited are not only grounded on better reasoning than those to the contrary, but that they are more in accord with common sense and justice.

We conclude that tlje provisions of clause L in the insurance policy have no application where the company exercises the right given it under subdivision B to take over the defense of the case. The provisions of clause L are inconsistent with the .obligation assumed by company, under the circumstances of this case, in subdivision B, to settle or defend the suit.

It is unnecessary to consider other questions in the ease, since the one discussed disposes of and controls the cause. *

From the foregoing it .follows that we are of the opinion that the judgments of the district court and the Court of Civil Appeals should be affirmed; and it is so ordered. • 
      «&wkey;lTor other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
     