National Indemnity Co. v. Simmons

²³⁶ SybjJrt, J., delivered the opinion of the Court. In these three appeals in one record from judgments entered in garnishment proceedings, an insurance company, which had issued an automobile public liability policy to its insured as proof of' responsibility under the Maryland Motor Vehicle Financial Responsibility Act, contends that the trial court erred in holding it liable for the payment of three judgments obtained against the insured without the insurer’s knowledge. On December 24, 1958, appellees (plaintiffs below) sustained injuries and damages as the result of an automobile accident caused by the negligence of Leon Fulmer. At the time of the accident there was in effect a policy of liability insurance issued by the appellant, National Indemnity Insurance Company (defendant below), to Fulmer, and a certificate known as an SR-22 had been filed with the Department of Motor Vehicles whereby National certified that the policy had been issued pursuant to the provisions of the Motor Vehicle Financial Responsibility Act, Code (1957 and 1962 Cum.

Supp.), Art. 66½, Secs. 116-149. Following unsuccessful negotiations between the plaintiffs’ attorneys and agents of the insurer, the plaintiffs filed suits against Fulmer in the Circuit Court for Baltimore County, and service was had on him on August 8, 1960. Fulmer failed to forward the suit papers to National as required by the conditions of the policy, and no pleas were filed. On October 21, 1960, default judgments were entered, and on December 13, 1960, damages were assessed.

Appellant had no knowledge of the suits and resulting judgments until receipt of a letter dated March 20, 1961, from one of the attorneys for the plaintiffs. Upon refusal of National to pay the judgments, garnishment proceedings were filed and judgments entered against National, from which these appeals were taken. The issue involves construction of applicable portions of the Financial Responsibility Act. The Act provides that after receipt of a report of a motor vehicle accident within the State which has resulted in bodily injury or death or property damage above a stated amount, the Department of Motor Ve ²³⁷ hides shall suspend the license of the operator and all vehicle registrations of the owner, unless the operator or owner, or both, shall deposit security to cover any judgment resulting from the accident and give proof of continuing financial responsibility for the future.

Under Sec. 131 of the Act, insurance issued as proof of financial responsibliity is made subject to certain rigorous provisions, one of which is set forth in subsec. 131 (a) (6) (E), as follows: “That the liability of the insurance carrier shall become absolute whenever loss or damage included in such policy occurs, and the satisfaction by the insured person of a final judgment for such loss or damage shall not be a condition precedent to the right or obligation of the carrier to make payment on account of such loss or damage; provided that no suit shall be brought against the insurance carrier until thirty (30) days after the entry of a final judgment against the insured person for such loss or damage.” (Emphasis supplied.) The italicized portion of the subsection is the root of the Instant dispute. The appellant contends that there is nothing in the Act which requires a finding that an insurance carrier is absolutely liable for a judgment obtained against its insured without notice to it and opportunity to defend, and that therefore the Act should not be so interpreted. To hold otherwise, it says, would amount to a denial of due process. Contrariwise, it is the position of the appellees that, under the terms and intent of the statute, immediately upon the happening of an accident an insurer which issued a policy to meet the requirement of financial responsibility becomes liable to the injured party for such damages as may subsequently be awarded him, and that such insurer is precluded from invoking, as against a judgment obtained by the injured party against the insured, defenses based upon the insured’s conduct, such as failure to give notice or otherwise cooperate.

The trial court agreed with the appellees. This Court has recognized that the intention of the Legisla ²³⁸ ture in passing the present Motor Vehicle Financial Responsibility Act and its predecessor acts was to protect the public from the reckless operation of motor vehicles by irresponsible drivers and to assure the ability of operators and owners against whom judgments may be entered on account of negligent driving to respond in damages to persons who may suffer as the result of such negligence. Casualty Co. v. Hinds, 180 Md. 676, 679, 26 A. 2d 761 (1942) ; Citizens Co. v. Allied Co., 217 Md. 494, 503, 504 , 144 A. 2d 73 (1958). See also 48 Columbia L. Rev. 799, 800 (1948).

The questions here are whether the construction of the Act urged by the appellant would be consistent with this legislative objective, and if not, whether imposition of liability upon the insurer despite the failure of the insured to notify it of the suit would be violative of its constitutional rights. Appellant maintains that the public would in no way lose the protection intended if the plaintiff in a suit against the insured were required to give notice to the insurer before default judgment is taken or inquisition to assess damages is held. In support of its argument it cites Sec. 131 (b) (5) of the Act, which permits a policy issued in compliance with the statute to contain any agreement, provision or stipulation which is not in conflict with or contrary to the provisions of the Act and not otherwise contrary to law. The requirement of notice before the entering of a judgment, it contends, is not a provision which is either contrary to the Act or otherwise contrary to law, and therefore, it says, the liability of the insurance carrier should become absolute only when the compensation for the injury or damage is agreed upon or established in legal proceedings of which it had notice.

We have not as yet had occasion to decide the precise question as to whether the Act is contravened by a policy provision releasing an insurer from liability for a judgment obtained against its insured in an action of which it had no notice. However, there are a number of cases that indicate the light in which policies issued pursuant to the Act must be viewed. It is clear that a policy provision contrary to the Act is void. Sec. 131 (a) (6) (E) ; Citizens Co. v. Allied Co., supra (at ²³⁹ 503 of 217 Md.).

The case of Casualty Co. v. Hinds, supra, dealt with the Motor Vehicle Financial Responsibility Act of 1933, as amended in 1935 and 1939, pertaining to liability insurance for commercial vehicles, which had the same remedial purpose—protection of the public—as the Act now under consideration. In that case the insurer sought to avoid payment of a judgment entered against its insured, for whom it had filed a certificate of financial responsibility, basing its stand on two exclusionary provisions in the policy, namely, that it did not cover the vehicle while being driven by a minor, or while rented to another. The negligent driver of the insured’s truck was 18 years of age at the time of the accident. After observing that such statutes are remedial, and should be liberally construed against the insurer to accomplish their purpose, the Court said (at pp. 679-680 of 180 Md.): “* * * It is, therefore, well established that when an insurance policy has been issued in pursuance of the requirement of a statute, which forbids the operation of a motor vehicle until good and sufficient security has been given, the court should construe the statute and the policy together in the light of the legislative purpose. * * * If there is a conflict between any provision of a policy and the statute, the statute is paramount, and it is the duty of the court to hold the provision in the policy illegal and ineffective. * * * So, where an insurance policy has been issued to the owner of a commercial vehicle for the purpose of enabling him to comply with the terms of the statute, the provisions of the statute enter into and become a part of the policy, atid the statute supersedes any provision in the policy repugnant to the statute. * * *” The Court held the insurer liable, in spite of the exclusions in the policy, stating in conclusion (at p. 682 of 180 Md.) : “* * * [A]n insurer and a motor vehicle owner cannot be allowed to frustrate the will of the Legislature by means of exclusions contrary to the purpose ²⁴⁰ of the statute and deprive injured persons of the protection which the Legislature intended to provide.” This Court has referred to Sec. 131 (a) (6) (F) of the Act as the “absolute liability” clause.

Citizens Co. v. Allied Co., supra (503 of 217 Md.). In the course of considering that section on a point not involved here, Chief Judge Bruñe said for the Court (at p. 504) : “Our view that the ‘absolute liability’ under Section 131 (a) (6) (F) is to the members of the public who have suffered by reason of the insured’s action is reinforced by the fact that the provision for absolute liability is coupled directly with the clause stating that satisfaction of a judgment by the insured person is not a condition precedent to the obligation of the insurer to make payment to the injured party. In other words, the insolvency or financial irresponsibility of the insured does not release the insurer from liability to injured third parties. * * * The public liability nature of the policy is further emphasized by the provisions of Section 131 (d) prohibiting the cancellation by the insured and the insurer of a policy offered as proof of financial responsibility under the Act after the insured person has become involved in an accident resulting in personal injury or property damage to others.” In Barrella, Etc. v. Stewart, 228 Md. 378 , 179 A. 2d 886 (1962), as here, we were asked to rule that an insurer which had issued a policy as proof of financial responsibility was not liable for a judgment obtained against its insured, on the ground that the insured had not notified the insurer of the suit. Although we found that the insurer had received actual notice of the action by reason of an attempted service of the suit papers upon the insured in care of the insurer, we noted (at p. 386 of 228 Md.), by way of dictum, “that this Court has affirmed the public liability nature of § 131 (a) (6) (F) of the Act, the so-called ‘absolute liability’ clause,” in Citizens Co. v. Allied Co., supra, and cited Casualty Co. v. Hinds, supra. ²⁴¹ In Fid. & Cas.

Co. v. McConnaughy, 228 Md. 1 , 179 A. 2d 117 (1962), involving an automobile liability policy not issued as proof of financial responsibility, the Court, in commenting on policy defenses, stated (at p. 8 of 228 Md.) : “Although an insurance company issuing a policy to meet the requirement of ‘proof of financial responsibility’ is by Sec. 131 (a) (6) (F) precluded from setting up, as against a judgment-creditor of the insured, defenses that arise out of the insured’s conduct (such as failure to cooperate), Sec. 131 (a) (6) (F) does not apply to those insurance policies which * * * are not issued as ‘proof of financial responsibility,’ * * (Emphasis supplied.) The principles enunciated in the cases cited were applied in Inland Mutual Insurance Co. v. Stallings, 263 F. 2d 852 (C.A. 4, 1959), involving a suit by an insurer for a declaratory judgment to determine its obligation to its insured and persons making claims against him for injuries sustained in an automobile collision, under an automobile liability policy issued pursuant to the Maryland Motor Vehicle Financial Responsibility Law. Chief Judge Sobeloff, in affirming the decision of Chief Judge Thomsen below, wrote (at p. 857) : “The scheme of the legislation precludes any action or inaction by the insured or the insurer, together or separately, to lessen the public protection prescribed by the statute. Where the insurer, by its certificate, induces the issuance of an unrestricted driver’s license, it should be and is required