ATTLEBORO MFG. CO. v. FRANKFORT MARINE, ACCIDENT & PLATE GLASS INS. CO.; FRANKFORT MARINE, ACCIDENT & PLATE GLASS INS. CO. v. ATTLEBORO MFG. CO., 240 F. 573

BINGHAM, Circuit Judge. These are writs of error from a judgment in favor of the Attleboro Manufacturing Company against the Frankfort Marine, Accident & Plate Glass Insurance Company, entered in the District Court for Massachusetts, in an action brought to recover damages alleged to have been suffered by the plaintiff through’ the defendant’s negligence.

The Attleboro Manufacturing'Company is a corporation engaged in the manufacture of jewelry, at Attleboro, Mass., and on the 8th day of July, 1902, procured from the defendant, the Frankfort Marine, Accident & ■ Plate Glass Insurance Company, an employer’s liability policy for the term of one year, from the 11th day of July, 1902, to the 11th day of July, 1903, wherein tire defendant agreed to indemnify the plaintiff— “against loss arising from legal liability for damages on account of bodily injury or death suffered by any employs or employes of the assured resulting from any and every accident of whatsoever nature or cause happening in, upon, or about the premises of the assured; * * * but the liability of the company in respect to any one employs suffering injury or death, shall in no case exceed the sum of five thousand dollars ($5,000), nor shall the total liability of the company in respect to any one accident resulting in injury to or the death of several employés in any event exceed the sum of ten thousand dollars ($10,000).” In furtherance of its obligation to indemnify the plaintiff, the defendant agreed: “That if any legal proceedings are taken to enforce a claim! against the assured, covered by this policy, the company shall, at its own cost, undertake the defense of such legal proceedings in the name and on behalf of the assured, and shall have the entire control of such defense.

But if the company shall offer to pay the assured the full amount for which the company is liable in respect to the claim sought to be enforced, it shall not be bound to defend any legal proceedings, nor be liable for any costs or expenses which the insured may incur in defending the same. * * ⅛ The company m'ay undertake at its own cost the settlement of any claim, * * * and the assured shall not, except at his own cost, settle any claim nor incur any expense without the consent of the company thereto previously given in writing.” During the existence of the policy, and on the 28th of January, 1903, an accident occurred to one Hodde while employed in the plaintiff’s business at Attleboro.

As a result of the accident, an action was brought by Hodde against the Attleboro Company March 31, 1903, in the superior court of Massachusetts, and on January 7, 1907, a verdict having been returned for Hodde, judgment was entered in his behalf for the sum of $17,343.81. January 19, 1907, the Attleboro Company paid the judgment. Thereafter, but prior to May 13, 1911, when the present action was brought, the Frankfort Company paid the Attle-boro Company the $5,000, and interest, called for in the policy. The declaration in the present suit contains three counts.

In the first count the plaintiff recites the issuance of the policy and the stipulations therein contained, above set forth.

It then alleges the happening of the accident, the assertion of a claim of legal liability, the assumption by the defendant of the defense of the Hodde suit, and the entire and exclusive control thereof; that it was the duty of the defendant— “in defending said suit to conduct itself with a reasonable degree of care, skill, and diligence commensurate with the duties and responsibility assumed by it, as aforesaid, but that defendant, unmindful of its duty in the premises, so carelessly, negligently, and unskillfully conducted and demeaned itself in the premises that the plaintiff in said suit recovered final judgment against this plaintiff in the sum of §17,343.81, which, judgment this plaintiff has been compelled, on writ of execution issued against plaintiff by said superior court, at the instance of said Hodde, to satisfy and pay in full, principal, interest, and costs; that the aforesaid negligence and misconduct of the defendant consisted in this: That defendant, although given by plaintiff timely and ample notice of said accident, claim and suit, negligently failed to make any timely, proper, or intelligent investigation touching the facts and circumstances under which said bodily injuries were sustained by said William!

Hodde, Jr., whereby material evidence favorable to this plaintiff would, could, and should have been produced at the trial of said suit, was not produced or offered thereat on this plaintiff’s behalfj that no intelligent, adequate, or timely preparation was made by the defendant in this suit for the trial of said suit of said William Hodde, Jr.; that competent and legal evidence material to the issues in said suit, and. tending to exculpate this plaintiff of liability therein, and which was known, available, and accessible to defendant herein, and which could and should have been produced on this plaintiff’s behalf on the trial of said suit, was not produced or offered by defendant; that it was charged by said Hodde in said suit that his said injuries had been caused by the negligence of this plaintiff, as it was alleged, in furnishing said Hodde with a defective and unsuitable pitcher for carrying certain acid, which claim that said pitcher was defective and unsuitable was denied by plaintiff, so that the actual condition of said pitcher became and was one of the vital issues on the trial of said suit; that said pitcher, if it had been offered in evidence on the trial of said action, would have tended strongly to rebut and negative said charge of negligence of said Hodde, and would on said trial have seriously impaired the weight and credibility of the evidence offered on his behalf; that this plaintiff, before the trial of said suit, at defendant’s request, delivered into defendant’s custody and care the said pitcher, but the defendant, instead of taking care of the same, carelessly and negligently permitted said pitcher to become lost or destroyed, so that it was not and could not be used or offered in evidence in this plaintiff’s behalf on the trial of said suit.

And plaintiff states that it was by reason of the aforesaid negligence, carelessness, and unskillfulness of defendant in and about the premises that said judgment was rendered against this plaintiff and became final as aforesaid.” In the second count, after reciting the issuance of the policy and the stipulations therein contained, with reference to the payment of the indemnity, the defense of the suit, and settlement thereof, it was alleged that: “Thereupon, by the terms of said policy, the defendant acquired the right and it became the defendant’s duty either to pay the plaintiff the sum of five thousand dollars (§5,000), the amount of the indemnity provided for in said policy of insurance, or in the alternative, acting in behalf of the plaintiff, to take charge of said claim! against the plaintiff and of negotiations for settlement of said claim by way of compromise, and to take entire control of the defense of the suit brought in behalf of said Hodde to enforce said claim” ; that “the defendant elected the alternative, and thereafter did in fact take charge of said claim and of negotiations for settlement thereof, and undertook the defense of said suit”; that “it entered into various negotiations with said Hodde’s counsel and representatives, caused the appearance of its attorneys to be entered in court as attorneys for this plaintiff, entered upon the preparation of the defense of said suit and had entire and exclusive control of said claim and negotiations for settlement thereof and of the defense of said suit throughout the pendency thereof”; that “it became the duty of the defendant, having undertaken in the plaintiff’s behalf, and for a consideration, the exclusive control and management of said claim and the negotiations for settlement thereof, and the defense of said suit to enforce said claim, to conduct itself in respect to such negotiations for compromise and the management of the defense of said claim and suit with a reasonable degree of care, skill and diligence for the protection of the plaintiff’s interests, and, among other things, it became the defendant’s duty to report to the plaintiff seasonably, in order to permit the plaintiff to act thereon, any offers ior settlement of said claim.

But the plaintiff says that the defendant was negligent in the performance of the duties which it assumed, and wholly failed in the diligent performance thereof, in that it entirely failed to conduct said negotiations for settlement by way of compromise with reasonable skill and diligence, failed to report to the plaintiff offers of settlement made by said Hodde’s representatives in compromise of said claim, whereby the plaintiff might have settled said claim by a reasonable compromise at its own cost; and, furthermore, immediately preceding the trial of said suit, although it was advised that the plaintiff was under a legal liability to said Hodde and that the injuries sustained by said Hodde were severe and permanent, carelessly and negligently, and against the .plaintiff’s protest and the advice of its own counsel, declined and refused to cause said suit to be settled and adjusted according to an offer made in behalf of said Hpdde for the sum of four thousand dollars ($4,000), towards which sum this plaintiff, though not bound so to do, offered to contribute voluntarily the sum of one thousand dollars ($1,000).” .

The allegations of negligence in the third count are restatements of those alleged in the first and second counts, namely, negligence in the preparation and trial of the case and in the conduct of the negotiations for settlement. The defendant filed a general denial, and for a further answer said: “That if any acts or .omissions of the character described in the plaintiff’s declaration occurred, they occurred more than six years prior to the date of the writ in this cause.” At the trial the plaintiff was allowed to- go to the jury upon the first count only of the declaration.

The court also ruled that the evidence to be received would be limited to alleged negligent acts occurring prior to December, 1904,_ when Mr. Romney Spring, an attorney at law, was employed by the defendant to prepare and defend the case, and to these rulings the plaintiff excepted. May 20, 1914, the jury returned a verdict for the plaintiff in the sum of $4,750, and on October 18, 1916, judgment was entered thereon for $5,437.17 damages, exclusive of costs.

The first contention made by the defendant under its first assignment of error is that the plaintiff’s action as set out in the several counts of its declaration sounds in contract and hot in tort. We do not regard this as a true conception of the allegations there made.

The first count is plainly based upon the idea that the defendant, having entered upon the task of defending the suit, was under a duty imposed by law to exercise due care and skill as respects the plaintiff’s rights, which it could reasonably anticipate would be damaged if it failed to exercise such care, and that, by reason of its failure in this respect, it was responsible to the plaintiff for the damages it suffered.

In the second count it is alleged that the defendant undertook and entered upon the task of settling the suit, whereby it became its duty to exercise reasonable care and diligence to effect a settlement, but that through negligence it failed so to do. The third count, as before stated, seeks to charge the defendant upon the grounds stated in both the previous counts.

If the second and third counts are not so carefully drawn as the first, and if their concluding paragraphs, and perhaps some others, give the impression that the plaintiff’s suit is for a. breach of contract, and not for negligence, it is to be borne in mind that the allegations there made are not the essential ones upon which the plaintiff’s right of action proceeds and which are elsewhere stated. The plaintiff does not seek in any of the counts to recover damages for a breach of contract, and the contract is not set out for the purpose of showing that its obligations have been broken by the defendant.

The allegations of this character were made for the purpose of showing the relationship existing between the parties, and the rights of the plaintiff in the subject-matter as to which the defendant was dealing and which it was bound to anticipate might be infringed if it failed to use due care in the performance of the duties imposed upon it by law. The rule of reasonable care which lies at the foundation of actions for negligence has to do with one’s acts with reference to the person, property, or rights of another. “It is a rule of relation.

If there be no relation, there is nothing upon which the. rule can operate. * * * Unless and until one is brought into relation with other men, or property, or rights, he has no obligation to act with reference to them; and this is true whether the obligation be called legal, moral, or reasonable.” Garland v. Boston & Maine R. R., 76 N. H. 556, 563, 86 Atl. 141, 142, 46 L. R. A. (N. S.) 338, Ann. Cas. 1913E, 924. For this reason,.and no other, it was essential for the plaintiff to set out in its declaration the stipulations of the policy into which the defendant had entered.

It is a well-recognized rule in the law of negligence that, when one knows or has reason to anticipate that the person, property, or rights of another are so situated as to him that they may be injured through his active intervention, it becomes his duty so to govern his action as not negligently to injure the person, property, or rights of that other. Gill v. Middleton, 105 Mass. 477, 7 Am. Rep. 548; Tuttle v. Gilbert Mfg. Co., 145 Mass. 169, 13 N. E. 465; Dustin v. Curtis, 74 N. H. 266, 268, 67 Atl. 220, 11 L. R. A. (N. S.) 504, 13 Ann. Cas. 169; Pittsfield Cottonwear Co. v. Shoe Co., 71 N.

H. 522, 533, 534, 53 Atl. 807, 60 L. R. A. 116; Rich v. Railroad, 87 N. Y. 382; Hubbard v. Gould, 74 N. H. 25, 28, 64 Atl. 668; Edwards v. Lamb, 69 N. H. 599, 45 Atl. 480, 50 L. R. A. 160; Conway Bank v. Pease, 76 N. H. 319, 82 Atl. 1068; Attleboro Mfg. Co. v. Frankfort Insurance Co. (C. C.) 171 Fed. 495; Tom v. Nichols-Fifield Shoe Machinery Co., 215 Fed. 881, 885, 132 C. C. A. 221.

It is also a well-recognized rule that, where the only relation between the parties is contractual, the liability of one to the other, in an action of tort for negligence, must arise out of some positive duty which the law imposes because of the relationship or because of the negligent manner in which some act which the contract provides for is done, and that the mere breach of an executory contract, where there is no general duty, is not the basis of such an action. Dustin v. Curtis, 74 N. H. 266, 268, 67 Atl. 220, 11 L. R. A. (N. S.) 504, 13 Ann. Cas. 169, and cases there cited.

It is not claimed in this case that the defendant was under a general duty to the plaintiff to defend or settle the suit. The claim is that, having actively intervened in the defense of the suit and in the settlement thereof, it was under a duty imposed by law to exercise due care not to injure the plaintiff’s rights in what it did; and we so hold.

The further position is taken, under this assignment of error, that the action is barred by the fourteenth clause of the policy, which reads as follows: “That no action shall be brought by the assured again§t the company upon this policy, in any court, after the expiration of the period, from the date of the accident, within which an action for injuries or damages may he brought against the assured, unless a suit be pending against the assured, at the expiration of that time, in which event an action for indemnity under this policy may be brought against the company within sixty (60) days after the final determination of such action, and not afterwards.” If the language of this provision is given its ordinary meaning, it amounts to nothing more than that no action to recover the indemnity provided for in the policy can be brought by the assured against the company after the expiration of six years from the date of an accident covered by the policy, unless, at the expiration of that time, a suit arising out of an accident is then pending, in which case an additional period of 60 days from the termination of the suit is to be allowed.

There is nothing in the language disclosing, an intention to place a limitation upon the time within which an action of tort may be brought against the company for breach of a duty imposed by law and arising out of its active intervention in the defence or settlement of a suit, or that any such right of action was in contemplation. Furthermore, the stipulation is a limitation in derogation of a common-law right, and its language is not entitled to a broad construction.

The contention is also made that the defendant owed the plaintiff no duty to defend the suit; that, under the policy, that duty was assumed by the defendant for its own protection and benefit, and not that of the plaintiff. It is true that in the policy the defendant stipulated it should-have the right to defend, and it no doubt acquired this right for its own protection; but this does not militate against the proposition that when it entered upon the defense of the suit, the law imposed on it, for the plaintiff’s benefit, the duty of so conducting the defense as not negligently to injure the plaintiff’s rights.

The court did not err in ruling that the plaintiff’s cause of action did not accrue until it paid “the judgment recovered by Hodde, or, at any rate, until the bringing in of the jury’s verdict in Hodde’s favor.” A right of action for negligence does not accrue until actual damage is sustained, and the plaintiff cannot be said to have suffered actual damage prior to the return of the verdict, and p'robably not before the judgment was entered or paid. Sullivan v. Old Colony R. R., 200 Mass. 303, 86 N. E. 511; Church of Holy Communion v. Patterson, etc., R. Co., 66 N. J. Law, 218, 49 Atl. 1030, 55 L. R.

A. 81; Haven v. Pender, 11 Q. B. D. 503, 507; Dodd v. Pittsburg, etc., Ry. Co., 127 Ky. 762, 106 S. W. 787, 16 L. R. A. (N. S.) 898; Miller v. Eskridge, 23 N. C. 147. By entering into the agreements contained in the policy, the defendant did not become the plaintiff’s agent in respect to the defense or settlement of the suit. It stood rather in the position of an independent contractor, for it was given the control of the defense and settlement of the suit, and was in nowise subject to the plaintiff’s direction. Furthermore, Mr.

Spring, who was employed by the defendant in December, 1904, to prepare and present the defense in the Hodde suit, was not the plaintiff’s agent or a subagent of the plaintiff appointed by the defendant for its benefit. The defendant had no authority to appoint an agent or subagent for the plaintiff. The plaintiff did not select him and had no authority or control over him. The defendant had the exclusive control of the defense, which carried with it the right to employ whomever it chose as its attorney and to direct him in the management of the case as it saw fit. Under such circumstances, Mr.

Spring was the defendant’s agent for whose conduct, while in its service and acting within the scope of his employment, it was responsible. The mere fact that he was also an attorney at law did not excuse the defendant from responsibility in this respect. Poucher v. Blanchard, 86 N. Y. 256, 260. Apart from its duty to exercise due care, the ⅝ 'defendant was not required to employ an attorney at law to act for it' out of court in preparing the defense, or in court to present the defense.

It was no doubt a prudent thing to employ a skilled agent, as it usually is when dealing with a matter calling for special knowledge and skill. We are, therefore, unable to sanction the ruling whereby the plaintiff’s evidence was limited to alleged negligent acts occurring prior to Mr. Spring’s employment. ⅜ The defendant also contends that no evidence was presented warranting the submission of the case to the jury.

It seems to us, however, after a careful examination of the record, that there was sufficient evidence to warrant its submission to the jury; but, in view of the fact that there must be a new trial, because the court erred in ruling that the defendant was not responsible for negligence in the preparation and trial of the case after it was turned over to its attorney in December, 1904, and, as a result of which, much evidence was excluded which the plaintiff was entitled to have admitted, we do not deem it necessary or profitable to consider this contention further.

Certain declarations bearing upon the negligence charged in the second count of the declaration, purporting to -be declarations made by the defendant’s attorney while talcing

part in negotiations for a settlement of the suit, and explanatory of his action at that time, were offered in evidence by the plaintiff, and excluded. The reason for their exclusion is not stated. It may have been because they related to acts of negligence occurring subsequent to the employment of Mr. Spring, and come under the ruling above considered, or it may have been because it did not appear, apart from the declarations, that Mr. Spring was authorized to enter into negotiations for a settlement and, if such was the fact, tire declarations would not be admissible.

An agent is a competent witness upon the question of his agency or authority (Clough v. Co., 75 N. H. 84, 86, 71 Atl. 223; 2 Wig. Ev. § 1078, note 4), and the fact may be proved in any other competent manner; but it cannot be established by the supposed agent’s declarations (Clough v. Co., supra; Nowell v. Chipman, 170 Mass. 340, 49 N. E. 631; 2 Wig. Ev. § 1078; 1 Greenleaf on Ev. [16th Ed.] § 184d). If, however, it appeared at the trial or, at a subsequent trial, it shall be made to appear by competent evidence that Mr.

Spring was authorized to negotiate for a settlement of the case, and, while engaged in that undertaking, made certain declarations explanatory of the action then being taken, such declarations would be admissible as a part of the res geste. In Cooley and Wife v.

Norton, 4 Cush. (Mass.) 93, 95, the court said: “The rule of law1 is, that when an agent is acting within the scope of his authority, his declarations accompanying Ms acts are admissible. * * * They are a part of the res geste, and may qualify the acts.” Greenleaf, in his book on Evidence (volume 1 [16th Ed.] § 184c), in discussing this question, says: “The principal constitutes the agent his representative, in the transaction of certain business; whatsoever, therefore, the agent does wMle in the lawful prosecution of that business is the act of the principal whom he represents.

And ‘where the acts of the agent will bind the principal there his representations, declarations, and admissions respecting the subject-matter will also bind him if made at the same time, and constituting a part of the res geste.’ They are of the nature of original evidence, and not of hearsay; the representation or statement of the agent in such cases being the ultimate fact to be proved, and not an admission of some other fact. * * ⅞ It is because it is a verbal act, and part of the res gestee, that it is admissible at all; and, therefore, it is not necessary to call the agent himself to. prove it; but, wherever what he did is admissible in evidence, there it is competent to prove what he said about the act while he was doing it.” See, also, Union Pocket Co. v.

Clough, 20 Wall. 528, 540, 22 L. Ed. 406; Vicksburg & Meriden Railroad Co. v. O’Brien, 119 U. S. 99, 103-106, 7 Sup. Ct. 118, 30 L. Ed. 299; Nebonne v. Railroad, 67 N. H. 531, 38 Atl. 17. Entertaining these views, we think there should be a new trial. The judgment of the District Court is reversed, the verdict is set aside, and the case is remanded to that court for further proceedings not inconsistent with this opinion; and the plaintiff recovers its costs in this court.