PHYSICIANS' DEFENSE CO. v. COOPER, State Ins. Com'r, 199 F. 576

WOEVERTON, District Judge (after stating the facts as above). But one question is presented on this appeal, which is whether the plaintiff is transacting an insurance .business within the meaning of the statutes of California relating to the subject. If it is, it is admitted that the Insurance Commissioner’s position is the correct one. If not, then the Commissioner should be restrained from interference with plaintiff’s continuing to transact business with the state.

All persons and companies are prohibited from transacting insurance business within the state of California without first obtaining a certificate of authority from the Insurance Commissioner, and filing a bond as may be required by such Commissioner. Sections 596 and 623, Political Code. The Civil Code of the state, under

chapter 1 of title 11, “Insurance in General,” defines insurance to be: “A contract whereby one undertakes to indemnify another against loss, damage or liability arising from an unknown or contingent event.”

Section 2527, Pomeroy’s Civil Code of California.

Section 2531 declares yvhat events may be insured against, namely: “Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him.” But the provisions of the

chapter (section 2532) do not authorize insurance pertaining to a lottery , or lottery drawing a prize. It is further declared (section 2534) that: “All kinds of insurance are subject to the provisions of this chapter.” A person or company engaging in such business as is here attempted to be defined may be said to be transacting insurance business. The statutory definition of insurance does not differ greatly from that usually given by lexicographers, text-writers and judges, and yet it is practically as comprehensive as any.

Webster defines it as: “The act of insuring against loss or damage by a contingent event; a contract whereby one party undertakes to indemnify or guarantee the other against loss by certain specified risks.” Webst.

Diet. “Insurance.” The Standard Dictionary defines it as: “An act or system of insuring or assuring against loss; specifically, the system by or under which indemnity or pecuniary payment is guaranteed by one party or several parties to another party, in certain contingencies, upon specified terms.” And the Century Dictionary: “In law, a contract by which one party, for an agreed consideration, which is proportioned to the risk involved, undertakes to compensate the other for loss on a specified thing from specified causes.” As to the text-writers, May defines insurance as: “A contract whereby one, íor a consideration, undertakes to compensate another if he shall suffer loss.” Such, says the author, is the definition of the term in its most general terms, and, speaking further, he says: “It had its origin in the necessities of commerce.

It has kept pace with its progress, expanded to meet its rising wants and to cover its ever-widening fields, and, under the guidance of the spirit of modern enterprise, tempered by a prudent forecast, it has, from time to time, with wonderful facility, adapted itself to the now interests of an advancing civilization. It is applicable to every form of possible loss. Wherever danger is apprehended, or protection required, it holds out its fostering hand and promises indemnity.” May on Insurance, §§ 1, 2.

Phillips defines it as: “A contract whereby, for a stipulated consideration, one party undertakes to indemnify the other against certain risks.” 1 Phil. Ins. § 1. Smith, in his work on Commercial Law, defines it as: “A contract by which a person, in consideration of a gross sum, or a periodical payment, undertakes to pay a larger sum on the happening of a particular event.” Smith, Com. Laws, 299. This collation of

definitions is taken, with some rearrangement, from People v. Rose, 174 Ill. 310, 314, 51 N. E. 246, 247 (44 L. R. A. 124). “An insurance contract,” says the court, in Shakman v. Credit-System Co., 92 Wis. 366, 66 N. W. 528, 32 L. R. A. 883, 58 Am. St. Rep. 920, “is a contract whereby one party agrees to wholly or partially indemnify another for loss or damage which he may suffer from a specified peril.” Again the court, in Commonwealth v.

Equitable Beneficial Ass’n, 137 Pa. 412, 419, 18 Atl. 1112, 1113, says of insurance that: “It is a merely business adventure, in which one, for a stipulated consideration or i>remium x>er cent., engages to make up, wholly or in part, or in a certain agreed amount, any specific loss which another may sustain; and it may apply to loss of property, to personal injury, or to the loss of life.

To grant indemnity or security against loss for a consideration is not only the design and purpose of an insurance company, but is also the dominant and characteristic feature of the contract of insurance.” We will refer to but one more definition of the term, which is that given by 22 Cyc. p. 1384, as follows: "Insurance is a contract by which the one party, in consideration of a price paid to him adequate to the risk, becomes security to the other that he shall not suffer loss, prejudice, or damage by the happening of the lierils specified to certain tilings which may be exposed to them.” The principal ingredients of such a contract are the consideration, the risk, and the indemnity.

The consideration is the premium for the insurer’s undertaking; the risk may be said to be the perils or contingencies against which the assured is protected; and the indemnity is the stipulated desideratum to be paid to the assured in case he has suffered loss or damage through the perils and contingencies specified. Insurance, under the statute, is a contract to indemnify "against loss, damage or liability.” We think the addition of the word “liability” to the usual definition of the term does not operate to enlarge its significance.

The kinds of insurance which have grown up and are denominated insurance under the usual definition have become very numerous. 22 Cyc. 1386. And now the business of insuring against the liability of employers for the personal injuries of their employés and others is one well recognized and established. 15 Cyc. 1035. Now we may look to the contract in question, and determine whether it falls within the category of insurance, and whether a continuance of the issuance of such contracts does or does not constitute insurance business.

In case the holder of the contract is sued for damages for civil malpractice, the Defense Company engages to employ a local attorney, in whose selection the holder of the contract shall have a voice, who, together with the company’s attorney, will defend the case without expense to the holder, and this to the extent of the exhaustion of the sum named in the policy, which for the defense of one suit is $5,000; if others in one year, $10,000.

It seems plain that when the holder is sued for civil malpractice, which he deems is wrongful, and the necessity of making defense is thrust upon him, he must suffer loss, damage, or liability within the meaning of the contract to the extent that he is obliged to employ attorneys and meet the expenses of the trial in regular course. He must pay his attorneys for their services in his behalf, and he must pay his costs on the trial. These are the contingencies which the Defense Company agrees to meet.

True, the company does not agree to pay to the holder of the contract the amount of such expenses incurred up to the sum of $5,000; but it does agree to lift them from the burden or liability of the holder, so that he will not be required to use his own money to meet them.

The contingency of paying the expenses of attorneys and cost of defense in case of suit for civil malpractice is the risk or peril which the company agrees that it will meet, and it can make no difference whether it pays the amount of the expenses and costs incurred to the parties doing the service or to the holder of the contract, so that he may himself meet such expenses and costs. The indemnity is the amount of such expenses and costs to be paid.

Or, to put it another way, the Defense Company agrees to hold the holder of the contract harmless in that respect to the extent of $5,000 in the event of the happening of the contingency specified. Such a contract, in our opinion, cannot be classed as a contract for personal services. The company is not itself an attorney, and does not undertake the defense as such.

What it does undertake is, in case of suit, to employ a local attorney, in whose selection the holder shall have a voice, who, with the company’s attorney, will defend the case, and to relieve the holder from the expense thereof, an expense which must follow the happening of the very contingency provided against. Not only this, but the company must relieve the holder of paying the costs of suit. Suppose the contract had been to repay to the holder whatever sums, not exceeding $5,000, he should be required to pay out for attorneys and costs in case of such litigation.

Could there be any question that there would be a contract of insurance? We think not. Can it change the character of the contract in this respect that it purports to hold the holder harmless against the payment of such expenses and costs? The contract, reduced to its simplest idea, is but an agreement to pay the expenses and costs that the holder would have to pay in the contingency specified.

This is indemnity pure and simple, and with whatever verbiage the contract may be clothed it does not serve to cover its real purpose, which is one to indemnify the holder against damage and liability for attorney’s expenses and costs of defense, in the event he is sued for malpractice. It is faulty logic to say that this is not a loss, damage, or liability of the contract holder, premising that he does not incur it, and concluding that it is the liability of the Defense Company.

The loss, damage, or liability follows the suit for malpractice; and, were it not for the contract of the Defense Company, the holder must bear it. Whose loss, damage, or liability would it then be? That of the person sued, of course. It is this very burden which the Defense Company agrees to bear in case the contingency of the holder being sued happens, and this is insuring the holder against the risk dependent upon the contingency. Looking on the other side, if this be a contract for personal services, why limit the amount of the services to be rendered in dollars and cents?

Attorneys do not take contracts for defending parties sued in that way. How peculiar it would be for an attorney to say: “I will engage in your defense $5,000 worth.” It would follow that when the fund was exhausted the attorney would quit, whether the case was brought to a close or not. The very uncertainty of the amount to be paid by the Defense Company to meet the exigency contracted against is persuasive that the contract is not one of hiring, but one rather of indemnity. And such is our conclusion. See Physicians’ Defense Co. v. O’Brien, 100 Minn. 490, 111 N. W. 396.

The reasoning of the court in this case is both cogent and persuasive. The plaintiff cites with confidence Vredenburgh v. Physicians’ Defense Co., 126 Ill. App. 509, and State v. Laylin, 73 Ohio St. 90, 76 N. K. 567. While these cases are squarely opposed to our position, we are unable to adopt their reasoning. It follows that the decree of the court below should be affirmed; and it is so ordered.