PITNEY, V. C.
Bill by P. Sanford Ross and others against the American Employers' Liability Insurance Company for appointment of a receiver. Heard on application of the receiver for instructions as to payment of dividends.
R. V. Lindabury, pro se.
Carroll Robbins, for Virginia policy holders.
Hamilton Wallis, for one class of policy holders.
William H. Corbin, for another class.
William D. Edwards and Mr. Proctor, for certain claimants.
PITNEY, V. C. This is an application upon petition by the receiver of the insolvent corporation defendant, upon notice to all the creditors, for instructions in the matter of paying a dividend, as to what creditors shall share in it. All the creditors had notice of the application, and many of them appeared by counsel. Three questions were presented:
1. The insolvent corporation issued several kinds or classes of policies of insurance. One class of insurance was by a policy called an "Employers' Liability Policy" to employers, insuring against their liability for accidents happening to employes. In this policy the undertaking is expressed in the following language: "That said company will pay to the insured all damages with which the insured may be legally charged under the common law or any statute (not exceeding the amounts hereinafter limited) for or by reason of any accidental injuries, fatal or otherwise, happeningpolicies of insurance for the future; relying upon the case of Mayer v. Attorney General, supra, as illustrated in Doane v. Insurance Co., 43 N. J. Eq. 522, 11 Atl. 739. The contest there was between two classes of claims, precisely as it is here. The language of the policies there is not literally quoted, but it appears to have been very much, if not precisely, the same as the language in the policies in this case above quoted. The trial court excluded the second class of claims here under consideration, but the court of appeals, consisting of eight judges, unanimously reversed the decision in that respect, and held that both classes were entitled to participate equally in the assets of the insolvent corporation. I refer to the reasoning of the court on pages 783, 784, of 34 Atl. This result is the only one which can be relied upon to do anything like justice between the parties. The rule contended for by the counsel Who argued so ably in favor of the first class of claimants would result in making an unfair distinction between cases in which there is no intrinsic difference. Two accidents might happen on the same day, and a judgment in one be recovered very shortly, and before insolvency, and a judgment in the other might be delayed by litigation for months and years, and until after insolvency, and yet there might be no difference in the intrinsic merits of either.
2. The next question presented and discussed was as to certain claims presented by several firms of lawyers in different states of the Union, audited and adjusted by the learned receiver, for services in defending actions against persons insured for accidents which might result in a liability covered by a policy issued by the insolvent company. One of the terms of both classes of policies is this: "If any legal proceedings are taken against the insured by any person or persons, or by the legal representatives of any person or persons, to enforce a claim or claims for damages against said insured, the company shall have the absolute conduct and control of defending against such proceedings, in the name and on behalf of the insured, and shall have the sole and exclusive control of such defense, with the right to compromise the same, and to take such appeals or other proceedings therein as it shall deem best, the company assuming all costs and expenses of such defense and proceedings. But if the company shall offer to pay the insured the full amount for which it is liable in respect to such claim or claims, then it shall not be bound to defend in such proceedings, nor be liable for any costs or expenses which may be incurred therein." Besides this provision, there are found among the conditions printed on the back of the policy certain clauses regulating the exercise of the right of defense by the insurer and also by the insured, which it is not necessary to set out at length. Suffice it to say that the learned receiver was of the opinion that these clauses, in effect, cast upon the insolvent company the duty of defending actions brought against the insured wherever such defense was at all warranted; and that in case of a failure of the insurer to make such defense the insured might make it at his own expense, and charge against the insurer, under the policy, the reasonable cost thereof. Most of the claims of lawyers audited and adjusted by the receiver were for services rendered under the retainer of the insolvent corporation before it went into the hands of the receiver, in defending such actions. The receiver, in adjusting those claims, has made abatements in several instances by reason of the fact that the damages recovered were much beyond the insurance, and hence the defense was as much for the benefit of the insured as for the benefit of the insurer. A small portion of the claims, as I understand, is for services rendered in other matters besides the mere defense of actions of the kind above referred to. I think that the circumstance that the lawyers in such cases acted upon the retainer of the insolvent company, and looked to it primarily for pay, does not vary the case, so far as the insolvent company is concerned, but that their claims should be allowed precisely as if they had been paid by the insured, and that they should be put on the same basis as the policy holders. The services were all rendered in defense of the general fund, and were for the benefit of the policy holders. The presumption is—and the learned receiver, from a very careful and elaborate examination of all their claims, is of the opinion—that they are all meritorious in that respect. At the argument the idea was enforced with great vigor that they are strictly within the limits of the terms of the trust upon which the securities which constitute the bulk of the assets of the company were deposited with the commissioner of banking and insurance of this state. The trust was that the securities were deposited "for the protection and benefit of all the policy holders." And it was argued that defending the fund against claims, the allowance of which would deplete it, was strictly within the terms of that trust. And I am not sure that the position is not well taken. Under the policies it was not only the contractual duty of the corporation to defend those claims in all cases where there was reasonable ground for such defense, but it was also their duty, independent of that contract, to so defend; and I am inclined to think that the counsel fees, within reasonable limits, must be considered as a sort of salvage necessarily expended for the benefit of the fund.
3. The third question arises in this wise: The statute of the state of Virginia requires any company like the present insolvent company doing business in that state to deposit a, certain amount of securities with the treasurer thereof, for the benefit of all policy holders residing in that state, and the insolvent company under that statute deposited about $10,000 worth of securities with the Virginia state treasurer. About $12,500 of claims ofVirginia policy holders were presented against this fund in the Virginia courts, and they have been paid 46 per cent. of their claims thereout The fund is not yet exhausted, and there may be something further coming to them from it. These Virginia policy holders have proven their demands here, and claim a dividend on the balance of their claims, after crediting the amount recovered from the special Virginia deposit. The question is whether they are entitled to any dividend upon their claims until the other policy holders have been paid a dividend equal to the amount the Virginia claimants have received from this special Virginia fund. The question raised is a nice one, and not without its difficulties. The actual deficiency which will arise upon the Virginia claims after the Virginia assets have been entirely exhausted is not yet determined. The receiver does not propose to make a dividend covering all the assets in his hands. In fact, he has only realized on a part of the assets. The others are still in specie, and perfectly good, and are drawing interest. For these reasons I think it best not to express any opinion at this time upon this question, but will advise a dividend of 33 1/3 per cent. upon all the claims except those of Virginia residents, of policy holders, and claims of lawyers for services in defending suits against policy holders out of the funds received from the securities lodged with the commissioner of banking and insurance. A state of things similar to that in Virginia exists in Alabama, and is subject to the same order.