A state law (N.Y.Laws 1918, c. 182) required that any policy
issued by an insurance corporation in the future to indemnify the
owner of a motor vehicle against liability to persons injured
through negligence in its operation shall provide that the
insolvency or bankruptcy of the insured shall not release the
company
Page 267 U. S. 127
from payment of damages for an injury sustained during the life
of the policy, and that, in case execution against the insured in
an action brought by a person so injured shall be returned
unsatisfied because of such insolvency or bankruptcy, the injured
person may maintain an action against the company on the policy for
the amount of the judgment not exceeding the amount of the
policy.
Held:
(1) That the regulation is reasonable, and within the police
power; it cannot be said to deprive the insurance company of
property without due process of law. P.
267 U. S.
129.
(2) That it does not conflict with the Bankruptcy Act by
providing for an unlawful preference. P.
267 U. S.
130.
198 N.Y.S. 949 affirmed.
Error to a judgment of the Supreme Court of New York, Appellate
Division, affirming a judgment recovered by Smart against the
Insurance Company. The New York court of appeals declined to
review. The facts are given in the opinion.
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
The Merchants' Mutual Automobile Liability Insurance Company,
the plaintiff in error, is a New York corporation authorized to
insure against recoveries of damages by persons injured by
automobiles and other vehicles for whose operation the insured is
responsible. It issued a policy November 16, 1919, to Frank Coron,
thus to indemnify him in the operation of his automobile truck to
the extent of $5,000, together with interest and costs. The policy
contained a provision, inserted pursuant to the requirement of §
109 of the Insurance Law of New York.Laws 1919, c. 182. The section
reads as follows:
"On and after the first day of January, nineteen hundred and
eighteen, no policy of insurance against loss
Page 267 U. S. 128
or damage resulting from accident to or injury suffered by an
employee or other person and for which the person insured is
liable, or against loss or damage to property caused by horses or
by any vehicle drawn, propelled, or operated by any motive power,
and for which loss or damage the person insured is liable, shall be
issued or delivered to any person in this state by any corporation,
. . . authorized to do business in this state unless there shall be
contained within such policy a provision that the insolvency or
bankruptcy of the person insured shall not release the insurance
carrier from the payment of damages for injury sustained or loss
occasioned during the life of such policy, and stating that, in
case execution against the insured is returned unsatisfied in an
action brought by the injured, or his or her personal
representative in case death results from the accident, because of
such insolvency or bankruptcy, that then an action may be
maintained by the injured person, or his or her personal
representative, against such corporation under the terms of the
policy for the amount of the judgment in the said action not
exceeding the amount of the policy."
Smart was injured by the truck of Coron. He brought suit against
Coron for damages and recovered a judgment for $11,000. He issued
execution against Coron upon the judgment, which was returned
unsatisfied, and supplemental proceedings were undertaken against
him without success.
The supreme court of the state held that, on the record, Coron
was insolvent, that, under the clause of the policy embodying the
provision of § 109, the action lay, and, because of a failure to
set up any good defense, a summary judgment was entered for $5,000
and interest and costs in favor of Smart against the company.
The case has been brought here by the company under § 237 of the
Judicial Code upon the claim that § 109 is invalid first, in that
it deprives the insurance
Page 267 U. S. 129
company of its property without due process of law, and, second,
because it is in conflict with the bankruptcy laws of the United
States. It is well settled that the business of insurance is of
such a peculiar character, affects so many people, and is so
intimately connected with the common good that the state creating
insurance corporations and giving them authority to engage in that
business may, without transcending the limits of legislative power,
regulate their affairs so far, at least, as to prevent them from
committing wrongs or injustice in the exercise of their corporate
functions.
Northwestern Life Insurance Co. v. Riggs,
203 U. S. 243,
203 U. S. 254;
Whitfield v. Aetna Life Insurance Co., 205 U.
S. 489;
German Alliance Insurance Co. v. Lewis,
233 U. S. 389,
233 U. S. 412
et seq.; La Tourette v. McMaster, 248 U.
S. 465,
248 U. S. 467;
National Insurance Co. v. Wanberg, 260 U. S.
71,
260 U. S. 73.
Such regulation would seem to be peculiarly applicable to that form
of insurance which has come into very wide use of late years --
that of indemnifying the owners of vehicles against losses due to
the negligence of themselves or their servants in their operation
and use. The agencies for the promotion of comfort and speed in the
streets are so many and present such possibility of accident and
injury to members of the public that the owners have recourse to
insurance to relieve them from the risk of heavy recoveries they
run in entrusting these more or less dangerous instruments to the
care of their agents. Having in mind the sense of immunity of the
owner protected by the insurance and the possible danger of a less
degree of care due to that immunity, it would seem to be a
reasonable provision by the state in the interest of the public,
whose lives and limbs are exposed, to require that the owner in the
contract indemnifying him against any recovery from him should
stipulate with the insurance company that the indemnity by which
he
Page 267 U. S. 130
saves himself should certainly inure to the benefit of the
person who thereafter is injured. Section 109 does not go quite so
far. It provides that the subrogation shall take place only when
the insured proves insolvent or bankrupt, and leaves the injured
person to pursue his judgment against the insured if solvent
without reliance on the policy.
Another reason for the legislation is suggested in the opinion
of the Appellate Division of the Supreme Court of New York
(
Roth v. National Automobile Mutual Casualty Co., 202
App.Div. 667, 674), to-wit, that it was enacted on the
recommendation of state superintendent of insurance to make
impossible a practice of some companies to collude with the insured
after an injury foreshadowing heavy damages had occurred, and to
secure an adjudication of the insured in bankruptcy, whereby
recovery on the policy could be defeated, because the bankrupt had
sustained no loss.
Whatever the especial occasion for the enactment, it is clear
that the exercise of the police power in passing it was reasonable,
and cannot be said to deprive the insurance company of property
without due process of law. It is to be remembered that the
assumption of liability by the insurance company under § 109 is
entirely voluntary. It need not engage in such insurance if it
chooses not to do so.
The second objection is that the policy in this clause makes
provision for an unlawful preference under the National Bankruptcy
Act when the owner who is indemnified is a bankrupt at the time of
the injury.
Passing by the difficulty that suggests itself that the
insurance company is not one of the creditors of the insolvent
insured, and so is hardly in position to question the validity of
law for a defect of this kind (
Heald v. District of
Columbia, 259 U. S. 114,
259 U. S. 123,
and cases cited), we prefer to deal with the objection on its
merits. It has
Page 267 U. S. 131
no substance. As we have already suggested, the legislature
might have required that policies of this kind should subrogate one
injured and recovering judgment against the assured to the right of
the latter to sue the company on the policy. It simply would create
a secured interest in the recovery on the policy for the benefit of
the injured person when ascertained. It would not be an unlawful
preference any more than security given for any lawful claim
against the assured while solvent would be unlawful in the event of
subsequent bankruptcy. The clause we have before us is just the
same save in one respect. It secures to the injured person the
indemnity which his injurer has provided for himself in advance to
avoid payment for the injury. But the clause becomes operative only
in the event of the insolvency or bankruptcy of the assured when he
can no longer use the indemnity to pay the injured person as he
should. The title to the indemnity passes out of the bankrupt or
insolvent person and vests in him in whom the contract and the
state law declare it should vest. The assured is divested by the
terms of the instrument under which the interest of the assured and
the interest of the injured then contingent, and now absolute, were
created. The general creditors have lost nothing, because, by the
fact of bankruptcy, the interest of the assured in the policy
passed to the injured person, and did not become assets of the
assured. The provision for the divesting of the interest on
bankruptcy was not made to defraud creditors or in expectation of
bankruptcy, but was made, so far as we can know, when the assured
was solvent, and merely to provide against a future
contingency.
We think that there is in this state legislation complained of
no conflict with the policy or the letter of the bankrupt law.
A third objection is made that there was no sufficient evidence
that the insured was insolvent. This was a
Page 267 U. S. 132
question of fact under the proceedings which were instituted by
execution and what followed. The state courts have found it to
exist, and it is not for us to question their findings.
The judgment is
Affirmed.