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GEDEON v. STATE FARM MUT. AUTO. INS. CO.

March 18, 1964

Louis T. GEDEON, Plaintiff,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: DUMBAULD

Louis T. Gedeon was the driver of an automobile in which his wife, passenger, was killed in a single car crash. The defendant insurance company contended that there was no coverage by reason of the fact that the policy had been canceled because part of the premium had not been paid when due. The company refused to defend when Gedeon, as administrator, brought suit under the Pennsylvania Wrongful Death Act (12 P.S. §§ 1601-1603) on behalf of his children against himself as the negligent driver. *fn1" A judgment was rendered against Gedeon individually in the amount of $ 51,318.92 at No. 234 February Term, 1956 in the Court of Common Pleas of Washington County, Pennsylvania.

Gedeon then brought an action in assumpsit against the defendant insurance company in the Court of Common Pleas of Washington County, Pennsylvania, at No. 420 February Term, 1958. On January 21, 1963, the Supreme Court of Pennsylvania affirmed a decision in favor of the defendant insurance company in that litigation. Gedeon v. State Farm Mutual Automobile Insurance Co., 410 Pa. 55, 188 A.2d 320 (1963). The Supreme Court declined to pass upon two of the grounds upon which the Common Pleas Court en banc had rested its opinion: (1) The contention that the policy was not in force on the day of the accident because of failure to pay premiums; (2) That even if the policy were in force obligations to members of the insured's household were specifically excluded from coverage. The Supreme Court based its decision solely upon the third ground that even if there were a breach of appellee's contractual obligation to defend, appellant had shown no damages resulting from such breach. This result followed because of the fact that appellant did not hire substitute counsel or spend any funds in defense of the wrongful death action against himself (410 Pa. at 57-58, 188 A.2d 320).

 The Supreme Court expounded the triple obligation undertaken under a typical automobile liability insurance policy. The first obligation of the insurer is to indemnify the insured against liability. The second obligation is to defend the insured against any suits arising under the policy even if such suits are groundless, false or fraudulent. The third obligation is to act in good faith and with due care in representing the interest of the insured during the course of settlement negotiations or the trial of the case (410 Pa. at 58-59, 188 A.2d 320, 322). The opinion of the Supreme Court may be taken as an authoritative construction of the pleadings in the Washington County suit at No. 420 as limiting the claim there asserted to the breach of the obligation to defend. With respect to this obligation there were no damages, inasmuch as the individual defendant in the original suit did not hire any independent counsel or incur any other expenses.

 The Supreme Court said: 'The sole basis of the complaint is appellee's refusal to defend the wrongful death action. Appellant does not seek to recover $ 10,000 under the indemnity clause, 7 nor does he allege a refusal to settle or other mishandling of the claim by appellee. 8 '

 Footnote 7 on page 60 of 410 Pa., page 322 of 188 A.2d reads: 'Such a suit in this situation would properly be brought by appellant in his representative capacity for the benefit of the children.' Footnote 8 reads: 'In fact, appellant conducted the defense of the wrongful death action himself.'

 Subsequently, on November 18, 1963, Gedeon in his individual capacity filed a suit in this Court at Civil No. 63-1020, alleging negligent handling of the claim and breach of fiduciary duty in failing to settle the case for $ 1,907.45, (an amount well within the policy limits). Gedeon here claims damages in the amount of the judgment against him ($ 51,318.92).

 On the same date suit was brought against the defendant at No. 63-1021 by Gedeon as administrator for the benefit of his children, seeking damages in the nature of indemnity to the extent of the policy limits ($ 10,000.00).

 With respect to the action for indemnity (that is, for violation of the first obligation of an insurer under Mr. Justice Cohen's three-fold classification) it might be thought that this action should be brought by the plaintiff in his individual capacity, since the judgment against him was in that capacity. Nevertheless, footnote 7 in Mr. Justice Cohen's opinion seems to indicate that suit might properly be brought by plaintiff in his representative capacity for the benefit of the children; and indeed this is permissible as a form of equitable execution or seeking to reach an asset available to satisfy the judgment obtained for the benefit of the children by plaintiff in his representative capacity against himself in his individual capacity.

 Defendant now contends, first, that the suits are barred by the doctrine of res judicata as a result of the decision of the Pennsylvania Supreme Court at 410 Pa. 55, 188 A.2d 320; second, that the suits are barred by the statute of limitations; third, that the policy was not in force on the date of the accident; fourth, that the policy contains an exclusion from coverage which would prevent any member of the family of the insured residing in the same household of the insured from recovery; and finally, that the statutory beneficiaries under the Pennsylvania Wrongful Death Act are inadequately identified in Civil No. 60-1021 and in the original suit against Gedeon individually in Washington County at No. 234 February Term, 1956.

 However, it is also explained in Cromwell v. County of Sac that where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points actually controverted, and not as to those which might have been litigated and determined. The plaintiff in that case was permitted to prove that he was a holder for value of certain bonds, even though in the prior proceeding he had failed to prove, with respect to other bonds of the same bond issue, that he was a holder for value.

 Defendant here contends that it is the facts, rather than the legal theory, which constitutes a cause of action. However, the Supreme Court of the United States has said, in Baltimore Steamship Company v. Phillips, 274 U.S. 316, 321, 47 S. Ct. 600, 602, 71 L. Ed. 1069 (1927), that 'A cause of action does not consist of facts, but of the unlawful violation of a right which the facts show.'

 Therefore, we believe that, especially in the light of the ambiguous intimations of Justice Cohen's opinion, that the Pennsylvania Supreme Court's decision is a bar only with respect to the one obligation of the insurer which was there involved (duty to defend) and does not bar the cognate obligations of indemnity and breach of fiduciary obligation.

 However, with respect to Action No. 63-1020, relating to breach of fiduciary obligation, we conclude that no recovery can be had in this action upon that obligation of the insurer for the reason set forth in footnote 8 of Justice Cohen's opinion: the fact that Gedeon 'conducted the defense of the wrongful death action himself.' Hence the defendant insurance company cannot be properly charged here with mishandling of the claim when the fact is plain that it did not handle the claim at all, but that Gedeon himself conducted the defense of the original suit against him. If it be true that the case could have been ...


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