TRANSPORTATION GUARANTEE CO v. JELLINS (1945)

Plaintiff sued to recover anticipated damages for the breach of two contracts which defendant repudiated in April 1940. The execution of the contracts—one in 1930 and one in 1932—was admitted. The defense raised was that the contracts were void because they provided a method of insurance and did not comply with the terms of the Insurance Code. Judgment went for plaintiff on the basis of the damages anticipated by defendant's breach and his refusal to comply with the contracts until the end of their respective terms. The appeal is taken on the judgment roll.

The facts are undisputed. The contracts involved two separate motor trucks. Both called for a flat monthly payment plus a fixed rate per mile of travel. In consideration the plaintiff agreed to provide full methanical maintenance and repair of the trucks, their bodies, batteries and electrical equipment, to insure the vehicle for the owner (defendant) in an authorized insurance company, ‘to make good any damage done to owner's motor vehicle by collision’ with the qualification that plaintiff should have the option to repair the vehicle ‘or to pay the owner the value of said motor vehicle, to the extent of its book value at the time of damage’, to wash and paint the vehicle, and furnish free of cost to owner, all gas, oil, tires and batteries, and to ‘supply’ the owner with the designated motor vehicle ‘or a substitute therefor, for 365 days each year during the term of the contract’.

On the appeal from the judgment the appellant urges that such a contract is a contract of insurance and not a simple contract for services. If this position is sound it is conceded that neither contract can be enforced and that its invalidity can be raised at any time, notwithstanding its mutual acceptance for the greater portion of its term.

The question whether the contracts are within the scope of the Insurance Code is well presented in the brief of the Attorney General appearing as amicus curiae for the Insurance Commissioner. Reference to certain sections of the Code indicate a legislative intention to embrace such activities within the area of business subject to the restrictions and limitations of the Code. Section 22 provides: ‘Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.’ Section 116 provides: ‘Automobile insurance includes insurance of automobile owners, users, dealers, or others having insurable interests therein, against hazards incident to ownership, maintenance, operation and use of automobiles, other than loss resulting from accident or physical injury, fatal or nonfatal, to, or death of, any natural person.’ Section 120 provides: ‘Miscellaneous insurance includes insurance against loss from damage done, directly or indirectly by lightning, windstorm, tornado, or earthquake; and any insurance not included in any of the foregoing classes, and which is a proper subject of insurance.’

‘Insurance’ is defined in 29 Am.Jur. p. 47, as ‘an agreement by which one person for a consideration promises to pay money or its equivalent, or to perform some act of value, to another on the destruction, death, loss, or injury of someone or something by specified perils.’

The primary requisite essential to a contract of insurance is the assumption of a risk of loss and the undertaking to indemnify the insured against such loss. Contracts to provide personal services only, as distinguished from contracts to indemnify against risk of loss were considered by us in the recent case of California Physcians' Service v. Garrison, 155 P.2d 885. Here the contracts involve both features of service and indemnity. Hence if they merely called for the performance of necessary mechanical repairs they could be treated as contracts for services only. But they go far beyond these limitations. In agreeing to make good any damage done to the owner's motor vehicle caused by collision, and to furnish at its sole cost all tires, mechanical repairs, batteries, eletrical equipment and accessories, the contract becomes one to indemnify the owner against all hazards regardless of the cause of damage. As such they come squarely within the rule of the plate glass cases—People v. Rschli, 275 N.Y. 26, 9 N.E.2d 763; People v. Standard Plate Glass & Salvage Co., 174 App.Div. 501, 156 N.Y.S. 1012. It will be said that these cases are not uniformly followed. Moresh v. O'Regan, 120 N.J.Eq. 534, 187 A. 619, disagreed with the rule of the Standard Plate Glass case, but was reversed on other grounds. The rule of the Moresh case that a contract which undertakes to do anything else than pay a sum of money upon a certain contingency is not insurance has been rejected in the better reasoned cases. Commissioner of Banking and Insurance v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44; State v. Universal Service Agency, 87 Wash. 413, 151 P. 768, Ann.Cas.1916C, 1017; National Auto Service Corporation v. State, Tex.Civ.App., 55 S.W.2d 209. The rule of the Roschli case was expressly affirmed in Ollendorff Watch Co. v. Pink, 279 N.Y. 32, 17 N.E.2d 676, where the New York court held that the contract of a watchmaker agreeing with the purchaser of a watch to replace the watch if lost within the year was a contract of insurance. The rule of these cases is in harmony with the broader definition of a promise ‘to pay money or its equivalent, or to perform some act of value’ found in the above quotation from 29 Am.Jur. p. 47.

We refrain from comment on the apparently irreconcilable decisions covering ‘burial expenses' and ‘physicians' defense’ cases. See annotations in 63 A.L.R. 766, and 100 A.L.R. 1455. For a full discussion of the problem of what constitutes insurance in connection with the rendition of service see Jordan v. Group Health Ass'n, 71 App.D.C. 38, 107 F.2d 239, and recent authorities in 119 A.L.R. 1241.

Another case in point is State v. Western Auto Supply Co., 134 Ohio St. 163, 16 N.E.2d 256, 119 A.L.R. 1236, which involved a contract of warranty of automobile tires, but further undertook to ‘indemnify’ the owner of such tires against all road hazards including damage from blow-outs, cuts and bruises caused by defects or by collisions, whether resulting from negligence of the owner or another. The Ohio court held that the contract was one of insurance since it undertook to indemnify against loss or damage resulting from every hazard of travel.

In State v. Standard Oil Co., 138 Ohio St. 376, 35 N.E.2d 437, the same court distinguished between such a contract and one which guaranteed tires against defects in material and workmanship only. Such contracts of warranty and contracts of nonprofit associations of the fraternal and consumer-cooperative type differ from the contracts of indemnity against an anticipatory hazard such as we have here and the distinction is clearly explained in the comprehensive opinion of the Circuit Court of Appeals in Jordan v. Group Health Ass'n, supra. Commonwealth v. Provident Bicycle Ass'n, 178 Pa. 636, 36 A. 197, 36 L.R.A. 589, was not decided on the ground of the consumer-cooperative relation of the parties, but on the theory that the contract to perform service in the repair of vehicles was not insurance because it did not call for the payment of money. We have seen that this narrow definition has been rejected in the later cases. It is wholly inconsistent with the definition of automobile insurance found in section 116 of the Insurance Code as covering owners of automobiles, and others, ‘against hazards incident to ownership, maintenance, operation and use of automobiles.’ The contracts here in question are not warranties against defects in materials or faulty construction, or agreements to ‘service’ the vehicles only. They are contracts to pay in money or kind for damage to the vehicles or parties caused by the hazards arising from operation.

The judgment is reversed.

NOURSE, Presiding Justice.

GOODELL, J., and DOOLING, Justice pro tem., concur.