Baker v. American Insurance Co. of Newark, New Jersey
| Decision Date | 18 November 1963 |
| Docket Number | No. 9001.,9001. |
| Citation | 324 F.2d 748 |
| Parties | David BAKER and Lee J. Baker, Appellees, v. The AMERICAN INSURANCE COMPANY OF NEWARK, NEW JERSEY, Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
W. Ray Berry and Douglas L. Hinds, Columbia, S. C. (J. Monroe Fulmer and Fulmer, Barnes & Berry, Columbia, S. C., on the brief), for appellant.
Donald V. Richardson, III, Columbia, S. C. (Thomas E. McCutchen and Whaley & McCutchen, Columbia, S. C., on the brief), for appellees.
Before BRYAN and J. SPENCER BELL, Circuit Judges, and NORTHROP, District Judge.
In the accident policy issued by American Insurance Company to David and Lee J. Baker the insurer covenanted: (1) "to pay * * * all sums which the insured should become legally obligated to pay as damages because of injury to * * * property * * * caused by accident"; and (2) to defend "any suit against the insured alleging such injury * * * and seeking damages on account thereof * * *" (Accent added.)
The policyholders (Baker) were sued in a South Carolina court for damages under circumstances they thought entitled them to the insurance protection, but American refused to defend the suits. After American also declined to indemnify Baker for the amounts expended in settlement of the suits, Baker brought the instant action in the District Court to recover from American their expenses in defense of the cases as well as the settlement payments. The reasonableness of these sums was not disputed. The question on trial — whether the circumstances on which the claims were based constituted an "accident" — was found against American and it now appeals. We affirm.
Baker commenced the construction of a shopping center in April 1959 upon a 17-acre tract in Columbia, South Carolina. The terrain necessitated considerable grading besides the removal of trees and vegetation. Natural drainage was to the south and east, and ultimately into a public street extending east and west and forming the southern boundary of the property. Plans for the grading and final drainage of the proposed improvement were prepared by competent engineers. Included was the erection of a retaining wall along the eastern boundary, projecting well above the surface of the land and reaching to the street. The City issued a building permit for the project after approval of the plans. In the process of grading, the top soil and other surface materials were loosened and the denuded ground no longer retarded the run-off of rainfall.
By the last of June or early July, with the clearance and grading just about completed, this part of South Carolina suffered unusually heavy rains, commencing a period of abnormal rainfall continuing through October, 1959. The precipitation in July was more than 13 inches, the severest in Columbia since 1887. Hurricane Cindy alone brought 5.79 inches in the single day of July 9. In August, however, it was not quite 5 inches, slightly subnormal for the month. In September more than 7 inches fell, which was nearly 3 inches above the seasonal average. The same month Hurricane Gracie produced 4.89 inches in 24 hours. October's fall was more than 12 inches, some 9 inches beyond ordinary. The Weather Bureau reported that the rainfall for the four months was without precedent since the beginning of its records in 1887.
So great was the volume of rain water that chunks of asphalt street pavement were forced out of place and blocked the storm sewers. Heavy washes of water, mud and debris swept the street. The side ditches, intended to relieve the sewers of surface water, became clogged and caused the water from the construction area to overflow abutting residential properties. These were thus inundated repeatedly, beginning in July, throughout the ensuing four months.
The injured owners sued Baker in the State courts in November 1959. Their complaints set forth the grading operations by Baker just related, including the installation of the retaining wall, and charged that the effect was to collect the surface waters of the tract and release them in concentrated form into the street and ultimately upon the claimants. Right of recovery was premised upon the invasion of their properties by Baker: (1) willfully, (2) through negligence in clearing the site with respect to drainage, and (3) by the creation and maintenance of a nuisance on the Baker tract. American's refusal to defend the actions or pay the compromise amounts was rested on its contention that the liability asserted against Baker on these claims did not arise from an "accident", but rather from the negligence of Baker, a risk American says was not underwritten in the policy.
An insurer's duty to defend an action in accordance with the terms of its policy is to be gathered from the face of the complaint. Glens Falls Indemnity Co. v. Atlantic Building Corp., 199 F.2d 60, 61 (4 Cir. 1952). On the other hand, the insurer's liability to indemnify the insured for an amount paid in settlement must be determined from the evidence offered in the suit brought by the insured against the insurer for reimbursement. American Casualty Co. v. Denmark Foods, 224 F.2d 461, 464 (4 Cir. 1955). In the latter determination, what would be the effect, if any, of a judgment rendered in favor of the claimant against the insured after trial, instead of a settlement, does not have to be decided in this case.
Defense of a claimant's action against the insured involves, of course, the incurrence of expenses by the insurer quite apart from the payment of a settlement. The two obligations are not interdependent. The insurer may be bound to defend and yet not be responsible for satisfaction of the settlement, for the proof in the suit against the insurer for indemnification might not establish the injury as an accident. This, we have previously said, is the law of South Carolina. C. Y. Thomason Co., v. Lumbermens Mutual Casualty Co., 183 F.2d 729 (4 Cir. 1950); American Casualty Co. v. Denmark Foods, supra, 224 F.2d 461. As jurisdiction of the...
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