Babcock & Wilcox Company v. Parsons Corporation

• Decision Date: 11 August 1970
• Docket Number: No. 19949.,19949.
• Citation: 430 F.2d 531
• Parties: The BABCOCK & WILCOX COMPANY, Appellee, v. PARSONS CORPORATION, Appellee, v. INSURANCE COMPANY OF NORTH AMERICA, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

430 F.2d 531 (1970)

The BABCOCK & WILCOX COMPANY, Appellee, v. PARSONS CORPORATION, Appellee, v. INSURANCE COMPANY OF NORTH AMERICA, Appellant.

No. 19949.

United States Court of Appeals, Eighth Circuit.

August 11, 1970.

COPYRIGHT MATERIAL OMITTED

Lyle E. Strom, Fitzgerald, Brown, Leahy, McGill & Strom, Omaha, Neb., for appellant; William J. Brennan, Jr., and C. L. Robinson, Omaha, Neb., on the brief.

William E. Naviaux, Omaha, Neb., for appellee, Parsons Corp.; Malcolm D. Young, Omaha, Neb., on the brief.

John T. Grant, Kelley, Grant, Costello & Dugan, Omaha, Neb., for appellee, The Babcock & Wilcox Co.

Before MATTHES, Chief Judge, HEANEY and BRIGHT, Circuit Judges.

MATTHES, Chief Judge.

This appeal comes to us from a judgment of the United States District Court for the District of Nebraska holding Insurance Company of North America (INA) liable to Parsons Corporation (Parsons) and The Babcock and Wilcox Corporation (Babcock) on two insurance policies issued by INA to Parsons. Jurisdiction in the district court was premised on the diverse citizenship of the parties. Because of the complex and rather unique issues raised on appeal, we detail the factual setting of the litigation.

Parsons and Babcock were corporations involved in the construction of a power plant near Stanton, North Dakota. As is customary in the trade, they had agreed to perform services for each other, although they were working under independent contracts. On May 21, 1964, pursuant to the agreement, Babcock furnished its large crane to Parsons for the purpose of moving a derrick used by Parsons on the project. The operation was undertaken with an employee of Babcock operating the crane under instructions of Parsons' employees. During the lifting of the derrick, the crane boom broke and the boom and derrick fell to the ground. Both the crane and derrick were extensively damaged.

Parsons immediately notified INA of the accident, and an investigation was conducted.

On March 26, 1965, Babcock filed a complaint against Parsons in the district court for damages to its crane.¹ The complaint was in three counts. The first two alleged that Parsons had either borrowed or rented the crane from Babcock and had returned it in a damaged condition. The third count alleged merely that the crane had been damaged due to Parsons' negligence.

On receipt of the complaint Parsons notified INA and tendered it the defense. Parsons had two policies issued by INA — a general liability policy and a machinery floater policy. The former provided for indemnification of Parsons should it be held liable to a third party for damages. It also contained the following defense clause:

"With respect to such insurance as is afforded by this policy, the company shall:

defend any suit against the insured alleging such injury, sickness, disease, or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient; . . . .

The machinery floater policy was designed to protect property owned, rented, etc., by Parsons. The floater policy contained no defense clause.

INA declined to accept the defense of the lawsuit under the general liability policy on the basis of an exclusionary clause which exempted from coverage injury to property owned, occupied by or rented to Parsons, or property in the care, custody, or control of Parsons. However, INA did offer to defend under the floater policy on the condition that Parsons sign a "non-waiver agreement."²

Parsons refused INA's conditional offer and defended through its own counsel. An answer was filed denying that Parsons had rented or loaned the crane and denying any negligence. In addition, Parsons filed a counterclaim alleging damage to the derrick because of Babcock's negligence and further damages for breach of contract. Parsons also filed a third-party complaint against INA, pursuant to Rule 14, Fed.R.Civ.P., against INA seeking two forms of relief: (1) that INA be held liable on its policies for any judgment rendered against Parsons in the primary action, and (2) that INA be held liable to Parsons for the reasonable expenses incurred in defending the primary action.

INA filed an answer and moved for a separate trial of the third-party action. With the consent of Parsons the motion for a separate trial was granted.

The claims between Babcock and Parsons were tried to a jury which returned verdicts for both parties. On motion of Babcock the verdicts were vacated and a new trial ordered. At the second trial the case was submitted on special interrogatories. In answering them, the jury found that the operator of the crane was acting as a servant of Parsons, that neither Babcock nor Parsons was negligent in operating the crane, that Babcock had sustained damages to its crane in the amount of $10,000, and that Parsons had sustained damages to its derrick in the amount of $8,000. The court entered an appropriate judgment on the basis of the verdicts returned, neither party recovering for damage to their respective units of equipment. This judgment terminated the litigation between Babcock and Parsons, and is final.

Thereafter, pursuant to leave, Parsons filed an amended complaint against INA in which it limited its claim to recovery of expenses incurred in defending the primary action. It alleged that INA was obligated to so defend under the liability and floater policies. Thereupon, Babcock, on February 27, 1968, sought leave to intervene under Rule 24 (a) (2), Fed.R.Civ.P., urging that its interests would be inadequately represented by Parsons and that it might be bound by a judgment entered in the third-party litigation. As a part of the motion to intervene, Babcock filed a complaint against INA alleging that the crane was in the possession of Parsons at the time of the accident, that Parsons was entitled to recover for the damage to the crane under the floater policy, and that Babcock as owner of the crane was a third-party beneficiary of the floater policy and therefore entitled to recover over against INA for damage sustained to the crane. The motion to intervene was apparently not challenged by either INA or Parsons, and the district court granted it.

After trial before the court, judgments were rendered in favor of Babcock for $9,950, and Parsons for $12,559.77.³ INA's motion for a new trial was denied on June 12, 1969, and this appeal followed.

As is apparent from the foregoing, the trial from which this appeal arose involved two independent claims. INA, the appellant, challenges the district court's decision on both claims — Parsons' right to recover expenses incurred in defending the primary suit, and Babcock's right to recover on the floater policy as a third-party beneficiary.

THE DUTY TO DEFEND

In support of its conclusion that it was not obligated to defend, INA submits the following contentions: (1) it was obligated to undertake defense under the general liability policy only of those claims within the policy's coverage, and Babcock's complaint showed that its claims were excluded from coverage; (2) under Nebraska law it was disqualified from defending Parsons once it had denied liability and was unable to secure a "non-waiver agreement"; (3) it was excused from defending Parsons, because to undertake the defense would estop it from denying liability under the policy; (4) the potential conflict of interest between it and Parsons absolved it of its duty to defend; (5) even if it were initially required to defend, the duty extended only until Babcock answered Parsons' interrogatories, at which time it became manifest that the claim was outside the policy's coverage.

We look to Nebraska law to determine whether INA was obligated to accept defense of Babcock's claim against Parsons.

Initially, it may be observed that the insurer is required to undertake defense only of those claims asserted against the insured which fall within the coverage of the policy. Gottula v. Standard Reliance Insurance Co., 165 Neb. 1, 84 N.W.2d 179 (1957); Pickens v. Maryland Casualty Co., 141 Neb. 105, 2 N.W.2d 593 (1942). And, the allegations contained in the plaintiff's pleadings are the reference for deciding whether the claim is within the policy's coverage. Only recently the Nebraska Supreme Court has had occasion to rearticulate the appropriate standards:

"`An insurer\'s duty to defend an action against the insured is measured in the first instance by the allegations of the pleadings in the action against the insured, and if such pleadings state facts bringing the injury within the coverage of the policy, the insurer must defend irrespective of the insured\'s ultimate liability to the plaintiff.\'" (Citing cases)

Farmers Elevator Mutual Insurance Co. v. American Mutual Liability Insurance Co., 185 Neb. 4, 173 N.W.2d 378, 386 (1969). See also National Union Fire Insurance Co. of Pittsburgh v. Bruecks, 179 Neb. 642, 139 N.W.2d 821 (1966).

To this point there is no disagreement between the parties. The dispute arises when these principles are applied to our facts. As we have noted, Babcock's complaint charged three separate counts. The first two sought recovery based on the theory that the crane had been loaned or rented to Parsons and had been returned damaged. The third count, however, sounded only in negligence, and alleged no facts premising recovery on Parsons' rental, possession, or control of the crane. Nor does it incorporate any such facts from counts one or two.

INA submits that counts one and two must be considered in assessing the scope of count three, an argument which is contrary to the principle that, under the federal rules a claimant may plead inconsistent facts in support of alternative theories of recovery. Rule 8(e) (2), Fed.R.Civ.P. It is not unreasonable to read Babcock's complaint as premising liability on alternative grounds, the first requiring...