Wellman v. Liberty Mutual Insurance Company

• Decision Date: 14 May 1974
• Docket Number: No. 73-1778.,73-1778.
• Citation: 496 F.2d 131
• Parties: Roberta R. WELLMAN and Ward W. Wellman, Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

496 F.2d 131 (1974)

Roberta R. WELLMAN and Ward W. Wellman, Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Appellant.

No. 73-1778.

United States Court of Appeals, Eighth Circuit.

Submitted March 11, 1974.

Decided May 14, 1974.

William P. Sanford, Springfield, Mo., for appellant.

B. H. Clampett, Springfield, Mo., for appellees.

Before GIBSON, BRIGHT and STEHENSON, Circuit Judges.

BRIGHT, Circuit Judge.

Appellant-Liberty Mutual Insurance Company wrote a comprehensive combination insurance policy covering both automobile and general liability on its named insured, Morgan Drive-Away, Inc. (Morgan), of Elkhart, Indiana, a common carrier regulated by the Interstate Commerce Commission. On December 19, 1969, a truck leased to Morgan and driven by its owner, Corrie Mitchell, Jr., collided with an automobile driven by Roberta R. Wellman near Lebanon, Missouri, while Mitchell was returning from delivering a load of cargo for Morgan. On this return trip and at the time of the accident, Mitchell was actually hauling a load of freight under contract with a third party, Illinois Machinery Transport, Inc. (IMT),¹ without the express knowledge or approval of Morgan.

Mrs. Wellman sustained very severe injuries, including the loss of a leg, as a result of the accident. She and her husband brought an action in the Missouri state courts against Morgan, Mitchell, and IMT. Plaintiffs later dropped their suit against Morgan, but recovered a very substantial default judgment in the sum of $301,971.27 against Mitchell and IMT. Liberty Mutual defended Morgan but not Mitchell or IMT in the state court. Thereafter, the Wellmans brought this proceeding in the United States District Court for the Western District of Missouri, seeking to satisfy the default judgment from proceeds of the liability insurance policies issued by Liberty Mutual to Morgan.²

The district court held that the Liberty Mutual policies afforded coverage both to Mitchell and to IMT and entered judgment for the full amount in favor of the Wellmans. Liberty Mutual brings this timely appeal. Our jurisdiction rests on diversity of citizenship and the requisite amount in controversy.

We have carefully examined the insurance policies here in question and the authorities submitted by appellant. We cannot agree with the district court's conclusion that the policy language includes coverage for Mitchell and IMT under such circumstances as these. Accordingly, we reverse the judgment.

We adopt the following findings of fact by the district court from its unpublished memorandum opinion:

Morgan Drive-Away, Inc. (freight division) is a common carrier regulated by the Interstate Commerce Commission and numerous state regulatory agencies, including the Missouri Public Service Commission. It is a licensed special carrier which hauls or tows trailers, mobile homes and component parts of complete houses. Its principal offices and central dispatching office are located in Elkhart, Indiana.

Morgan owns a substantial number of trailers which it uses in its operation. In addition, it leases the tractors and trailers of others. On May 15, 1969, Morgan and Corrie Mitchell, Jr. entered into an "Equipment Lease" under which Morgan assumed the "possession, control and use" of a tractor-trailer owned and operated by Mitchell. Mitchell paid for all of his own expenses on his trips for Morgan, and for the upkeep and maintenance of the equipment, as well as his license plates, tags, stickers, personal property taxes and insurance for when his vehicle was being operated unladen. Mitchell received no salary, but earned 75 per cent of the gross freight revenues generated by the use of his tractor-trailer. No withholding taxes were collected or Social Security payments deducted from the amounts which Mitchell received.

Following the execution of the Equipment Lease, the ICC Certificate or Permit Legend, as well as the Missouri Public Service Certificate or Permit Legend, of Morgan were placed upon and displayed on the tractor of Mitchell, and remained on the tractor until the lease was cancelled in January, 1970.

On December 13, 1969, Mitchell was directed by Morgan to pick up cargo at a point near Houston, Texas for delivery to the consignee at Elgin, Illinois. Delivery was made on December 16, 1969. After notifying Morgan of the delivery, Mitchell sought a return load from Morgan\'s central dispatcher; but none was available at that time. Mitchell called the dispatcher several more times on December 16 and 17, but there continued to be no loads available for a return trip. Mitchell also called other dispatchers, but was unable to secure a load. On December 17, Mitchell found a penciled note in the office of a truck stop where he was staying, directing him to pick up a load at Illinois Machinery Transport Company ("Illinois Machinery") in Calumet City, Illinois for delivery in Texas and Oklahoma. Although Mitchell assumed that the note was from Morgan\'s central dispatcher, there is no evidence that it was in fact a direction from Morgan.

The load which Mitchell picked up at Illinois Machinery consisted of a large exhaust fan, two centerless grinders, and bridge bolts and nuts. None of these items were within Morgan\'s ICC hauling and authorization.

As a general rule, Morgan acquiesced in the practice of allowing its drivers to "trip-lease"; that is, to haul cargoes for other companies or carriers on return trips when Morgan had no loads available. Morgan required that the driver receive permission for trip-leasing through its central dispatcher; and that the company to whom its drivers were trip-leased be authorized as carriers by the ICC, have an operating agreement with Morgan, and be on an approved list set up by Morgan. Illinois Machinery was not an ICC authorized carrier, did not have an operating agreement with Morgan, nor was it on Morgan\'s approved list. Mitchell had, with Morgan\'s approval, trip-leased one previous time.³

On December 19, 1969, while Mitchell was on his return trip, he collided with an automobile driven by plaintiff Roberta Wellman near Lebanon, Missouri. Ms. Wellman sustained serious injuries, including the loss of a leg. Mitchell\'s tractor-trailer was severely damaged, and the cargo which he was hauling was also damaged. The accident occurred on a route where Morgan was generally authorized to travel by the ICC and Missouri Public Service Commission. At the time of the accident, Morgan\'s ICC permit and Missouri Public Service Commission placard were displayed on Mitchell\'s tractor.

Mitchell notified Morgan of his accident shortly after it occurred. Morgan notified Liberty of the accident on December 24, 1969. A written report taken by a Morgan employee from Mitchell over the telephone was given to Liberty. Neither Mitchell nor Illinois Machinery notified the defendant of the accident. The cargo loss suffered in the collision was paid for by Home Indemnity Insurance Company, the insurer of Illinois Machinery.

In July, 1971, plaintiffs filed suit in the Circuit Court of Laclede County, Missouri, naming as defendants Corrie Mitchell, Jr., Illinois Machine Transport Co. and Morgan Drive-Away, Inc. The complaint alleged, inter alia, that Mitchell was acting as the agent, servant and employee of both Morgan and Illinois Machine. After being served with a summons and copy of the complaint, Morgan notified Liberty and sent the suit papers to the defendant. Neither Mitchell (who stated that he had thrown his suit papers away) nor Illinois Machine notified or transmitted the suit papers to Liberty.

Defendant employed an attorney to represent Morgan in the action, and an answer on behalf of Morgan was filed. Liberty made a deliberate choice not to defend the other defendants in the action on the belief that the others were not insureds under either of its polices. Neither Mitchell nor Illinois Machine filed an answer to the action in Circuit Court.

Prior to the institution of the damage suit in Circuit Court, Liberty made little effort to investigate the facts of the accident and the possible extent of its coverage by contacting Mitchell and Illinois Machinery. After suit was filed in July, 1971, Liberty discovered that Illinois Machinery (also called by various other names, including J&R or J&M Transport Company) had discontinued business, and they were unable to locate the former officers of the company. Nor did they contact their named insured, Morgan, to determine what information had been given to Morgan by Mitchell other than the telephoned report.

On October 4, 1971, plaintiffs dismissed their action against Morgan without prejudice. On that same day, a default judgment was entered against Mitchell and Illinois Machine. Damages were assessed in favor of Roberta Wellman in the amount of $230,000, and in favor of Ward Wellman in the amount of $71,971.27.

Appellant-Liberty makes the same contentions in this court as it did in the district court, and, additionally, contends that the Wellmans failed to show the reasonableness of the amount of the judgments which were obtained in state court. The crucial issue in this case, however, is whether the insurance policy covers owner-operator, Mitchell and broker-IMT.

The primary Liberty Mutual policy contains two parts. Only Part II is pertinent to our present inquiry.⁴ Part II, entitled "Comprehensive Automobile Liability Insurance," specifically relates to the operation of automobiles⁵ and affords the following liability coverages:

COVERAGE C — BODILY INJURY LIABILITY

COVERAGE D — PROPERTY DAMAGE LIABILITY

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage C. bodily injury or

Coverage D. property damage

to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use, including loading and unloading, of any automobile * * * .

Part II further designates those persons entitled to...