Butters v. City of Independence

Citation513 S.W.2d 418
Decision Date22 July 1974
Docket NumberNo. 57930,No. 1,57930,1
PartiesKenneth R. BUTTERS and Elma Butters, Plaintiffs-Respondents, v. CITY OF INDEPENDENCE, Missouri, Defendant, and Royal Indemnity Company, Garnishee-Appellant
CourtUnited States State Supreme Court of Missouri

Gordon, Adams, Niewald & Risjord, Weeks, Thomas, Lysaught, Bingham & Johnston, Kansas City, for plaintiffs-respondents.

Jack G. Beamer, McKenzie, Williams, Merrick, Beamer & Wells, Kansas City, for garnishee-appellant.

WELBORN, Commissioner.

Appeal by insurer from adverse judgment in garnishment proceeding by plaintiffs who had judgment in action against insured.

In 1965, the City of Independence, which operates an electric power transmission and distribution system, contracted with Evans Electrical Construction Company for the furnishing by Evans of workmen to perform work under direction of the City Electrical Utility Director in the maintenance and operation of the city-owned power system. The city agreed to pay Evans the cost of the labor furnished at scheduled hourly rates, for equipment rental, and a lump sum for administration. Evans agreed to indemnify the city for any loss it might sustain as a result of liability imposed on the city because of negligence of Evans employees and to provide insurance coverage against such loss. Evans furnished an Owners and Contractors Protection Liability policy written by Royal Indemnity Company, the garnishee-appellant, with the City of Independence the named insured.

In 1968, the city was engaged in an expansion of its transmission system by building new lines and transformer stations and increasing the capacity of old ones. The work involved movement and installation of heavy transformers and other equipment. The city contracted with Consolidated Transfer Warehouse Company to move the transformers from railroad sidings to the installation site. The contract with Consolidated required that company to hold the city harmless from any liability imposed on the city because of Consolidated's operation and to provide insurance coverage which was done through United States Fidelity & Guaranty Company.

To assist it in the movement of the large transformers, Consolidated contracted with Olinger Heavy Hauling Services to provide personnel and equipment. Olinger was insured by Hartford Accident & Insurance Corporation.

Plaintiff Kenneth R. Butters was employed by Consolidated as a crane oiler. On July 11, 1968, he assisted Robert Chrisman, a crane operator employed by Consolidated, in unloading a 45-ton transformer from a railroad siding onto a flat bed trailer, using a mobile crane. The transformer was to be installed at Substation I of the Independence electric system. The next morning, Butters drove the mobile crane to Substation I, where it was to be used in unloading the transformer which was on the flat bed truck, just outside the fence which surrounded the substation.

Butters drove the crane from the street onto the roadway leading to the gate to the substation and, at Chrisman's direction, stopped the crane directly under transmission lines entering and leaving the substation. Chrisman then took over operation of the crane and Butters was on the ground to release the hoisting cable. In the course of this procedure, Chrisman raised the boom and it either touched or came in close proximity with the overhead transmission wires carrying 69,000 volts of electricity. Butters touched the hoisting cable as it swung back toward him. He received a severe electrical shock which resulted in very serious injury.

An employee of Evans had unlocked the gate at Substation I before the crane arrived and had left the premises. No Evans employee was present when the crane arrived or when the accident occurred.

Butters made a claim for Workmen's Compensation against Consolidated and brought suit against the City of Independence and Olinger in September, 1969. In pre-trial discovery, the existence of the contract between the city and Evans came to light and Evans was joined as a party defendant in a second amended petition filed March 27, 1970. Cross-claims were filed by some defendants against Olinger and the City of Independence filed a third party claim against Consolidated. The city also filed a cross-claim against Evans.

Evans forwarded the amended petition by which it was joined in the action to Royal as its insurer on April 2, 1970. The city attorney for Independence was not aware of the policy issued by Royal to the city until he was told of it by counsel for plaintiff. Search of the city's files brought forth the Royal policy and in April, 1970, oral demand to defend the city was made upon counsel employed by Royal appearing on behalf of Evans at depositions.

The record here is silent (The briefs indicate depositions were taken in the interim.) as to further activity until November, 1970 when the Independence City Counselor addressed a letter to Evans and Royal. The letter demanded that Evans and Royal undertake the defense of the city. The letter concluded as follows:

'On behalf of the City I also wish to advise that if full defense, without any reservation of rights, is not undertaken by your two corporations as outlined herein, please be advised that it will be the City's intention to prepare for passage as an emergency ordinance at the regular City Council meeting on November 16, 1970 authorizing the City Counselor's Office to enter into a consent judgment with the plaintiffs in the case in question to the full extent of the prayer for judgment with the express covenant that plaintiffs and their counsel shall look exclusively to the assets of the Evans Electrical Company and the Royal Indemnity Company. The City will further pursue its rights under the cross petition filed in this case against Evans Electrical Construction Company and further shall file suit against the Royal Indemnity Company for any sums paid out in investigation, settlement, judgment, and/or legal expense.'

On November 6, 1970, Royal's claim manager wrote the city:

'Your undated letter on the above subject was received in this office on November 4, 1970, and this was our first notice of a claim against the above mentioned policy number.

'The second page of your letter requests that we assume the full defense of the City of Independence without any reservation of rights. The petition as filed obviously prohibits us from agreeing to defend the City of Independence without specifically reserving all rights we have under the above mentioned policy. If you are willing to consider our undertaking the City of Independence it will be necessary for the City to execute a non-waiver agreement running to the Royal Indemnity Company and we will also specifically reserve all rights the policy grants.'

The city replied that it was unwilling to execute a reservation of rights agreement, expressing doubt that it had authority to do so.

Subsequent correspondence reiterated the parties' positions, Royal offering to defend and pay any judgment within the policy coverage, and the city insisting that Royal either assume the defense and pay any judgment or state particularly why it would not pay any judgment. In one reply to the city's demand, Royal stated that the allegations of plaintiffs' petition were 'too broad' for it to agree to pay 'any' judgment.

On January 7, 1971, the city transmitted to Royal a copy of an ordinance adopted by the City Council on January 4, 1971, authorizing an agreement between the city and the Butterses, whereby, in consideration for the city's payment to Butters of $25,000, the Butterses agreed to limit execution on any judgment recovered by Butters against the city to claim against insurer, including Royal, or claim based upon indemnity agreement, including the indemnity obligation of Evans. The agreement specified that it was entered into by virtue of § 537.065, RSMo 1969, V.A.M.S.

Royal responded that it would consider the proposed agreement and consent judgment to be permitted by the city in connection with it violative of the policy terms and again offered to defend and pay any judgment for which the policy provides coverage.

A further communication by the city to Royal, dated January 22, 1971, reiterated the city's position and reminded Royal of a January 28 setting for the cause. This was met by a Royal response along the lines of its previously stated position.

On January 28, 1971, the case came on for hearing in the Jackson County Circuit Court. Plaintiffs dismissed as to Olinger (an $80,000 settlement was reached with them) and Evans, without prejudice. The case was heard between the Butterses and the city only. The plaintiffs testified and presented medical testimony. Counsel for the city interrogated Mr. and Mrs. Butters to ascertain that they understood the settlement arrangement with the city. Medical witnesses were not cross-examined. Plaintiffs also offered excerpts from depositions of persons employed by the city, Evans, Olinger and Consolidated concerning the accident and safety regulations applicable to the operation which resulted in the accident. The city offered all of the depositions in evidence, but apparently did not undertake to point out any testimony in the depositions which would relieve the city of liability.

On April 8, 1971, the court entered its judgment in favor of plaintiff Butters and against the city for $250,000 and in favor of Mrs. Butters for $50,000. The judgment entry included the following recitals:

'Now on this 8th day of April, 1971, the court, on its own motion, being fully advised in the premises, hereby sets aside, vacates and holds for naught the order which it entered herein on March 11, 1971, for the following reasons:

'1. Said order, contrary to the court's announced intentions, purports to decide or might be interpreted as deciding issues of liability as...

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