Farmers Alliance Mut. Ins. Co. v. Jones

• Decision Date: 22 February 1978
• Docket Number: No. 77-1855,77-1855
• Citation: 570 F.2d 1384
• Parties: FARMERS ALLIANCE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Alan JONES and Craig Lee McCracken, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1384

570 F.2d 1384

FARMERS ALLIANCE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Alan JONES and Craig Lee McCracken, Defendants-Appellants.

No. 77-1855.

United States Court of Appeals Tenth Circuit.

Submitted on Briefs Jan. 23, 1978.

Decided Feb. 22, 1978.

Elliott C. Fenton and Larry D. Ottaway of Fenton, Fenton, Smith, Reneau & Moon, Oklahoma City, Okl., for plaintiff-appellee.

Charles B. Grethen and E. V. Spadafora, Purcell, Okl., for defendants-appellants.

Before SETH, Chief Judge, McWILLIAMS and BARRETT, Circuit Judges.

BARRETT, Circuit Judge.

Farmers Alliance Mutual Insurance Company (Farmers) brought this diversity-based action under the Declaratory Judgment Act, 28 U.S.C. § 2201 (the Act), to determine its liability under an automobile insurance policy issued to Spann Chevrolet Company (Company). The trial court granted Farmers' motion for summary judgment finding, as a matter of law, that Farmers was not liable on the policy in that the driver of a Company vehicle was not an insured under the Farmers' policy.

In August, 1975, Farmers, a Kansas corporation, issued a "General Automobile Liability Policy" to Company, an Oklahoma corporation, covering cars owned by Company. Under the terms of the policy, Farmers assumed liability for automobile accidents in which the named insured, any officer of the corporation or any one using an automobile owned by Company with appropriate permission were involved. Farmers also agreed to defend the insured in any automobile negligence action.

In May of 1976, a 1975 Camaro, driven by one E. L. Shippey, was involved in a one-car accident. Shippey was killed. The passengers Melissa Spann, daughter of Orval Spann, vice-president of Company, and appellants, Alan Jones and Craig Lee McCracken, were injured. Melissa had been given express permission to drive the vehicle; however, Shippey had no such permission.

Subsequently, both Jones and McCracken filed negligence actions in the district court of Pontococ County, Oklahoma. Named as defendant in these actions was Sally Ann Shippey, administratrix of the driver's estate. Before the state actions were litigated, Farmers filed this declaratory judgment action, naming Company, Orval Spann, Melissa Spann, Sally Ann Shippey and appellants Alan Jones and Craig Lee McCracken as defendants. Only Jones and McCracken appeal the adverse decision of the trial court.

On appeal, Jones and McCracken contend that: (1) the trial court had no jurisdiction under the Declaratory Judgment Act; (2) Orval Spann and Company should have been realigned as party plaintiffs, thereby destroying diversity; and (3) summary judgment was erroneously granted in that there was a genuine issue of material fact as to "implied permission" of Shippey to drive the Company vehicle.

I.

Jones and McCracken contend that Farmers should not have been able to maintain a declaratory judgment action in federal court inasmuch as a similar action for declaration of its rights could not have been brought in Oklahoma state courts.

Oklahoma's declaratory judgment act, 11 O.S. § 1651, expressly prohibits actions brought to determine liability of insurors. The federal Declaratory Judgment Act is much broader. It allows for entertainment of any "actual controversy within its jurisdiction." Appellants contend that this presents an issue of substantive law dictating application of the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny. Under their theory of Erie, supra, appellants contend that inasmuch as Farmers is not permitted to bring a declaratory action in Oklahoma state courts, it should not be permitted to bring a similar action in federal court. We reject this contention.

It is well recognized that the Act involves procedural remedies and not substantive rights. 6A Moore's Federal Practice § 57-23, at 57-237; 20 Appleman's Insurance Law and Practice § 11332, at 102. The Act does not create substantive rights for parties; it merely provides another procedure whereby parties may obtain judicial relief. We have here, then, a procedural question dealing simply with a choice of forums.

There is, of course, a substantive question involved in the case which must be decided under Oklahoma law; i. e., whether the driver will be classed as an insured under the Farmers policy. The prohibition against declaratory judgments contained in the Oklahoma statute does not affect Farmers' suit in federal court.

Declaratory judgment actions are seen as useful in actions wherein insurance companies seek to have their liability declared. 20 Appleman's, § 11332, at 109. We have expressly recognized that one of the primary functions of the Act is to provide the insuror such a forum. Western Casualty and Surety Co. v. Teel, 391 F.2d 764 (10th Cir. 1968).

A trial court has discretion to determine whether to entertain a declaratory judgment action and the decision of the trial court will not be overturned unless there is a clear abuse of that discretion demonstrated. Duggins v. Hunt, 323 F.2d 746 (10th Cir. 1963). No such abuse occurred here.

II.

Jones and McCracken argue that no "actual controversy" exists between the plaintiff, Farmers, and defendants, Company and Orval Spann, inasmuch as all parties agree that Farmers is not liable to Jones and McCracken. Appellants contend that because only a nominal controversy exists the above-named defendants should have been realigned as party plaintiffs, with the resultant destruction of diversity of citizenship.

In diversity suits, courts will scrutinize the interests of the parties in order to determine if their positions as plaintiffs and defendants conform to their real interests. When appropriate, parties will be realigned; however, this is to be done only after real rather than apparent interests have been ascertained. 3A Moore's Federal Practice, 2nd ed., § 1093(1), at 2152. Facts which can be used for forming the determination that realignment is proper must have been in existence at the time the action was commenced. See, Universal Underwriters Insurance Co. v. Wagner, 367 F.2d 866 (10th Cir. 1966); Scott v. Fancher, 369 F.2d 842 (5th Cir. 1966); Texas Pacific Coal & Oil Co. v. Mayfield, 152 F.2d 956 (5th Cir. 1956). An action is deemed to commence at the time of filing of the complaint. Accordingly, we must examine the pleadings to determine if there was a justiciable controversy. Farmers, in its complaint, alleges that an actual controversy exists "involving the rights and liabilities under contract of liability and dependent upon the construction of said contract of liability insurance." In their answer, defendants Company and Orval Spann contend that Farmers should be required to provide coverage to Company to the extent of the policy limits and to defend Company in any action arising out of the May 1976 accident. These facts, as pleaded, reveal then that Farmers and Company recognized that their interests were adverse.

Appellants anchor their contention that there is no actual controversy presented herein primarily on a statement made by Orval Spann, in a deposition taken after commencement of this action. Spann, in asserting that Shippey had no permission to drive the Camaro, remarked, "If I don't have any liability, then I'm sure that the insurance company doesn't have any liability."

Appellants rely heavily on Fireman's Fund Insurance Co. v. Dunlap, 317 F.2d 443 (4th Cir. 1963), wherein the court, in a diversity based declaratory judgment action, dismissed for want of an actual controversy after realigning the parties. In that case Fireman's, as insuror, brought an action seeking a declaration of its liability. Fireman's alleged that it had no duty to defend or to pay a judgment because the requisite permission to use the automobile involved in an accident was not present. That case, wherein realignment was proper, can be readily distinguished from the case at bar. In Fireman's Fund, supra, the insured asserted, in defense, that he was not liable to parties who had been injured because the driver was using his vehicle without permission. The insured affirmatively asserted this defense in a cross-claim filed against the co-defendants, the administrators of estates of persons who had been killed when his vehicle struck them. Further, he actively cooperated with insurance investigators in order to establish the defense of lack of permission both for the company and himself. Under these circumstances, the court found that the insuror and insured did not have adverse interests. We have no argument with that decision.

The rule applied in Fireman's Fund, supra does not fit the case at bar. The only proof presented by appellants that no adversity exists is contained in Spann's testimony. However, there is no indication therein that Spann actively cooperated with Farmers or that Farmers would not defend Company in the state action. Spann's remarks, standing alone, are not supportive of the proposition that there is no actual controversy...