Aetna Casualty & Surety Co. v. Yeatts

• Decision Date: 10 November 1938
• Docket Number: No. 4404.,4404.
• Parties: ?TNA CASUALTY & SURETY CO. v. YEATTS et al.
• Court: U.S. Court of Appeals — Fourth Circuit

99 F.2d 665 (1938)

?TNA CASUALTY & SURETY CO. v. YEATTS et al.

No. 4404.

Circuit Court of Appeals, Fourth Circuit.

November 10, 1938.

COPYRIGHT MATERIAL OMITTED

Robert G. Butcher, of Richmond, Va. (Parrish, Butcher & Parrish, of Richmond, Va., on the brief), for appellant.

G. E. Mitchell, Jr., of South Boston, Va., and R. Paul Sanford, of Danville, Va. (Wm. M. Tuck, of South Boston, Va., and A. M. Aiken, of Danville, Va., on the brief), for appellees.

Before NORTHCOTT and SOPER, Circuit Judges, and WEBB, District Judge.

SOPER, Circuit Judge.

The Surety Company, as plaintiff in the District Court, sought a declaratory decree under 28 U.S.C.A. ß 400 adjudicating that a policy issued by it to Dr. W. C. Yeatts of Danville, Virginia, did not cover a claim asserted against the physician by the administrator of Elizabeth W. Burton, deceased, in a suit in the Corporation Court of Danville, and that consequently the company was under no obligation to defend and indemnify the assured against loss arising from the claim. Both parties to the suit in the state court were joined as defendants in the federal court. Pending adjudication the surety prayed the District Court to issue an injunction restraining the defendants from further prosecution of the suit in the state court. After the institution of its suit, the surety moved the District Court to issue the injunction, but after hearing, the court overruled the motion; and also overruled a motion pursuant to Rule 62(c) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, that pending appeal, the parties to the suit in the state court be enjoined from proceeding therein for thirty days. The question now before this court is whether the District Court erred in refusing to issue an injunction as prayed.

The Surety Company agreed in its policy to defend and indemnify the assured against actual loss and expenses not exceeding $5000 resulting from any claim for damages on account of any malpractice, error or mistake committed, or alleged to have been committed by the assured in the practice of his profession during the policy period, excepting where it should have been legally established that the damage was caused by the assured while engaged in or in consequence of the performance of a criminal act. The policy also provided that the assured, whenever required by the company, should aid in securing information and evidence and the attendance of witnesses, but should not voluntarily assume any liability or interfere in any legal proceeding without the written consent of the company previously given; and that if any person should obtain final judgment against the assured because of any such injuries, and execution thereon should be returned unsatisfied, or if such judgment should not be satisfied within thirty days after its rendition, then such person might proceed against the company to recover the amount of the judgment.

The declaration in the suit in the state court filed in August, 1938 was laid in trespass on the case and alleged that on July 1, 1938 the physician performed an operation upon the deceased in a negligent and unsuccessful manner so that peritonitis developed, and death ensued. The nature of the malady from which the deceased was suffering was not set out. Damages were claimed in the sum of $10,000.

The complaint in the case now before us, which was filed on September 12, 1938, charged that on July 1, 1938 the deceased woman visited the office of the physician and requested that he perform an abortion upon her so as to put an end to an existing pregnancy; that in consideration of a fee of $50 he attempted to perform the operation and in consequence thereof, the deceased developed peritonitis and on July 4, 1938 died. Thereafter, it was charged, the doctor paid to the father of the deceased the sum of $495.70 without the knowledge and consent of the Surety Company, with the understanding that this payment would constitute a settlement of all the claims that could be made against him by reason of the death of the deceased, and it was alleged that the successful defense of the action now pending in the state court had been seriously harmed by the payment and that in consequence thereof the right of the physician to protection under the policy had been forfeited.

The Surety Company also asserted in its complaint that it had no liability under the policy in the event that the death of the deceased resulted from the performance of a criminal abortion; but that the physician had denied that he had performed an abortion and had demanded that the company, by virtue of the provisions of the policy, defend him in the action instituted against him in the state court, at the same time refusing to sign a non-waiver agreement permitting the surety company to defend the action and later contest its liability under the policy. In proof of the charge of criminal abortion, it was alleged that on July 28, 1938 attorneys, acting on behalf of the administrator of the estate of the deceased, had written to the physician charging that the deceased died as the result of an unlawful and negligent performance of an abortion upon her and had demanded prompt settlement of the claim upon penalty of the institution of a civil action in the amount of $10,000 in the Corporation Court of the City of Danville.

The Surety Company expressly pointed out the difficulty under which it would labor if it should undertake the defense of the action in the state court in that while it would be to the interest of both parties therein to show that the physician was engaged in the lawful practice of his profession in performing the operation, it would be to the interest of the Surety Company to prove the charge that the deceased died as the result of a criminal abortion; and that the difficulty would be increased if the assured, in view of the fact that the amount of the claim against him exceeds the maximum liability under the policy, should employ counsel on his own account to participate in the defense. Therefore, the Surety Company asserted its right to a decree determining its obligations under the policy, and in the meantime forbidding the prosecution of the suit in the state court.

We shall discuss the questions (1) whether the District Court had jurisdiction to determine the controversy; (2) whether the facts disclose a case proper for the passage of a declaratory decree; and (3), if an affirmative answer should be given to the first two questions, whether the District Court should have issued an injunction as prayed. It is contended that the jurisdictional amount under 28 U.S.C.A. ß 41 (1) is lacking because the Surety Company is not obliged to indemnify the insured until a judgment has been rendered against him, and in the meantime the only point to be decided is whether the Surety Company is obligated by its policy to defend the suit in the state court; and there is no showing that the expense involved in the defense would exceed the sum of $3000. But the investigation goes deeper. It is intended to disclose that the Surety Company has no obligation to defend the insured against the claim for $10,000 because he has been guilty of criminal misconduct not covered by the policy. If this is shown, it will be necessarily determined thereby that the Surety Company has no obligation to indemnify him in the event of an adverse decision; and since its obligation to indemnify, if found to exist, extends to the sum of $5,000, the amount in controversy is sufficient. Stephenson v. Equitable Life Assurance Society, 4 Cir., 92 F.2d 406, 407; United States Fidelity & Guaranty Co. v. Pierson, 8 Cir., 97 F.2d 560; Commercial Casualty Ins. Co. v. Humphrey, D.C., 13 F. Supp. 174; Travelers Insurance Co. v. Young, D.C., 18 F.Supp. 450; Builders & Manufacturers Mutual Casualty Co. v. Paquett, D.C., 21 F.Supp. 858.

It is also suggested that true diversity of citizenship does not exist in the federal court although the plaintiff company is a Connecticut corporation and the individual defendants were citizens of Virginia. It is said that the parties should be rearranged, as was done in City of Dawson v. Columbia Ave. Saving Fund, Safe Deposit, Title & Trust Co., 197 U.S. 178, 25 S.Ct. 420, 49 L.Ed. 713, with the insured and the Surety Company on the same side and the claimant on the other, thus placing citizens of the same state on opposite sides of the case and defeating the jurisdiction of the court. It is often true that the interest of the defendant in a suit for damages and the interest of his indemnitor under a policy of insurance are identical, since...