American Fidelity & Casualty Co. v. Service Oil Co.

• Decision Date: 18 November 1947
• Docket Number: No. 5655.,5655.
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: AMERICAN FIDELITY & CASUALTY CO., Inc., v. SERVICE OIL CO., Inc., et al.

164 F.2d 478 (1947)

AMERICAN FIDELITY & CASUALTY CO., Inc., v. SERVICE OIL CO., Inc., et al.

No. 5655.

Circuit Court of Appeals, Fourth Circuit.

November 18, 1947.

Thomas B. Butler, of Spartanburg, S. C. (Osborne, Butler & Moore, of Spartanburg, S. C., on the brief) for appellant.

L. W. Perrin and F. J. Bostick, both of Spartanburg, S. C. (Perrin, Tinsley & Perrin, Odom, Bostick, Littlejohn & Nolen, and E. W. Johnson, all of Spartanburg, S. C., on the brief), for appellees.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from an order dismissing a suit by the American Fidelity and Casualty Company, a Virginia corporation, against two South Carolina corporations and two citizens of that state, to obtain a declaratory judgment to the effect that there was no liability on one of its public liability policies for a claim then in litigation between the two individual and the two corporate defendants in a South Carolina state court. The District Judge held that upon a proper alignment of parties there was no diversity of citizenship and that, regardless of this, the motion to dismiss should be granted as a matter of discretion on authority of our decisions in Maryland Casualty Ins. Co. v. Boyle Construction Co., 4 Cir., 123 F.2d 558, Indemnity Ins. Co. of North America v. Schriefer, 4 Cir., 142 F.2d 851, and a number of other cases.

The insured in this case is the War Emergency Co-Operative Association, a South Carolina corporation. It had hired from the Service Oil Company, Inc., another South Carolina corporation, and was operating in its business, a tractor-trailer combination for use in the transportation of gasoline. The policy issued by the company to insured covered, by indorsement, hired equipment when used for the purposes set forth in a statement of the policy which provided "the above described automobiles and motor vehicles are and will be used only for transportation of merchandise for compensation purposes." While the tractor was being driven from Spartanburg to Union for the purpose of picking up the trailer it was in collision with the automobile in which Joe L. Montgomery and Mary S. Montgomery, his wife, both citizens of South Carolina, were riding; and they were injured as a result of the collision. Montgomery and wife instituted actions in a state court against the insured and the Service Oil Company to recover damages; and this action for declaratory judgment was thereupon instituted.

Counsel for the company are defending the actions instituted against insured in the state court under a provision of the policy that it will defend any suit brought against the insured to enforce a claim for damages as the result of an accident covered by the provisions of the policy, whether groundless or not. They have prepared answers for filing in the state court which deny liability on the part of the insured on the same principal ground asserted by the company in the suit for declaratory judgment, viz., that the tractor was not being operated by insured at the time of the collision but by the Service Oil Company. They contend, however, that a controversy might arise between the insured and the company with respect to the coverage of the policy if the insured should suffer a recovery on a basis of liability other than that covered by the limitations of the hired car indorsement attached to the policy, and also if there should be a recovery on the basis of operation by the Service Oil Company in an amount exceeding that specified in the certificate filed with the Public Service Commission of South Carolina under section 8511 of the Code. They contend, also, that there is a controversy between the company and the Service Oil Company as to liability for any damages that may be recovered of the latter.

It is clear that, if there is no substantial controversy between the insured and the company, they should be aligned on the same side of the case (State Farmers Mutual Ins. Co. v. Hugee, 4 Cir., 115 F.2d 298, 132 A.L.R. 188; Maryland Casualty Ins. Co. v. Boyle Construction Co., supra); and, as this would place a citizen of South Carolina on the plaintiff's side of the docket, it would defeat jurisdiction whether the Service Oil Company were realigned or not. The potential controversies with insured to which the company points have not yet arisen, and whether they are of sufficient substance to prevent the realignment of the insured we need not stop to inquire; for they are certainly not of such character as should cause a court to hesitate in declining to exercise the power to grant declaratory relief. After all has been said for the company that can be said, the fact remains that it is obligated to defend the cases which have been instituted against insured in the state court even though they be groundless, that there is no liability now in controversy except that involved in the claims sued on in the state court, and that, if any controversy should subsequently arise between the insured and the company as to the coverage of the policy, it can be litigated as well after the conclusion of the litigation in the state court as now. The same is true of any controversy that may exist with the Service Oil Company. There is no justification, therefore, for the federal court's exercising its declaratory jurisdiction and thus permitting a company which has nothing to do with the controversy which has arisen between citizens of South Carolina, except that it is an insurer of the liability of one of them, to drag into the federal courts litigation which belongs in the...