American Fidelity & Cas. Co. v. United States F. & G. Co.

• Decision Date: 06 July 1962
• Docket Number: No. 18878.,18878.
• Citation: 305 F.2d 633
• Parties: AMERICAN FIDELITY & CASUALTY COMPANY, Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

305 F.2d 633 (1962)

AMERICAN FIDELITY & CASUALTY COMPANY, Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee.

No. 18878.

United States Court of Appeals Fifth Circuit.

July 6, 1962.

John H. Holloman, Columbus, Miss., R. W. Keenon, Gladney Harville, John L. Davis, Lexington, Ky. (Stoll, Keenon & Park, Lexington, Ky., of counsel), for appellant.

Leslie Darden, Lester F. Sumners, New Albany, Miss., Sumners & Hickman, Oxford, Miss., Smallwood, Darden & Sumners, New Albany, Miss., for appellee.

Before RIVES, CAMERON and BROWN, Circuit Judges.

RIVES, Circuit Judge.

In this declaratory judgment action between two automobile liability insurers, the district court held that American Fidelity & Casualty Company (hereafter "A.F. & C.") was the primary insurer, and that United States Fidelity & Guaranty Company (hereafter "U.S.F. & G.") was only the excess insurer. Upon appeal, A.F. & C. presents a single contention to the effect that the driver of the motor vehicle at the time of the collision was not insured under its policy, and hence that it was no insurer whatsoever of liability for the resulting injuries.

Beginning on February 15, 1955, A.F. & C. issued its liability policy to J. T. Garrard of Starkville, Mississippi (hereafter "Garrard"), covering his fleet of trucks, and this policy was renewed from year to year. On January 1, 1957, U.S.F. & G. issued its liability policy to Bryan Brothers Packing Company, Inc., of West Point, Mississippi (hereafter "Bryan Brothers"). The policy provided that as to "any hired automobile insured on a cost of hire basis or the use of any non-owned automobile the insurance under this policy shall be excess insurance over any other valid and collectible insurance." On June 24, 1957, Garrard leased a tractor and trailer to Bryan Brothers to be used by it in hauling its meat products to customers. Jimmy Latham (hereafter "Latham"), an employee of Bryan Brothers, had driven the truck and trailer transporting a load of products from Bryan Brothers' plant in West Point, Mississippi, to some of its customers in Louisville, Kentucky. On October 28, 1957 Latham had started to return the truck and trailer to Mississippi when a collision occurred in Kentucky, resulting in severe injuries and damages.

Suits were filed in Kentucky against Latham, Bryan Brothers and Garrard. The Kentucky State Court granted summary judgment in favor of Garrard, determining that Garrard had no liability on account of the accident on the ground that Latham was the employee of Bryan Brothers. A.F. & C. refused to defend Latham or Bryan Brothers, and U.S.F. & G. undertook their defense under a reservation of rights. While the litigation was under way, this declaratory judgment action was brought to determine the respective liabilities of A.F. & C. and U.S.F. & G.

The question was raised both in the district court¹ and by this Court during argument on appeal, as to the jurisdiction of the district court to hear this action. In its petition for declaratory judgment, U.S.F. & G. states that in the event of any payment under its policy, it will be subrogated to all the rights of the insured, including Bryan Brothers and Latham, to recover from any other party.²

The rights arising under the doctrine of subrogation have been set out in a number of cases; and, contrary to the position posed by this Court during argument, it is not a prerequisite to this action that U.S.F. & G. be privy to the contract of A.F. & C. As stated in National Surety Corp. v. First National Bank, 1939, 278 Ky. 273, 128 S.W.2d 766, 767, 769, quoting from Vance v. Atherton, 1934, 252 Ky. 591, 67 S.W.2d 968, 970: "The doctrine of subrogation is pure equity, having foundation in principles of natural justice. It rests, not on contract, but on the natural principles of right and justice, when applied to the facts of the particular case, and includes every instance in which one who is not a volunteer pays the debt of another. * * * It is applied only when necessary to bring about equitable adjustment of a claim founded on right and natural justice."

The National Surety Corp. case concerns the right of a surety to be indemnified by the principal debtor, but the doctrine of subrogation is broader than the facts of that case. In New York Casualty Co. v. Sinclair Refining Co., 10 Cir., 1939, 108 F.2d 65, 70, where Sinclair sought indemnity from the insurer of its subcontractor for payment of a tort judgment for injury inflicted by the subcontractor, the court said:

"The doctrine of subrogation is not confined to the relation of principal and surety. It has been expanded so that it is now broad enough to include every instance in which one person, not acting voluntarily, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter.

"Where two persons are equally liable to the creditor, if as between themselves there is a superior obligation resting on one to pay the debt, the other after paying it, absent countervailing equities, is entitled to be subrogated to the debt and the creditor\'s security therefor, to obtain reimbursement."

See also Bennett v. The Preferred Accident Ins. Co. of N. Y., 10 Cir., 1951, 192 F.2d 748, 751, 752.

This doctrine has been applied between automobile liability insurers where two policies happen to cover the same vehicle, one of which is determined to be the primary insurer and the other an excess or secondary insurer. See Aetna Casualty & Surety Co. v. Buckeye Union Casualty Co., 1952, 157 Ohio St. 385, 105 N.E.2d 568, 31 A.L.R.2d 1317, 1322, 1323 and annotation attached; 31 A.L.R.2d 1324 on "Right to subrogation, as against primary insurer, of liability insurer providing secondary insurance." See also annotations on related subjects in 69 A.L.R.2d 1122 and 76 A.L.R.2d 502. We agree with the conclusion of the district court that it had jurisdiction.

Whether Latham was insured under the policy issued by A.F. & C. to Garrard depends upon that policy's definition of "insured," as follows:

"Receipt Basis — Truckman.

"(Form B.)

"1. Definition of Insured. As respects such insurance, Insurance Agreement 111, Definition of Insured, is replaced by the following:

"The unqualified word `insured\' includes the named insured and also includes any person while using an owned automobile or a hired automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with his permission. The insurance with respect to any person or organization other than the named insured does not apply;

"(a) except with respect to an employee of the named insured, to any person or organization, or to any agent or employee thereof, engaged in the business of transporting property by automobile for the named insured or for others (1) if the accident occurs while such automobile is not being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority, or (2) if such person or organization so engaged is subject to the security requirements of any motor carrier law and satisfies any such requirement by any means other than automobile liability insurance, or (3) if such person or organization is insured under an automobile liability insurance policy which affords covering for automobile hired by such person or organization but which does not insure on a direct primary basis the owners of such automobiles and the agents and employees of such owners, while such automobiles are being used exclusively in the business of such person or organization and over a route such person or organization is authorized to serve by federal or public authority; provided, however, a driver or other person furnished to the named insured with an automobile hired by the named insured shall not be deemed an employee of the named insured:

"(d) with respect to any hired automobile, to the owner or any lessee of such automobile, or to any agent or employee of such owner or lessee, if the accident occurs (1) while such automobile is not being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority, or (2) after arrival of the automobile at its destination under a single trip contract which does not provide in writing for the return trip of the automobile."

The argument of A.F. & C. is well summarized in its brief as follows:

"To paraphrase the specific language of the policy the insurance with respect to a person or organization (Bryan Bros. Packing Company or Jimmy D. Latham) other than the named insured (J. T. Garrard) does not apply to any organization (Bryan Bros. Packing Company) or to any employee thereof (Jimmy D. Latham) engaged in the business of transporting property by automobile for others (Bryan Bros. Packing Company):

"1. If the accident occurs while such automobile is not being used exclusively in the business of the named insured (it was being used in the business of Bryan Bros. Packing Company) and over a route the named insured (Garrard) was authorized to serve by federal or public authority. (Garrard had no operating rights in Kentucky) or

* * * * * *

"3. If such person or organization (Bryan Bros. Packing Company) is insured under an automobile liability insurance policy which affords covering for automobiles hired by such person or organization (The Appellee\'s policy covers leased vehicles) but which does not insure on a direct primary basis the owner of such automobile (J. T. Garrard) while such automobiles are being used exclusively in the business of such person or organization (Bryan Bros. Packing Company).

"The facts in this case are not

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