AMERICAN FIDEL. & CAS. CO. v. St. Paul-Mercury Indem. Co., 16441.

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation248 F.2d 509
Docket NumberNo. 16441.,16441.
Decision Date09 October 1957

Fred Ball, Montgomery, Ala., for appellant.

Harold Williams, Birmingham, John W. Pemberton, Montgomery, Ala., for appellee.

Before RIVES, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

On facts, strikingly simple, neither complex nor conflicting, we have again the problem of an Insurer who has written the policy and taken the Assured's premium urging him to go elsewhere, tentatively if not finally, because another insurer is, or ought to, or may be, liable for the whole, half, or part a loaf. In the process the moving Insurer generally garbs itself in the appealing robes of some assured so that, casting itself in a strange role, it asserts what it so often denied that the policy should be liberally construed and, by a bare toe hold manages to make itself enough of a party to force a construction of another contract made by another insurer with another assured and which, under no circumstance, was made for its benefit, Maryland Casualty Co. v. Southern Farm Bureau Casualty Insurance Co., 5 Cir., 235 F.2d 679; United Services Automobile Association v. Russom, 5 Cir., 241 F.2d 296; General Insurance Co. of America v. Western Fire & Casualty Co., 5 Cir., 241 F.2d 289; Continental Casualty Company v. Suttenfield, 5 Cir., 236 F. 2d 433.

So it is here. Coming as it does the accident and the assureds seem all but forgotten as the two Insurers match clause against clause, coverage against exclusion, claim against denial, in this battle between fortuitous adversaries.

Osborne, a contract carrier, was the leased (chartered) owner of the truck in question. Estes was his driver. American Fidelity & Casualty Company, Inc. (American) was Osborne's Insurer. Estes drove the truck. While the truck was being unloaded by an employee of Larsen & Larsen, Inc., a consignee at its job-site, Estes was injured when the Larsen employees negligently allowed a heavy piece of the truck's cargo to fall on him.

Estes sued Larsen who called on its Insurer, St. Paul-Mercury Indemnity Company (St. Paul) to undertake the defense under its Comprehensive General and Automobile Liability Policy1 (ACP Form). The occurrence, the injury, the amount of the claim were clearly within the broad coverage of the St. Paul policy. Up to this stage, St. Paul had a plain obligation to defend and indemnify Larsen.

By the fortuitous circumstance that the accident occurred in Alabama where the legal issue was not categorically foreclosed, Osborne had an automobile policy2 with an Omnibus3 Insured clause and a pro rata, rather than excess, Other Insurance clause, and the unloading of the truck constituted a use4 of it with Osborne's permission, St. Paul made the now familiar, but understandably surprising announcement to its Assured Larsen that it, St. Paul, did not owe Larsen, its Assured, the obligation to defend or indemnify because someone else — a party with whom Larsen had no contractual relationship whatsoever — American was obliged to defend. St. Paul claimed the right to do this under the "Other Insurance" endorsement5 of its policy.

But at this stage, St. Paul had no rights whatever under American's policy. St. Paul was not a party to it, and American had made no agreements whatsoever with St. Paul that it would, or would not do, anything. St. Paul was a complete total stranger. St. Paul then had no subrogation rights, for by a special endorsement, as between Larsen and itself, those arose only "In the event of any payment under this policy" which had not, then or now, ever been made.

Still an interloping stranger, St. Paul called on American to defend and this was declined. Whether St. Paul was right or American was right on the construction of the Omnibus and the Employee Exclusion clauses6 of American's policy was, as between St. Paul and American, an academic matter only. St. Paul could not then demand anything from American and on American's refusal to abide with any demand, St. Paul had no legal right to vindicate. All it had was a defense as between itself and its own assured, Larsen, that since American's policy was available to Larsen as an omnibus assured, the St. Paul policy did not apply.

This did not change when St. Paul instituted this declaratory judgment action against Larsen, Osborne, American and, for good measure, under the anonymity of John Doe and Richard Roe, the four or five manual labor employees of Larsen whose negligence caused Estes' harm and brought into play St. Paul's obligation to defend those very acts. This did present a justiciable controversy between St. Paul and Larsen. But neither Larsen nor his allied John Does and Richard Roes sought any relief by answer, cross claim, or otherwise, against American (or Osborne). So, while American was in the suit and answered, as a substantive matter it was a jousting between two entirely unrelated strangers, foreign to each other, and having no common source by legal fiction or otherwise.

This posture is important for it keeps in sharp focus that in the interpretation of American's policy (and the Employee Exclusion, note 6, supra) this must be viewed entirely in the light that this is related to the defense which St. Paul urges against its own Assured, Larsen. The process works this way: (1) St. Paul is not obligated to defend Larsen if Larsen has other insurance; (2) Larsen has other insurance because (a) it is an Omnibus Assured and (b) the Employee Exclusion in that "other" policy does not apply.

In this sole controversy then pending, St. Paul neither has nor acquired (by subrogation or implied anticipatory assignment) the status of a vicarious assured under American's policy. St. Paul then fails in the effort to reap the tactical or strategic advantages which often prevail in construing the policy most favorably to the assured. And, as a complete stranger, in assaying the defense between it and its assured, Larsen, St. Paul's position is neither that of an assured (named or omnibus) who has paid a claim and seeks indemnity, or a third party judgment creditor claimant, with all of the favored status which that position may give, Maryland Casualty Co. v. Southern Farm Bureau Casualty Insurance Co., supra, seeking satisfaction of the judgment after compliance with the no action clause of the policy. Section 12, Title 28, Alabama Code of 1940; Employers Ins. Co. of Alabama v. Johnston, 238 Ala. 26, 189 So. 58.

What we are saying is simply this: this is not a suit between an insurer and the assured, or one who under state statutes or procedures is deemed a third party beneficiary of the contract. Principles of construction may well be far different as to those cases, and as to those this opinion expresses none. This is simply and solely a case in which, in determining the application of one contract between the parties (St. Paul v. Larsen), it is necessary to construe another contract between entirely different parties (American — Osborne).

This has crucial importance for there is then no basis for reading into that "other" contract words or clauses to make it better or more reasonable for one of the parties to it. And, on the contrary, there is every reason that it should be interpreted and applied as written, and if the words used cover, they should be applied even though the result might be less favorable to one of the parties to that contract, but who is nonetheless now quite satisfied with it.

In this light, the American policy, uses language which is plain and direct. After expressly stating, note 3, supra, that the term "Insured," with respect to these coverages, "includes the named insured" (Osborne), the policy uses equally simple, plain language in excluding liabilities. In peremptory terms it declares, note 6, supra, that "This policy does not apply." And it then proceeds to state emphatically that it does not apply whatsoever to "bodily injury to * * * any employee of the insured while engaged in the employment * * * of the insured * * *."

Estes was an employee of the insured, Osborne. Estes was subject to the Alabama Workmen's Compensation Act, Code 1940, Tit. 26, § 253 et seq., and received compensation under it. And Estes admittedly sustained his injuries "* * while engaged in the employment * * of the insured * * *."

The District Judge, 146 F.Supp. 39, 43, concluded that the "better existing authority * * * is * * * that the proper construction of the words `the insured' contained in exclusion clauses (d) and (e) note 6, supra * * * exclude coverage only in those cases in which the injured party is an employee of the insured claiming coverage under the policy, whether such insured be the named insured or an additional insured under the omnibus clause * * *."

We think that as to this controversy and for Alabama7 his conclusion was erroneous.

The Erie handwriting on the wall, while leaving some for a Daniel's reading, reveals enough to us to indicate the probable course Alabama would take. Erie L. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. The act of Erie judging requires that we pursue it. West v. American Telephone & Telegraph Co., 311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139; Six Companies of California v. Joint Highway Dist. No. 13, 311 U.S. 180, 61 S.Ct. 186, 85 L.Ed. 114.

Adhering to the traditional view that as between insurer and assured, terms of doubtful, double, or ambiguous meaning are to be liberally construed, Alabama yet makes it clear that insurance policies, as any other contract, are to be interpreted to effectuate the intention of the parties as expressed by the words used. We have recently considered this at length, Ward v. State Farm Mutual Auto. Ins. Co., 5 Cir., 241 F.2d 134, 137:

"* * * the pole star by which we are to be guided in construing the policy is * *

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