Imperial Casualty & Indem. Co. v. Carolina Casualty Ins. Co.

Decision Date30 October 1968
Docket NumberNo. 19121.,19121.
PartiesIMPERIAL CASUALTY & INDEMNITY COMPANY, a Corporation, Appellant, v. CAROLINA CASUALTY INSURANCE COMPANY, Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

Larry E. Welch, Omaha, Neb., for appellant; Joseph H. McGrorarty, Omaha, Neb., on the brief.

Harold W. Kauffman, of Gross, Welch, Vinardi, Kauffman, Schatz & Day, Omaha, Neb., for appellee; Harry L. Welch, Omaha, Neb., on the brief.

Before VAN OOSTERHOUT, Chief Judge and GIBSON, and BRIGHT, Circuit Judges.

FLOYD R. GIBSON, Circuit Judge.

This is a declaratory judgment action to determine rights and liabilities under a liability policy issued by the defendant, Imperial Casualty & Indemnity Company, to Bluffs Motor Xpress, Inc., and presents a question of coverage where the policy issued was not effective to cover the overall trucking operations of the assured. Diversity of citizenship and amount in controversy establishes jurisdiction in the United States District Court for the District of Nebraska.

Chief Judge Richard E. Robinson of the United States District Court for Nebraska, after a trial to the court, entered judgment for the plaintiff, Carolina Casualty Insurance Company, holding that Imperial1 was responsible for the acts of its agents in issuing a defective policy and the negligence of the agents was sufficient to estop Imperial from asserting an exclusionary clause in the insurance contract. After entry of judgment and the overruling of post-trial motions, defendant Imperial filed this appeal. We affirm.

A review of the factual situation under which the policy in question was issued is necessary for a consideration of the legal issues presented.

Bluffs, a trucking company owned and operated by Clarence Werner, had its headquarters in Council Bluffs, Iowa. On April 8, 1961, Imperial issued its policy to Bluffs covering all operating equipment owned by Bluffs which at that time consisted of three tractors and three trailers. The insurance coverage was solicited by Herluf Christensen and written by Agent Darrah Insurance Company. Previously Christensen had solicited liability insurance from John Werner, a brother of Clarence, on a 1961 GMC tractor and a 1961 Wilson trailer, which unit John operated individually out of Petersburg, Nebraska. He occasionally used the unit on behalf of Bluffs. Christensen and Darrah placed this insurance in Carolina effective March 20, 1961. In May 1961 John Werner decided to quit the trucking business and go back to farming. John turned over his 1961 GMC tractor to Bluffs under an oral lease which obligated Bluffs to make the monthly payment on the tractor mortgage, maintain the tractor in A-1 condition and pay the insurance premiums on the tractor. After the tractor was paid for it was to be returned to John. The 1961 Wilson trailer owned by John was sold outright to Bluffs.

The Carolina policy and the Imperial policy both contained an exclusionary clause in substantially the following language:

"This policy does not apply: * * *
"(c) under coverages A and B while the automobile is used for the towing of any trailer owned or hired by the insured and not covered by like insurance in the company; or while any trailer covered by this policy is used with any automobile owned or hired by the insured and not covered by like insurance in the company; * * *."

Clarence Werner on behalf of Bluffs notified Christensen that it had taken over the equipment from John Werner. Subsequently Bluffs sold the Wilson trailer and replaced it with a Chamberlain trailer. Upon making the replacement Christensen was again notified, and he, through Darrah, added the Chamberlain trailer to the equipment schedule of the Imperial policy. Darrah and Christensen had inspected Bluffs' equipment and operation at the time the Imperial policy was written to ascertain how Bluffs operated their trucks, miles and radius traveled, the value of the loads and in what states permits would be needed. A company like Bluffs, operating and handling perishables, including livestock, could not operate without interchanging tractors and trailers. Darrah and Christensen were aware of this and knew also that the permits in Iowa were on the trailers. They made the filing on the trailers and at that time must have known in filing four trailers, and Imperial covering only three tractors, that Bluffs was using the John Werner tractor to pull one of the trailers insured by Imperial. Darrah as general agent for both insurance companies was an expert in the field of trucking insurance. He is charged with knowledge of the requirement that the same insurance company would have to carry the coverage on both the tractor and trailer to provide effective liability insurance. Thus, when the change was made in May of Bluffs acquiring the John Werner tractor and trailer and the subsequent replacement of that trailer with the Chamberlain trailer, all of the insurance on the four tractors and trailers should have been placed in one company. By scheduling the Chamberlain trailer on the Imperial policy the insurance agents made the Carolina policy under its terms useless as there was no trailer insured by Carolina to which the 1961 GMC tractor could attach, and in addition rendered ineffective the Imperial policy when any of the trailers insured under that policy would be used in connection with the 1961 GMC tractor.

On January 9, 1962, an employee of Bluffs, while driving the 1961 GMC tractor insured by Carolina and pulling the Chamberlain trailer insured by Imperial, negligently collided with an automobile driven by Raymond O. Dressler in Omaha, Nebraska. Dressler was killed and considerable damage was done to the South Omaha bridge. Suit was filed in Iowa by the executrix of Dressler and was settled for $23,375 by Carolina. Imperial refused to participate in the defense of the action asserting a lack of coverage by reason of its exclusionary clause. Carolina felt that since the defective coverage was the fault or negligence of the insurance agents for both companies it would be estopped from asserting the exclusionary clause and that, of course, Imperial likewise should be estopped. After effecting the settlement and paying out an additional $394.35 for attorney's fees and expenses on the Dressler case, Carolina filed this present action seeking to impose liability on Imperial for two-thirds of the cost and expense of settling the Dressler death claim, the division of liability being in accordance with applicable clauses in each insurance policy and based upon the amount of primary coverage afforded by both policies. The division is not in issue, nor is the amount expended in settlement and expense. Imperial concedes the expenditures to be reasonable but maintains its policy issued to protect Bluffs, the assured, afforded no coverage because of the exclusionary clause. In addition Carolina's complaint also notes that there is a claim of $5200 being asserted against Bluffs by the State of Nebraska for damage to the South Omaha bridge.

As Chief Judge Robinson viewed it, "the primary issue for determination here is whether the conduct of Herluf Christensen and the Darrah Insurance Agency precludes the defendant from denying liability coverage under the exclusion." He held on the basis of Hully v. Aluminum Company of America, 143 F. Supp. 508 (S.D.Iowa 1956), aff'd on other issues sub nom Columbia Casualty Company v. Eichleay Corporation, 245 F.2d 1 (8 Cir. 1957), that Imperial was estopped to take advantage of its agents' mistake or negligence in failing to properly handle the coverage that was to be afforded the assured. He reasoned:

"In the instant case, the agents knew that a GMC Tractor had been used with a Wilson Trailer and that both had been insured with Carolina Casualty. They knew that both had come under the control of Bluffs Motor Express whose equipment was insured with Imperial Casualty. They knew that Bluffs was using the GMC Tractor and continued to accept the premiums thereon from Bluffs. They were entrusted with the responsibility of choosing a company in which to place all of the equipment involved including the Chamberlain Trailer. Yet they chose to write the coverage on the new Chamberlain Trailer with Imperial Casualty when they knew or should have known that by placing the trailer with Imperial they had effectively rendered the Carolina policy void and the coverage on the trailer defective. * * * By delivering the Imperial policy under these conditions they represented that it was effective for its intended purpose. Hully v. Aluminum Company of America supra. The insured relied on the representation in good faith and was prejudiced thereby. Imperial Casualty is estopped to take advantage of the exclusion to deny its liability."

Imperial, on appeal, contends (1) there is no evidence to support the finding of an estoppel and (2) the doctrine of estoppel is not applicable to prevent an insurance company from relying on an exclusionary clause in its policy.

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