Western Casualty & Surety Co. v. Southwestern Bell Tel. Co.

• Decision Date: 19 July 1968
• Docket Number: No. 18967.,18967.
• Citation: 396 F.2d 351
• Parties: The WESTERN CASUALTY AND SURETY COMPANY, a Corporation, Appellant, v. SOUTHWESTERN BELL, TELEPHONE COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

396 F.2d 351 (1968)

The WESTERN CASUALTY AND SURETY COMPANY, a Corporation, Appellant, v. SOUTHWESTERN BELL, TELEPHONE COMPANY, a Corporation, Appellee.

No. 18967.

United States Court of Appeals Eighth Circuit.

June 14, 1968.

Rehearing Denied July 19, 1968.

Rene J. Lusser, of Lusser, Hughes & Lusser, St. Louis, Mo., for appellant. Rene E. Lusser was on the brief and reply brief with Rene J. Lusser, St. Louis, Mo.

John D. Rahoy, St. Louis, Mo., for appellee. John Mohler, was on the brief with John D. Rahoy, St. Louis, Mo.

Before MEHAFFY, GIBSON and HEANEY, Circuit Judges.

MEHAFFY, Circuit Judge.

Southwestern Bell Telephone Company brought a declaratory judgment action against The Western Casualty and Surety Company, seeking a determination that Western was liable under an owner's protective liability insurance policy issued to Bell. The case was tried to the United States district court upon a partial stipulation of facts, certain exhibits and testimony of witnesses, and the court found in a memorandum opinion reported at 269 F.Supp. 315 (E.D. Mo.1967) that coverage existed, and further that Western must pay reasonable attorneys' fees for the prosecution of the instant suit. We affirm the judgment of the district court holding existence of insurance coverage, but modify the judgment wherein allowance is made for attorneys' fees in the instant case for reasons hereinafter set out.

Diversity of citizenship and the requisite amount in controversy establish jurisdiction. The substantive law of Missouri controls the construction of the insurance contract. City of Poplar Bluff v. New Amsterdam Cas. Co., 386 F.2d 172, 173 (8th Cir. 1967).

The district court's memorandum opinion fully sets out the facts which we summarize as follows. Bell contracted with Missouri Conduit and Construction Company to enlarge several of its manholes in St. Louis, Missouri. Missouri Conduit was an independent contractor, but the work was to be performed in accordance with plans and specifications furnished by Bell. Missouri Conduit was also required to obtain an owner's protective liability insurance policy in Bell's name covering the operations under the contract with the insurance company which had Missouri Conduit's coverage.

Bell furnished Missouri Conduit several plats of other public utility facilities in the area, but these plats did not indicate an underground power cable which had been installed near or adjacent to the south wall of one of Bell's manholes. Bell had knowledge of this power cable and its location but this information was never given to Missouri Conduit. During the course of the work, one of Missouri Conduit's employees, while using an air hammer, hit the underground energized power cable causing serious bodily injuries to several of Missouri Conduit's employees. Three of these employees brought suits alleging their injuries were caused by Bell's negligence, asserting, inter alia, that Bell was negligent in failing to warn plaintiffs of the presence and location of the power cable. When suit was instituted by one of the employees, Bell notified Western of this claim and others and requested Western under the terms of the policy to defend the actions and to pay any and all judgments which might be rendered against Bell. Western, however, disclaimed liability under the terms of the policy, whereupon Bell brought the instant declaratory judgment action.

By this appeal, Western assigns as error: (1) the asserted misconstruction by the district court of the insurance contract in determining the existence of coverage; (2) the district court's ruling that Western could not complain about the manner in which Bell handled the defense of the lawsuits or any settlements that might be made; and (3) the award to Bell of recovery of expenses and attorneys' fees.

The pertinent provisions of the policy involved are:

"INSURING AGREEMENTS

"I. Coverage A — Bodily Injury Liability. To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person, caused by accident and arising out of the hazards hereinafter defined.

* * * * * *

"DEFINITION OF HAZARDS

"Division 3 — Independent Contractors. Operations performed for the named insured by independent contractors and general supervision thereof by the named insured, if the accident occurs in the course of such operations, other than (a) maintenance and repairs at premises owned by or rented to the named insured and (b) structural alterations at such premises which do not involve changing the size of or moving buildings or other structures.

* * * * * *

"EXCLUSIONS

"This policy does not apply:

* * * * * *

"(e) under Division 3 of the Definition of Hazards, to any act or omission of the named insured or any of his employees, other than general supervision of work performed for the named insured by independent contractors;

* * * * * *

"AMENDING ENDORSEMENT

"It is agreed that the words `and caused by accident\' appearing in Insuring Agreement I, Coverage A — Bodily Injury Liability — are deleted, and as respects bodily injury liability only, wherever in the policy the word `accident\' appears, the word `occurrence\' shall be substituted therefor.

* * * * * *

"ENDORSEMENT

* * * * * *

"1. Coverage under this policy is limited to operations performed for the named insured by Missouri Conduit and Construction Company, Incorporated."

The above policy affords coverage to Bell, the named insured, by reason of containment of language in Division 3 thereof, insuring against accidents arising out of operations performed under "general supervision thereof by the named insured." This conclusion on our part makes it unnecessary to discuss other arguments concerning the policy provisions.

As noted by the district court, the term "general supervision" as contained in the policy contract is not defined by the policy, nor by cases cited or by custom. Under the general rules of construction of insurance contracts, the term presents an uncertainty and ambiguity as to its meaning, which under settled Missouri law must be construed in favor of the insured. City of Poplar Bluff v. New Amsterdam Cas. Co., supra; Campbell v. American Farmers Mut. Ins. Co., 238 F.2d 284 (8th Cir. 1956); Union Electric Co. v. Pacific Indem. Co., 422 S.W.2d 87 (Mo.App.1967). The district court's opinion here as to meaning of the term "general supervision" is strengthened by the recent St. Louis Court of Appeals opinion in Union Electric Co. v. Pacific Indem. Co., supra.

Absent an opinion of the Missouri Supreme Court, we give strong consideration to the opinion of the appeals court in the Union Electric case.¹ There, the Missouri court construed a substantially identical policy provision under a factual situation strikingly similar to the one before us. Union Electric executed a contract with Davey Tree Expert Company, an independent contractor, which provided that Davey was to cut and trim trees designated by Union Electric's authorized representative along Union Electric's distribution and transmission lines. While performing this work, one of Davey's employees allowed his pruning shears to come into contact with an uninsulated wire and was severely burned. None of Union Electric's employees was present, but it was Union Electric's contractual responsibility to check Davey's work to see that Union Electric was getting the best work for the least money. There was no evidence or contention that Union Electric advised the manner or means by which Davey performed the work. The injured employee brought suit and Union Electric requested Pacific Indemnity to defend pursuant to the contract. Pacific refused the request on the ground that the policy did not provide coverage of the factual situation forming the basis for the action. Union Electric ultimately settled the suit and brought action to recover Pacific's pro rata share of the settlement under the policy. The St. Louis Court of Appeals held that the exclusion (identical with exclusion (e) of Western's contract) did not apply because Union Electric did "generally supervise" the operations performed by the independent contractor. The St. Louis Court of Appeals said, as the district court did here, that since the words "general supervision" are not defined in the policy as used in connection with the operations of an independent contractor, the provisions must be construed liberally and most favorably in favor of the insured. The court held that "general supervision" as used in the policy did not mean the supervision of the method, manner and/or means employed by the independent contractor, but rather means supervision to the extent necessary to see that the work was done in accordance with the contract and specifications and to provide the location where the...