Safeway Moving & Storage Corp. v. Aetna Insurance Co.

• Decision Date: 15 September 1970
• Docket Number: Civ. A. No. 5849-R.
• Citation: 317 F. Supp. 238
• Court: U.S. District Court — Eastern District of Virginia
• Parties: SAFEWAY MOVING & STORAGE CORPORATION v. AETNA INSURANCE COMPANY, etc., et al.

317 F. Supp. 238

SAFEWAY MOVING & STORAGE CORPORATION v. AETNA INSURANCE COMPANY, etc., et al.

Civ. A. No. 5849-R.

United States District Court, E. D. Virginia, Richmond Division.

September 15, 1970.

COPYRIGHT MATERIAL OMITTED

A. Andrew Giangreco, Alexandria, Va., for plaintiff.

Norman F. Slenker, Arlington, Va., for defendants.

MERHIGE, District Judge.

MEMORANDUM

The plaintiff, a Virginia corporation with its principal place of business in Alexandria, Virginia, brings this diversity action against Aetna Insurance Company and New Amsterdam Insurance Company, now known as Security Insurance Group of Hartford, both Connecticut corporations authorized to do business in Virginia. The amount in controversy is in excess of Ten Thousand ($10,000.00) Dollars. Jurisdiction is conferred by virtue of Title 28 U.S.C. A. § 1332.

In 1967 Safeway was, and had been for some time prior thereto, engaged in the business of moving and storing household goods, primarily if not exclusively for employees of the United States Government, under three contracts with the government whereby plaintiff agreed to furnish facilities and services for the safe and proper storage of household goods of military personnel pursuant to service orders issued by the government.

Two of the government contracts provided in part as follows:

8. LIABILITY FOR CARE OF GOODS

(a) Except as hereafter provided and notwithstanding payment for storage and other services hereunder, the Contractor shall be liable in an amount not exceeding $50 per article or package listed on the warehouse receipt or inventory form for any loss or injury to household goods deposited with it caused by its failure to exercise such care in regard to them as a reasonably careful owner of similar goods would exercise, but the Contractor shall not be liable for any loss or injury to household goods which is caused by acts or conditions beyond its control and without its fault or negligence.

A third contract contained the following:

SP-10. Liability. The contractor agrees to indemnify the owner for any loss of or damage to the owner's property arising from any cause whatsoever while in the contractor's possession and for any latent damage caused by defective packing, either within or subsequent to the period covered by the contract. Liability under this provision is limited to 60 cents per pound per article. (Maximum value recoverable shall be based not on the weight of the lost or damaged article but on the gross weight of the container in which it is packed. Article is defined as: each shipping piece or package, or item not inclosed in a packing unit within a household goods shipping container shall constitute one article.) In the event that damage is caused by contractor's negligence he shall be responsible for the depreciated replacement value of the article. The contractor shall make prompt payment to the owner of the household goods for any loss or damage for which the contractor is liable.

All three contracts contained what is apparently a standard clause for government contracts of this nature and reads as follows:

17. DISPUTES

(a) Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. The decision of the Contracting Officer shall be final and conclusive unless, within 30 days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to the Contracting Officer a written appeal addressed to the Secretary. The decision of the Secretary or his duly authorized representative for the determination of such appeals shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer's decision.

(b) This "Disputes" clause does not preclude consideration of law questions in connection with decisions provided for in paragraph (a) above: Provided, that nothing in this contract shall be construed as making final the decision of any administrative official, representative, or board on a question of law.

In April, 1964, Cecil Sills, one of the two sole shareholders of Safeway, the other being his wife, contacted one A. Melville Cox, a local insurance agent, and requested a policy of insurance on the corporation's vehicles, it appearing from the evidence that the procurement of this policy, obviously a liability policy, was to take the place of a prior liability policy which apparently was expiring within a day or two thereafter. In short, Cox arranged for the procurement of the necessary motor vehicle liability policies and, as a follow-up to that, Cox secured the business of Safeway in reference to the issuance of fire policies, each in the amount of $50,000.00, issued by the respective defendant insurance companies.

While the policies of insurance were each in full force and effect a fire occurred on December 12, 1965, causing extensive damage to loads of household goods stored by plaintiff corporation under its contracts with the government.

Cox, the insurance agent, was immediately advised of the fire, and the defendant insurance companies caused an investigation of same to be made by an independent adjustment company.

Plaintiff notified the defendants of the fact that the government was making a claim against it. The companies, however, took the position that there was no negligence on the part of their insured and that they were under no obligation to defend or participate in any administrative procedures which were called for under the respective contracts of the plaintiff with the government.

The companies were not represented at any of the administrative hearings, although at the ultimate one conducted before the Armed Services Board of Contract Appeals defendants' counsel was present but did not participate. The matter reached the Appeals Board through the efforts of the plaintiff's independently retained counsel. Plaintiff corporation had the services of their own counsel before the administrative board, for which he was paid a fee of $1,500.00, which the Court finds to have been reasonable.

It was stipulated by the parties that the administrative hearings were all held in accordance with the terms of the contracts existing between the government and the plaintiff, and the Appeals Board sustained previous findings of its hearing officers of negligence on the part of the plaintiff, Safeway, and the damages were fixed at $330,563.38, which was subsequently reduced to $203,784.81.

As a consequence of the administrative proceedings, plaintiff's company has, for all intents and purposes, ceased operations, because the government proceeded to withhold sums allegedly due plaintiff as an offset against the $203,784.81.

Plaintiff brings this suit seeking recovery of the maximum limits of coverage as shown by the policies and further seeks damages flowing from the bad faith and/or negligence of the defendant in its failure to defend the suit in the administrative hearings.

The defendants, on the other hand, argue essentially that the contractual agreements between the plaintiff and the government removed the issue of liability and the duty to defend to a forum excluded by the language of the insurance contract, with the consequence being a negation of both the duty to pay upon the establishment of liability against the plaintiff and the duty to defend the plaintiff in the administrative proceedings. In connection with this argument, the defendants rely on various phrases contained in the respective insurance contracts such as. "On the liability of the Insured as determined and imposed by law * * *;" "Exclusion: This insurance does not apply to liability assumed by the Insured under any contract or agreement.;" "Assistance and Cooperation of the Insured: * * * The Insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expenses."

At the outset, the Court takes note that neither the plaintiff nor defendants take issue with the establishment of liability predicated on the findings made during the administrative proceedings. That the plaintiff is legally liable under the government contracts is no longer open to dispute, at least in the posture of the case as it now exists. See United States v. Utah Construction & Mining Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L. Ed.2d 642 (1966); United States v. Carlo Bianchi & Co., 373 U.S. 709, 83 S.Ct. 1409, 10 L.Ed.2d 652 (1963); Fairmont Aluminum Co. v. Commissioner, 222 F.2d 622 (4th Cir.1955).

The question presented for this Court's attention then is merely that of the contractual obligation of the defendants to the plaintiff under the policy, if any, for the liability of the plaintiff sustained in the administrative proceedings in light of the various clauses and phrases contained in the insurance contracts.

When construing a contract of insurance, the courts are bound by certain basic rules of construction. Obviously the most basic function of a court is "to construe the language of the contract as written, and * * * not * * * make a new contract for the parties different from that plainly intended * * *." Pilot Life Insurance Co. v. Crosswhite, 206 Va. 558, 145 S.E. 2d 143, 146 (1965). See also, Eureka-Security Fire & Marine Insurance Co. v. Maxwell, 276 F.2d 132 (4th Cir.1960). The rule thus fixing the...