Babcock & Wilcox Co. v. Parsons Corporation

Decision Date11 April 1969
Docket NumberCiv. 02260.
PartiesThe BABCOCK & WILCOX COMPANY, Plaintiff, v. PARSONS CORPORATION, Defendant and Third-Party Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Third-Party Defendant.
CourtU.S. District Court — District of Nebraska

John T. Grant, Omaha, Neb., for plaintiff.

Malcolm Young, and William Naviaux, Omaha, Neb., for defendant.

John Douglas, Omaha, Neb., for third-party defendant.

MEMORANDUM

RICHARD E. ROBINSON, Chief Judge.

This action comes before the Court on a separate trial of a third-party complaint. The third-party plaintiff, Parsons Corporation Parsons, seeks to recover from the Insurance Company of North America I.N.A. the attorney fees and costs it expended in defense of the main action and the expenses of processing the present action.

Parsons alleges in its third-party complaint that I.N.A. failed to discharge its contractual obligation to defendant Parsons in the main action brought by Babcock & Wilcox Company Babcock. Babcock, as an intervening plaintiff in the present trial to the Court, seeks recovery for damages sustained to its 110-ton P & H Crawler Crane as a third-party beneficiary under a machinery and equipment floater policy issued by I.N.A. to Parsons, plus costs and attorney fees expended for this trial.

It is necessary to relate the chronological sequence of events leading up to the present trial in order to understand the present posture of the case. Integrated into the history of the case are our fact findings necessary to dispose of the matter on its merits. In 1964 Babcock and Parsons were engaged in construction work on a power plant located outside of Stanton, North Dakota. As is customary in the trade, the two construction corporations, though working independently, agreed that each would perform services for the other on a reciprocal basis.

At the completion of construction the value of the parties' services were to be offset, and any remaining balance in excess of the "swapout", paid. The evidence shows that prior to May 21, 1964 Parsons had performed some services for Babcock at the latter's request. On or about May 21, 1964, the above parties agreed that Babcock's 110-ton P & H Crawler Crane would be used to lower Parsons' stiff-legged derrick to ground level from a point approximately sixty 60 feet above.

On the morning of May 21, 1964, the crane operator, Conrad Flemmer, had been told that he would begin the day working for Babcock, but that sometime during the morning he would be assigned to Parsons to lower the derrick as previously agreed. At roughly 10:00 A.M. Mr. Cheshire, foreman of the Babcock job, gave Flemmer a hand signal to begin work for John Ell, the Parsons' foreman in charge of lowering the stiff-legged derrick. Ell, by use of hand signals, directed Flemmer into position for the hoist of the derrick base. After an unsuccessful attempt to lift the derrick, Ell signalled Flemmer to situate the crane's tracks perpendicular to the wall below the derrick. The lift signal was again given by Ell and the derrick was hoisted. Ell next gave a signal to swing the load to the side. Part way through the swing Flemmer stopped of his own accord and requested Ell to come down from above and discuss the "swing". Ell then approached the crane cab. Flemmer explained that he would prefer to walk the load directly back rather than swing it to the side. Ell refused to permit him to walk the load back. Ell again gave him the swing signal. Flemmer, following the instruction, started the swing. Part way through the swing the crane's boom bowed in the middle and then broke. The boom and its load crashed to the ground.

Parsons' insurer, I.N.A., was given notice of the May 21, 1964 occurrence four days later on May 25, 1964. Deposition of Paul W. Witzenburg p. 7, lines 2 and 3. I.N.A. referred the loss to General Adjustment Bureau in Bismarck, North Dakota, for investigation Dep. supra p. 7, lines 22-25. On March 26, 1965, roughly ten months after the accident, Babcock filed a complaint in this Court against Parsons for damages to its crane. The limited significance of the complaint to the present trial is that two of the three counts alleged that the crane was in possession of Parsons pursuant to a rental or loan arrangement at the time it was damaged while the third count is devoid of any allegations that Parsons was ever in possession of the crane. The third count merely stated a claim in negligence against Parsons.

The defense to the various counts was tendered by Parsons to I.N.A. orally on March 31, 1965 and again by a letter dated April 1, 1965. Plaintiff's exhibit #3.

Inquiry was again made of I.N.A. on May 6, 1965, as to whether it intended to undertake the Parsons' defense plaintiff's exhibit #4. I.N.A. decided against defending the action under its liability policy altogether though there was a defense clause in that policy. I.N.A. based its refusal to defend on the fact that counts one and two of the complaint alleged circumstances surrounding the accident that were outside the policy coverage. The defense provision under CGL 21 94 39 contains the following language:

"With respect to such insurance as is afforded by this policy, the `company' shall:
a defend any suit against the insured alleging such * * * destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent * * * " emphasis supplied

An exclusion provision thereunder provided:

"This policy does not apply: h under coverage B. to injury or destruction of 1 property owned or occupied by or rented to the insured. * * *" emphasis added.

I.N.A. did, however, offer to defend Parsons under the machinery floater policy if Parsons would sign a "non waiver agreement." Parsons did not accept the conditional offer of defense. Parsons, through its own counsel, then proceeded to defend the main action by filing an answer and counterclaim on May 18, 1965.

The answer specifically denied the allegations in those counts contending that Parsons had either rented or borrowed Babcock's crane. Parsons also filed a third-party complaint against I.N.A. alleging that I.N.A. refused to defend it in the Babcock action. Parsons asks for two forms of relief: 1 that I.N.A. be held liable, as the insurer on its liability and machinery floater policies, for whatever judgment Babcock might receive in the main action; and 2 for reimbursement of all expenditures Parsons might necessarily make in defending the Babcock action. I.N.A., in its June 17, 1965 answer, admitted the existence of the aforementioned policies and that it had refused to defend under the liability policy. I.N.A. moved for a separate trial on the third-party action. We ordered its separation from the main claim.

On September 19, 1966 Parsons filed its second amended answer and counterclaim in the main action. In that answer Parsons continued to refute that it had leased the crane, contending that Babcock acted as an independent contractor in lowering the derrick. Parsons' position in this respect remained consistent throughout the remainder of the jury trial. The evidence in the trial discloses that those observing the movement of the crane believed Flemmer had conducted the "swing" of the derrick in a careful manner. In light of the evidence, we cannot say, nor did the jury decide that the decision to "swing" the load to the side was a negligent one. The only evidence as to the weight of the load discloses that it was twelve to fourteen 12-14 tons, well within the capacity of the crane. While some evidence was offered to suggest that the crane boom was in a defective condition at the time of the lift, we do not find that to be the case. Rather, it appears, though it could not reasonably be foreseen by those involved, the load drifted ahead of the boom point causing the boom to bow more to the side than its stress capacity allowed. The inevitable result was the buckling and subsequent crashing of the boom and its load to the ground.

The jury in the main action, determined two factual issues important to the present action: 1 that Conrad Flemmer was a special employee of Parsons at the time of the mishap; and 2 that the damage to the boom was $10,000.00.

After the jury trial, on February 23, 1968, Parsons filed an amended third-party complaint alleging that I.N.A. had refused coverage under both policies. The relief sought by Parsons in its latest amended complaint, however, is limited to recovery of defense expenses and expenses of bringing the present action. On February 27, 1968, Babcock sought and received permission to intervene in the third-party action. This Court ordered that the complaint of the intervenor relate back in time to May 18, 1965, the date on which Parsons had filed the original third-party complaint.

Babcock's complaint against I.N.A. alleges the existence of the floater policy, No. EF 6150, and the jury's findings. Babcock's complaint seeks relief as a third-party beneficiary under the floater policy in the amount of $10,000, plus attorney fees and costs in the present trial. We depart, at this point, from a prologue of the surrounding facts to consider the questions of law involved.

INSURER'S DUTY TO DEFEND

Floater Policy No. EF 6150 did not contractually obligate I.N.A. to defend Parsons against any damages to a third party's machinery covered by that policy. Parsons and I.N.A. never entered into any separate defense agreement in this respect. Therefore, Parsons cannot recover attorney fees and costs in defending the main action under that policy.

The more serious legal question raised by Parsons is whether I.N.A., under the circumstances, breached its duty to defend under the Comprehensive Liability Policy, CGL 21 94 39. I.N.A.'s obligation to defend is, of course, limited by the scope of the defense provisions in that contract. Westchester Fire Ins. Co. v. Rhoades Tex.Civ.App. 1966 405 S.W. 2d 812; Pickens v. Maryland Cas. Co., 1942 141 Neb. 105, 2...

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