Allstate Insurance Co. v. Alterman Transport Lines, Inc.

• Decision Date: 02 October 1972
• Docket Number: 71-2103.,No. 31139,31139
• Citation: 465 F.2d 710
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee, v. ALTERMAN TRANSPORT LINES, INC., Defendant-Appellee-Cross-Appellant, v. CONSOLIDATED SYSTEMS, INC., Defendant-Appellant-Cross-Appellee. ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee-Cross-Appellant, v. ALTERMAN TRANSPORT LINES, INC., Defendant-Appellee-Cross-Appellant, v. CONSOLIDATED SYSTEMS, INC., Defendant-Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

465 F.2d 710 (1972)

ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee, v. ALTERMAN TRANSPORT LINES, INC., Defendant-Appellee-Cross-Appellant, v. CONSOLIDATED SYSTEMS, INC., Defendant-Appellant-Cross-Appellee.

ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee-Cross-Appellant, v. ALTERMAN TRANSPORT LINES, INC., Defendant-Appellee-Cross-Appellant, v. CONSOLIDATED SYSTEMS, INC., Defendant-Appellant-Cross-Appellee.

Nos. 31139, 71-2103.

United States Court of Appeals, Fifth Circuit.

August 30, 1972.

Rehearing Denied October 2, 1972.

Bernard C. Pestcoe, George D. Gold, Miami, Fla., for Consolidated Systems, Inc.

L. Norton Preddy, Burt E. Redlus, Miami, Fla., for Alterman Transport Lines.

Don R. Livingstone, David L. Willing, Miami, Fla., for Allstate Ins. Co.

Before RIVES, BELL and MORGAN, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

The question presented in this suit for indemnification is which of three parties must ultimately bear the loss for monies paid out in settlement of a tort claim. The district court held that an insurance policy issued by Allstate Insurance Company did not afford coverage for the injury; that Alterman Transport Lines, Inc., was primarily liable for payment of the tort claim; but that Alterman was entitled to be reimbursed by Consolidated Systems, Inc., due to an indemnification agreement between the two corporations. After considering the various assignments of error, we affirm the final judgment¹ of the district court.

The event which gave rise to this litigation occurred in 1964 on a Florida highway when a tractor-trailer unit driven by Elmer Stewart crashed into the rear of an automobile driven by John Maguire. The tractor-trailer unit was on lease to Alterman from Consolidated for the duration of a single trip from Chicago, Illinois, to Miami, Florida.² Contained in the lease was a provision by which Consolidated agreed to indemnify Alterman for any damage done to or suffered by the driver or other persons in connection with the operation of the tractor-trailer unit during the term of the lease. The lease also provided that Consolidated was to be responsible for servicing the vehicle and keeping it in good repair. Consolidated's insurance carrier was Allstate.

After the collision Maguire filed suit for personal injuries in a Florida state court against Consolidated, Alterman, and Elmer Stewart. The state court suit was finally settled for $16,000.00 with Allstate and Alterman each paying half.

Allstate then filed suit in federal district court for a declaratory judgment of liability as between itself, Consolidated, Alterman, and Alterman's alleged insurance carrier, Citizens Casualty Company. The district judge granted summary judgment against Citizens and in favor of Allstate, but on appeal this court reversed and held that Citizens did not afford insurance coverage for the Maguire accident. Consolidated Systems, Inc. v. Allstate Insurance Company, 5 Cir. 1969, 411 F.2d 157. This court then remanded the case so that a complete factual record might be developed concerning the liabilities of the three remaining parties—Alterman, Allstate and Consolidated.

On remand the district court entered findings of fact and conclusions of law, and held that Allstate was entitled to indemnification from Alterman; and that Alterman, in turn, was entitled to indemnification from Consolidated. The district court reached this result by first concluding that Alterman, by virtue of its complete control over the tractor-trailer unit and the driver, was the active tort-feasor and primarily liable for payment of Maguire's personal injury claim. The court next held that Allstate's insurance policy did not cover the damage done to Maguire, and thus, Allstate could collect the amount it paid ($8,000.00) in settlement of the tort claim, plus attorneys' fees expended in the state court action from the primary tort-feasor, Alterman. Allstate was not awarded recovery of attorneys' fees for prosecution of the federal suit. However, since Alterman and Consolidated had signed the indemnification agreement, which the court upheld as valid, Alterman was allowed to recover from Consolidated all sums paid to Allstate, plus the sums advanced in defending and settling the tort claim with Maguire, and the expenses incurred in prosecuting the federal suit for indemnification. The net effect of the district court's judgment was that Consolidated was liable, either directly or indirectly, for all sums expended by Allstate and Alterman in settling the tort claim at the state court level, plus the monies expended by Alterman in prosecuting the federal indemnity action.

On this appeal all three parties attack the district court's holding by raising various interdependent issues which we deal with in sequential order.

Validity of the Indemnification Agreement

In the indemnification clause of the Consolidated-Alterman lease, Consolidated agreed to "be responsible for any loss, personal injury, death and/or damage that may be done to or suffered by drivers or other persons in connection with the operations to be carried out pursuant to this agreement" and to "indemnify and save harmless Alterman against claim for any such loss". The lease further provided that Consolidated was to maintain and service the tractor-trailer unit and keep it in good repair during the hauling operation. Consolidated contends that the entire lease is invalid as against public policy because both of these clauses violate the Interstate Commerce Commission regulation which states that any contract for the use of leased trucking equipment "shall provide for the exclusive possession, control and use of the equipment, and for the complete assumption of responsibility in respect thereto". Title 49, C.F.R., § 1057.4(a)(4).

As to the clause requiring Consolidated to maintain and service the tractor-trailer unit, Consolidated claims that the responsibility for vehicular maintenance was illegally shifted by Alterman to its lessor, contrary to the letter and spirit of the I.C.C. regulations. The purpose of the regulations, according to Consolidated, was to protect the public from unsafe vehicles by requiring each trucking company to be responsible for the mechanical condition of all the equipment it put on the highway. We need not decide the merits of this contention,³ however, because the record in this case does not support Consolidated's initial assumption, i. e., that Alterman avoided responsibility for maintenance of the vehicle. Although not mentioned in either of the briefs, the lease specifically provided that "said vehicle shall be solely and exclusively under the direction and control of the lessee Alterman who shall assume full common carrier responsibility .... for the operation of such vehicle." (Emphasis supplied). Furthermore, prior to the Chicago-Miami trip, Alterman had the tractor-trailer unit inspected for mechanical defects. This fact is evidenced by an inspection sheet in the record listing some 19 different items which were inspected and found to be in good working order by a qualified mechanic.⁴ The inspection sheet was signed by a responsible Alterman employee who certified that the person inspecting the vehicle was qualified to make such an inspection and authorized to do so as a representative of Alterman. Thus, contrary to the assertion of Consolidated, Alterman was at all times responsible for the quality of the maintenance performed on the leased vehicle even though Alterman employees were not themselves bound to repair the vehicle. That responsibility was not evaded by requiring Consolidated to perform the actual mechanical work, any more than it would have been an evasion for Alterman to contract for vehicular maintenance with a private garageman, because Alterman continued to bear responsibility for the vehicle's mechanical condition.

Turning to the indemnification clause itself we find nothing in the language of 49 C.F.R. § 1057.4(a)(4) which would prohibit two freely contracting parties from determining, as between themselves, which party will ultimately bear the cost of damages done to a third person. The only conceivable argument against such an arrangement would be that the regulation seeks to prevent indemnification on the theory that a trucking company, knowing it does not have to pay damages, might tend to be less careful in supervising and controlling the actions of its truck drivers. However, the same can be said of insurance coverage which the regulations obviously do not prohibit. We are of the opinion that had the I.C.C. intended to prevent indemnification between trucking companies it would have said so in precise terms.

Although Consolidated cites Carriers Insurance Exchange v. Truck Insurance Exchange, 4 Cir. 1962, 310 F.2d 653, and Alford v. Major (N.D.Ind., 1970) 314 F.Supp. 979, as authority for invalidating the indemnification agreement, we find those cases inapplicable to the facts here involved. In Carriers the indemnification clause was struck down because the two contracting trucking companies violated an I.C.C. safety regulation⁵ and created a dangerous condition which resulted in injury to an innocent third party. In Alford there was a prima facie violation of 49 C.F.R. § 1057.4(a)(4) because the lessee allowed the lessor to retain full control over the truck and the driver during the term of the lease. As we have previously held in this opinion, Alterman's arrangement with Consolidated did not abrogate pertinent I.C. C. regulations. The absence of any regulatory violation on the part of Alterman removes this indemnification clause from the public policy considerations which were present in Carriers and Alford.

Finally, we find no merit in Consolidated's contention that the plain language of the indemnification clause⁶ excludes third-party injuries and applies only to injuries suffered by the truck driver or other individuals engaged in the leasing operation.

Actual Liability of Elmer...