American Casualty Co. of Reading v. Denmark Foods

• Citation: 224 F.2d 461
• Decision Date: 13 June 1955
• Docket Number: No. 6978.,6978.
• Parties: AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, and American Guarantee and Liability Insurance Company, Appellants, v. DENMARK FOODS, Inc., George W. Morris, Mae B. Morris, H. F. Phillips, Sr., and H. F. Phillips, Jr., Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

224 F.2d 461 (1955)

AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, and American Guarantee and Liability Insurance Company, Appellants, v. DENMARK FOODS, Inc., George W. Morris, Mae B. Morris, H. F. Phillips, Sr., and H. F. Phillips, Jr., Appellees.

No. 6978.

United States Court of Appeals Fourth Circuit.

Argued May 26, 1955.

Decided June 13, 1955.

E. W. Mullins, Columbia, S. C. (Nelson, Mullins & Grier, Columbia, S. C., on brief), for appellant, American Cas. Co. of Reading, Pa.

G. L. B. Rivers, Charleston, S. C. (Joseph R. Young and Hagood, Rivers & Young, Charleston, S. C., on brief) for appellant American Guarantee and Liability Ins. Co.

T. B. Bryant, Jr., Orangeburg, S. C., for appellee Denmark Foods, Inc.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

American Casualty Company of Reading, Pennsylvania, instituted this suit against Denmark Foods, Inc., a corporation engaged in the manufacture of pickles at Denmark, South Carolina, in order to secure an adjudication as to the rights and obligations of the parties under an automobile liability policy issued by the Casualty Company to Denmark Foods wherein the Casualty Company agreed to pay on behalf of the insured all sums which the insured should become obligated to pay as damages because of injury to or destruction of property caused by accident arising out of the ownership, maintenance or use of certain automobiles specified in the policy. When the suit was brought there were pending in the Court of Common Pleas of the County of Colleton, South Carolina, two actions at law brought by George W. Morris and Mae B. Morris, respectively, for damages for injury to certain farm machinery and certain buildings alleged to have been caused by the negligent operation of an automobile driven by an employee of Denmark Foods in the transportation of cucumbers from a receiving station at Cottageville to the processing plant of the insured at Denmark. The defendants in these suits in the state court were Denmark Foods, H. F. Phillips, Sr. and H. F. Phillips, Jr. Phillips, Sr. was alleged to be the superintendent of the processing operations and transportation of the cucumbers from various receiving stations to the processing plant, and Phillips, Jr. was alleged to be the manager in charge of the receiving station at Cottageville and of the transportation of the merchandise therefrom to Denmark.

Joined with Denmark Foods as defendants in the suit for declaratory judgment in the federal court were the plaintiffs in the suits in the state court, together with H. F. Phillips, Sr. and H. F. Phillips, Jr. Joined also as party defendant was American Guarantee and Liability Insurance Company of Chicago, which had issued a comprehensive general liability policy to Denmark Foods, insuring it against liability for damages because of injury to or destruction of property caused by the accident.

The purpose of the trial in the District Court was to determine whether either or both of the insurance companies was obligated to indemnify Denmark Foods for the outlay of $5,000 which it had paid to the complainants in the state court in settlement of their claims under the following circumstances. Denmark Foods was engaged in the manufacture of pickles from green cucumbers at a processing plant at Denmark, South Carolina. It contracted with farmers to grow the cucumbers and established receiving stations at various small towns in the vicinity where the cucumbers were received and paid for. One of the receiving stations was located at Cottageville and was in charge of H. F. Phillips, Jr., who was paid $40 a week for his services. The company did not itself haul the cucumbers from the receiving station at Cottageville to the processing plant, but entered into a separate contract with Phillips, Jr. to transport all of the cucumbers received at that station to Denmark for 8¢ a bushel. In the performance of the contract Phillips used his own truck and employed and paid his own driver, and was not supervised or controlled by Denmark Foods. The accident which led to this litigation occurred when a truck owned by Phillips and driven by his employee in the transportation of the cucumbers from Cottageville to Denmark got out of control and caused the damages complained of.

Both insurance companies were notified of the accident by Denmark Foods. The Guarantee Company investigated the circumstances and employed attorneys to defend the suits without waiving its right to deny that the accident was covered by the policy. When it received copies of the complaints it noted allegations to the effect that the driver of the truck was the servant of Denmark Foods and that Denmark Foods was negligent in using a truck with defective brakes and other mechanical defects in the employment of an incompetent driver, in overloading the truck and operating it at a dangerous speed, in not stopping the truck at a stop sign, and not keeping the truck under control. Since the policy, which it had issued to Denmark Foods, did not apply to automobiles while away from the premises of the insured, the Guarantee Company notified Denmark Foods and the Casualty Company that it was withdrawing from the case because the allegations of the complaints made it clear that the accident was not covered by the policy.

The Casualty Company continued in the defense of the suits in the state court and the cases were settled by the payment of $5,000 at the instance of Denmark Foods which feared a greater recovery. Of this sum $1,000 was provided by Denmark Foods and $4,000 was loaned to it by the Casualty Company. The money was loaned under an agreement that if it should be finally determined in the suit for declaratory judgment that the policy of the Casualty Company covered the accident the debt of $4,000 would be...