Argonaut Southwest Ins. Co. v. Am. Home Assur. Co.

Decision Date24 January 1980
Docket NumberNo. 3-76-0220-C.,3-76-0220-C.
Citation483 F. Supp. 724
PartiesARGONAUT SOUTHWEST INSURANCE COMPANY v. AMERICAN HOME ASSURANCE COMPANY, Travelers Insurance Company. AMERICAN HOME ASSURANCE COMPANY v. ARGONAUT SOUTHWEST INSURANCE COMPANY and Zurich Insurance Company. TRAVELERS INSURANCE COMPANY v. ARGONAUT SOUTHWEST INSURANCE COMPANY and Zurich Insurance Company.
CourtU.S. District Court — Northern District of Texas

L. W. Anderson and C. A. Searcy Miller, Dallas, Tex., for Argonaut and Zurich.

Lancaster Smith, Dallas, Tex., for American Home.

William T. Hankinson, Dallas, Tex., for Travelers.

MEMORANDUM OPINION

WILLIAM M. TAYLOR, Jr., District Judge.

This is an action for declaratory judgment pursuant to 28 U.S.C. § 2201, brought by Argonaut Southwest Insurance Company ("Argonaut") against American Home Assurance Company ("American Home") and Travelers Insurance Company ("Travelers"). Argonaut seeks to establish that neither it nor Zurich Insurance Company ("Zurich") provided liability insurance coverage for an accident involving a machine manufactured by the Beardsley & Piper Division of the Pettibone Corporation. This Court has jurisdiction of this cause by reason of the diversity of citizenship between the parties, and the amount in controversy exceeds $10,000, exclusive of interest and costs. 28 U.S.C. § 1332.

Background

The Pettibone Corporation engages in the manufacture of heavy equipment. The Beardsley & Piper Division is a division of the Pettibone Corporation and is not a separate legal entity. Beardsley and Piper was originally a partnership business that manufactured heavy machinery. For many years Beardsley & Piper carried their insurance coverage through a particular agent in Chicago, Illinois. At the time Pettibone Corporation acquired the Beardsley & Piper partnership there was no change in the actual operation of Beardsley & Piper. Beardsley & Piper did not change their location or their mode of operation, and Beardsley & Piper continued to maintain their long standing relationship with their insurance agent who in turn continued to write separate policies of insurance on Beardsley & Piper. This course of business dealing continued in effect up through March 2, 1973, the time of the policies in question. Beardsley & Piper liability coverage was written by Travelers (policy limits $100,000) and American Home (excess coverage $5,000,000) while the bulk of Pettibone Corporation liability coverage was written by Argonaut (policy limits $100,000) and Zurich (excess coverage $5,000,000).

The Beardsley & Piper Division of Pettibone Corporation designed and manufactured a large industrial pipe grinder and sold it to the Cameron Iron Works in Houston, Texas. This machine was used by Cameron Iron Works to cut and grind pipe to meet customer specifications. While Benjamin Kutra, an employee of Cameron Iron Works, was assisting in the operation of the machine on March 2, 1973, his right arm was dragged into the machine at the "nip point." As a result of the accident, Mr. Kutra's right arm and portions of his right shoulder, chest and rib cage were removed, and he suffered permanent and irreversible brain damage.

Mr. Kutra, by and through his wife, brought suit in Harris County, Texas, against the Pettibone Corporation. Defense of the suit was tendered to Argonaut and Argonaut initially participated in the defense of the lawsuit. Subsequently Beardsley & Piper Division was brought in as a Defendant and at that point Travelers and American Home became interested in and participated in the defense of the Kutra lawsuit. Since the evidence developed during discovery in the Kutra lawsuit indicated that liability lay with Beardsley & Piper Division for which there was separate insurance coverage, Travelers took the "managing oars" of the defense. Subsequently, Gordon Holloway, representing Travelers, was the lead counsel of record.

The Kutra lawsuit proceeded to trial, and during the trial Mike Connelly, hired by Argonaut, represented Pettibone and Argonaut. After final arguments in the case but before the jury returned a verdict, Mr. Kutra and Travelers and American Home agreed to a compromise settlement. Travelers and American Home paid the sum of $1,657,500 in settlement to the plaintiff Kutra. Travelers paid $100,000, its policy limits, in settlement and American Home paid $1,557,500 in settlement. Argonaut and Zurich declined to contribute any amount toward settlement of the Kutra lawsuit.

The evidence developed during the Kutra trial clearly indicates that Mr. Kutra was severely injured and was undoubtedly permanently disabled from ever working again and from functioning as a normal person. The evidence would certainly support a verdict and judgment for the amount for which the case was ultimately settled.

The evidence shows that the machine in question was designed and manufactured totally through Beardsley & Piper Division and that employees of no other division of the Pettibone Corporation had dealings with that design or manufacture. Mr. Robert Duty, a safety engineer for Pettibone, testified by deposition that he had gone to the Beardsley & Piper Plant in Chicago for purposes of making a noise level test on the machine. At that time when he learned that the machine was going to Cameron Iron Works he expressed some interest in the equipment, since he had interviewed with Cameron Iron Works before going to work with the Pettibone Corporation. He made inquiries to one of the Beardsley & Piper personnel concerning the type of guarding mechanism that would be used around the in-running nip point on the machine and was advised that some type of fence or barrier was going to be erected at Cameron Iron Works when the machine was installed, and that the nip point would be guarded by location since no one was supposed to be measuring the nip point while the machine was in actual operation anyway. No evidence of this fact was brought out in the trial of the Kutra case, but a stipulation as to this fact was entered into by the plaintiff Kutra, Travelers and American Home, over the objection of Mike Connelly, attorney for Argonaut and Pettibone Corporation. This stipulation was made after the close of the evidence out of the presence of the jury.

Travelers and American Home made it clear to Argonaut that they would seek to require Argonaut (and any excess coverage carrier) to reimburse them for a portion of the sum paid in settling the Kutra lawsuit. As a result, Argonaut brought this declaratory judgment suit, and asks the Court to rule that the liability insurance coverage provided by Argonaut and Zurich to Pettibone excludes the Beardsley & Piper Division and the Kutra claim and lawsuit, and that Argonaut and Zurich are not required to make any contribution to Travelers or American Home for the settlement made in the Kutra lawsuit. After having considered the stipulated facts, written record and briefs of counsel, the Court is of the opinion that the liability insurance policies issued by Argonaut and Zurich to the Pettibone Corporation did in fact exclude coverage of the Beardsley & Piper Division and the Kutra claim and lawsuit. For the reasons set out below, the Court concludes as a matter of law that Argonaut and Zurich are not required to make any contribution to Travelers or American Home for the settlement of the Kutra lawsuit.

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