Bandy v. Avondale Shipyards, Inc.

Decision Date18 April 1972
Docket NumberNo. 71-2404.,71-2404.
Citation458 F.2d 900
PartiesWilliam J. BANDY, Plaintiff, v. AVONDALE SHIPYARDS, INC., Commercial Union Assurance Co., Ltd., Defendants. G. & T. CRANE SERVICE, INC., Defendant-Appellee, v. EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY OF WISCONSIN, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Wood Brown, III, Montgomery, Barnett, Brown & Read, New Orleans, La., for defendant-appellant.

James R. Pertuit, New Orleans, La., for defendant-appellee.

Before WISDOM, COLEMAN and SIMPSON, Circuit Judges.

WISDOM, Circuit Judge:

This appeal turns primarily on the construction of a "coverage" endorsement to an insurance policy. We must determine whether, under Louisiana law, the complaint filed by an injured plaintiff against an insured defendant, when viewed in light of the endorsement, requires the insurer to defend the suit. We must also determine whether the duty to defend the suit is altered by a ruling by the district court denying a motion for summary judgment filed by the insurer after the commencement of the litigation.

William J. Bandy, the plaintif below, sued Avondale Shipyards, Inc., Commercial Union Assurance Company Ltd., Avondale's insurer; G. & T. Crane Service, Inc., the appellee in this Court; and Employers Mutual Liability Insurance Company of Pennsylvania, G. & T.'s insurer and appellant in this Court, for injuries sustained during the unloading of certain heavy equipment components at Avondale Shipyards on March 27, 1969. Bandy, a truck driver employee of Walker Truck Lines, delivered the components to Avondale and was injured when the counterweight of a crane, owned and operated by employees of G. & T. Crane Service, pushed a piece of equipment onto Bandy during the unloading process. Avondale had hired G. & T. Crane Service to furnish a crane and crew for the unloading. There is no doubt that the injury occurred while the crane was being operated as a crane and not while it was being driven over the road. When Employers refused to defend Bandy's suit against G. & T., G. & T. filed a cross-claim against Employers, based on the insurance policy, for coverage and for Employers's refusal to defend.

On November 6, 1969, the district court denied Employers's previously filed motion for summary judgment asserting no coverage under the policy. The court assigned no reasons for denial of the motion. Bandy's claim was eventually settled out of court. Employers contributed $5000 to a settlement totalling $130,500. On June 17, 1971, the district court granted G. & T.'s motion for summary judgment on its cross-claim against Employers for default on Employers' duty to defend G. & T.1 This appeal by Employers followed.

Three interrelated but distinct issues are present in a tri-partite suit such as gave rise to the instant appeal. In the typical suit, an injured plaintiff sues an insured defendant and the defendant's insurer; the defendant insured implicitly or by cross-claim seeks to recover from the insurer under the policy. Three issues must be resolved: (1) Is the defendant insured liable to the injured plaintiff? (2) Is the accident, and the recovery if there is one, covered by the insurance policy issued by the insurer to the defendant insured? (3) Does the insurer owe to the defendant insured a duty to defend the suit by the injured plaintiff against the defendant insured?

The first issue—liability—is unrelated to the second issue—coverage. For instance, the injured plaintiff may recover in his suit against the insured defendant, but the liability of the insurer to pay the insured defendant under the policy will be determined only after the issue of coverage is resolved. Similarly, when the injured plaintiff fails in his suit against the insured defendant, coverage may or may not exist; the coverage issue is not reached because the defendant insured was not held liable. The issue of liability is, however, related to the third issue—the duty to defend. Under Louisiana law, the insurer's duty to defend a suit brought against its insured defendant is determined by the allegations of the injured plaintiff's complaint. The insurer is obligated to furnish a defense unless the allegations in the complaint, taken as true, "unambiguously exclude coverage." American Home Assurance Co. v. Szarniecki, 255 La. 251, 230 So.2d 253, 259 (1969); accord Benoit v. Fuselier, 195 So.2d 679 (La.App.1967); Smith v. Insurance Co. of Pennsylvania, 161 So.2d 903 (La.App.1964); C. A. Collins & Son v. Pope Bros. Steam Cleaning Co., 155 So.2d 278 (La. App.1963); Foreman v. Jordan, 131 So.2d 796 (La.App.1961); Kelly v. United States Fidelity & Guaranty Co., 76 So.2d 116 (La.App.1954). The "failure of an insurer to defend a suit as contemplated by the policy renders the insurer liable for all expenses incurred by an insured in defense of the action, including reasonable attorney's fees". Smith v. Insurance Co. of Pennsylvania, supra, 161 So.2d at 918. The insurer may, if it chooses, refuse to defend the suit, relying on its own assessment of the allegations in the complaint. It does so, however, at the risk of becoming liable to the insured for attorney's fees and expenses incurred by the insured in his defense in the event of an ultimate determination that the duty to defend was present. See Fontenot v. State Farm Mutual Insurance Co., 119 So.2d 588 (La.App.1960).

The issue of coverage is related to the duty to defend in that, as discussed above, the allegations in the initial complaint, unless they unambiguously exclude coverage, determine the duty to defend, thus necessitating a preliminary evaluation of coverage by the insurer or by the court in order to assess the duty to defend. The insurer may, of course, "deny coverage and preserve its options on that issue and yet furnish its insured with a defense thus fulfilling its duty to defend without subjecting itself to liability". Clemmons v. Zurich General Accident & Liability Insurance Co., 230 So.2d 887, 895 (La.App.1970); accord Breitenbach v. Green, 186 So.2d 712 (La.App.1966); Fontenot v. State Farm Mutual Insurance Co., 119 So.2d 588 (La.App.1960). "The duty of an insurer to defend its insured under a policy of liability insurance is of greater scope than the insurer's duty to pay." Smith v. Insurance Co. of Pennsylvania, supra, 161 So.2d at 918. Although it may ultimately be determined that coverage does not exist, the duty to defend nevertheless exists "if the allegations of the petition taken as true would result in liability which the insurer is obligated to discharge on behalf of the insured". 161 So.2d at 918.

We must, therefore, determine, if, in the present case, Bandy's (the injured plaintiff) allegations in his complaint filed in his suit against G. & T. (The insured defendant) and others "unambiguously excluded coverage" so as to relieve Employers (the insurer) of its duty to defend. Bandy's complaint alleges in pertinent part:

On or about March 26, 1969, petitioner drove onto the Avondale Shipyards, Inc. plant site at Avondale, La., for the purpose of delivering a truckload of heavy equipment to the defendant, Avondale Shipyards, Inc.
On March 27, 1969, the defendants, Avondale Shipyards, Inc. and G. & T. Crane Service Incorporated, were jointly engaged in the operation of unloading the heavy equipment above referred to.
During the unloading operation, the crane struck some steel framing located in the Avondale Shipyards, Inc. yard, causing the steel framing to move forward crushing your petitioner between it and a large unit of machinery.
The accident made the basis of this suit and the resulting injuries were caused solely by the joint negligence of the defendants, Avondale Shipyards, Inc. and G. & T. Crane Service Incorporated.

Taking these allegations as true, as we must for purposes of determining the duty to defend, the accident occurred during the unloading process and was caused by one of the G. & T. cranes.

The allegations, taken as true, described an accident excluded from coverage under the policy issued to G. & T. by Employers. The relevant portion of the policy is an endorsement dated February 12, 1969, providing:

It is agreed that any vehicle described below or designated in the policy as subject to this endorsement and any vehicle of the same type acquired during the policy period as a replacement thereof shall be deemed to be an automobile and not mobile equipment: but the insurance with respect to such vehicles as are further designated by ("Z") (or any replacement thereof) does not apply to bodily injury or property damage arising out of the operation of any machinery or apparatus attached to, mounted on or forming a part of such vehicle, whether such bodily injury or property damage occurs in the course of such operation or subsequent thereto.

The first clause of the endorsement (before the semicolon) serves to define certain vehicles as "autombiles" rather than "mobile equipment" for purposes of the general coverage portion of the policy. The vehicles so classified would be covered under the policy while traveling over the road while vehicles classified as "mobile equipment" would not. The second clause of the endorsement excludes those vehicles designated "Z" from coverage for injury caused by "any machinery or apparatus attached to, mounted on or forming a part of such vehicle".

Attached to the policy is a schedule listing several vehicles. The schedule lists six cranes; all of the cranes are listed as "Special Equipment", referring to the "Special Vehicle Coverage" endorsement. In addition, all of the cranes are designated by "Z", referring specifically to the second clause of the endorsement. As a result, no coverage is afforded for injury caused by these cranes while being operated as cranes because it is undisputed that the cranes, while being operated as opposed to transported, are covered by the description in the endorsement—"the...

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