Bankers & Shippers Ins. Co. of New York v. Watson

• Decision Date: 23 April 1976
• Docket Number: Nos. 750642,750694,s. 750642
• Court: Virginia Supreme Court
• Parties: BANKERS & SHIPPERS INSURANCE COMPANY OF NEW YORK v. Garlon M. WATSON et al. UNITED STATES FIRE INSURANCE COMPANY v. BANKERS & SHIPPERS INSURANCE COMPANY OF NEW YORK et al. Record

Page 312

224 S.E.2d 312

216 Va. 807

BANKERS & SHIPPERS INSURANCE COMPANY OF NEW YORK v. Garlon M. WATSON et al.

UNITED STATES FIRE INSURANCE COMPANY v. BANKERS & SHIPPERS INSURANCE COMPANY OF NEW YORK et al.

Record Nos. 750642, 750694.

Supreme Court of Virginia.

April 23, 1976.

Donnell P. Davis, Virginia Beach (Furniss, Davis & Sachs, Virginia Beach, on brief), for plaintiff in error Bankers & Shippers Ins. Co. of New York.

Rodham T. Delk, Jr., Smithfield, Robert E. Gillette, Suffolk (Rodham T. Delk, Delk & Barlow, Smithfield, on brief), for defendants in error Watson et al.

James A. Howard and J. Carroll Fears, Jr., Norfolk, for Lumbermens Mut. Cas. Co. and Criterion Ins. Co.

No briefs filed or oral arguments on behalf of Stanley G. Lowe, Administrator; Evelyn C. Carr, Administratrix; Bonney Motor Express, Inc., defendants in error.

Rodham T. Delk, Jr., Smithfield (Rodham T. Delk, Delk & Barlow, Smithfield, on brief), for plaintiff in error U.S. Fire Ins. Co.

Robert E. Gillette, Suffolk, Donnell P. Davis, Virginia Beach (Furniss, Davis & Sachs, Virginia Beach, on brief), for defendants in error Bankers & Shippers Ins. Co. of New York.

Before I'ANSON, C.J., and CARRICO, HARRISON, COCHRAN, HARMAN, POFF and COMPTON, JJ.

I'ANSON, Chief Justice.

This declaratory judgment proceeding was brought by Bankers & Shippers Insurance Company of New York (Bankers & Shippers) to determine its potential liability for wrongful death claims arising out of a collision between a tractor-trailer unit and an automobile in which Julian Russell Carr and Floyd Michael Carr were killed. Although both tractor and trailer were owned by George M. Watson, trading as Windsor Granary (Watson), the tractor had been leased to Bonney Motor Express, Inc. (Bonney) and was covered by a 'gross receipts' policy issued to Bonney by Bankers & Shippers. The trailer was covered in a fleet policy issued to Watson by United States Fire Insurance Company (U.S. Fire). ¹ At the time of the accident, the tractor-trailer unit was driven by William Banks, Jr., an employee of Watson, with Watson's permission.

Through various pleadings U.S. Fire, Watson, Banks, the personal representatives of the decedents, and Lumbermens Mutual Casualty Company and Criterion Insurance Company, uninsured motorist carriers for the decedents, were made parties to the action. They also asked that their rights and liabilities be determined.

After hearing evidence, the trial court held Bankers & Shippers liable under its policy covering the tractor, and held U.S. Fire equally liable under its policy covering the trailer.

The evidence shows that Watson leased the tractor to Bonney by written agreement on October 16, 1972. Under that contract, and the separate lease agreement filed with the State Corporation Commission as required by Code § 56--287.2, it was agreed, Inter alia, that the lease could be cancelled by either party 'upon thirty (30) days' notice in writing to the State Corporation Commission;' that the leased vehicle 'shall be operated by and under the complete control of the lessee, and no other, for the period of the lease, and for all purposes of insurance, regulation, taxes or otherwise considered as the vehicle . . . of the lessee;' that the lessor had the duty to maintain the vehicle in good repair; and that if the lessor failed to maintain the vehicle, the lease could be cancelled 'forthwith' by lessee. Bonney also filed documents with the Interstate Commerce Commission whch provided that Bonney would be responsible for the operation of the tractor and would abide by all ICC regulations for the duration of the lease.

Bonney affixed its name and permit numbers issued by the SCC and the ICC to the tractor and used the vehicle in its business until February 3, 1973. On that date, however, Watson reclaimed the tractor because he could not furnish Bonney a qualified driver, as required by the lease, and because he considered the lease financially unprofitable. Although the tractor was not used by Bonney after February 3, 1973, it continued to bear Bonney's advertising decals, as well as its SCC and ICC permit legends. When Watson used the tractor in his business, however, he covered Bonney's decals with removable placards reading: 'Windsor Granary, Windsor, Virginia.' Although the two businesses were geographically separated only by a vacant lot and Bonney's agents knew that Watson was using the tractor, Bonney did nothing to cancel the lease until long after the accident. The day prior to the accident, Michael J. Glenn, Bonney's vice president, talked with Watson about putting the vehicle back into use under the lease.

On the morning of March 9, 1973, Watson directed Banks to drive the tractor, with the Fruehauf trailer attached, to Franklin, Virginia, to have the tractor's tires balanced and the front end adjusted. Banks was further instructed that, if time permitted after the repairs, he was to proceed to Sedley, Virginia, to pick up a load of corn for Watson's granary. The fatal accident occurred while Banks was en route to Franklin for the repairs.

In its policy with Bonney, Bankers & Shippers undertook to insure 'all equipment owned and/or operated by (Bonney),' and to cover liability for bodily injury and property damage incurred by the 'insured.' Under the policy's Receipts Basis Truckmen endorsement, 'insured' is defined as follows:

'. . . the unqualified word 'insured' includes the named insured and also includes any person while using an owned automobile or a hired automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with his permission. The insurance with respect to any person or organization other than the named insured does not apply:

(a) except with respect to an employee of the named insured, to any person or organization, or to any agent or employee thereof, engaged in the business of transporting property by automobile for the named insured or for others (1) unless the accident occurs while such automobile is being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority, . . .

provided, however, a driver or other person furnished to the named insured with an automobile hired by the named insured shall not be deemed an employee of the named insured. . . .'

Bankers & Shippers maintains that it cannot be held liable for the March 9, 1973 accident in that neither Watson nor Banks was an 'insured' as defined in its policy with Bonney. This contention is based upon the argument that at the time of the accident, the tractor, although leased to Bonney, was not being used 'exclusively in the business of the named insured.' Rather, thr tractor had been used exclusively by Watson in the conduct of his granary business since February 3, 1973. We do not agree with this contention.

The lease agreement between Bonney and Watson, as required by regulations of the State Corporation Commission, provided that the truck was to be considered the vehicle of the lessee 'for all purposes of insurance, regulation, taxes or otherwise,' during the period of the lease. Although Watson resumed the use of the tractor, at the time of the accident the lease had not been terminated by the required thirty days' notice to the State Corporation Commission. Additionally, the lease agreement was subject to the regulations of the Interstate Commerce Commission, which required for its termination the removal of interstate permit numbers and the giving of a receipt by the owner showing that the tractor has been returned to him. 49 C.F.R. §§ 1057.4(b) and 1057.5(d)(1). The failure to comply with these regulations, as a matter of law, prevents cancellation of the lease and an avoidance of liability on the part of the lessee. Mellon National Bank &amp Trust Co. v. Sophie Lines, Inc., 289 F.2d 473 (3rd Cir. 1961); Cosmopolitan Mutual Ins. Co. v. White, 336 F.Supp. 92 (D.Del.1972).

Since Bonney failed to comply with the applicable state and federal regulations, we find that its lease with Watson was in full force and effect on the date of the accident. Hence, as a matter of law, Bonney is to be considered as the owner of the tractor and in full control of it on that date.

Under the Bankers & Shippers policy, and person or organization using the truck with Bonney's permission is an 'insured' under the policy's omnibus clause. See Code §§ 38.1--381(a) and (a2). Although Watson had taken possession of the tractor prior to the accident and had used it in his granary business, his use was with the knowledge and acquiescence of Bonney's agents, who did nothing to cancel the lease. Moreover, the primary purpose of Watson's use of the tractor on the date of the accident was to maintain it in good repair, a duty specifically imposed upon him by the lease agreement. Thus, through Bonney's acquiescence and because of the duties imposed upon Watson by the lease, Watson's use of the tractor at the time of the accident was with the permission of Bonney, the named insured. See Aetna Casualty & Surety Ins. Co. v. Anderson, 200 Va. 385, 390--91, 105 S.E.2d 869, 873--74 (1958); Hinton v. Indemnity Ins. Co., 175 Va. 205, 213--14, 8 S.E.2d 279, 283 (1940).

We hold, therefore, that both Watson and Banks were 'insureds' under the omnibus clause of the Bankers & Shippers policy issued to Bonney, and that its policy of insurance provided coverage for the claims arising out of the March 9, 1973 accident.

U.S. Fire contends that exclusion (c) in its policy issued to cover the Fruehauf trailer owned by Watson exempts it from liability for the claims arising out of the March 9th accident. Exclusion (c) provides:

'This policy shall not apply: . . . under coverages (a) and (b), while the automobile is used for the towing of any trailer owned or hired by the insured and not covered by like insurance in the company;...