BP Oil Co. v. Federated Mut. Ins. Co., Inc.

• Decision Date: 05 June 1997
• Docket Number: No. 2786,2786
• Citation: BP Oil Co. v. Federated Mut. Ins. Co., Inc., 496 S.E.2d 35, 329 S.C. 631 (S.C. App. 1997)
• Court: South Carolina Court of Appeals
• Parties: BP OIL COMPANY, a Division of BP Exploration & Oil, Inc., Appellant, v. FEDERATED MUTUAL INSURANCE COMPANY, INC., Respondent, and Wilkerson Fuel Company, Appellant/Respondent. . Heard

Page 35

496 S.E.2d 35

329 S.C. 631

BP OIL COMPANY, a Division of BP Exploration & Oil, Inc., Appellant, v.FEDERATED MUTUAL INSURANCE COMPANY, INC., Respondent and Wilkerson Fuel Company, Appellant/Respondent.

No. 2786.

Court of Appeals of South Carolina.

Heard June 5, 1997.

Decided Jan. 26, 1998.

Ronald G. Tate, Jr., of Gibbes, Gallivan, White & Boyd, Greenville, for appellant.

David A. White and Brian S. McCoy, both of Robinson, Bradshaw & Hinson, Rock Hill, for appellant/respondent.

H. Carlisle Bean, of Bean & Bean, Spartanburg, for respondent.

STILWELL, Judge:

Seeking to recover expenses incurred in defending an underlying tort action, BP Oil Company(BP) filed this suit against its distributor, Wilkerson Fuel Company, Inc.(Wilkerson), and Wilkerson's insurance carrier, Federated Mutual Insurance Company(Federated).BP sought indemnity from Wilkerson arising out of indemnity provisions contained in agreements between the two.BP, an additional insured under a liability policy issued to Wilkerson, also sought damages from Federated resulting from Federated's refusal to defend BP in the underlying action.Wilkerson cross-claimed against Federated, seeking reimbursement for its expenses in defending the present action.The trial court determined that Federated's refusal to defend was proper and that BP was not entitled to indemnity from Wilkerson.The court also granted judgment for Federated on Wilkerson's cross-claim.BP and Wilkerson appeal.We affirm in part and reverse in part.

Relationships between the Parties

BP is an oil company that sells branded petroleum products through distributors known as "jobbers."Jobbers, in turn, sell petroleum products to retail outlets such as convenience stores and service stations.Wilkerson is one such jobber, distributing BP petroleum products in South Carolina pursuant to a "Branded Jobber Agreement"(Jobber Agreement).Wilkerson did not sell alcoholic beverages.Wilkerson sold fuel products and leased a BP sign and credit card imprinter ¹ to a convenience store, Nivens Handy Mart(Nivens).Through its arrangement with Wilkerson, Nivens sold BP-brand fuel products.At the time in question, Federated was the insurance carrier for Wilkerson, the named insured on a general liability policy (the policy).An endorsement to the policy named Gulf Oil Co., BP's predecessor in interest, as an additional insured.

Facts

On April 13, 1989, Jeffrey Joyce, a minor, purchased beer from Nivens using his father's BP credit card.Later that evening, Joyce lost control of the automobile he was driving and struck a tree, killing Robert F. Ferguson, a passenger in the car.

Ferguson's personal representative commenced a wrongful death and survival action (the Ferguson action) against several defendants, including Nivens and BP.The Ferguson complaint alleged that Nivens was acting within the scope of its authority as an agent of BP when it illegally sold alcohol to a minor.The complaint also alleged that (1) BP's failure to properly supervise and instruct its "agents, employees and servants" concerning the sale of alcohol to minors and (2) its "permitting its agents to sell alcohol by use of a credit card by BP, when it knew or should have known that minors would use a credit card for purchases of alcoholic beverages" caused the damages at issue.

BP demanded that Wilkerson defend and indemnify it in the tort action pursuant to the terms of the agreements between the two.Wilkerson subsequently placed Federated on notice of the action and requested that Federated provide a defense.Federated denied coverage and declined to defend BP, however, claiming the following exclusion in the policy relieved it of the duty to defend:

This insurance does not apply to "bodily injury" or "property damage" for which any insured may be liable by reason of:

(1) causing or contributing to the intoxication of any person (2) the furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

BP retained counsel and defended the Ferguson action.After three days of trial in October 1991, BP was granted a directed verdict and dismissed from the case.

In November 1993, BP brought the present action against Wilkerson and Federated to recover approximately $44,000 in litigation expenses incurred in defending the previous lawsuit.Mark Katz, Federated's claims supervisor, testified by deposition that when it decided the exclusion applied, Federated considered it irrelevant whether or not BP sold alcohol, because the word "you" in the exclusion refers to the named insured, and Federated believed Wilkerson sold alcohol to other stores not involved in the Ferguson action.²Katz stated that Federated did not investigate to determine whether Wilkerson did in fact sell alcohol, and admitted that BP informed him that neither BP nor Wilkerson had anything to do with the alcohol that Nivens sold.

Against Wilkerson, BP claimed that Wilkerson breached the Jobber and Imprinter Agreements by failing to indemnify BP for the underlying losses.The indemnity provision in the Jobber Agreement provides as follows:

[Wilkerson] agrees to indemnify and hold [BP] harmless from and against all expense, liability and claims directly or indirectly resulting from or connected with any accident or anything whatever occurring from any cause in connection with the operation or conduct of [Wilkerson's] business except such as may be due to the sole negligence of [BP]

The indemnity provision in the Imprinter Agreement provides as follows:

[Wilkerson] shall indemnify and save [BP] harmless from and against any and all liabilities for loss, damage, injury, or other casualty to persons or property resulting directly or indirectly from the use, existence, or location of the Imprinters....

Wilkerson cross-claimed against Federated, claiming that Federated's refusal to defend and/or pay BP's present claim against Wilkerson was a breach of contract entitling Wilkerson to all expenses incurred in the present action, including any damages Wilkerson may have to pay BP.

This case was tried to the court without a jury.The trial court concluded that Federated had no duty to defend the Ferguson action because the allegations of the Ferguson complaint contend that Nivens was an agent of BP when it sold the alcohol to the minors.The trial court likewise granted judgment for Federated in Wilkerson's cross-claim, stating that the rationale for finding Federated had no duty to defend applied equally to Wilkerson's cross-claim.Finally, concerning BP's claim against Wilkerson, the trial court entered judgment for Wilkerson, concluding Wilkerson did not breach the indemnity provisions in the Jobber and Imprinter Agreements.Both BP and Wilkerson appealed and the appeals were consolidated, with BP designated as the primary appellant.

BP's Appeal

I.

BP contends that Federated had a duty to defend it in the Ferguson action because there was no evidence that BP was in the business of selling alcoholic beverages, and the trial court therefore erred in applying the alcohol exclusion contained in the policy.We disagree.³

An insurer's duty to defend is separate and distinct from its obligation to pay a judgment rendered against an insured.Federated Mut. Ins. Co. v. Piedmont Petroleum Corp., 314 S.C. 393, 444 S.E.2d 532(Ct.App.1994).If the facts alleged in a complaint against an insured fail to bring a claim within the policy coverage, an insurer has no duty to defend.Gordon-Gallup Realtors, Inc. v. Cincinnati Ins. Co., 274 S.C. 468, 265 S.E.2d 38(1980);Federated, 314 S.C. 393, 444 S.E.2d 532.An insurer has no duty to defend where the damage alleged was caused by a reason unambiguously excluded by the policy.Id.

Here, the Ferguson complaint alleged that Nivens's sale of alcohol to Joyce and Ferguson occurred within the scope of Nivens's authority as BP's agent.This allegation amounted to an allegation that BP was in the business of selling alcohol.Therefore, for the purpose of determining Federated's duty to defend BP, the alcohol exclusion was triggered.Because the Ferguson complaint further alleged that Joyce and Ferguson were minors at the time of the sale, the trial court correctly determined that the damage the complaint alleged was caused by a reason unambiguously excluded by the policy and Federated had no duty to defend BP in the Ferguson action.

BP argues that even if the complaint, when viewed in isolation, imposes upon Federated no duty to defend, there was no evidence supporting the allegation that it was in the business of selling alcohol.We reject this argument.

Although the determination of an insurer's duty to defend is based upon the allegations in a complaint, BP correctly notes that, in some jurisdictions, the duty to defend will be measured by facts outside of the complaint that are known by the insurer.7C John A. Appleman, Insurance Law and Practice§ 4684.01 (Supp. 96-97);e.g., Mapes Indus. v. United States Fidelity & Guar. Co., 252 Neb. 154, 560 N.W.2d 814(1997);Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 571 N.Y.S.2d 672, 575 N.E.2d 90(1991);C.T. Drechsler, Annotation, Allegations in Third Person's Action Against Insured as Determining Liability Insurer's Duty to Defend, 50 A.L.R.2d 458, 465(1956).Nowhere in its brief, however, does BP argue Federated had actual knowledge of the facts in issue.Rather, BP argues only that Federated "never considered or analyzed the allegations of the complaint against BP in handling the claim."We therefore need not decide how the result of BP's appeal might have been different had Federated had actual knowledge that the relevant allegations in...