City of Spencer for Use and Benefit of Spencer Municipal Utilities v. Hawkeye Sec. Ins. Co., 56313

• Decision Date: 27 March 1974
• Docket Number: No. 56313,56313
• Citation: 216 N.W.2d 406
• Parties: CITY OF SPENCER, Iowa, for the Use and Benefit of SPENCER MUNICIPAL UTILITIES, Appellant, v. HAWKEYE SECURITY INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 406

216 N.W.2d 406

CITY OF SPENCER, Iowa, for the Use and Benefit of SPENCER MUNICIPAL UTILITIES, Appellant, v. HAWKEYE SECURITY INSURANCE COMPANY, Appellee.

No. 56313.

Supreme Court of Iowa.

March 27, 1974.

Rehearing Denied April 18, 1974.

Smith & Grigg, Primghar, and Miller, Miller & Miller, Cherokee, for appellant.

Hamilton, Connell, Redenbaugh & Duffy, Storm Lake, for appellee.

Heard before MOORE, C.J., and MASON, LeGRAND, UHLENHOPP and REYNOLDSON, JJ.

REYNOLDSON, Justice.

Defendant Hawkeye Security Insurance Company (Hawkeye) issued its commercial multi-cover (including general liability and automobile liability insurance) policy to Spencer Municipal Utilities (Utilities) on July 24, 1968.

November 20, 1968, two persons working for Utilities, Roberts and Mead, were operating a boom truck assisting in decorating the town for the Christmas season. Through their conceded negligence, the truck, licensed to Utilities, came into contact with a cable extending across the street. The cable was attached to a building cornice, which was pulled off. It fell on and severely injured Jones, an employee of the City of Spencer.

Jones sued Utilities, Roberts, Mead, and others. Counsel employed by Hawkeye filed a special appearance for Utilities which was sustained. The same counsel first appeared for Roberts and Mead under a reservation of rights, claiming the insurance contract provided no coverage as to them. Later this counsel withdrew his appearance and answer. Utilities then retained counsel for the defense of Roberts and Mead and the cause proceeded to trial.

In the course of trial Utilities agreed to pay Jones $88,000 and pay the court costs as consideration for a covenant not to proceed further against Roberts and Mead. It is conceded this was a reasonable sum. Jones' lower left leg had been amputated and his medical expenses, future medical expenses and loss of earnings totaled $16,627.91 at trial date.

Before the above sum was paid Utilities made a complete disclosure and demanded that Hawkeye pay the negotiated sums. Hawkeye refused, and Utilities paid the agreed amounts.

Utilities then brought suit against Hawkeye on its policy for the sums paid and attorney fees incurred. Hawkeye filed a motion to dismiss on the ground Utilities lacked statutory authority to sue or be sued, which motion was sustained. This action (grounded on the policy) was then filed, plaintiff being 'City of Spencer, Iowa, for the Use and Benefit of Spencer Municipal Utilities.'

Hawkeye, answering, denied § 613A.7 authorized Utilities to acquire the insurance, and alleged Jones, Mead and Roberts were all employees of the City of Spencer, Jones was paid workmen's compensation and its policy precludes coverage in instances of injury to fellow employees where the claim is covered by workmen's compensation. Further answering, Hawkeye alleged Utilities was a non-suable entity, § 613A.8, The Code, is not applicable to it, the payments made by Utilities were voluntary 'under the terms of the insurance policy' and no liability existed for the payment of the amounts under § 613A.8, The Code.

Responding to a request for admissions, Hawkeye conceded it declined to defend the action filed by Jones against Roberts and Mead because it concluded no coverage was afforded under its policy.

Trial court held Jones, Mead and Roberts were fellow employees, coverage for Jones would thus be excluded under the policy, and Utilities' payment was merely voluntary and without authority.

Appealing, the City on behalf of Utilities contends Jones was not a fellow employee of Mead and Roberts and his claim does not fall within the fellow-employee exclusion of the policy; that Utilities was legally obligated to defend and save harmless its employees under the provisions of § 613A.8, the Code.

I. Scope of Review

Where the facts are not in material dispute, interpretation placed thereon by trial court becomes a question of law which is not conclusive on appeal. Hull-Dobbs Motor Co. v. Associates Discount Corp., 241 Iowa 1365, 44 N.W.2d 403 (1950). The facts in this law action are not disputed. For that reason and because no conflicting inferences may be drawn from the facts, we may interfere in the judgment entered below. Frantz v. Knights of Columbus, 205 N.W.2d 705, 708 (Iowa 1973); Beneficial Finance Company of Waterloo v. Lamos, 179 N.W.2d 573, 578 (Iowa 1970); Alsco Iowa, Inc. v. Jackson, 254 Iowa 837, 840, 118 N.W.2d 565, 567 (1962).

II. Was Jones a fellow employee of Roberts and Mead within the meaning of the fellow-employee exclusion of Hawkeye's policy?

Hawkeye's policy designed the 'named' insured' as 'Spencer Municipal Utilities, 712 N. Grand Avenue, Spencer, Iowa 51301.' Premium notices were billed to Utilities. An exclusion under the comprehensive general liability section provides the insurance shall not apply '* * * to bodily injury to an employee of the insured arising out of and in the course of his employment by the insured * * *.' For an additional premium a separate endorsement entitled 'ADDITIONAL INSURED (Employees)' amended the 'Persons Insured' provision of the policy 'to include any employee of the Named insured.' However the endorsement carried a similar exclusion with respect 'to bodily injury to * * * another employee of the Named insured arising out of or in the course of his employment * * *.' (Emphasis appears in the policy.)

Almost identical exclusions are found in the comprehensive automobile liability provisions of the policy.

Under the issues drawn in this litigation, and our applicable rules, we must first determine whether Jones was 'another employee of the Named insured.' If he was, then clearly Hawkeye had no obligation to pay any amount because of his injury.

We first turn to an interpretation of the contract to discover what the parties intended by the above-quoted language. We are permitted to consider evidence of the surrounding circumstances, the situation of the parties, and the objects they were striving to attain. Hamilton v. Wosepka, 261 Iowa 299, 305--314, 154 N.W.2d 164, 167--172 (1967).

Where insurance contracts require interpretation, the courts will adopt the construction most favorable to the insured. Rich v. Dyna Technology, Inc., 204 N.W.2d 867, 872 (Iowa 1973). Such contracts should be interpreted from the viewpoint of an ordinary person, not a specialist or expert. Qualls v. Farm Bureau Mutual Insurance Company, 184 N.W.2d 710, 712 (Iowa 1971); Bates v. United Security Insurance Company, 163 N.W.2d 390, 397 (Iowa 1968).

It is conceded the management and control of public utilities in Spencer were placed in the hands of a board of trustees by a 1942 election. See §§ 6144 through 6149, The Code, 1939 (now §§ 397.29 through 397.34, The Code, 1973). By statute this board is given all the power and authority conferred on waterworks trustees. Section 6149, The Code, 1939 (§ 397.34, The Code, 1973). Thus the trustees had the power 'to employ a superintendent and such other employees as may be necessary and proper for the * * * conduct of the business * * *.' Section 6158, The Code, 1939 (§ 398.9, The Code, 1973). At all times pertinent to this litigation the board was empowered to grant 'its employees' civil service rights. Section 398.13, The Code.

While Utilities' revenues are deposited with the city treasurer, these funds are separate and distinct and may be paid out 'only on the written order of the board * * * who shall have full and absolute control of the application and disbursement thereof for the purposes prescribed by law * * *.' Section 6158, The Code, 1939 (§ 398.9, The Code, 1973).

The record discloses without controversy Mead and Roberts were hired as linemen by Utilities' manager, who directed their work. They were paid by warrants drawn on Utilities' funds. Utilities had its own employer's identification number and filed its own separate quarterly employer's tax returns and separate quarterly returns to the Iowa Public Employees' Retirement System. It had its own insurance program. On November 20, 1968 Utilities' workmen's compensation insurance was carried by Employers Mutual Casualty Company.

Jones was hired by the City, worked in the street department, and was paid by a warrant drawn on City funds. The City of Spencer had its own separate employer's identification number and filed its own returns for income tax, social security and Iowa public employees' retirement purposes. The City had a separate insurance program and on November 20, 1968 it was insured for both liability and workmen's compensation under a combination policy issued by Continental Western Mutual Insurance Company. That company paid Jones' workmen's compensation claim.

These facts are uncontested. The relationship of Mead and Roberts to Utilities satisfies all those tests utilized to determine whether an employer-employee situation exists. See McClure v. Union et al., Counties, 188 N.W.2d 283, 285 (Iowa 1971). The relationship of Jones to Utilities satisfies none of those factors. Had Jones negligently injured a passer-by on the day of this accident, Hawkeye undoubtedly would have denied his liability was covered as an employee-insured under its policy, and rightly so.

The statutes cited above clearly show a legislative intent to create a separate employer in Utilities. See State v. Downing, 261 Iowa 965, 971, 155 N.W.2d 517, 521 (1968). It is plain Utilities and the City of Spencer comprised two separate, distinct employing units. Hawkeye sold insurance coverage to one such unit (Utilities) as its 'named insured.' This was amended to cover the employees of the named insured. In each critical instance Hawkeye's policy printed the words 'named insured' in darker print, as though to limit its coverage to Utilities, its employees, and none other.

Interpreting the policy under these circumstances, we hold the parties to the insuring contract intended to insure the liability of Utilities and its...