Cosmopolitan Mutual Insurance Company v. White

• Decision Date: 05 January 1972
• Docket Number: Civ. A. No. 3887.
• Parties: COSMOPOLITAN MUTUAL INSURANCE COMPANY, a corporation of the State of New York, Plaintiff, v. John H. WHITE et al., Defendants, v. S. & E. McCORMICK, INC., a corporation of the State of Delaware, Defendant on Counterclaim.
• Court: U.S. District Court — District of Delaware

336 F. Supp. 92

COSMOPOLITAN MUTUAL INSURANCE COMPANY, a corporation of the State of New York, Plaintiff, v. John H. WHITE et al., Defendants, v. S. & E. McCORMICK, INC., a corporation of the State of Delaware, Defendant on Counterclaim.

Civ. A. No. 3887.

United States District Court, D. Delaware.

January 5, 1972.

COPYRIGHT MATERIAL OMITTED

F. Alton Tybout, and Richard W. Pell, of Tybout, Redfearn & Schnee, Wilmington, Del., for plaintiff and defendant on counterclaim.

Arthur G. Connolly, Jr., of Connolly, Bove & Lodge, Wilmington, Del., Joseph H. Flanzer, Emmett J. Conte, Jr., James J. Horgan, John Biggs, III, and A. James Gallo, Wilmington, Del., of counsel, for defendants.

OPINION

CALEB M. WRIGHT, Chief Judge.

The instant action is a declaratory judgment action in which the parties are seeking to have their respective rights and obligations in a certain contract of insurance adjudicated. Commenced originally by the plaintiff, Cosmopolitan Mutual Insurance Company (Cosmopolitan) in the Delaware Superior Court against the eleven individual defendants,¹ the action was subsequently removed to this Court pursuant to the defendants' petition under 28 U.S.C. § 1441. After removal, the defendants filed a counterclaim for a declaratory judgment against the plaintiff and S. & E. McCormick, Inc. (McCormick) which was joined as defendant on the counterclaim.

In essence, the issue before the Court is whether Cosmopolitan and McCormick, either jointly or individually, have a potential liability to any or all of the defendants as a result of an accident which occurred in New Castle County, Delaware, on November 3, 1966, when a tractor and trailer owned by one defendant, John H. White (White), and driven by another defendant, Isaac Desmuke (Desmuke), struck an automobile in which several of the other individual defendants were traveling. The nine individual defendants excluding White and Desmuke are plaintiffs in a Superior Court action commenced against White and Desmuke for personal injuries and wrongful death claims arising out of the November 3rd collision.² The Superior Court case against White and Desmuke has been stayed pending the Court's determination herein since the nine plaintiffs in the state court action acknowledge that unless Cosmopolitan or McCormick is ultimately liable for a judgment in that suit further action in that litigation would be fruitless.

McCormick is a Delaware corporation engaged in the transportation of special commodities in interstate and intrastate commerce by motor vehicle under authority from the Interstate Commerce Commission (ICC) MC #19569 and from the State of Pennsylvania for intrastate commerce under certificate # A7456.

Cosmopolitan was the liability insurance carrier for McCormick at the time of the accident.

Cosmopolitan and McCormick (hereafter also referred to as "the plaintiffs") have requested a declaratory judgment that they can have no potential liability for any judgment which might be rendered against White or Desmuke in the state action or for any judgment which might be rendered in favor of any defendant in this action as a result of the November 3rd accident.

On July 27, 1966, White's tractor had been leased to McCormick under a leasing agreement which complied with the requirements of the ICC regulations regarding the leasing of vehicles to be employed in interstate commerce. The lease was the standard ICC 30 day or more trip lease which would remain in effect until terminated by either lessor or lessee.³ During the term of the lease, McCormick was to have exclusive possession, control, and use of the tractor and contracted to assume "full responsibility in respect to the equipment it is operating, to the public, the shippers and the INTERSTATE COMMERCE COMMISSION".⁴ In addition, White agreed to display McCormick's ICC placard on his tractor, and to "surrender full control, possession, and management of said equipment to the lessee during the terms of this lease. . . ."⁵

The plaintiffs contend that the lease had been terminated effective November 1, 1966 as a result of a letter sent from McCormick to White on October 27, 1966 (Joint Exhibit 4), and that on November 3, 1966, Desmuke was operating the tractor on his own and White's behalf. Since the lease was no longer in effect, the plaintiffs argue that they have no obligation under ICC regulations for any judgment rendered as a result of the November 3rd accident. Even assuming that the lease remained in effect on the date of the accident, the plaintiffs assert that Desmuke was "on a detour and frolic of his own, and was in no way engaged in any activity on behalf of McCormick" (Plaintiffs' Brief, p. 31), and therefore, McCormick would not be liable under the appropriate respondeat superior doctrine. The plaintiffs further contend that even if McCormick could have been found liable initially, since McCormick was not joined prior to the running of the statute of limitations, no judgment may now be rendered against McCormick.

Cosmopolitan maintains that under its insurance contract, it had only insured McCormick and is liable only for a final judgment rendered against McCormick. Since no such judgment may be so rendered, Cosmopolitan asserts that it has no obligation to pay any monies for a judgment arising from the November 3rd accident.

The defendants counter these contentions with several claims in an attempt to establish a prospective right to require both McCormick and Cosmopolitan to pay any judgment rendered in the previously mentioned state court suit against White and Desmuke. Initially, they dispute that the McCormick-White lease of the tractor had been effectively cancelled, and argue that since the lease was in effect, ICC regulations mandate that McCormick is liable for any judgment arising from the negligence of Desmuke in driving the vehicle. Next, they assert that a judgment may still be rendered against McCormick in spite of the running of the statute of limitations on two grounds: 1. McCormick was in privity with White and Desmuke and a judgment against them binds it, and 2. the insurance contract in issue is an indemnity contract in which McCormick and Cosmopolitan agreed to indemnify White and Desmuke and the statute of limitations will not commence to run on this claim against the plaintiffs until after a judgment is rendered against White and Desmuke.

Although both plaintiffs and defendants have frequently discussed the obligations of McCormick and Cosmopolitan as though they are identical, the responsibilities and potential liabilities of each plaintiff vary and must be distinguished where they do not coincide.

The Court is of the opinion that on November 3rd the lease agreement between White and McCormick was in effect. Since McCormick had failed to comply with certain ICC regulations regarding termination of leasing contracts, the letter of October 27, 1966 was ineffectual by itself to relieve McCormick of its statutory obligations as interstate motor carriers.⁶ ICC regulations enumerate several requirements imposed upon its licensed carriers in entering into and terminating leasing arrangements to augment their vehicular equipment. The authorized carrier must give the owner of the leased equipment a receipt for it when the carrier assumes control, and must obtain a receipt from the owner when possession ends. 49 C.F.R. Ch. X, I.C.C., § 1057.4(b). The leasing agreement constitutes White's receipt acknowledging McCormick's exclusive possession. McCormick, however, obtained no such receipt from White prior to the November 3rd accident. In addition, the ICC regulations require that during the term of any lease of equipment, the authorized carrier must properly identify the vehicle by displaying thereon its trade name and ICC number, and that at the termination of the lease this identification shall be removed. 49 C.F.R. §§ 1057.4(d) and (d) (1), 1058.1 and 1058.2. The McCormick ICC placard had been so displayed on White's tractor. However, it was not removed on November 1, 1966 and remained on the tractor when it was involved in the November 3rd accident.

Obtaining a receipt for the return of the vehicle and removing the ICC placard are prerequisites to termination of an ICC lease. Mellon National Bank & Trust Co. v. Sophie Lines, Inc., 289 F.2d 473 (3rd Cir. 1961). In Mellon, a tractor owned by the defendant, Sophie Lines, Inc. (Sophie), was involved in an accident when it was leased to the defendant, Turner Transfer, Inc., (Turner), an authorized ICC carrier, under a 30 day or more ICC lease. At the time of the accident, the Turner ICC placard was displayed on the tractor. Turner argued that Sophie's driver was carrying a load for another company without its approval in violation of the terms of the lease, and therefore, the jury must decide whether it was responsible for the driver's negligence. The court held that the Turner lease was in effect and under the lease, Turner had exclusive control of the vehicle and was liable, as a matter of law, for the accident. Regarding the question of the ICC lease and the proper method of termination, the Court said:

The truck at the time was under a properly I.C.C. authorized lease to Turner with the latter assuming full responsibility for its operation to the public, the shippers and the I.C.C. Turner could have effectually eliminated its responsibility for the truck's use in only one way i. e. (1) removing `. . . any legend showing it as the operating carrier, displayed on such equipment and . . . any removable device showing it as the operating carrier, before relinquishing possession of the equipment.' (Section 207.4(d) (1)); and (2) obtaining the receipt called for by 207.4(7) (b) which latter reads: `. . . when the possession by the authorized carrier ends, it or its employee or agent shall obtain from the owner of the equipment, or its regular employee or agent duly authorized to act for it, a receipt specifically

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