Crum v. Anchor Casualty Company, 38648

• Decision Date: 04 January 1963
• Docket Number: No. 38648,38648
• Citation: 119 N.W.2d 703,264 Minn. 378
• Court: Minnesota Supreme Court
• Parties: Murl E. CRUM et al., Respondents, v. ANCHOR CASUALTY COMPANY, Appellant.

Page 703

119 N.W.2d 703

264 Minn. 378

Murl E. CRUM et al., Respondents, v. ANCHOR CASUALTY COMPANY, Appellant.

No. 38648.

Supreme Court of Minnesota.

Jan. 4, 1963.

Syllabus by the Court.

1. Absent knowledge to the contrary, an insurance company may initially refuse to defend an action brought against its insured on a complaint that fails to state a cause of action covered by the insurance.

2. Where a complaint fails to state a cause of action covered by an insurance policy but the insured informs the insurer that the true facts are inconsistent with the complaint or the insurer learns from an independent investigation that the true facts, if established, present a potential liability on the part of the insured, the insurer is under an obligation to defend until it appears that the facts upon which liability is predicated exclude the insurance coverage.

3. Where there is a doubt as to the obligation of an insurer to defend, the doubt should be resolved in favor of the insured.

Murnane, Murnane, Battis & DeLambert, St. Paul, for appellant.

R. E. Low, St. Paul, for respondents.

KNUTSON, Chief Justice.

This is an appeal from a summary judgment entered in favor of plaintiffs on the issue of liability. The present action was brought to recover attorney's fees, expenses, and an amount paid in settlement of a lawsuit which plaintiffs contend defendant was obligated to defend.

Prior to February 2, 1958, plaintiffs purchased from one William Heinsch certain real property used as an apartment house or roominghouse. While Heinsch was the owner, on January 14, 1956, defendant issued to him an owners', landlords', and tenants' liability policy covering the period from January 14, 1956, to January 14, 1959. When plaintiffs purchased the property from Heinsch, this liability policy was assigned to them and the assignment approved by defendant. There is no dispute that the policy was in force on February 2, 1958, and that plaintiffs were the insureds thereunder.

When plaintiffs purchased the property, one Inga Matheson was a tenant living in one of the apartments. On February 2, 1958, she sustained injuries when she fell down a stairway in the building. Thereafter she commenced an action against the Crums to recover damages due to their alleged negligence in maintaining the premises.

The policy contains the following exclusionary provisions:

'Exclusions

'This policy does not apply:

'(i) under Coverages A and D, to any obligation for which the insured or any carrier as his insurer may be held liable under any workmen's compensation, unemployment compensation or disability benefits law, or under any similar law;

'(j) under Coverage A, to bodily injury to or sickness, disease or death of any employee of the insured arising out of and in the course of his employment by the insured.'

Originally, Mrs. Matheson paid $60 rent for the apartment she occupied. After plaintiffs became the owners, they entered into an arrangement with Mrs. Matheson whereby her rent would be reduced--originally to $45 and later to $40 per month--in consideration of which she would keep the hallways clean, collect the rents, receive complaints, show apartments to prospective tenants, and rent apartments, making reports to Crum thereon. The original action commenced by Mrs. Matheson alleges that her injuries were the result of the negligence of the Crums in maintaining the premises. The complaint was forwarded to Anchor, and it undertook the defense of the action. Contrary to the contentions of the Crums, Anchor inserted as a defense the following paragraph:

'As a further defense, defendants allege that at the time and place of the accident alleged in plaintiff's complaint, the plaintiff herein was an employee of these answering defendants and was subject to the provisions of the Workmen's Compensation Law of Minnesota, M.S.A. 176 and by reason thereof, her exclusive remedy at law is as provided therein.'

There was no mention in Mrs. Matheson's complaint of any employment relationship between her and the Crums nor of the circumstances under which she was present on the premises at the time of her alleged injury.

On September 4, 1958, Anchor's counsel sent the Crums a letter advising them that the policy did not cover the accident because of exclusions (i) and (j) set forth above and that, since Mrs. Matheson had not alleged in her complaint that she was an employee of the Crums, Anchor was required to defend against her suit but 'that in the event that the evidence and testimony of this case discloses that Inga Matheson was an employee, that the Anchor Casualty Company will not be liable for any verdict or judgment which may be rendered against you and in her favor.'

The Crums' attorney replied to this letter on September 30, 1958, saying:

'In order that there might be no misunderstanding, the position of my clients in this matter is that exclusions 'I' and 'J' in the policy have no application. There is first a question that the plaintiff could be classed as an employee, and second, if she is so classed, then there is a question that the alleged injury arose out of and in the course of her employment.

'As mentioned in your letter, paragraph numbered 'V' of your answer pleads, as a defense, that the plaintiff's claim is covered by the Workmen's Compensation Act. Mr. and Mrs. Crum do not concur in the asserting of that defense in the action. I believe that under Condition 11 of the policy they would be precluded from asserting a position independent of the Insurance Company's in the pending action. Mr. and Mrs. Crum will not be bound by any result of your asserting of this defense which might be adverse to their personal interests.'

On December 29, 1958, depositions were taken from Mrs. Matheson and Mr. Crum. Counsel representing both Anchor and the Crums were present, but it appears from the depositions that counsel for Anchor was in full charge of the defense. In the deposition of Mrs. Matheson, he asked all the questions but four, the deposition covering some 40 pages. Practically all the questions were directed toward procuring an admission from Mrs. Matheson that she was an employee of the Crums and engaged in the scope of her employment at the time she sustained the alleged injury. However, her answers conclusively established the contrary. She testified that one of the other tenants of the building was in the process of redecorating her apartment; that this tenant, a Miss Larson, had picked out the paint herself; and that Mrs. Matheson had never seen this apartment so Miss Larson invited her to come in and look at it, which she did. It was on the return to her own apartment from this visit that Mrs. Matheson fell and sustained the injuries complained of. With respect to her employment, Mrs. Matheson testified as follows:

'Q. Are there any other things you did around the building, except take complaints from the people and collect the rents and show the apartments and keep the apartments clean and for the first year take the rubbish out?

'A. Yes.

'Q. Was there anything else you did around the building?

'A. No. There isn't anything else to do.'

In Crum's deposition he stated that about 2 months after acquiring the premises an arrangement was made with Mrs. Matheson that she was to take care of the halls by vacuuming them, take in the rents and rent the apartments, and receive complaints and refer them to Crum. Counsel for Mrs. Matheson then attempted to procure from Crum an admission that he did not carry workmen's compensation insurance. This was objected to by counsel for Anchor, and the question was not answered.

Thereafter, on February 16, 1959, Anchor made a motion for summary judgment based on the files and proceedings and the depositions of the parties. On the same date Mrs. Matheson made a motion to require the Crums to answer an interrogatory as to whether Crum had workmen's compensation insurance on the date of the accident. The trial judge ruled that the interrogatory should be answered, and counsel for the Crums stated that they did not have workmen's compensation insurance and had not elected to self-insure. Thereupon counsel for Mrs. Matheson advised the court that she elected to bring her action under the Workmen's Compensation Act, as more particularly provided in Minn.St. 176.031. ¹ She was given 10 days to amend her complaint, and the Crums were allowed 20 days in which to answer.

The amended complaint was filed on March 31, 1959, and service was admitted by counsel for the Crums on February 24, 1959. The amended complaint alleges a cause of action based upon the provisions of the Workmen's Compensation Act. It does not allege, as had the original complaint, that the injury was due to the negligence of the Crums. An amended answer was interposed to this complaint by the Crums' private attorney, admitting their ownership of the premises but denying all other allegations of the complaint. Thereafter, on March 9, 1959, counsel for Anchor sent the following letter to counsel for the Crums:

'I again enclose the original amended complaint of the plaintiff, upon which you admitted service on February 24th 1959. This was sent to us by yourself by letter dated February 27th, which letter we received February 28th.

'You have previously been advised, as have Mr. and Mrs. Murl Crum by letter dated September 4th, 1958, that the policy of insurance issued to the Crums by the Anchor Casualty Company does not extend coverage, because of exclusions 'I' and 'J' in the policy, for any employee who is injured and who has rights under the Workmen's Compensation Act. It is apparent from the amended complaint of the plaintiff herein that the plaintiff is alleging that she was an employee at the time of the accident, and that her injury arose out of and in the course of her employment, and that specifically by paragraphs 3, 5 and 6, the plaintiff is alleging a cause of action under the Workmen's Compensation Act. By reason...