Dairyland Insurance Company v. Hawkins

• Decision Date: 15 November 1968
• Docket Number: Civ. No. 3-744-D.
• Citation: 292 F. Supp. 947
• Parties: DAIRYLAND INSURANCE COMPANY, Plaintiff, v. Howard C. HAWKINS, Administrator of the Estate of Ronald Lee Hawkins, Deceased, William Mack Archer, and Clair E. Sadler, Defendants. William Mack ARCHER, Defendant and Third-Party Plaintiff, v. BURLINGTON INSURANCE SERVICE and James J. Engberg, individually and jointly, and United Security Insurance Company, Third-Party Defendants.
• Court: U.S. District Court — Southern District of Iowa

292 F. Supp. 947

DAIRYLAND INSURANCE COMPANY, Plaintiff, v. Howard C. HAWKINS, Administrator of the Estate of Ronald Lee Hawkins, Deceased, William Mack Archer, and Clair E. Sadler, Defendants.

William Mack ARCHER, Defendant and Third-Party Plaintiff, v. BURLINGTON INSURANCE SERVICE and James J. Engberg, individually and jointly, and United Security Insurance Company, Third-Party Defendants.

Civ. No. 3-744-D.

United States District Court S. D. Iowa, Davenport Division.

November 15, 1968.

James A. Lorentzen, Theodore T. Duffield, and Roy M. Irish, Des Moines, Iowa, for plaintiff.

Dale Ferguson, Rock Island, Ill., for defendant, Howard C. Hawkins.

George A. Goebel and Margaret Stevenson, Davenport, Iowa, for defendant Archer and Sadler.

John E. McCracken, Davenport, Iowa, for defendant Burlington Ins. Service and James J. Engberg.

Seymore M. Raben, Davenport, Iowa, for third-party defendant United Security Ins. Co.

Frank G. Schubert and Gerry M. Rinden, Rock Island, Ill., and Jack Schroeder, Bettendorf, Iowa, for defendant John J. Cox.

MEMORANDUM

STEPHENSON, Chief Judge.

Plaintiff, Dairyland Insurance Company (Dairyland), a Wisconsin Corporation, with its principal place of business in Wisconsin, brought this action against defendant Howard C. Hawkins, Administrator of the Estate of Ronald Lee Hawkins, deceased (Hawkins), a citizen of Illinois,¹ and the defendants, William Mack Archer (Archer) and Clair E. Sadler (Sadler), citizens of Iowa, seeking a declaratory judgment under Title 28 U.S.C. § 2201, declaring that plaintiff owed no duty of performing a liability insurance contract issued by plaintiff to Sadler. Complete diversity existed between the parties. Gaw v. Higham, 267 F.2d 355 (6th Cir. 1959). Thereafter Hawkins and Archer counterclaimed against plaintiff. In addition Archer filed third party complaints against third party defendants Burlington Insurance Service, an Iowa Corporation (Burlington) and James J. Engberg, a citizen of Iowa (Engberg) seeking to join said third party defendants as co-defendants to his counterclaim against plaintiff (Fed.R.Civ.P. 13(h), 20). This Court in an interim ruling held that Archer's counterclaim was compulsory and therefore Burlington and Engberg were properly joined as third party defendants despite their lack of diversity with Archer. United Artists Corp. v. Masterpiece Productions, 221 F.2d 213 (2d Cir. 1955); United States for Use and Benefit of Central Rigging and Contracting Corp. v. Paul Tishman Co., 32 F.R.D. 223 (E. D.N.Y.1963); Markus v. Dillinger, 191 F.Supp. 732 (E.D.Pa., 1961); 3 Moore, Federal Practice, ¶ 13.30 at p. 103 (1967). Archer also filed third party complaint against United Security Insurance Company (United), a New Jersey Corporation. The claims of the various parties will be discussed in more detail in connection with findings of the Court.

Archer had an accident on April 29, 1966, while driving a 1963 Chevrolet automobile, the title of which auto was registered in Sadler. An insurance policy was in existence issued by plaintiff Dairyland, naming Sadler as owner of the auto and Archer and wife as operators. A policy was also in existence issued by United naming Sadler as insured. Both Dairyland and United claim Sadler had sold the auto in question to Archer prior to the date of the accident and therefore Sadler had no insurable interest on the date of the accident. Each company denied coverage and refused to defend a suit commenced against Archer in the United States District Court for the Southern District of Illinois by Hawkins arising out of the accident which resulted in a $30,000 judgment being awarded in favor of Hawkins and against Archer. Archer in his counterclaim again Dairyland and United asks that he be indemnified for all sums that he is obligated to pay as a result of the $30,000 judgment and for damages including punitive damages arising out of the failure of said companies to defend said action and pay the resulting judgment. Hawkins in his counterclaim against Dairyland asks that said company be required to pay the $30,000 judgment he acquired against Archer. Archer in his third party complaint against Burlington and Engberg seeks damages including payment of the $30,000 judgment upon the theory that said defendants failed to obtain proper insurance for Archer in breach of their implied warranty to do so.

In July 1965, at the time of his daughter's marriage to Archer, Sadler gave them the auto in question for use on their honeymoon and for an indefinite period thereafter. Archer's drivers license was under suspension at the time and it was agreed that his wife would do the driving. Sadler so informed a representative of his liability carrier, United. Sometime in the late fall or early winter of 1965, Sadler indicated to Archer he could have the car permanently upon payment of $500 which could be paid at the rate of $25 a month. In the meantime title remained in Sadler, although the exclusive use of the auto was given to Archer and his wife.

On November 2, 1965, Archer visited Burlington and talked to Engberg about his need for liability insurance and a financial responsibility filing with the State of Iowa in order that he could obtain his drivers license. Archer advised Engberg that the auto was owned by his father-in-law, Sadler, and titled to Sadler; that the auto was being used exclusively by Archer and his wife and that at some future date title to the auto would be transferred to Archer. Engberg then caused an application for insurance to be filled out on a Dairyland form which was signed by Archer. Sadler was listed as owner. Operators were listed as Archer and his wife, Nancy Lou Archer (Exhibit J-5).² Thereafter Engberg forwarded the application to Dairyland, together with a memo (Exhibit J-4) from Engberg to Dairyland which reads as follows:

"This car is registered to Clair Eugene Sadler of Eldon, Iowa. The car is garaged in Burlington, Iowa and will be driven by William Mac Archer and Nancy Lou Archer. Mr. Sadler is Mr. Archer's father in law. Mr. Sadler will not be driving the car. At a later date the title will be transferred to Mr. Archer. Mr. Archer needs a filing but does not know his case number. According to the rate sheet the charge for 3 months should be $25.00 which we are attaching a check for. Please proceed immediately and advise as soon as possible when the filing is made.

Thank you.

Jim Engberg"

Thereafter, Dairyland issued a liability insurance policy wherein Sadler was listed as insured and it was indicated thereon that an appropriate filing (Code of Iowa 1966, § 321A.19) had been made with the State of Iowa indicating liability coverage for Archer.³ On April 29, 1966 Archer's accident occurred and both Dairyland and United were advised thereof. Both companies conducted an investigation of the accident including the taking of various statements from Archer, Sadler and Engberg. Each of the companies denied coverage on the grounds that Sadler who was listed as owner and insured had no insurable interest because the auto had been sold to Archer by Sadler. Also, that Archer could not be an insured under the omnibus clause of the insurance contract because Sadler as non-owner could not give consent to Archer to drive as provided for in said clause. United notified Archer and Sadler of its denial of liability coverage by letter dated June 8, 1966 and tendered to Sadler a return of premium in the amount of $33.30 by check dated June 21, 1966. Sadler was paid $980.00 under the collision portion of his policy upon the theory that he had a security interest in the auto.

Dairyland notified Sadler and Archer of its denial of liability coverage by letter dated June 10, 1966. Said letters further advised that Dairyland refused to defend Archer in the suit filed against him for $30,000 in the Southern District of Illinois by Hawkins. Return of premium and interest in the amount of $25.75 was also tendered to Sadler. On June 29, 1966, default judgment was rendered in Illinois against Archer in the sum of $30,000. Thereafter counsel for Hawkins corresponded with Dairyland and its counsel with respect to said judgment. Dairyland denied liability. Ultimately suit was commenced on the Illinois judgment in the District Court of Iowa in and for Wapello County and judgment obtained. By letter dated June 1, 1967 and addressed to United and Dairyland, counsel for Hawkins offered to accept the policy limit of $10,000 before taking further action to collect the judgment. Dairyland's action for declaratory judgment herein was filed June 8, 1967.

Dairyland and United join in urging there was a bona fide sale under the Iowa sales law from Sadler to his son-in-law Archer and therefore Sadler had no insurable interest and the insurance contracts were therefore void. State Automobile & Casualty Underwriters v. Farm Bureau, 257 Iowa 56, 131 N.W.2d 265 (1964); Hartman v. Norman, 253 Iowa 694, 112 N.W.2d 374 (1962); Hansen v. Kuhn, 226 Iowa 794, 285 N.W. 249 (1939). The difficulty with this contention is that the evidence does not disclose a bona fide sale. There was no agreement by Archer to purchase. At the most there was an informal arrangement between the father-in-law, Sadler, and his son-in-law, Archer, that Archer and his wife were to have the use of the auto in question, and that at a future time ownership of the auto would be transferred to Archer provided a certain amount was paid to Sadler. There was no obligation by Archer to purchase or to make definite payments. At no time prior to the accident was there any transfer of ownership from Sadler. Sadler intended to make a partial gift of the auto at some future time provided Archer paid about one-half the value of the car ($500). Sadler did not want to make it too easy for Archer to acquire the auto. The Court finds that at the time of the accident Sadler was the owner of the auto in question and it was being used by Archer with his consent.⁴

Since...