Dillon v. Hartford Acc. & Indem. Co.

• Decision Date: 02 April 1974
• Citation: 113 Cal.Rptr. 396,38 Cal.App.3d 335
• Court: California Court of Appeals Court of Appeals
• Parties: Henry DILLON and Robert Dillon, Plaintiffs and Respondents, v. HARTFORD ACCIDENT & INDEMNITY CO., Defendant and Appellant. Civ. 1765.

Page 396

113 Cal.Rptr. 396

38 Cal.App.3d 335

Henry DILLON and Robert Dillon, Plaintiffs and Respondents, v. HARTFORD ACCIDENT & INDEMNITY CO., Defendant and Appellant.

Civ. 1765.

Court of Appeal, Fifth District, California.

April 2, 1974.

As Modified on Denial of Rehearing May 1, 1974.

Hearing Denied June 5, 1974.

[38 Cal.App.3d 337] McCormick, Barstow, Sheppard, Coyle & Best, Fresno and Boone & Monroe and William B. Boone, Santa Rosa, for defendant-appellant.

R. W. Levy, Fresno, for plaintiffs-respondents.

OPINION

GARGANO, Associate Justice.

This is an appeal from a judgment of the Superior Court of Fresno County declaring that appellant, hereinafter referred to as Hartford, is obligated to defend respondents, hereinafter referred to as the Dillons, in the case of J. T. Cox v. Henry Dillon, et al, Superior Court Action No. 139735; the complaint in that action was filed on January 6, 1969, in Fresno County.

The background facts are these.

In 1967 the Dillons had farm leases on two separate but adjoining 160-acre parcels of land located in the vicinity of Davis and Highland Avenues in Fresno County; one parcel was owned by Tango Johnston and the other by a Mrs. Elwood.

In the latter part of the year Johnston made arrangements with Winter-Abajian Well Drilling to drill a well on his neighbor's property. He also made arrangements with Walter Dan Sharp to 'develop' the well, which means to pump sand out of the well casing. Johnston requested the Dillons to furnish their 1957 Model 850 Ford tractor to scrape the sand away as the well was being developed. The Dillons agreed to do so.

In the beginning the Dillons' tractor was operated by Robert Dillon. After a few days very little sand was being pumped from the well, and J. T. Cox volunteered to drive the vehicle. Cox was an employee of Walter Dan Sharp.

On January 8, 1968, the tractor became struck in the sand. Cox attached a chain to the front of the tractor and to the back of a Chevrolet truck owned by Walter Dan Sharp; with Seth Abajian driving the truck and Cox operating the tractor, they pulled it free and onto level ground; Cox got off the tractor and walked to the truck to remove the chain. The tractor 'started some way' and commenced to move on its own volition; it came to a stop when it struck the truck. In the meanwhile Cox got caught in the chain and was pulled under the truck. At the time the truck was standing still and Abajian was outside of it.

On January 6, 1969, Cox filed an action in the superior court of Fresno County against the Dillons, seeking damages for personal injuries. His complaint, in three causes of action, was predicated on the theory that the injuries were caused by a defect in the gear mechanism of the Dillons' tractor and that the Dillons had failed to provide the injured man with a safe place of employment; the complaint Inter alia alleged that the Dillons had the direction, management, control and custody of the premises and of the Ford tractor and surrounding equipment.

On July 11, 1969, the Dillons brought this action for declaratory relief in the court below to determine whether Hartford was required to defend them in the Cox personal injury lawsuit under the insurance policies the company had issued to Winter-Abajian Well Drilling and to Walter Dan Sharp. These policies contain both comprehensive automobile liability and comprehensive general liability coverage and are essentially similar; hereinafter, they will be referred to as the Hartford policies.

After issue was joined on the complaint the cause was submitted to the court for decision on the basis of the pleadings in the Cox lawsuit, the Dillons' answers to Hartford's interrogatories and the depositions of Robert Dillon, Henry Dillon and J. T. Cox. Thereupon, the court determined that Hartford was obligated to defend the Dillons in the personal injury lawsuit because they were additional insureds under both the comprehensive automobile liability and comprehensive general liability sections of the Hartford policies. Judgment was entered accordingly, and Hartford has appealed.

We consider first the court's ruling that the Dillons were entitled to a defense in the Cox lawsuit under the comprehensive automobile liability insurance sections of the policies.

In defense of the trial court's ruling, respondents make no contention that the tractor was covered by the automobile liability sections of the Hartford policies; they admit that the tractor is not within the definition of an automobile. Respondents also state that the trial court did not make any finding that the Dillons actually were using or legally responsible for the use of the Sharp truck within the ambit of the permissive user coverage of the policies. The Hartford policies contain the usual 'groundless, false or fraudulent' clause and what respondents point out is that the court found the allegations of the complaint in the personal injury lawsuit were broad enough to suggest that the Dillons were using or were legally responsible for the use of Sharp's truck at the time of the accident. Respondents insist, even though the allegations of the complaint may be groundless, it is potential, not actual, liability under an insurance policy that is the test for determining the insurer's obligation to defend its insured. (Hogan v. Midland National Insurance Co., 3 Cal.3d 553, 563, 91 Cal.Rptr. 153, 476 P.2d 825.)

It is true that the duty to defend litigation brought against an insured may exist even where the coverage is in doubt and ultimately does not develop. For example, in Gray v. Zurich Insurance Co., 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168, the Supreme Court declared that an insurance policy of the kind involved in this case contains two promises. It promises to indemnify the insured for any loss which falls within the coverage afforded by the contract. It also promises to defend the insured in any lawsuit brought by a third party in connection with a risk covered by the policy 'even if any of the allegations of the suit are groundless, false or fraudulent.' Under the first promise, no liability attaches to the insurer unless the loss actually is covered by the policy. The second promise, however, is not contingent upon actual liability, and the duty to defend is 'fixed by the facts which the insurer learns from the complaint, the insured, or other sources' which give rise to potential liability under the policy. (65 Cal.2d, Supra, at 276--277, 54 Cal.Rptr. at 113, 419 P.2d at 177.)

The duty to defend is not without limitation; it extends only to the defense of those actions of the nature and kind covered by the policy. (Gray v. Zurich Insurance Co., Supra, 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168.) If the insurer, after taking into consideration facts gathered from its own investigation or information supplied by the insured, determines that there is no potential liability under the policy, it may refuse to defend the lawsuit; '(t)his it does at its own risk, and if it later develops liability, or potential liability existed under the policy, the company will be held accountable to its insured, or to one who obtained judgment against its insured in the action it refused to defend.' (State Farm Mut. Auto. Ins. Co. v. Flynt, 17 Cal.App.3d 538, 548, 95 Cal.Rptr. 296, 302.)

As we have indicated, the complaint in the Cox personal injury lawsuit alleged, among other things, that the Dillons had the direction, management, control and custody of the premises and of the Ford tractor and surrounding equipment. In addition, the evidence presented in the court below shows that the Dillons were the lessees of the premises and suggests that they assumed the responsibility for scraping away the sand as the well was being developed; arguably, the Dillons were in control of the area, the Ford tractor and the surrounding equipment used in connection with the scraping operation. Because the Sharp truck was used to help extricate the tractor from the mud, it also is arguable that the insured vehicle was being used by the Dillons or that the Dillons were legally responsible for its use at the time of the accident. The crucial question, therefore, is whether the evidence shows that potential liability under the Hartford policies had arisen by virtue of the use of the truck by the Dillons.

The permissive use coverage of an automobile insurance policy does not require that the vehicle be the proximate cause of an accident in the strict tort sense. (St. Paul Fire & Marine Ins. Co. v. Hartford Acc. Indem. Co., 244 Cal.App.2d 826, 831, 53 Cal.Rptr. 650; Columbia Southern Chemical Corp. v. Manufacturers & Wholesalers Indem. Exch., 190 Cal.App.2d 194, 202, 11 Cal.Rptr. 762.) Consequently, the early cases applied a broad definition to the term 'use' in order to uphold coverage whenever possible. Realizing there must be some relationship between the vehicle and the accident, recent decisions have taken a more sensible approach to the problem by narrowing the 'use' concept, particularly in a case where the dispute is primarily between two insurance carriers and where an over-extension of the concept would result in a transfer of 'liability from the insurer for the more culpable person or entity to the insurer for the innocent person or entity.' (Travelers Ins. Co. v. Northwestern Mut. Ins. Co., 27 Cal.App.3d 959, 965, 104 Cal.Rptr. 283, 287.)

In International Business Machines Corp. v. Truck Ins. Exch., 2 Cal.3d 1026, 1032, 89 Cal.Rptr. 615, 619, 474 P.2d 431, 435, the Supreme Court expressed great concern over the injustice which could result from an over-extension of the 'use' concept in insurance policies. The court stated:

'Almost all of the cases presenting the issue of 'use' of the vehicle by the shipper involved disputes between two insurance companies, as does this case, and a holding that the shipper constitutes a 'user' of the vehicle generally results in a transfer of all or part of the...