Employers Mut. Liability Ins. Co. of Wis. v. Hendrix

• Decision Date: 25 September 1952
• Docket Number: No. 6407.,6407.
• Citation: 199 F.2d 53
• Parties: EMPLOYERS MUT. LIABILITY INS. CO. OF WISCONSIN v. HENDRIX.
• Court: U.S. Court of Appeals — Fourth Circuit

199 F.2d 53 (1952)

EMPLOYERS MUT. LIABILITY INS. CO. OF WISCONSIN v. HENDRIX.

No. 6407.

United States Court of Appeals Fourth Circuit.

Argued June 25, 1952.

Decided September 25, 1952.

Thomas B. Whaley, Columbia, S. C. (Wise, Whaley & McCutchen, Columbia, S. C., on brief), for appellant.

Joseph L. Nettles, Columbia, S. C. (Pinckney L. Cain, Columbia, S. C., Edgar A. Brown, Barnwell, S. C., and Thomas, Cain & Nettles, Columbia, S. C., on brief), for appellee.

Before SOPER and DOBIE, Circuit Judges, and PAUL, District Judge.

SOPER, Circuit Judge.

B. L. Hendrix, the insured in a general liability policy issued by Employers Mutual Liability Insurance Company of Wisconsin, brought this suit on the policy to recover the sum of $20,000 paid by him in compromise of certain claims for damages brought against him in the Court of Common Pleas of Hampton County, South Carolina, and to recover also the additional sum of $9500 for counsel fees incurred in the litigation. The principal defenses of the Insurance Company are: (1) that none of the claims against Hendrix in the state court were within the scope of the policy; (2) that certain of the claims in suit in the state court are conceded to be beyond the scope of the policy but the money paid in settlement covered all of the claims without apportionment; (3) that the amounts paid by Hendrix was unjustifiably large and extravagant.

The insuring agreements of the policy include Coverage A, entitled "Bodily Injury Liability", wherein the Insurance Company agrees "to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person and caused by accident."

The insuring agreements in the policy also include a section entitled "Defense, Settlement, Supplementary Payments" wherein the Company agrees to "(a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient;".

The provisions of the policy in respect to assault and battery are especially important in this case since the compromised claims included actions for this tort. The definitions in the body of the policy contain the following provision: "Assault and Battery. Assault and battery shall be deemed an accident unless committed by or at the direction of the insured."

By endorsement attached to the policy it is agreed that the insurance afforded by the policy for bodily injury liability applies, subject to the following provisions:

"1. In Insuring Agreement 1, the words `caused by accident\' are deleted.

"2. The term `occurrence\' is substituted for `accident\' wherever else it appears in the policy or any endorsement attached thereto.

"3. `Occurrence\' means either an accident or a continuous or repeated exposure to conditions which results in injury during the policy period. All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

"4. Injury intentionally inflicted shall be deemed an accident unless committed by or at the direction of the insured."

It is plain from these excerpts from the contract that the insurance does not cover the legal liability of Hendrix for damages because of bodily injury intentionally inflicted or committed at his direction; but that if bodily injury should be intentionally inflicted by his agent, acting in the course of his employment, upon his own initiative and not at the direction of Hendrix, any legal liability of Hendrix arising therefrom would be covered by the policy.

The company contends that according to the allegations of the complaints filed against Hendrix in the state court the assaults and batteries for which Hendrix was sued were committed at his direction. The litigation in the state court was begun by Hendrix. He brought suit against a number of residents of Hampton County to obtain a declaratory judgment with respect to his title to a large plantation and game preserve, known as the Palachucola Club, and to enjoin the defendants in the action from trespassing thereon. While the petition for temporary injunction was pending, C. W. Jones, C. I. Jones, Jr., and Joe Stack, three of the defendants, filed identical counterclaims for $100,000 each against Hendrix based on allegations that Clarence Smith, a game warden in the employ of Hendrix on February 7, 1950, "acting in the actual scope and performance of his duties" committed two actionable wrongs against the claimants.

Paragraph 5 of each counter-complaint contains the allegation that Clarence Smith, while so acting, "did wilfully, wantonly, feloniously, maliciously and unlawfully make an assault upon the person of this defendant, grabbing the defendant with his hands and shaking him with great force and violence, pointed a pistol at him, in violation of Section 1119, Volume I, Code of Laws of South Carolina, thereby causing him to suffer great and severe mental pain and anguish and physical suffering, causing him to be embarrassed and humiliated in presence of the people present, to his great damage."

Paragraph 6 contains the separate allegation that at the same time and place the said Clarence Smith "did accuse the said defendant of violating the statutory laws of the State of South Carolina by committing a trespass upon the lands and property of the plaintiff; that the aforesaid statement was slanderous, false, and defamatory, and was intended to charge and did charge this defendant with a crime and was intended to injure and defame the character and reputation of this defendant in the eyes of those present and of the community in which he lived and that the said slanderous remarks have caused this defendant great mental anguish, has injured his reputation and standing in the community and has caused him much embarrassment and humiliation in that people now laugh at this defendant and ask `How does it feel to be a criminal?' or questions to that effect."

Paragraph 7 contains the following allegation: "That on the occasion of the wilful, felonious, malicious and unlawful assault against this defendant, and the slanderous statements against him made by the said Clarence Smith as hereinabove set out, the said Clarence Smith was, as an employee and agent of the plaintiff, B. L. Hendrix, acting under the specific and direct instructions of the said plaintiff."

It has been suggested that these counter complaints, taken as a whole, were not intended to charge and did not charge that Hendrix specifically directed Smith to commit the assaults and the slanders alleged, but merely meant that Smith was acting in the performance of his duties to keep off intruders when he committed the wrongful acts. We do not think that this construction is tenable in view of the contents of Paragraph 7. Paragraph 4 had already charged that at the time of the assault and battery Smith was acting as Hendrix' agent in the course of his duty, and the additional allegations in Paragraph 7 that Smith was acting under the specific and direct instructions of Hendrix would seem to have no meaning except to show that Hendrix ordered the agent to commit the malicious acts and therefore personally participated therein. This interpretation was in fact accepted by Hendrix' attorneys in the present case for when they arranged the settlement of the state cases, they refused to pay the sums agreed upon until the complainants amended their counterclaims and struck out the allegation that at the time of the wrongful acts Smith was acting under the specific and direct instructions of his employer. Paragraph 7 was undoubtedly added to the cross complaints to swell the claims for punitive damages which the claimants were obviously seeking to recover.

The counter complaints were filed in the state court on or about April 23, 1950 and the Insurance Company was promptly notified that they had been filed and that Hendrix would expect to be indemnified by the insurer in the event of adverse judgments. The company requested and received copies of the pleadings and on May 22, 1950 notified the attorneys for Hendrix that since the complaints alleged that the assault was at the specific direction of the assured, coverage was denied.

In support of this position the company relies upon the established rule that when the policy limits the insurer's obligation to defend to cases in which the allegations of the complaint describe an injury within the coverage of the contract, the obligation does not arise unless the allegations meet this test.

Judge Learned Hand in Lee v. Aetna Casualty & Surety Co., 2 Cir., 178 F.2d 750, 751-752, set out the correct interpretation of a similar defense clause in a policy of liability insurance in these words:

"* * * This language means that the insurer will defend the suit, if the injured party states a claim, which, qua claim, is for an injury `covered\' by the policy; it is the claim which determines the insurer\'s duty to defend; and it is irrelevant that the insurer may get information from the insured, or from any one else, which indicates, or even demonstrates, that the injury is not in fact `covered.\' The insurer has promised to relieve the insured of the burden of satisfying the tribunal where the suit is tried, that the claim as pleaded is `groundless.\'"

This rule would undoubtedly relieve the company of liability in this case so far as the duty to defend is concerned, if it were not for the fact that each counterclaim constitutes a complete cause of action on which the claimant might recover whether Paragraph 7 is included or left out of the pleading. In other words, it was obvious to the insurer upon reading the complaint that it was not...