Freed v. INLAND EMPIRE INSURANCE COMPANY

• Decision Date: 25 September 1957
• Docket Number: No. C-157-55.,C-157-55.
• Citation: 154 F. Supp. 855
• Parties: David L. FREED, Daniel G. Freed and Peter Freed, d/b/a Freed Finance Company, a partnership, Plaintiffs, v. INLAND EMPIRE INSURANCE COMPANY, an Idaho corporation, Defendant, Leo O'Connell, Commissioner of Insurance for the State of Idaho, Defendant and Intervenor, G. A. Bushnell, Receiver of Trans-Pacific Insurance Company, Intervenor.
• Court: U.S. District Court — District of Utah

154 F. Supp. 855

David L. FREED, Daniel G. Freed and Peter Freed, d/b/a Freed Finance Company, a partnership, Plaintiffs, v. INLAND EMPIRE INSURANCE COMPANY, an Idaho corporation, Defendant, Leo O'Connell, Commissioner of Insurance for the State of Idaho, Defendant and Intervenor, G. A. Bushnell, Receiver of Trans-Pacific Insurance Company, Intervenor.

No. C-157-55.

United States District Court D. Utah, Central Division.

September 25, 1957.

Calvin L. Rampton and David K. Watkiss (of Pugsley, Hayes & Rampton), Salt Lake City, Utah, for Receiver of Inland Empire Ins. Co.

Ralph H. Jones (of Jones, Pomeroy & Jones), Pocatello, Idaho, for claimant, Aberdeen-Springfield Canal Co.

CHRISTENSON, District Judge.

The Aberdeen-Springfield Canal Company of Pocatello, Idaho, sometimes referred to herein as "the canal company" or as "the claimant", has filed claim against the Receiver of Inland Empire Insurance Company, hereafter sometimes called "the insurance company", for the amount of damages paid by the former to various farmers for the flooding of lands through a break in its main canal. Liability insurance coverage is conceded by the insurance company, and there is no question raised as to the reasonableness of settlements made by the canal company with the landowners. If the canal company was liable for these flood damages or if that question was resolved in favor of the canal company through agreement between it and its insurer, the claim should be allowed; otherwise, the canal company in making the payments must be deemed to have been a mere volunteer acting on its own account, without right to reimbursement from the Receiver for the insurance company.

Evidence produced at the hearing on this claim, as supplemented by a deposition afterwards presented by the parties with leave of Court, indicated, and the Court finds, that at the time of the break the canal was not carrying an unusual amount of water; that its capacity was adequate to flow the quantity involved, and that while the cause of the break cannot definitely be ascertained, it is probable that a hole or holes made in the bank by muskrats or gophers permitted the escape of water in the first instance and began a process of washing away which culminated in the breaking of a massive section of the bank and the flooding of adjacent lands. Following this occurrence an adjuster for Inland Empire Insurance Company contacted an officer of the canal company. It was decided between them that it would be for the best interests of all concerned to have a committee appointed by the Aberdeen-Springfield Canal Company to ascertain the amount of damages sustained by the farmers, rather than to have a representative of the insurance company directly negotiate, because it was believed that by the former means a more conservative statement of damages acceptable to the farmers could be obtained. Thereafter, a canal company committee carried on negotiations and arrived at settlements with the farmers involved. All of the landowners suffering damages were members of the canal association and users of water from the canal. The canal company was authorized by the adjuster for the insurance company to ascertain the amount of damages claimed by, or acceptable to, the farmers, but was not authorized to make payments for claimed losses, and the insurance company itself authorized no such payments. Negotiations between the insurance adjuster and the canal company in regard to claims of the farmers continued from May, 1953 to September, 1953, in which latter month, the insurance company denied liability to the canal company. The Inland Empire Insurance Company went into receivership in November, 1955. No demand was made and no action was taken against the insurance company between the time it denied liability in September, 1953 and the time it went into receivership.

No affirmative proof of negligence on the part of the canal company is contained in the record. It is conceded by claimant's counsel that Idaho has adopted a theory of liability based on negligence in such cases as this. However, reliance is strongly placed by him upon the doctrine adhered to in Barnum v. Handschiegel, 103 Neb. 594, 173 N.W. 593 and East Liverpool City Ice Co. v. Mattern, 101 Ohio St. 62, 127 N.E. 408, and reflected in 93 C.J.S. Waters § 156, p. 873, to the effect that where plaintiff proves the breaking of a dam and resulting injuries, a prima facie case of negligence is thereby established.

Counsel for the Receiver suggests that this rule is confined to jurisdictions where absolute liability for flooding is recognized; but on the contrary, in both Nebraska and Ohio the rule of liability for negligence, rather than the common-law liability of a virtual insurer, is recognized. Spurrier v. Mitchell Irr. Dist., 119 Neb. 401, 229 N.W. 273, 74 A.L.R. 884; Barnum v. Handschiegel, supra; East Liverpool City Ice Co. v. Mattern, supra. Nonetheless, it is necessary to examine the claimant's position further since there appear other reasons why the rule contended for by it does not control this case.

Each of the cases last cited deals with a dam erected in a channel of a water course whereby the level of the water is raised above the natural surface. The C.J.S. citation falls under the division of that work headed, Injuries by Breakage, Leakage and Overflow of Dams, p. 870 et seq. That there may be a distinction properly drawn between the rule in such cases and the rule governing the facts here is at least suggested by the separate treatment C.J.S. accords to the subject, Liability for Injuries from Construction, Operation and Maintenance of Works, with particular reference to irrigation ditches or canals. 94 C.J.S. Waters § 365, p. 432 et seq. With a similar distinction in mind, it is stated in Mackay v. Breeze, 72 Utah 305, 269 P. 1026, 1027, as follows:

"The rule of law announced in the leading English case of Fletcher v. Ryland, 1 E.R.C. 235, where it is held that the defendant was under an absolute duty to keep water which he had collected in a reservoir from doing injury to others, has not generally been applied to ditches and canals. * * *"

The point I make is not that in Nebraska, Ohio, Utah or Idaho, there is absolute liability in the case of dams as distinguished from canals, for in each state the contrary appears true. But there is at least some distinction drawn between the two classes of works, and with respect to a prima facie case in those jurisdictions which might be inclined to recognize the Nebraska rule as to dams, it does not...