Harbin v. Assurance Company of America

• Decision Date: 30 August 1962
• Docket Number: No. 6988.,6988.
• Parties: Charles C. HARBIN and Patricia A. Harbin, Appellants, v. ASSURANCE COMPANY OF AMERICA, a corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

308 F.2d 748 (1962)

Charles C. HARBIN and Patricia A. Harbin, Appellants, v. ASSURANCE COMPANY OF AMERICA, a corporation, Appellee.

No. 6988.

United States Court of Appeals Tenth Circuit.

August 30, 1962.

Charles C. Spann, Albuquerque, N. M. (Grantham, Spann & Sanchez, Albuquerque, N. M., on the brief), for appellants.

John D. Robb, Albuquerque, N. M. (Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., on the brief), for appellee.

Before MURRAH, Chief Judge, and PHILLIPS and BREITENSTEIN, Circuit Judges.

BREITENSTEIN, Circuit Judge.

In this declaratory judgment action brought by appellee Assurance Company of America (insurer) the question is whether the insurer is obligated to defend an action brought against appellants (insureds) to recover damages for an assault. The trial court held for the insurer on the ground that the policy afforded no coverage. This appeal followed. Jurisdiction is based on diversity.

Insurer issued to insureds a policy providing personal liability coverage whereby the insurer agreed to pay "all sums which the insured shall become legally obligated to pay as damages because of bodily injury * * * sustained by any person." The policy required the insurer to "defend any suit against the insured alleging such injury * * * and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but this company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient." Specifically excluded from policy coverage was "injury * * * caused intentionally by or at the direction of the insured."

Wiley Day, as plaintiff, filed suit in a New Mexico state court alleging that Charles C. Harbin, one of the insureds, "did wilfully, maliciously and wrongfully assault, strike and beat Plaintiff with great force and violence," and seeking both compensatory and exemplary damages. Insurer then brought this action in federal court for a declaratory judgment that the Day claim was beyond the policy coverage. Thereafter in the state action a third-party complaint was filed by the insureds against the insurer asserting policy coverage. Day, on motion of the insureds, was joined as a defendant in the federal case and, in that case, the insureds asserted by counterclaim the liability of the insurer. The trial court granted insurer's motion for summary judgment.

The insurer says that it is not required to defend the state suit because the complaint therein alleges an intentional injury. The insureds assert that the obligation to defend is not determined by the allegations of the complaint, that the insurer was under a duty to investigate, and that if it had investigated it would have found that the conduct was not intentional.

The type of situation presented here places an insurer in a dilemma of conflicting interests. It cannot possibly defend the state court action and protect both its own interests and the interests of its insureds.¹ If it tries to exculpate itself by showing an intentional injury, it exposes the insured to a greater liability and a possible award of exemplary damages. If it urges an unintentional injury, it foregoes the exclusionary provision of the policy. In such circumstances the control of the defense by the insurer carries with it the potential of prejudice to the insureds and the assumption of such control without a reservation of the right to deny liability would have obligated the insurer to pay within the policy limits if the plaintiff should succeed.²

The insureds say that this circuit has adopted the rule that the obligation of an insurer to defend is determined by the actual facts brought to the attention of the insurer rather than the pertinent allegations of a complaint and they cite Hardware Mut. Casualty Co. v. Hilderbrandt, 10 Cir., 119 F.2d 291; American Motorists Insurance Company v. Southwestern Greyhound Lines, Inc., 10 Cir., 283 F.2d 648; and Albuquerque Gravel Products Company v. American Employers Insurance Company, 10 Cir., 282 F.2d 218. These cases are not controlling because in each the action sought to impose liability on the insurer after the facts had been established and in two of them the established facts were contrary to the complaint allegations. In the case at bar we meet the question on the threshold before the facts are established.

The insurer's liability depends on whether the injury was caused intentionally by the insured. The difficulty in the ascertainment of a state of mind needs no amplification. Reasonable men may understandingly differ as to the intent of another because they may draw conflicting inferences from physical facts. For this reason the argument that the insurer should have conducted an investigation and relied on the results thereof does not persuade us. Intent is to be determined, not by the insurer's investigators, but by the finder of the facts in the lawsuit brought by the claimant of the injuries.

The rights of the parties are fixed by the terms of the policy.³ The policy required the insurer to defend a suit "alleging" an injury for which the policy permits recovery. The record before us shows that in the state court action judgment is sought for injuries resulting from an intentional...