Loftin v. U.S. Fire Ins. Co., 39340

• Decision Date: 17 April 1962
• Docket Number: Nos. 1,3,No. 39340,2,39340,s. 1
• Citation: 127 S.E.2d 53,106 Ga.App. 287
• Parties: Leroy LOFTIN v. UNITED STATES FIRE INSURANCE COMPANY
• Court: Georgia Court of Appeals

Page 53

127 S.E.2d 53

106 Ga.App. 287

Leroy LOFTIN v. UNITED STATES FIRE INSURANCE COMPANY.

No. 39340.

Court of Appeals of Georgia, Division Nos. 1, 2, 3.

April 17, 1962.

Rehearing Denied July 11, 1962.

Syllabus by the Court.

Under an automobile liability policy providing, 'With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the company shall (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 insurer is obligated to defend when a suit is brought against the insured which alleges facts placing the claim within an exception in the policy, but the true facts, known or ascertainable to the insurer, are within the coverage of the policy.

Plaintiff (plaintiff in error) sued the defendant (defendant in error) for attorney's fees and expenses incurred in defending a claim and suit which he alleges defendant was obligated to defend under the terms of an automobile liability insurance policy. The petition as finally amended alleged in substance: At the time of the collision out of which the claim against the insured arose defendant's policy covering plaintiff's Ford automobile was in effect. The policy provided coverage for any person while using the automobile with the permission of the insured. The 'Definition of Insured' provided: 'The insurance with respect to any person or organization other than the named insured or such spouse does not apply: * * * (2) to any employee with respect to injury to or sickness, disease or death of another employee of the same employer injured in the course of such employment in an accident arising out of the maintenance or use of the automobile in the business of such employer.' It provided under 'Exclusions': 'This policy does not apply: (d) * * * to bodily injury to or sickness, disease or death of any employee of the insured arising out of and in the course of (1) domestic employment by the insured * * * or (2) other employment by the insured.' It provided, 'With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the company shall (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.' A collision occurred when one Dorothy Campbell was operating the insured automobile with plaintiff's permission. A passenger in the automobile, a Miss Lane, was injured. The passenger made claim for her injuries against the plaintiff. The claim was referred to the defendant. The defendant informed plaintiff that it had investigated and found that the occupants of his vehicle 'were in the course of their employment for you and/or the Union Circulation Company at the time' of the accident, and that 'the policy specifically excludes coverage for injuries sustained by employees through actions of a fellow employee.' Coverage under the policy was denied by the defendant on the grounds that the policy 'did not afford coverage for injuries sustained by employees through actions of a fellow employee, or a defense against the claim of' Miss Lane. Plaintiff then employed personal counsel to defend the claim. Plaintiff's attorney furnished defendant with information in support of his assertion that Miss Campbell and Miss Lane were not his employees but that they were independent contractors under an agreement with Union Circulation Company. Defendant did not investigate further to substantiate these facts, but still denied coverage and refused to assist in the defense of the claim. Miss Lane brought suit in a United States District Court in North Carolina, against Leroy Loftin (the present plaintiff), Dorothy Campbell, and Union Circulation Company, in which she alleged that Union Circulation Company, a New York corporation, was in the business of soliciting subscriptions to various magazines; that Leroy Loftin was its general agent in a specified area and had working with him soliciting subscriptions about 12 employees, including Miss Campbell and Miss Lane, and that Miss Campbell was acting at the time of the collision under the immediate supervision and instructions of Leroy Loftin. The plaintiff forwarded a copy of the suit to the defendant, but received no reply. In his answer to the suit plaintiff denied that Miss Campbell and Miss Lane were his employees. Plaintiff informed the defendant that Miss Lane testified by deposition in that action that she was employed by Union Circulation Company. That action was later dismissed by Miss Lane, who then brought suit in a Virginia court, again naming plaintiff as codefendant. In this suit the plaintiff filed defensive pleadings denying that Miss Campbell and Miss Lane were his employees and so informed the defendant. Plaintiff has never admitted that Miss Campbell and Miss Lane were his employees. In the Virginia suit, plaintiff took the depositions of himself and Maxine Loftin, who both testified that Miss Campbell and Miss Lane were not plaintiff's employees but were independent contractors of Union Circulation Company. Plaintiff informed the defendant of this. In this suit, the Virginia court entered the following order: '* * * the Court having heard the evidence upon the Motion to Quash the Service of Process on Leroy Loftin does hereby find as a matter of fact that the defendant Dorothy Campbell was not an agent, employee or servant of the defendant Leroy Loftin, but rather Dorothy Campbell was operating Leroy Loftin's automobile with his permission, consent and authority. Wherefore, the Court does hereby sustain the Motion to Quash and Leroy Loftin is hereby dismissed as a party defendant to this case.' Plaintiff advised the defendant of this decision. Plaintiff has demanded of the defendant reimbursement of expenses and reasonable attorney's fees for defending the suits, but defendant has failed and refused to fulfill the terms of its contract.

The trial court sustained a general demurrer and dismissed the petition, and the plaintiff assigns error.

John Hendrix Crutchfield, Merrell H. Collier, Atlanta, for plaintiff in error.

Hansell, Post, Gardner, Brandon & Dorsey, R. Emerson Gardner, Charles E. Watkins, Jr., Atlanta, for defendant in error.

HALL, Judge.

Whether or not the plaintiff's petition presented an issue as to the defendant insurance company's obligation, under its insurance contract, to defend the claim and suits brought against the plaintiff is the only question before us. The contract provision in question is the following: 'With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the company shall (a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such is groundless, false or fraudulent, but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.' Similar or identical provisions are contained in most liability insurance policies. 7 A Appleman, Insurance Law and Practice, 428, § 4682; 50 A.L.R.2d 458, 461, 463.

In the usual case the facts alleged in the complaint brought against the insured and the true facts relating to coverage or non-coverage will be the same, so that there will be no dispute whether the insured's liability is covered by the policy and whether the insurer has a duty to defend. Dispute has often arisen, however, when a complaint against the insured shows false facts within the coverage of the policy, but the true facts, of which the insurer has knowledge from information furnished by the insured or from its own investigation, are not within coverage. The insurer must defend these suits for the reason that it has expressly obligated itself to do so by the insurance contract containing the common provision that the insurer will defend even groundless, false or fraudulent suits. McGettrick v. Fidelity & Casualty Co. of New York, 264 F.2d 883, 886 (2d Cir. 1959); Bloom-Rosenblum-Kline Co. v. Union Indemnity Co., 121 Ohio St. 220, 167 N.E. 884, 886; London Guarantee & Accident Co. v. Shafer, D.C., 35 F.Supp. 647, 649; Summer & Co. v. Phoenix Indemnity Co., 177 Misc. 887, 32 N.Y.S.2d 2, affirmed 265 App.Div. 911, 38 N.Y.S.2d 800, appeal denied 265 App.Div. 1039, 41 N.Y.S.2d 180; Grand Union Stores v. General Accident Fire & Life Assur. Corp., 163 Misc. 451, 295 N.Y.S. 654, 657, affirmed 251 App.Div. 810, 298 N.Y.S. 187, 251; 7 A Appleman, Op. cit. 448, § 4684.

Webster's New International Dictionary defines 'groundless' as 'without ground or foundation, wanting cause or reason for support.' The groundless suit which the insurer undertakes to defend is a suit containing unsupportable allegations which on their face show coverage by the policy of the liability asserted against the insured for 'damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person,' or 'because of injury or destruction of property, including the loss of use thereof, caused by accident and arising out of the ownership, maintenance and use of the automobile.' Whether or not the insured could be liable to the injured claimant under the true facts is not determinative of the groundlessness of the suit. For example, a suit is brought alleging injury and damage arising out of the use of the insured automobile. In truth the automobile involved was another automobile owned by the insured and not covered by the policy. This is a...