Magoun v. Liberty Mut. Ins. Co.

• Decision Date: 13 January 1964
• Citation: 195 N.E.2d 514,346 Mass. 677
• Parties: Earl C. MAGOUN v. LIBERTY MUTUAL INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 514

195 N.E.2d 514

346 Mass. 677

Earl C. MAGOUN v. LIBERTY MUTUAL INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 2, 1963.

Decided Jan. 13, 1964.

Edward J. Barshak, Boston (Bertram A. Sugarman, Boston, with him), for defendant.

Frank P. Hurley, Arlington, for plaintiff.

Before WILKINS, C.J., SPALDING, WHITTEMORE, CUTTER, & SPIEGEL, J.J.

CUTTER, Justice.

Magoun, a subcontractor doing steel erection in the construction of a school in Hyde Park, seeks in this action of contract to recover from the insurance company (Liberty) his expenses in defending an action of tort brought against him by the administratrix of the estate of one Barker. The declaration (see fn. 3, infra) in that action alleged negligence causing Barker's death and conscious suffering. The present case, before us on Liberty's bill of exceptions, was heard in the Superior Court upon a statement of agreed facts. Liberty requested a ruling that '[o]n the facts stated, as a matter of law, there must be a finding for' Liberty. The trial judge denied this request and ordered judgment for Magoun in the sum of $3,526.48. Liberty has argued exceptions to the judge's action.

On December 23, 1950, Liberty issued a 'schedule general liability policy (manufacturers' and contractors' form)' to Magoun. Coverage A of this policy, in effect when Barker was killed, bound Liberty to 'pay on behalf of * * * [Magoun] all sums which * * * [Magoun] shall become legally obligated to pay as damages because of bodily injury * * * including death * * * resulting therefrom * * * caused by accident and arising out of the hazards hereinafter defined.' Under the heading 'Definition of Hazards,' division 1 of the policy reads, 'PREMISES--OPERATIONS--The * * * use of premises and all operations necessary or incidental thereto.' ¹ Under the heading 'Exclusions' appears a provision (for convenience referred to as the 'loading exclusion') which reads, 'This policy does not apply: (a) under division 1 of the [d]efinition of [h]azards, to the * * * use, including loading or unloading, of * * * (2) automobiles while away from such premises or the ways immediately adjoining * * *.' The word 'automobile' is defined as 'a land motor vehicle, trailer or semitrailer,' with certain exceptions not relevant. This definition plainly includes a truck. The policy, under the heading, 'Defense, Settlement, Supplementary Payments,' contained also an agreement by Liberty to defend Magoun, the pertinent portion of which appears in the margin. ²

On May 22, 1951, 'Magoun was engaged in removing steel joists from railroad cars * * * on premises [at 1670 Hyde Park Avenue] owned and controlled exclusively by' a railroad. 'The * * * [railroad] premises properly were being used by Magoun in loading the steel joists onto trucks to be used in connection with the erection of the * * * [s]chool. The * * * [railroad] premises were not adjoining premises of Magoun,' whose employees were doing the unloading and placing the joists on Magoun's trucks and 'on a truck owned by C. E. Hall & Sons, which truck and a driver were hired by Magoun to help fulfill his job as a sub-contractor. * * * Barker, the operator of the * * * [Hall] truck, was killed on the * * * [railroad] premises * * * when joists, which were loaded on the * * * [Hall] truck by employees of Magoun, fell upon him from that truck.'

Prompt oral and written notice of the accident was given to Liberty. On August 29, 1951, Liberty wrote to Magoun, '[W]e are handling his claim under full reservation of rights under your policy contract with us. Our investigation to date indicates that * * * Barker's death arose out of the loading of the C. E. Hall truck. Your policy contract with us does not provide protection to you under these circumstances.' The letter then quoted the loading exclusion and continued, 'Please forward promptly * * * any correspondence or legal papers which may be served on you in order that we may review them to be sure that we give you all the protection to which you are entitled under the terms of your policy of insurance.' Subsequently, 'an action of law ³ was brought by * * * [Barker's] [a]dministratrix * * * against Magoun and others. Liberty * * * notified Magoun that it was willing to undertake the defense of the action under the reservation set forth above. Magoun was unwilling to have Liberty represent it under the terms of that reservation and so notified Liberty. As a result, Magoun hired his own counsel to handle the defense of the * * * tort action. Counsel for Liberty thereafter cooperated with the counsel retained by Magoun in the defense of the * * * tort action,' in which it 'was found * * * that the employees of Magoun negligently caused the death of * * * Barker * * *. The tort action resulted in a final judgment on October 6, 1958, for Magoun on the ground that the 'common employment' doctrine * * * [see G.L. c. 152, § 18, as amended through St.1939, c. 93; see also McPadden v. W. J. Halloran Co., 338 Mass. 189, 192-194, 154 N.E.2d 582] was a complete bar to recovery. * * * Magoun * * * demanded that Liberty reimburse him for the * * * reasonable amount of the legal fee * * * [of] counsel who defended the tort action. Liberty * * * refused to make such reimbursement. The fair and reasonable amount of that legal fee is $2776.76.'

Liberty contends (a) that the accident occurred in circumstances within the loading exclusion, and (b) that, Liberty should not be required to pay Magoun's legal expenses in view of Liberty's offer to defend Magoun in the tort action under reservation of rights, Magoun's refusal of that offer, and Liberty's surrender to Magoun of control of defence of the tort action.

Liberty's basic, initial liability to defend under its agreement to do so (see fn. 2, supra) is determined by the allegations of the declaration in the tort action. Liberty was not required to defend unless the policy would bind it to indemnify Magoun if Barker's administratrix should prevail upon the allegations of the declaration. See Fessenden School, Inc. v. American Mut. Liab. Ins. Co., 289 Mass. 124, 128-130, 193 N.E. 558; Lee v. Aetna Cas. & Sur. Co., 178 F.2d 750, 751 (2d Cir.); Appleman, Insurance Law and Practice (1962) §§ 4683-4685. The declaration in the tort action (see fn. 3, supra) was broad enough to require Liberty to defend Magoun, for the declaration was not sufficiently specific, at least in failing to mention that loading a truck was involved, to show that the case was within the loading exclusion. ⁴ Cf. the Fessenden School case, supra, 289 Mass. at pp. 129-130, 193 N.E. at pp. 560-561. Upon the allegations it could have been found that 'handling * * * a load of steel at the freight depot in Hyde Park' was 'necessary or incidental' to the 'use of [the school] premises' under the basic hazard definition, division 1. See Reed Roller Bit Co. v. Pacific Employers Ins. Co., 198 F.2d 1, 2-3 (5th Cir.); Appleman, op. cit. §§ 4493.2-4493.4, 4500; Couch, Insurance 2d, §§ 44:300-44:304, 44:307. It does not necessarily follow, of course, merely because the declaration in the tort action stated a cause of action apparently within the coverage of the policy, that Liberty upon the facts actually proved upon a trial would be bound to satisfy a judgment for Barker's administratrix. The facts proved might involve no variance from the declaration and yet be clearly within the loading exclusion. Nevertheless, even if the proof would ultimately relieve Liberty from liability to indemnify Magoun against the judgment, Liberty would still be bound to defend the action.

The case presents a question not decide in Salonen v. Paanenen, 320 Mass. 568, 71 N.E.2d 227, in respect of Liberty's attempted reservation of right to disclaim liability under the policy while offering to defend Magoun against the tort action. In the Salonen case, this court pointed out (320 Mass, p. 572, 71 N.E.2d p. 230) that 'the defence of an action against an insured under a so called 'nonwaiver' agreement will not estop the insurer from subsequently disclaiming liability.' See Cassidy v. Liberty Mut. Ins. Co., 338 Mass. 139, 143, 154 N.E.2d 353. It pointed out (320 Mass. pp. 573-574, 71 N.E.2d p. 231) the dilemma confronting an insurance company, when it discovers in the course of the defence of an action that it has a probable basis for disclaiming liability. If the insurer continues to defend, without taking other action, it runs 'the risk of losing its right to disclaim later.' See Searls v. Standard Acc. Ins. Co., 316 Mass. 606, 608-610, 56 N.E.2d 782. If it severs 'its connection with the case, it * * * [runs] the risk of incurring liability to its assured' for breach of the covenant to defend. See Salonen case, 320 Mass. at p. 574, 71 N.E.2d at p. 231 and cases cited. See also Goldberg v. Lumber Mut. Cas. Ins. Co., 297 N.Y. 148, 154, 77 N.E.2d 131. This court concluded in the Salonen case that an insurer, who had (320 Mass. p. 574, 71 N.E.2d p. 231) 'notified the assured that it [the insurer] would thereafter defend under a reservation of rights,' was not estopped to disclaim liability at a later date, at least where the assured had not been lulled into a false sense of security by action of the insurer after learning of the ground for disclaimer. The Salonen opinion then proceeded (320 Mass. p. 574, 71 N.E.2d p. 232), 'We are not to be understood as holding that an insurer may reserve its rights to disclaim liability in a case and at the same time insist on retaining control of its defense. But here the assured never, after learning of the company's position, offered or attempted to assume defence of the action but, for aught that appears, acquiesced in the conduct of the case by the company.'

Liberty here made a reservation by its letter of August 29, 1951, before the tort action was commenced (see Marvel Heat Corp. v. Travelers Indem. Co., 325 Mass. 682, 684-685, 92 N.E.2d 233; cf. ...