Maryland Casualty Co. v. Hubbard

• Decision Date: 22 March 1938
• Docket Number: No. 1262-Y.,1262-Y.
• Court: U.S. District Court — Southern District of California
• Parties: MARYLAND CASUALTY CO. v. HUBBARD et al.

22 F. Supp. 697

MARYLAND CASUALTY CO. v. HUBBARD et al.

No. 1262-Y.

District Court, S. D. California, Central Division.

March 22, 1938.

Schell & Delamer, by G. F. Delamer, of Los Angeles, Cal., for plaintiff.

Lasher B. Gallagher, of Los Angeles, Cal., for defendant Hubbard.

Joe Crider, Jr., by Clarence B. Runkle, of Los Angeles, Cal., for defendant Employers' Liability Assur. Corporation.

YANKWICH, District Judge.

The amended bill of complaint for declaratory relief shows these facts: Joe Petronovich owned a Ford automobile in Gallup, New Mexico, and had obtained from the defendant Employers Liability Assurance Company (to whom we shall refer as "the defendant-insurer") a policy of public liability insurance which contained an omnibus clause extending the coverage to any person operating the automobile with the owner's permission. The defendant L. K. Blackwell borrowed the automobile, and, while driving it in Gallup, New Mexico, with the owner's consent, struck and injured the defendant Harry P. Hubbard, who has sued Blackwell and the defendant Ridgeway Audit, Inc., Blackwell's alleged employer, in the superior court of the State of California, for Los Angeles county.

The action is pending. Prior to the accident, the plaintiff, a Maryland corporation, issued, in the State of Washington, its nonownership public liability policy to the defendant Ridgeway Audit, Inc., which it asserts constituted excess and not primary coverage in the event of the existence of any other valid public liability coverage. The policy contains the following clause: "III Further, the Company will investigate all accidents and claims covered hereunder, and defend in the name and on behalf of the Assured all suits thereon, even if groundless, of which notices are given to it as hereinafter required; and will pay, irrespective of the limit of liability provided for in Insuring Agreement I, the expense (including as a part thereof Court costs, all premiums on release-of-attachment and/or appeal bonds required in any such proceedings, and all interest accruing after entry of a judgment for any part of which the Company is liable hereunder and up to the date of payment, tender, or deposit in Court, by the Company of its share of such judgment) incurred by it in such investigation and defense; but the Company reserves the right to settle any such claim or suit." The bill avers that the defendant-insurer's policy contained a similar clause. The defense of the accident has been tendered to the defendant-insurer, but it has refused to take it, denying liability. The controversy arises from this refusal, and denial of liability and the contention of the plaintiff that the defendant-insurer's policy is primary coverage and the plaintiff's is merely excess coverage, after the liability of the defendant-insurer's policy has been exhausted.

The requisite diversity of citizenship and jurisdictional amount are present. 28 U.S.C.A. § 41(1).

The defendant-insurer has moved to dismiss the bill, upon the ground that it fails to state, as against it, a cause of relief under the Declaratory Judgments Act, 28 U. S.C.A. § 400.

Its position is that there is no privity between it and the plaintiff. It says that only after Hubbard secures a judgment against Ridgeway Audit, Inc., and the plaintiff pays it, would it be subrogated to whatever right of action Ridgeway Audit, Inc., had against defendant company by reason of the Petronovich policy. This right, it declares, is purely contingent and dependent upon the happening of future events which have not yet occurred or upon an issue which has not yet ripened and which is outside of the power of the court to determine through a declaratory judgment.

To be entertained under the Declaratory Judgments Act, controversies must be justiciable.

In Aetna Life Insurance Co. v. Haworth, 1937, 300 U.S. 227, 240, 241, 57 S. Ct. 461, 464, 81 L.Ed. 617, 108 A.L.R. 1000, the court has stated the conditions which make for justiciability: "The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. * * * It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. * * * Where there is such a concrete case admitting of an immediate and definitive determination of the legal rights of the parties in an adversary proceeding upon the facts alleged, the judicial function may be appropriately exercised although the adjudication of the rights of the litigants may not require the award of process or the payment of damages." (Italics added.)

In interpreting declaratory judgments acts, the trend is to extend their benefit to the interests of parties which are jeoparded or challenged even before a right of action exists or cause of action accrues. Borchard says: "The opposition to the plaintiff's demand must come from a source competent legally to jeopardize his right. Where, however, that is conceded, it still remains to determine whether the plaintiff has a sufficient interest, pecuniary or personal, to institute a proceeding worthy of judicial relief. He must show that his rights are in direct issue or jeopardy; and incidental thereto, must show that the facts are sufficiently complete, mature, proximate, and ripe to place him in gear with his adversary, and thus to warrant the grant of judicial relief. Just when the controversy has reached the stage of maturity cannot be a priori defined." Borchard, Declaratory Judgments (1934) p. 36.

A declaration of nonliability is within the ambit of justiciability. Edwin Borchard, Justiciability (1936), 4 University of Chicago Law Review, 1-24; Borchard, Recent Developments in Declaratory Relief (1936), 10 Temple Law Quarterly, 233.

In the field of liability insurance, the right to a judicial declaration of liability or nonliability upon the happening of the accident has been given full recognition. Aetna Life Insurance Co. v. Haworth, 1937, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617, 108 A.L.R. 1000; Aetna Life Ins. Co. v. Williams, 1937, 8 Cir., 88 F.2d 929; Central Surety & Insurance Corporation v. Caswell, 1937, 5 Cir., 91 F.2d 607; Columbian National Life Insurance Co. v. Foulke, 1937, 8 Cir., 89 F.2d 261; Stephenson v. Equitable Life Assurance Society of U. S., 1937, 4 Cir., 92 F.2d 406; Farm Bureau Mutual Automobile Ins. Co. v. Daniel, 1937, 4 Cir., 92 F.2d 838; Carpenter v. Edmonson, 1937, 5 Cir., 92 F.2d 895; Western Casualty Co. v. Beverforden, 1937, 8 Cir., 93 F.2d 166. And see John A. Appleman, "Automobile Insurance and the Declaratory Judgment," 1937, 23 A.B.A.Journal, 551.

A demand that the insurer defend an action warrants an appeal to courts for a declaration of nonliability. Associated Indemnity Corporation v. Manning, 1937, 9 Cir., 92 F.2d 168; Travelers Ins. Co. v. Young, 1937, D.C.N.J., 18 F.Supp. 450; United States Fidelity & Guaranty Co. v. Hearn, 1936, 233 Ala. 31, 170 So. 59; American Motorists Ins. Co. v. Central Garage, 1933, 86 N.H. 362, 169 A. 121. When the policy obligates the insurer to defend, declarations seeking to free him from the obligation have been entertained even when no demand to defend a pending action had actually been made on him. Ohio Casualty Ins. Co. v. Plummer, 1935, D.C.Tex., 13 F.Supp. 169; American Motorists Ins. Co. v. Busch, 1938, D.C.Cal., 22 F.Supp. 72, decided February 7, 1938, by our colleague, the Honorable Ralph E. Jenney; Commercial Casualty Insurance Co. v. Humphrey, 1935, D.C.Tex., 13 F.Supp. 174.

These decisions accord with others holding that courts may intervene by way of declaration "either before or after the stage of relief by coercion has been reached." Gully v. Interstate Natural Gas Co., 1936, 5 Cir., 82 F.2d 145, 149; see: Hann v. Venetian Blind Corporation, 1936, D.C.Cal., 15 F.Supp. 372; Pan American Petroleum Co. v. Chase Nat. Bank, 1936, 9 Cir., 83 F. 2d 447.

To apply these principles to the facts here:

An action for damages resulting from the injury is pending. The bill, the allegations of which are taken as true, for the purpose of the motion to dismiss, Hill v. Wallace, 1922, 259 U.S. 44, 61, 42 S.Ct. 453, 455, 66 L.Ed. 822; Arizona v. California, 1931, 283 U.S. 423, 452, 51 S.Ct. 522, 525, 75 L.Ed. 1154; San Francisco S. News Co. v. City of South San Francisco, 1934, 9 Cir., 69 F.2d 879, avers that both policies cover the risk. The insured under the plaintiff's policy, Ridgeway Audit, Inc., is a party to this action. But while the insured under the defendant-insurer's policy (Petronovich) is not a party, because he is beyond our jurisdiction, the bill avers that the policy inured also to the benefit of the defendant Blackwell, who was driving with the owner's consent. If judgment in the action for damages, to which it is also a party, be against Ridgeway Audit, Inc., it would be entitled to reimbursement from Blackwell and from the defendant-insurer.

The plaintiff, if compelled to pay the judgment, by reason of its coverage, would be subrogated to the rights of Ridgeway Audit, Inc., against the defendant. Central Surety & Ins. Corporation v. London & Lancastershire Indemnity Co., 1935, 181 Wash. 353, 43 P.2d 12; Travelers' Ins. Co. v. Great Lakes Engineering Co., 1911, 6 Cir., 184 F. 426, 36 L.R.A.,N.S., 60. In fact, its policy so declares.

Often has a declaration been allowed, although liability depended upon a contingency which had not yet happened.

Thus, in Post v. Metropolitan Casualty Ins. Co., 1929, 227 App.Div. 156, 237 N.Y. S. 64, the court had under consideration a liability policy under which the insurer was not liable until the insured railway company had paid a minimum of $25,000 in judgments. Several actions were pending. In one, judgment had been given for $7500. The demands in the others, when added to this judgment, more than exceeded the $25,000 limit. The railway...