Maryland Casualty Co. v. Boyle Const. Co.

• Decision Date: 10 November 1941
• Docket Number: No. 4831.,4831.
• Parties: MARYLAND CASUALTY CO. v. BOYLE CONST. CO., Inc., et al.
• Court: U.S. Court of Appeals — Fourth Circuit

123 F.2d 558 (1941)

MARYLAND CASUALTY CO. v. BOYLE CONST. CO., Inc., et al.

No. 4831.

Circuit Court of Appeals, Fourth Circuit.

November 10, 1941.

COPYRIGHT MATERIAL OMITTED

R. Beverley Herbert, of Columbia, S. C. (Herbert & Dial, and Geo. L. Dial, Jr., all of Columbia, S. C., on the brief), for appellant.

Henry C. Miller, of Anderson, S. C. (George Bell Timmerman, of Lexington, S. C., and William Elliott, Jr., and Elliott, McLain, Wardlaw & Elliott, all of Columbia, S. C., on the brief), for appellees.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from an order dismissing an action instituted by a casualty insurance company to obtain a declaratory judgment under a policy of public liability insurance and to enjoin the prosecution of actions commenced in a state court against the insured. The plaintiff in the actions in the state court was Victor G. Miller, the administrator of the estate of one Horace R. Miller, who had been killed in an automobile collision by a truck operated by one Snelgrove, an employee of the insured, the Boyle Construction Company. In one of the actions instituted in the state court against the insured, the administrator demanded damages in the sum of $50,000 for the wrongful death of Horace R. Miller, and in the other, damages in the sum of $25,000 for pain and suffering resulting from the injury which caused death. The Maryland Casualty Company, plaintiff in the suit at bar, had issued a policy of public liability insurance to the Boyle Construction Company in which it undertook, to the extent of $10,000 in the case of any one person injured, to pay on behalf of the insured liability imposed for damages caused by accident and arising out of the ownership, maintenance or use of automobiles covered by the policy, and to defend in the name of the insured any suit alleging such injury and seeking damages on account thereof, even though such suit were "groundless, false or fraudulent".

This action for declaratory judgment was instituted in the court below after the actions against the insured had been instituted in the state court by the administrator. At first, only the administrator and the insured were joined as defendants. Afterwards, the pleadings and process were amended to bring in Snelgrove, the operator of the truck, and the American Mutual Liability Insurance Company, the insurance carrier of the Boyle Construction Company under the South Carolina Workmen's Compensation Act, Act S.C. July 17, 1935, 39 St. at Large, p. 1231. The complaint alleged that there was no liability on the part of the Boyle Construction Company to the administrator of Miller for the reason that Miller, at the time of his death, was engaged in the performance of duties as an employee of the construction company and any claim arising out of his death was subject to the provisions of the Workmen's Compensation Act, which provided an exclusive remedy in the premises, and was not covered by its policy. It asked that the court declare whether or not the plaintiff was obligated to defend the actions which had been brought in the state court or to pay any judgment therein obtained within the limits of its policy, and also whether the administrator could maintain the actions in the state court or was confined to the remedy provided by the Workmen's Compensation Act. It also prayed an injunction to restrain the prosecution of the actions in the state court. It appears from the face of the complaint that the plaintiff Maryland Casualty Company is a Maryland corporation, that the defendant administrator and the defendant Snelgrove are citizens and residents of the state of South Carolina, that the defendant Boyle Construction Company, the insured, is a South Carolina corporation, and that the American Mutual Liability Insurance Company is a corporation of Massachusetts.

The administrator of Miller and the American Mutual Liability Insurance Company filed answers challenging the jurisdiction of the court and objecting to interference, under the declaratory judgment act, with actions pending in the state courts or with matters properly cognizable before the state Industrial Commission under the Workmen's Compensation Act. The Boyle Construction Company and its employee Snelgrove did not answer. The court below dismissed the action on the authority of State Farm Mutual Automobile Ins. Co. v. Hugee, 4 Cir., 115 F.2d 298, 300, 132 A.L.R. 188. The court held, also, that it would not be justified in exercising its power to render a declaratory judgment for the purpose of determining questions properly cognizable before the Industrial Commission. The plaintiff has appealed from the order of dismissal, but in this court abandons its prayer for injunctive relief.

It is perfectly clear, we think, that this case is controlled by our decision in the Hugee case, supra. There is no controversy of any sort whatever between plaintiff and the insured. The coverage of the policy is not in dispute and plaintiff is admittedly obligated to defend the actions instituted against the insured, even though they be "groundless, false or fraudulent". The declaratory judgment sought would not relieve plaintiff of the duty of defending them, except as a result of adjudicating the question of liability therein pending, as to which there is no controversy whatever between plaintiff and insured. The interests of plaintiff and insured are identical not only in the litigation instituted in the state court but also in this suit. If the contention that Miller was an employee of insured be sustained, this will relieve the insured of liability for the claims for damage asserted by the administrator and will also relieve plaintiff from any liability on account thereof under its policy. If the contention is not sustained, insured may be held in damages in an amount in excess of the policy and plaintiff may be held liable under the policy for the face amount thereof. As we said in the Hugee case: "The position of plaintiff then comes to this: that because the operator of a motor vehicle is insured by an out of state insurance company that agrees under its policy to defend suits against the insured, claims against the insured may be dragged into the federal courts for litigation, notwithstanding that the insured and claimant are citizens of the same state and notwithstanding that there is no controversy of any sort between the insured and the company. Merely to state such a proposition is to answer it, when it is remembered that a bona fide controversy between citizens of different states is necessary to support jurisdiction which depends on diversity of citizenship."

In the Hugee case we called attention to some of the authorities requiring realignment of the parties in a case such as this and dismissal of the case where such realignment results in destroying the diversity of citizenship upon which jurisdiction is grounded. A report of that case in A.L.R. is followed by an exhaustive note showing the application of the principle in a wide variety of cases. See note 132 A.L.R. 193-212. Another recent decision applying the same principle is Farr v. Detroit Trust Co., 6 Cir., 116 F.2d 807, 811, wherein the Circuit Court of Appeals of the Sixth Circuit, speaking through judge Hamilton, said:

"Where diversity of citizenship is the sole ground of jurisdiction as here, the parties will be aligned in accordance with their real interest and if, upon such alignment, there is no diversity of citizenship between the parties on opposite sides of the controversy, the suit will be dismissed. Niles-Bement-Pond Company v. Iron Moulders' Union, 254 U.S. 77, 82, 41 S.Ct. 39, 65 L.Ed. 145; Berg v. Merchant, 6 Cir., 15 F.2d 990. The plaintiffs in the original action on the facts alleged might have stated a cause of action within the jurisdiction of the court but we do not decide that question. Making the appellant with whom they had no controversy a defendant in that action, requires that he be aligned on the side on which he belongs. Lee v. Lehigh Valley Coal Company, 267 U.S. 542, 543, 45 S.Ct. 385, 69 L.Ed. 782. The pleader's arrangement of the parties is not conclusive on the court. The court must look into the real facts and in considering the jurisdictional questions, will rearrange the parties according to the nature of the controversy. Harter Tp. v. Kernochan, 103 U.S. 562, 565, 26 L.Ed. 411; City of Dawson v. Columbia Trust Co., 197 U.S. 178, 180, 25 S.Ct. 420, 49 L.Ed. 713. This rule is especially applicable when, as here, by co-operation or prearrangement the real parties in interest are manifest. Removal Cases, 100 U.S. 457, 469, 25 L.Ed. 593.

"It is clear, from the record, that appellant is beneficially interested in the granting of the relief sought by the plaintiffs in the original action and that he is on their side of the controversy. It follows from so aligning the parties that his sole controversy is with citizens of his own state. DeGraffenreid v. Yount-Lee Oil Company, 5 Cir., 30 F.2d 574; Magnolia Petroleum Company v. Suits, 10 Cir., 40 F.2d 161. The court below properly dismissed appellant's cross-claim for want of jurisdiction."

As we pointed out in the Hugee case, if there were a bona fide controversy between plaintiff and the insured, a different situation would be presented; for in such case the basis for a realignment of parties would be absent. If, for example, there were a bona fide controversy over the meaning or coverage of the policy or over the question of its validity or expiration, it would no doubt be proper to invoke the power of the court to render a declaratory judgment against the insured and to join the claimant against the insured as a party defendant, so that there might be a complete settlement of the controversy. Of course the plaintiff has a justiciable controversy with the claimant, and there is diversity of citizenship between plaintiff and the claimant; but insured is...