Milbank Mutual Insurance Company v. Wentz

• Decision Date: 10 November 1965
• Docket Number: No. 17982.,17982.
• Citation: 352 F.2d 592
• Parties: MILBANK MUTUAL INSURANCE COMPANY, a Foreign Corporation, Appellant, v. Dale WENTZ, Leo Gefroh, as Surviving Husband of Barbara Gefroh, Deceased, Individually and on behalf of Leo Gefroh, a Surviving Child, Josephine M. Knutson, General Guardian of the Person and Estate of Kenneth Ray Carles and David Allen Carles, Minors. Eugene Gefroh and Barbara Gefroh as Administratrix of the Estate of Bernhard Gefroh, Deceased, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

352 F.2d 592 (1965)

MILBANK MUTUAL INSURANCE COMPANY, a Foreign Corporation, Appellant, v. Dale WENTZ, Leo Gefroh, as Surviving Husband of Barbara Gefroh, Deceased, Individually and on behalf of Leo Gefroh, a Surviving Child, Josephine M. Knutson, General Guardian of the Person and Estate of Kenneth Ray Carles and David Allen Carles, Minors. Eugene Gefroh and Barbara Gefroh as Administratrix of the Estate of Bernhard Gefroh, Deceased, Appellees.

No. 17982.

United States Court of Appeals Eighth Circuit.

November 10, 1965.

COPYRIGHT MATERIAL OMITTED

Mart R. Vogel, Fargo, N. D., made argument for the appellant and filed brief.

F. J. Smith, of Fleck, Smith, Mather, Strutz & Mayer, Bismarck, N. D., and E. F. Engebretson, of Cox, Pearce, Engebretson, Murray & Anderson, Bismarck, N. D., made argument for the appellees.

F. J. Smith, Bismarck, N. D., filed brief for appellee Dale Wentz.

E. F. Engebretson, Bismarck, N. D., filed brief for appellees Leo Gefroh, and others.

David L. Milhollan, of Wolf, Glaser & Mihollan, Bismarck, N. D., filed brief for appellees Eugene Gefroh and others.

Before MATTHES, RIDGE and GIBSON, Circuit Judges.

GIBSON, Circuit Judge.

This appeal is from the United States District Court for the District of North Dakota, holding appellant liable as an insurer under an automobile liability policy. Appellant is a South Dakota insurance corporation, and appellees were the litigants in a state court action which arose out of an automobile collision. Diversity of citizenship, with requisite amount, establishes jurisdiction. The substantive law of North Dakota applies.

On July 21, 1959, Eugene Gefroh was driving a 1957 Ford automobile eastward along North Dakota U. S. Highway 10. With Eugene were his older brother Leo and Leo's wife Barbara. It was nearly dark and the blacktop road was wet from a recent rain. Travelling at about 60 miles per hour, Eugene overtook a large truck on an upward grade. He pulled into the left lane to pass the truck and struck head-on a car driven by Dale Wentz. Leo's wife, Barbara was killed and Leo was severely injured. Also injured severely in the crash was the driver of the other car, Dale Wentz.

This 1957 Ford driven by Eugene was purchased a year earlier by his father Bernhard Gefroh and the certificate of title was in Bernhard's name. Between Eugene and his father Bernhard, however, there was an oral agreement that Eugene could use the car and gradually repay his father the purchase price. At the time of the accident all but about $300 of the $1,900 purchase price had been repaid.

Immediately after Bernhard purchased this car, he secured in his own name a liability insurance policy from appellant Milbank Mutual Insurance Corporation (hereafter referred to as Milbank or Appellant). The policy had a maximum coverage of $20,000 for multiple claims. The application for insurance indicated that Bernhard (called "Ben" therein) was the owner and that his son Eugene would operate the car approximately 25 per cent of the time. Since the original application the policy had been renewed without change twice and was in force at the time of the above-described collision. It does not appear to what extent the car was actually used by young Eugene at the time of the initial application for the insurance. However, at the time of the accident he was working in a neighboring town, and it is clear that he was driving the car about 90 per cent of the time.

Upon receiving notice of the accident, Milbank undertook an investigation of the collision. On July 27, 1959, some six days after the collision, Milbank filed with the North Dakota State Highway Department a form SR-21 confirming that the Gefroh vehicle was covered by liability insurance issued by it.

In June 1960 Bernhard Gefroh, the record owner of the car, died, and his wife was appointed administratrix of his estate.

Approximately a year following the accident, August 12, 1960, suit was filed in a state court against Eugene Gefroh, driver of the Ford, the estate of Bernhard Gefroh, as owner, and Dale Wentz, the driver of there other car. Plaintiffs in this suit were Leo Gefroh, a passenger in the car driven by his brother Eugene, for himself, on behalf of his wife Barbara who was killed in the collision, and their minor child; and Josephine Knutson, the guardian of two minor children of a prior marriage of Barbara Gefroh, deceased. Being a defendant in the suit, the driver of the other car, Dale Wentz filed a cross-claim against his fellow defendants. The total prayer for damages against Eugene Gefroh and the estate of Bernhard Gefroh was more than $340,000, thus greatly exceeding the policy coverage of $20,000.00.

Milbank assumed the defense of the suit and began its preparations. On December 22, 1960, a year and a half after the collision, Milbank notified Eugene and the administratrix of Bernhard's estate that it appeared to them that Eugene and not Bernhard was the owner of the auto at the time of the accident. Because of this, the letter continued, Milbank by undertaking the defense of the matter was not waiving any of its rights to deny coverage. On receiving this "reservation of rights" notice, Eugene and the estate of Bernhard, in order to protect their interests, retained counsel who associated himself with the defense of the case. Milbank, however, continued with the preparations and made no further move to deny coverage or revoke the policy.

On May 23, 1961, the attorneys representing plaintiff Leo Gefroh and cross-claimant Dale Wentz offered to settle all claims for a total of $20,000, the insurance policy limits.

On May 29, 1961, the independent attorney for defendants Eugene Gefroh and the estate of Bernhard Gefroh addressed a letter to the attorneys for Milbank. Copies were sent to the attorneys for plaintiff Leo Gefroh and cross-claimant Dale Wentz. The letter stated that "there is practically no possibility of successfully defending these claims. * * * It is quite possible that verdicts in excess of $100,000 would be returned by a jury." The letter continued that in view of the offer to settle $340,000 in claims for the policy limits of $20,000 it would be mutually beneficial to both the insurer and insured if the offer were accepted. The attorney pointed out that a refusal to accept the offer would subject his clients to a risk of tremendous liability; and further, demanded that "full control over the defense of this matter" be turned over to him, if Milbank elected not to accept the settlement offer.

Milbank did not accept the offer and a week later, only two days before the scheduled trial, it withdrew from the case. The other parties received notice of this withdrawal only a day before the scheduled trial.

Thereafter, on June 6, 1961, the appellees herein stipulated for an entry of judgment in favor of plaintiff and cross-claimant against Eugene and the estate of Bernhard. After hearing testimony, the Court entered judgment as stipulated for a total of $21,925, of which $10,000 was to be paid to plaintiff and $11,925 to cross-claimant.

Appellees then filed in the state court an action for declaratory judgment against Milbank seeking a declaration of its liability under the policy. The action was removed to the United States District Court for the District of North Dakota. The issues were submitted to the trial court on stipulated facts, including depositions and exhibits.

These four issues were presented:

1. At the time of the original application of insurance, was there a misrepresentation of the ownership of the Ford?

2. Was there a change in the ownership prior to the accident?

3. Was the co-operation clause of the policy violated by the admission of liability and assumption of the obligation of the defense contained in the letter of May 29?

4. Do the policy provisions demanding that insured's liability be established "after actual trial" relieve Milbank of the obligation to respond to the state court judgment?

Resolving all issues in favor of the appellees the trial court answered all four of these questions in the negative and ordered Milbank to pay the amount set forth in the policy. From this judgment Milbank appeals.

Milbank contends that the negative conclusion of each of these issues was erroneous.

We shall deal with the issues in the order of their consideration by the trial court. The first point of asserted misrepresentation of ownership at the time the policy was originally purchased is of no merit. Bernhard Gefroh, the father, purchased the vehicle for his twenty-one year old son Eugene, paying therefor the entire consideration of some $1900 and had title registered in his name. There is no indication that Bernhard did not immediately assume the ultimate right of control over the vehicle. The insurance application lists the insured, Bernhard Gefroh as the sole owner and also shows in item 6(c) that he has "other automobile/truck insurance" with Milbank under two additional policies; and in addition shows "Eugene Gefroh, son, age 21" as one of the drivers of the insured vehicle and that he would be driving it 25 per cent of the time.

Milbank relies on the case of Didlake v. Standard Insurance Co., 195 F.2d 247, 33 A.L.R.2d 941 (10 Cir. 1952) as authority for the view that Eugene and not Bernhard was the actual owner. The facts of Didlake are clearly distinguishable. In Didlake the record owner was merely a "front man" to enable the real owner, a 17-year old minor, to secure the necessary financing and insurance for the vehicle. The minor was not even listed on the insurance policy as a driver. The record owner had no financial or possessory interest in the automobile, nor any intention of using it.

There is no evidence that Eugene at the time of the car's initial purchase had any legally recognized interest in the car or any right to its control. The trial court correctly ruled that there was no misrepresentation of ownership at the time of the application for...