Pacific National Insurance Co. v. Transport Insurance Co.

• Decision Date: 12 February 1965
• Docket Number: No. 17706.,17706.
• Citation: 341 F.2d 514
• Parties: PACIFIC NATIONAL INSURANCE COMPANY, Appellant, v. TRANSPORT INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

341 F.2d 514 (1965)

PACIFIC NATIONAL INSURANCE COMPANY, Appellant, v. TRANSPORT INSURANCE COMPANY, Appellee.

No. 17706.

United States Court of Appeals Eighth Circuit.

February 12, 1965.

Edward Brodkey, Chicago, Ill., made argument for the appellant and filed brief with Maurice Cathey, of Kirsch, Cathey & Brown, Paragould, Ark.

Richard A. Reid, of Reid & Burge, and James W. Steinsiek, Gardner & Steinsiek, Blytheville, Ark., for appellee.

Before VOGEL, MATTHES and RIDGE, Circuit Judges.

MATTHES, Circuit Judge.

Transport Insurance Company, plaintiff below, appellee here, instituted this action against Pacific National Insurance Company, one of the defendants below and appellant here, seeking to recover by way of indemnity the amount it had paid on account of a judgment obtained by one Paul Sikes against Superior Forwarding Company and Fred Russell in the Circuit Court of Greene County, Arkansas. Transport was successful in a trial before the Court, Judge Young, Transport Insurance Co. v. Manufacturers Cas. Ins. Co., 226 F.Supp. 251 (E.D.Ark.1964) and Pacific has appealed.¹

Superior, a common carrier holding a certificate of public convenience and necessity issued by the Interstate Commerce Commission, leased trucks for use in its trucking operations. On July 19, 1957, Superior transported a large freezer unit from Corning, Arkansas to Paragould, Arkansas, in a truck that had been leased from Tommy Russell. The driver of this truck, Fred Russell, had been furnished by Tommy Russell in accordance with the terms of the leasing agreement. Tommy was Fred's employer, paid Fred's wages and social security and unemployment taxes. Paul Sikes, a laborer, was working on the construction of the building to be occupied by Kroger Grocery Company, the consignee of the freezer unit. At Fred's request, Sikes was assisting in unloading the freezer and because of Fred's negligence, the freezer fell upon Sikes and caused him to sustain serious injuries.

On April 3, 1957, Manufacturers Casualty Insurance Company named as a defendant in this action, had issued to Tommy Russell, a policy of insurance which covered the truck in which the freezer had been transported. Pacific, formerly Pacific National Fire Insurance Company, also named as a defendant, succeeded to the policy liabilities of Manufacturers. Transport was the liability insurance carrier for Superior Forwarding Company.

The policy issued by Pacific to Tommy Russell contained an omnibus clause, providing in substance that with respect to insurance for bodily injury liability, the unqualified word "insured" includes the named insured and any person while using the vehicle, provided the actual use of the vehicle is by the named insured or with his permission. Under this provision Fred Russell was covered as an additional insured.

The policy issued by Transport to Superior defined "insured" as the named insured and "if a corporation, any executive officer, managing employee, director, or stockholder thereof while acting within the scope of his duties as such * *". The trial court found that this policy did not provide coverage to Fred Russell, the truck driver, because as a servant of Superior he was not a named insured within the above quoted clause of the policy. This finding is not challenged by appellant.

Paul Sikes sued Superior, Tommy Russell and Fred Russell in the Circuit Court of Greene County, Arkansas. Pacific, Tommy's insurer, entered into a non-waiver agreement with Tommy and thereafter filed a demurrer in his behalf which was sustained. From the outset of the Sikes' litigation, Transport took the position, and so advised Pacific, that Fred Russell was an insured under Pacific's policy and Transport called upon Pacific to defend Fred. Pacific adamantly refused to do so and Transport took over the defense on behalf of Fred.

Sikes' judgment against Superior and Fred Russell was affirmed by the Supreme Court of Arkansas, Superior Forwarding Company v. Sikes, 233 Ark. 932, 349 S.W.2d 818 (1961). Transport satisfied the judgment, and then filed this suit in the United States District Court on the theory that Superior was held vicariously liable for Sikes' injuries; that Superior had the right to proceed by way of indemnity against and recover from Fred Russell, the actual tortfeasor; and that as Superior's subrogee, it is entitled to maintain this action and recover from Fred Russell's insurer.

The threshold question is whether jurisdiction exists. Appellant strenuously asserts that there was no jurisdiction in the district court, and that we must therefore vacate the judgment and remand with directions to dismiss. Jurisdiction was not challenged in the district court, in fact all parties proceeded as though the court had power to act. However, as suggested by appellant, jurisdiction may not be conferred by consent and lack of jurisdiction of the subject matter cannot be waived by the parties or ignored by the court; if jurisdiction is lacking the trial court should on its own motion decline to proceed and if the case is tried where jurisdiction is lacking, the jurisdiction of the appellate court on review is limited to correcting the error of the trial court in entertaining the action. These principles are fundamental and were recognized and applied by us in the recent case of Rock Island Millwork Co. v. Hedges-Gough Lumber Co., 337 F.2d 24, 26-27 (8 Cir. 1964).

Appellant concedes that there is diversity of citizenship and that the jurisdictional amount is present, but contends that the proceeding is not a case or controversy under article III of the United States Constitution and the applicable statutes. Appellant also concedes that the parties hereto stand in the place of their respective insureds, but asserts that appellee had "no standing to sue this defendant, as it did not own a supposed claim against this party" and that "until such time as is determined the extent, if any, of Fred Russell's liability to Superior, there is no basis for any claim in behalf of Superior, or of Superior's subrogee, against defendant Pacific." In other words, appellant's theory is that inasmuch as the question whether Superior was vicariously liable to Sikes has not been litigated and finally adjudicated in an action between Superior or appellee, as its subrogee, and Fred Russell, this proceeding is premature.

In support of its position, appellant directs our attention to the tests to be applied in determining whether the action presents a controversy which a federal court has power to adjudicate — other jurisdictional requirements being present. The tests are clearly enunciated by the Supreme Court in the oft-cited case of Muskrat v. United States, 219 U.S. 346, 356, 357, 31 S.Ct. 250, 55 L.Ed. 246, 254 (1911) as follows:

"`The judicial article of the Constitution mentions cases and controversies. The term "controversies," if distinguishable at all from "cases," is so in that it is less comprehensive than the latter, and includes only suits of a civil nature. Chisholm v. Georgia, 2 Dall. 431, 432, 1 L.Ed. 440, 446; 1 Tucker\'s Bl.Com.App. 420, 421. By cases and controversies are intended the claims of litigants brought before the courts for determination by such regular proceedings as are established by law or custom for the protection or enforcement of rights, or the prevention, redress, or punishment of wrongs. Whenever the claim of a party under the Constitution, laws, or treaties of the United States takes such a form that the judicial power is capable of acting upon it, then it has become a case. The term implies the existence of present or possible adverse parties, whose contentions are submitted to the court for adjudication.\'" See also Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-241, 57 S.Ct. 461, 81 L.Ed. 617 (1937).

By application of the foregoing tests, we are satisfied that at the time this action was commenced, appellant and appellee stood in adverse positions to one another, and appellee's claim was a present, specific, right, ripe for determination. The following factors are significant: (1) Fred Russell was an insured under appellant's policy; Superior was insured by appellee; (2) suit had been brought by Sikes against Superior and Fred Russell; (3) appellant refused to assume the defense of Fred, and appellee in an effort to exonerate its insured from vicarious liability for the negligence of Fred, undertook the defense of the latter; (4) judgment was rendered against Superior and Fred and affirmed on appeal; (5) appellee paid the full amount of the judgment.

Thus posited, appellee as the subrogee of Superior, was entitled to maintain this action and secure an adjudication of a real and substantial controversy, to-wit, the question whether it was entitled to recover by way of indemnity, the amount it was required to pay in satisfaction of the Sikes' judgment. The argument that it was necessary to first secure a judicial determination that Superior was vicariously liable, in a proceeding directly against Fred Russell has no appealing force.² If Superior was entitled to maintain such an action against Fred, we are satisfied that on this record Superior's insurer may proceed against Fred's insurer. See and compare: Pacific Employers Ins. Co. v. Hartford Acc. & Ind. Co., 228 F.2d 365 (9 Cir. 1955) cert. denied 352 U.S. 826, 77 S.Ct. 38, 1 L.Ed.2d 49 (1956); Maryland Cas. Co. v. Employers Mut. Liability Ins. Co., 208 F.2d 731 (2 Cir. 1953); Prickett v. Hawkeye Security Insurance Company, 282 F.2d 294 (10 Cir. 1960). As stated by the Court in Travelers Insurance Company v. General Casualty Company, 187 F.Supp. 234, at page 236 (E.D.Idaho 1960): "The reason for this rule is obvious. It prevents a multiplicity of suits and holds the insurer liable who by a circuity of actions would eventually be obligated to pay any judgment rendered against an employer resulting from the negligence of his employee".

We are satisfied jurisdiction exists, and...