Ridgway v. Gulf Life Ins. Co., No. 76-4193

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before GODBOLD, SIMPSON and MORGAN; PER CURIAM; ROBERT M. HILL; GODBOLD
• Citation: 578 F.2d 1026
• Parties: Nancy RIDGWAY, guardian of the Estates of David Ridgway and Mary Ellen Ridgway, Plaintiff-Appellee, Cross-Appellant, v. GULF LIFE INSURANCE COMPANY, a corporation, Defendant-Appellant, Cross- Appellee, v. RANGER INSURANCE COMPANY, Defendant-Appellee, John Lee Holcombe et al., Defendants.
• Docket Number: No. 76-4193
• Decision Date: 23 August 1978

Page 1026

578 F.2d 1026 Nancy RIDGWAY, guardian of the Estates of David Ridgway and
Mary Ellen Ridgway, Plaintiff-Appellee, Cross-Appellant,
v.
GULF LIFE INSURANCE COMPANY, a corporation,
Defendant-Appellant, Cross- Appellee,
v.
RANGER INSURANCE COMPANY, Defendant-Appellee,
John Lee Holcombe et al., Defendants. No. 76-4193. United States Court of Appeals,
Fifth Circuit. Aug. 23, 1978.
Rehearing and Rehearing En Banc Denied Oct. 5, 1978.

Page 1028

Royal H. Brin, Jr., Dallas, Tex., for defendant-appellant, cross-appellee.

Kearby Peery, Wichita Falls, Tex., R. Vernon Coe, Larry L. Gollaher, Dallas, Tex., for Ranger Ins.

Bradie E. Richie, Wichita Falls, Tex., for J. Holcombe.

W. Kelvin Wyrick, Texarkana, Tex., for Barry Trucking Co.

Appeals from the United States District Court for the Northern District of Texas.

Before GODBOLD, SIMPSON and MORGAN, Circuit Judges.

PER CURIAM:

Fatal injuries were sustained by the Ridgway plaintiffs' decedent on August 8, 1972, in a Texas highway collision with an over-the-road Barry Trucking Company truck driven by John Holcombe, ¹ Barry Trucking Company's driver-employee.

After verdicts and judgments for substantial damages in favor of the Ridgways, Barry Trucking Company's liability insurance carrier, Gulf Life Insurance Company, refused to pay the major portion of the judgments. The Ridgways, Pennsylvania residents, brought a garnishment proceeding in federal court based on the Texas Statute, and under that court's diversity jurisdiction. Gulf impleaded Ranger Insurance Company, which carried an "umbrella" liability policy insuring Barry Trucking. The primary contention of Gulf was that Holcombe was not an "insured" under the terms of Barry Trucking Company's policy with it (because its policy excluded coverage of the owner of a non-owned vehicle (see Note 1, supra), and that the judgments were the liability of Ranger Insurance Company under its "umbrella" policy. Gulf sought refunds from Ranger of the amounts it had paid and the unpaid portions of the Ridgway judgments.

There were no contested factual issues, and the district court decided this primary question, and other legal issues involved, upon motions for summary judgment, denying Gulf's motion, and granting that of Ranger. The district court's well-reasoned and complete memorandum opinion is attached to this opinion as "Appendix A". We adopt it as the basis for our affirmance of the judgment below.

AFFIRMED.

APPENDIX A

NANCY RIDGWAY, Guardian of the Estates of DAVID RIDGWAY and MARY ELLEN RIDGWAY, Plaintiff

v.

GULF INSURANCE COMPANY, JOHN LEE HOLCOMBE, RANGER INSURANCE COMPANY and BARRY TRUCKING COMPANY, Defendants

Civ. A. No. CA-7-76-3.

United States District Court, N. D. Texas, Wichita Falls Division.

Oct. 6, 1976.

ORDER AND MEMORANDUM OPINION

ROBERT M. HILL, District Judge.

The motion of defendants Gulf Insurance Company (Gulf) and Barry Trucking Company

Page 1029

(Barry) and the motion of defendant Ranger Insurance Company (Ranger) for summary judgment came on for consideration before the Honorable Robert M. Hill, United States District Judge. The court has considered the motions, the arguments and briefs of counsel, and is of the opinion that the motion of Gulf and Barry should be denied and that the motion of Ranger should be granted in part. The court bases this ORDER on the following conclusions of law:

1. As a matter of law, Holcombe was covered as an "insured" under Ranger's policy:

( a) Ranger is collaterally estopped to assert that Holcombe was not an employee of Barry and thus covered under DEFINITIONS Sec. 1(A) of its policy. This court found that Holcombe was an employee in the case from which the plaintiff's judgment arises. Ranger had timely notice of all the suits arising out of this accident, including the present suit and the fact that the judgment sought exceeded the limits of the underlying policy. Ranger negotiated some of the settlements in related cases on behalf of itself and Gulf. It was afforded notice and an opportunity to participate in the defense of the present case but chose to let Gulf handle it alone.

The principle is well-established that if a liability insurer with notice of a suit and duty to defend it fails to do so, it is bound by the judgment in that suit. It may not relitigate material fact issues which place that cause of action within the coverage of the policy. Maryland Casualty Co. v. Mitchell, 322 F.2d 37 (5th Cir. 1963). The briefs of Gulf cite multitudinous cases to the same effect. Although Ranger had no duty to defend under its contract, the court is of the opinion that this makes no difference with regard to the underlying principle of estoppel by judgment involved. Ranger had the right to defend and had adequate notice of a claim under the terms of this policy. While a liability insurer in such circumstances is not necessarily a formal party to the suit (and in most states, including Texas, cannot be made so), a liability insurer is not, as Ranger well knows, a stranger to the judgment. Ranger Insurance Co. v. Rogers, 530 S.W.2d 162 (Tex.Civ.App. Austin 1975). The contractual relation of liability and social policy supply the necessary privity of party between insured and insurer to bind the latter.

( b) Even if there were no collateral estoppel, Texas law would require Holcombe to be treated as an employee of Barry. There is no factual dispute that Holcombe operated the truck under an oral lease to Barry. Texas law requires that any lease of a commercial motor vehicle vest full and complete control and supervision of the operation of the vehicle in the lessee. Tex.Civ.Stat.Ann. art. 6701c-1 sec. 4 (1969). If the parties do not so provide, courts will imply it in the contract as a matter of law. Greyhound Van Lines, Inc. v. Bellamy, 502 S.W.2d 586 (Tex.Civ.App. Waco 1973, no writ). Texas law could not be plainer that the "independent contractor" defense is not available for commercial motor vehicles in these circumstances.

2. As a matter of law, Ranger is legally obligated for punitive damages within the limits of its policy. Ranger agreed "(t)o indemnify the insured for all sums which the insured shall be obligated to pay by reason of the liability (A) imposed on the insured by law . . . ." This unqualified and comprehensive wording necessarily includes both actual and punitive damages. Any other construction would twist the language of the policy.

The question remains, however, whether such a contract violates the public policy of the State of Texas. The court considers this question foreclosed by Dairyland County Mutual Ins. Co. v. Wallgren, 477 S.W.2d 341 (Tex.Civ.App. Fort Worth 1972, writ ref'd, n. r. e.); and Home Indemnity Co. v. Tyler, 522 S.W.2d 594 (Tex.Civ.App. Houston (14th Dist.) 1975, writ ref'd, n. r. e.). Dairyland held that a policy which was required by the Texas Motor Vehicle Safety Responsibility Act, Tex.Civ.Stat.Ann. art. 6701h (1969), and which was construed to cover punitive damages, did not

Page 1030

offend Texas public policy. As pointed out in Ranger's brief, its policy is not prescribed by the Texas Insurance Department. But the language of the policy in Dairyland And Ranger's policy are substantially similar, and the court cannot conceive any rationale for distinguishing the two situations: i. e. a reason why it did not offend any Texas policy of discouraging wrongdoers to relieve a drunk driver of punitive damages in Dairyland but would offend some such policy to relieve a drunk driver of punitive damages in the instant case. There may be sound policy reasons why some states have not allowed punitive damages to be covered by liability insurance, e. g. Northwestern National Casualty Co. v. McNulty, 307 F.2d 432 (5th Cir. 1962) (interpreting Florida law). Texas, however, apparently does not share this policy, and that ends the inquiry.

3. As a matter of law, Ranger has no liability to Gulf Insurance for sums paid or to be paid by Gulf, as either actual or punitive damages, in this suit. The court is mildly mystified as to Gulf's theory of recovery in this cross-action. Gulf...