Salerno v. Western Casualty & Surety Company

• Decision Date: 21 September 1964
• Docket Number: No. 17559.,17559.
• Citation: 336 F.2d 14
• Parties: Carmen N. SALERNO, Appellant, v. The WESTERN CASUALTY & SURETY COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

336 F.2d 14 (1964)

Carmen N. SALERNO, Appellant, v. The WESTERN CASUALTY & SURETY COMPANY, a corporation, Appellee.

No. 17559.

United States Court of Appeals Eighth Circuit.

August 28, 1964.

Rehearing Denied September 21, 1964.

Robert E. Staed, of Kappel & Neill, St. Louis, Mo., John C. Kappel, of Kappel & Neill, St. Louis, Mo., for appellant.

Rene J. Lusser, of Lusser & Lusser, St. Louis, Mo., Rene E. Lusser, of Lusser & Lusser, St. Louis, Mo., for appellee.

Before VOGEL, MATTHES, and RIDGE, Circuit Judges.

RIDGE, Circuit Judge.

This appeal, duly perfected, presents for review an adjudication made in a declaratory judgment action brought under 28 U.S.C.A. § 2201, ruling that no coverage was afforded appellant under a comprehensive personal liability policy of insurance issued by appellee for personal injuries sustained by one Wallace W. Humes, a jockey, while "ponying" a race horse on appellant's suburban farm.¹ The opinion of the District Court adjudicating that matter is recorded in D.C. 224 F.Supp. at page 584. Since there is no dispute as to the relevant facts existing in the case at bar, and it appears from the record before us that the primary issue here is to be related to the singular proposition, namely, whether appellee, by conduct constituting waiver and estoppel, is precluded under Missouri law from asserting "non-coverage or non-liability" under the policy of insurance in question, we only relate those facts that will bring that issue into proper focus and enlightenment.

Appellee's insurance policy as issued and in force at all times hereinafter mentioned, granted comprehensive personal liability coverage to appellant at his farm residence described as 900 Charbonier Road, St. Louis County, Missouri. The policy specifically excluded coverage for occurrences arising from "business pursuits conducted" on the premises. On March 23, 1959, within the effective term of such policy, Wallace W. Humes, a professional jockey, was injured while on the insured premises. Humes was employed by appellant on a part-time basis to "pony" three race horses on the one-sixth mile track maintained on the insured premises. While engaged in "ponying" one such horse (a stallion) Humes was bitten on the leg by that race horse, resulting in serious personal injuries. That matter was immediately reported to appellee. Thereafter, one of appellee's adjusters made investigation of that occurrence. On April 1, 1959, after interviewing appellant at his office, the adjuster (who was a lawyer) went to the insured premises, made observation thereof and later took a statement from appellant's wife and appellant's farm manager, and made a written report to appellee. It was then revealed to appellee that Humes was engaged in training a race horse owned by appellant at the time he was injured; that Humes was a professional jockey who had "previously ridden (appellant's) horses" at Cahokia and Fairmount Race Tracks, but on the day of the accident was the first time Humes had worked at (appellant's) farm. At that time, appellee's adjuster raised a question of coverage under appellee's policy as being applicable to Humes' injury. It appeared to him the status of Humes was that of an "independent contractor" and not an "employee" of appellant, and he so stated in his report. "The idea of Dr. Salerno operating a business never entered (his) mind" although it here appears that it was at all times evident that the Charbonier Road premises were the hub of appellant's race horse operations.

On June 22, 1959, Humes instituted suit against appellant, seeking damages for the injuries he sustained. Appellant promptly forwarded those suit papers to appellee, who received the same on June 25, 1959. The petition portion thereof recited, among other things, that Humes, "in keeping with his employment, did, as a business invitee, appear at the stables of (Salerno) located at 900 Charbonier Road * * * to exercise and train" the race horses here considered; and Salerno negligently and carelessly turned over to Humes "a high-strung, excitable and dangerous" race horse without warning Humes "of the viciousness and dangerous propensities" thereof, and as a consequence Humes was injured at a time when he was hired to prepare that race horse "for a forthcoming racing season." (Supra, at l. c. 585.) Appellee accepted coverage for that occurrence as being within the terms of its policy and retained counsel to defend that action on behalf of appellant, its named insured. It clearly appears from specific findings made, that appellee took complete control of the defense of the Humes suit, retained counsel to protect the rights of appellant Salerno, and this counsel continued to do all things necessary in defense of that case.

On April 1, 1960, ten months after appellee accepted coverage and had assumed defense of the Humes suit in accordance with the terms of its policy, it had one of its adjusters make a further investigation at a race track in East St. Louis, Illinois. It was then, as appellee states, it first discovered that Salerno's "racing activities were extensive in nature." As a consequence, appellee, on April 6, 1960, filed a declaratory judgment action in a State court of Missouri, for the purpose of ascertaining whether appellant "Salerno was covered under the policy issued to him (and) in regard to the lawsuit filed by . . . Humes against Salerno." Appellee alleged in the complaint so filed "that it had ascertained that the insured, defendant Salerno, was operating a racing horse farm and that he was engaged in the business of buying, selling, raising and racing horses for profit and that under the provisions of (its) policy of insurance, such business pursuits of Salerno were specifically excluded." (224 F.Supp. at l. c. 586.)

On April 7, 1960, subsequent to the filing of the declaratory judgment action, appellee wrote a letter to appellant in which it stated that a serious question had arisen as to coverage existing under its policy; and that it would only continue with defense of the Humes case "under an express reservation of rights" as therein set forth. Appellant, through his personal attorney, rejected any such reservation of rights by appellee. Following that rejection, counsel retained by appellee to defend the Humes action attempted to withdraw therefrom, but "the Circuit Court of St. Louis County, Missouri, refused to allow such withdrawal." Thereafter, retained counsel participated in the trial of the Humes suit which resulted in a verdict and judgment against appellant for $32,000.00. Thereafter, they perfected an appeal to the Supreme Court of Missouri, where the judgment was, on December 28, 1961, affirmed on condition of a remittitur. As a consequence, the final judgment as entered in the case of Humes v. Salerno was in the amount of $23,500.00.

It was thereafter, on April 17, 1962, that the original declaratory judgment action commenced by appellee in the State court, ante, was dismissed, without prejudice. Prior thereto, a similar declaratory judgment action had been commenced by appellee in the United States District Court for the Eastern District of Missouri, on November 29, 1961, and that case was dismissed on April 20, 1962. The instant declaratory judgment action was filed in the court below on April 23, 1962. After trial on its merits, District Judge Meredith incorporated his findings of fact and conclusions of law in his opinion, supra. Two aspects of that opinion should here be noted: (1) District Judge Meredith found: "It is evident (in this case) that the Charbonier Road premises were the hub of (appellant's) racing operations and that the race horse operation was a business pursuit"; and, (2) that it is solely on the premise of such findings that it was ruled in the case at bar that "* * * Salerno was engaged in a business at his residence * * *" and as a consequence liability for the Humes incident was ruled as being "excluded by the terms of the policy" in suit. No contention is made that there was not ample evidence adduced to support the factual matter found to exist in the above-stated propositions. It was appellant's contention in the court below, as it is here, that regardless of the finding as to "business activities" made in this case, appellee, under the undisputed facts, waived any right it might have had to claim "non-coverage" and is now estopped to claim "non-liability" under the policy of insurance here in suit, by applicable Missouri law. Such is the "major legal question" presented in this appeal and aptly recognized by District Judge Meredith as being a "close one" under Missouri law.

In the course of his opinion supra, Judge Meredith stated:

"From our case study of Missouri law, we have concluded that plaintiff\'s (appellee\'s) categorical proposition that waiver or estoppel can never be extended to broaden coverage (of an insurance policy) cannot be sustained. While plaintiff (appellee) has cited a number of cases from other jurisdictions, we are here concerned with the law of Missouri to which our discussion accordingly will be confined." (Supra, l. c. 588. Pars. added.)

After reviewing applicable Missouri case law as to waiver and estoppel, it was his conclusion:

"From these cases we have determined that under Missouri law when all the elements of estoppel are present, it may be used to extend or broaden the coverage afforded to the named insured." (Supra, l. c. 590.)

We deem the above general statements to be proper concepts of applicable Missouri law to the facts here; for it has long been the case law of that State that where an insurer:

"* * * instead of relying upon (its) right (to reject for non-coverage) when (a) claim (is) first brought to (its) attention, (it), without due investigation, assumes (itself) to be liable, (therefor and) sets the assured aside and claims the right of control of the defense, (it) cannot afterwards ignore the right the assured has acquired by

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