Southern Farm Bureau Casualty Ins. Co. v. United States

• Decision Date: 22 May 1968
• Docket Number: No. 19018.,19018.
• Citation: 395 F.2d 176
• Parties: SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

395 F.2d 176 (1968)

SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v.UNITED STATES of America, Appellee.

No. 19018.

United States Court of Appeals Eighth Circuit.

May 22, 1968.

Boyd Tackett, of Shaver, Tackett & Jones, Texarkana, Ark., for appellant.

Robert E. Johnson, Asst. U. S. Atty., Fort Smith, Ark., for appellee; Charles M. Conway, U. S. Atty., on the brief.

Before MEHAFFY, GIBSON and HEANEY, Circuit Judges.

FLOYD R. GIBSON, Circuit Judge.

Southern Farm Bureau Casualty Insurance Company(Southern), a third-party defendant below, appeals from a judgment entered in favor of the United States of America as a third-partyplaintiff in a negligence action originally instituted against Jerry Boles, a rural mail carrier, and others.Boles was an assured of Southern under a liability policy.The liability policy contained the usual omnibus coverage clause, which Southern attempted to qualify and restrict by excluding the United States as an omnibus insured.

Boles, while in the course of his duties as a mail carrier on February 9, 1966, was involved in an automobile collision.A suit was filed in the State court against Boles and another defendant on October 6, 1966.The United States filed a petition for removal of this cause to the United States District Court for the Western District of Arkansas, pursuant to 28 U.S.C. § 2679(d), admitting that Boles was acting within the scope of his employment as an employee of the United States and requesting in accordance with the statute that the United States be substituted as a defendant in the place of Boles.See28 U.S.C. § 1346(b), § 2679(b) and (d).The petition for removal and request for substitution was granted.On February 3, 1967 the United States sought to implead Southern as a third-party defendant under Rule 14, Fed.R.Civ.P. Southern moved to dismiss the third party complaint on the grounds that the policy in question afforded no liability coverage to the United States and that the complaint was premature.This motion was overruled.The Court subsequently heard the case and awarded a judgment in the amount of $93,998.38, of which Southern's part was $20,645.¹

The liability policy in question was issued December 22, 1963 for a six-month period with provisions for renewal at six-month intervals.The policy at time of issue contained the usual omnibus clause extending coverage to anyone responsible for the operation of the vehicle.An endorsement was issued by Southern and delivered to the assured, Boles, on or about the 5th day of June, 1964, seeking to exclude the United States of America from any coverage on the policy as of January 1, 1964.²

This policy was subsequently renewed on June 22, 1964 at the same premium and further renewed at six-month intervals so as to be in force at the time of the collision on February 9, 1966.The endorsement was transmitted to Boles with an explanatory letter.³

The District Court(The Honorable John E. Miller) in a Memorandum Opinion, McBryde v. Sheridan, 266 F.Supp. 314(W.D.Ark.1967), held that the endorsement withdrawing coverage for the United States was void for want of consideration, citing Wackerle v. Pacific Employers Insurance Company, 219 F.2d 1(8 Cir.1955), cert. denied349 U.S. 955, 75 S.Ct. 884, 99 L.Ed. 1279;Engle v. United States, 261 F.Supp. 93(W.D.Ark.1966);andKimball v. Pratt, 261 F.Supp. 839(W.D.Mo.1966).

Southern seeks outright reversal of the judgment against it on the basis (1) that the United States was not a proper party to bring an action under the insurance policy (for lack of privity) and (2) that the District Court erred in finding an insufficient consideration for the reduction of coverage.The substantive law of Arkansas applies.Wackerle v. Pacific Employers Insurance Company, supra;Mutual Ben. Health & Accident Ass'n v. Cohen, 194 F.2d 232, 239, 241(8 Cir.1952), cert. denied343 U.S. 965, 72 S.Ct. 1059, 96 L.Ed. 1362.

For its first contention Southern argues that the United States is not a true beneficiary, but only an incidental beneficiary at best.It relies on Gravelle Const. Co. v. Board of Com'rs of Maintenance Dist. No. 1, etc., 82 F.2d 391(8 Cir.1936) where this Court said at 393:

"The Arkansas decisions seem to follow the general rule that it is not sufficient that a third party might be benefited by a contract to which it is not a party, but it must be shown that the motive or purpose of such contract was to benefit the third party — in short, that the contract was really entered into for the benefit of such third party."(Citations omitted).

And an earlier Arkansas case, Carolus v. Arkansas Light & Power Co., 164 Ark. 507, 262 S.W. 330(1924) held where there is no evidence of an intended benefit to a third party, not a party to the contract, such party was not a beneficiary of the contract, nor a proper party to an action for breach of the contract.But, in viewing the general law, the Carolus caseat 332 of 262 S.W. said:

"Where, from the language of the contract itself or the testimony aliunde, it could be said that it was the intention of the parties to the contract to confer a direct benefit upon a third person, then such person may sue on the contract.It is not necessary that the person be named in the contract, if he is otherwise sufficiently described or designated; he may be one of a class of persons, if the class is sufficiently described or designated."

Southern points out that under Arkansas law the parties may contract to anything they desire, absent a public policy to the contrary, citing Dickinson v. Burr, 7 Ark. 34andHearshy v. Hichox, 12 Ark. 125; and under McKinnon v. Southern Farm Bureau Casualty Insurance Co., 232 Ark. 282, 335 S.W.2d 709(1960)andState Farm Mut. Automobile Ins. Co. v. Belshe, 195 Ark. 460, 112 S.W. 2d 954(1938), the parties can make any contract of insurance not prohibited by law.We agree with these principles and the statement in Belshe,supra, at 956 of 112 S.W.2d:

"* * * the insurance company may make use of such language as it may please to express the conditions upon which it is willing to issue its policy.The insured by acceptance approves such policy with all the conditions therein contained, so long as they are reasonable and not contrary to public policy."

But we do not think these cases are dispositive.Southern also sugests lack of privity.These earlier cases discuss privity or the lack of it but turn on the factual issue of whether the parties actually intended to confer a contract right upon a third-party beneficiary.Where a contract clearly intends a benefit to a third party, privity is not required, and the third party acquires an enforceable right.In Acme Brick Co. v. Hamilton, 218 Ark. 742, 238 S.W.2d 658(1951), the Court held that a third-party beneficiary may sue for the breach of a promise and approved the language of Freer v. J. G. Putman Funeral Home, 195 Ark. 307, 111 S.W.2d 463(1937) where that Court stated in discussing the issue of privity at 465:

"We find that formerly under some of the more ancient authorities that proposition privity might have been deemed as well considered.We prefer, however, to take a different view, which we think is more consonant with absolute justice, as well as in conformity with the contract."

To the same effect is Green v. Whitney, 215 Ark. 257, 220 S.W.2d 119(1949).An earlier holding in Southern Surety Co. v. Phillips, 181 Ark. 14, 24 S.W.2d 870(1930) reviews the prior Arkansas cases and cites the following paragraph from Thomas Mfg. Co. v. Prather, 65 Ark. 27, 44 S.W. 218(1898), 218:

"This court long ago ruled, in line with the doctrine which generally obtains in this country, that where a promise is made to one upon a sufficient consideration, for the benefit of another, the beneficiary may sue the promisor for a breach of his promise. * * * `Of course, the name of the person to be benefited by the contract need not be given, if he is otherwise sufficiently described or designated.Indeed, he may be one of a class of persons, if the class is sufficiently described or designated.\'"

It thus appears clear under the Arkansas decisions that a contract supported by a valid consideration for the benefit of a third party confers a right of action upon the third-party beneficiary.

Without reaching as yet the question of whether the limiting rider excluding the United States as an omnibus insured had been effectively incorporated in the insurance policy, we must hold both as a procedural matter and as a matter of substantive law that the United States as a third-partyplaintiff had the right to implead Southern as a third-party defendant under Rule 14, Fed. R.Civ.P. as a party"who is or may be liable * * * for all or part of the plaintiff's claim against" it.This procedural practice has been consistently approved in all of the reported appellate decisions; and most of the reported decisions, trial and appellate, have allowed the United States to recover as a third-partyplaintiff under clauses in a government employee's policy insuring "any other person or organization legally responsible for the insured automobile's use."United States v. Myers, 363 F.2d 615(5 Cir.1966) contains an exhaustive review of the reported cases on this precise issue.In holding that the United States may qualify as an additional "insured" under the clause "person or organization legally responsible for the use" of the insured automobile, the Myers case categorically declares at p. 618 of 363 F.2d:

"* * * An unbroken line of cases, presenting this very question and involving the same or very similar contract language, has definitively answered the question in favor of the United States.1"(f.n. 1 lists 13 reported cases).

This brings us then to the proper interpretation to be accorded the limiting endorsement excluding the United States as an assured under the policy.The language of the endorsement is clear and unambiguous and should be given...