State Farm Mut. Auto. Ins. Co. v. Mid-Continent Cas. Co.

• Decision Date: 27 June 1975
• Docket Number: No. 74-1462,MID-CONTINENT,74-1462
• Citation: 518 F.2d 292
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v.CASUALTY COMPANY, a corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 292

518 F.2d 292

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. MID-CONTINENT CASUALTY COMPANY, a corporation, Defendant-Appellant.

No. 74-1462.

United States Court of Appeals, Tenth Circuit.

Submitted March 25, 1975.

Decided June 27, 1975.

G. Kent Fleming, Oklahoma City, Okl., for defendant-appellant.

Anthony W. Speck, Oklahoma City, Okl., for plaintiff-appellee.

Before HILL, SETH and BARRETT, Circuit Judges.

HILL, Circuit Judge.

The tort claim spawning this present insurance litigation resulted from the following facts. On March 27, 1972, Lance Garton rented a car from the Budget-Rent-A-Car (Budget) office at an Oklahoma City airport. Within a few minutes of leaving the airport, Garton was involved in an accident while driving the rental car. Carol Ammerman was a passenger in the other vehicle involved in that accident. A police officer, investigating the accident, arrested Garton for driving under the influence of intoxicants. Garton apparently returned to California, failed to appear on the charge filed against him, and had a bench warrant issued for his arrest on the charge. Carol Ammerman and her husband instituted a tort suit in an Oklahoma state court claiming total damages (compensatory and punitive) of $481,200. Named as defendants were Garton and Jordan Rental Service, Inc. (Jordan Rental), which did business as Budget.

Garton was a named insured on an automobile insurance policy issued by State Farm Mutual Automobile Insurance Company (State Farm) which was in effect on March 27, 1972, and provided some liability coverage. Mid-Continent Casualty Company (Mid-Continent) was the automobile liability insurer on March 27, 1972, for Jordan Rental. Mid-Continent demanded that State Farm, as primary carrier, defend Garton and Jordan Rental in the tort action. To prevent a default judgment in the tort action, State Farm filed a motion to quash; State Farm mailed a reservation of rights letter to Garton and demanded that Mid-Continent assume the defense.

State Farm filed the instant action under 28 U.S.C. § 2201 seeking a determination that Mid-Continent has coverage under its policy for Garton, that Mid-Continent provide a defense for Garton in the tort suit and pay costs of the defense previously provided by State Farm, and that State Farm does not have coverage under its policy. Mid-Continent answered that coverage for Garton was excluded under provisions of its policy and counterclaimed seeking a declaration that State Farm had coverage for Garton. The trial court determined that Mid-Continent has the primary insurance coverage on the car driven by Garton and that Mid-Continent has the primary responsibility to defend the tort lawsuit and to pay any judgment rendered therein.

Mid-Continent first contends that ". . . proper and indispensable parties do not exist in this litigation because Garton is not named as a party." The trial court specifically concluded that State Farm and Mid-Continent were the only necessary and indispensable parties to this action.

There are no special provisions detailing parties needed for a just adjudication in declaratory actions; general principles of joinder control. 6A Moore, Federal Practice P 57.25 (1974).

Rule 19, F.R.Civ.P., sets the standards for the mandatory joinder of parties. That Rule provides in pertinent part:

(a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

(b) Determination by Court Whenever Joinder not Feasible. If a person as described in subdivision (a)(1)-(2) hereof cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.

Here the contention that a proper or indispensable party was lacking was not made in the responsive pleading or in a pre-pleading motion. We are not concerned that Garton may have been a proper party, as a proper party is only one who may properly be joined. 3A Moore, supra at P 19.19. No objection was made that Garton was a necessary party under Rule 19(a), so that objection is waived. Rather, we are confronted with the issue of whether Garton is an indispensable party under Rule 19(b). This objection can be made at any time and a court can raise the matter sua sponte. F.R.Civ.P. 12(h)(2); 3A Moore, supra.

The trial court apparently decided that Garton was not a party to be joined if feasible, a conditionally necessary party. F.R.Civ.P. 19(a). If the trial court were correct in this determination, we would not consider the applicability of 19(b) which provides for determinations of indispensability of parties.

For Garton to be a conditionally necessary party, he must come within one or more of the three options of Rule 19(a). Clearly, complete relief was accorded between the parties in this case; consequently, we do not have a situation described in 19(a)(1). As a prerequisite to being a person to be joined if feasible under 19(a)(2), Garton must claim an interest relating to the subject of the action. In the present case, claims aggregating to $481,200 have been filed against Garton and Jordan Rental d/b/a Budget. The appropriate endorsement on the Mid-Continent policy indicates bodily injury limits of $100,000 per person and $300,000 per occurrence. The State Farm policy had limits for bodily injury of $15,000 per person and $30,000 per accident. Both policies might not provide sufficient coverage. We believe Garton has an interest in receiving the maximum amount of insurance coverage for himself. As State Farm has recognized one outcome (the one we approve) is that both insurers would provide coverage. ¹ Thus, we believe Garton had a 19(a)(2) interest in this litigation.

We do not know if the district court merely determined Garton had no interest in the litigation or if the court felt this case did not come within either 19(a)(2)(i) or (ii). We have, however, determined Garton had the requisite interest and must determine if the trial court could have correctly determined neither 19(a)(2)(i) nor (ii) would make Garton a conditionally necessary party. In deciding this matter, the trial court could not determine in advance how the case would be decided and then determine Garton would not be a conditionally necessary party who was possibly indispensable. See Hilton v. Atlantic Ref. Co., 327 F.2d 217 (5th Cir. 1964).

Based upon the issues as defined in the pleadings, Garton could have been denied coverage from either State Farm or Mid-Continent or might have been held to have coverage by both. As a practical matter, a determination would not impair or impede Garton's ability to protect his interest. The declaratory judgment is not res judicata as to Garton, a non-party. E. g., Diamond Shamrock Corp. v. Lumbermens Mut. Cas. Co., 416 F.2d 707 (7th Cir. 1969). Garton could relitigate this matter, and we believe any interest he has could be protected then. There is no reason to infer either insurer could not pay its obligation to Garton.

The closer question involves subsection (ii) where we must consider the judgment's effect on the present parties if subsequent litigation results. In its pre-decision posture, the trial court properly could have determined there was no risk of double or multiple obligations being incurred by either party. This action or a subsequent one brought by Garton could only determine that the insurers had to pay judgments within the policies' limits. A determination that primary and excess coverage existed would not have affected Garton's real interest and litigation by Garton following that type of determination would not have been a substantial risk. The other alternative was that one company would provide coverage and the other would not. If coverage were held to be available only from State Farm (lower liability limits) and a tort suit resulted in a judgment in excess of those limits, there was a risk of litigation by Garton. A result in that subsequent suit holding Mid-Continent liable would be an inconsistent judgment. We, like the trial court, are required to look to "practical possibilities more than theoretical possibilities" in considering possible prejudice to parties. 3A Moore, supra at P 19.07-2(1). Garton had shown no interest or concern with the litigation. Any judgment rendered in the tort action might be within either insurer's limits. Consequently, we hold there was not a substantial risk of inconsistent obligations resulting from subsequent litigation.

Appellant points to two Seventh Circuit cases, Travelers Indem. Co. v. Standard Acc. Ins. Co., 329 F.2d 329 (1964), and Diamond Shamrock Corp. v. Lumbermens Mut. Cas. Co., supra, to support its claim of indispensability. That court mentioned the lack of a res judicata effect on the missing parties and said that without the insured or the injured party the declaratory judgment would only be an advisory opinion between insureds. The court did not analyze the issue in terms of Rule 19. We believe that the lack of res judicata is considered when a party is analyzed under Rule 19(a)(2). That element is again a factor of the analysis under Rule 19(b) which we have not reached here. This Court has previously allowed similar declaratory relief in the absence of the...