Transit Casualty Co. v. Transamerica Insurance Co.

• Decision Date: 20 December 1967
• Docket Number: No. 18747.,18747.
• Parties: TRANSIT CASUALTY COMPANY, a Body Corporate, et al., Appellants, v. TRANSAMERICA INSURANCE COMPANY, Successor to American Surety Company of New York, et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

387 F.2d 1011 (1967)

TRANSIT CASUALTY COMPANY, a Body Corporate, et al., Appellants, v. TRANSAMERICA INSURANCE COMPANY, Successor to American Surety Company of New York, et al., Appellees.

No. 18747.

United States Court of Appeals Eighth Circuit.

December 20, 1967.

Patrick A. O'Doherty, Baltimore, Md., for appellants; George P. Bowie, St. Louis, Mo., and John D. Schneider, St. Louis, Mo., were on the brief.

Frank X. Cleary and Daniel T. Rabbitt, Jr., of Moser, Marsalek, Carpenter, Cleary & Jaeckel, St. Louis, Mo., for appellees; J. C. Jaeckel, St. Louis, Mo., was on the brief.

Before VAN OOSTERHOUT, MEHAFFY and HEANEY, Circuit Judges.

HEANEY, Circuit Judge.

This is an appeal in a diversity action brought in the Eastern District of Missouri. A leased building, located in Detroit, Michigan, was damaged in a windstorm. Thereafter, it was extensively damaged in a fire which occurred while the wind damage was being repaired. Transit Casualty Company¹ paid its insured, the lessee, $255,000 for the fire loss and brought action against the Transamerica Insurance Company² alleging that Transamerica had elected to repair the windstorm damage, that the negligence of the subcontractor performing the work caused the fire, and that Transamerica was liable for the damage caused by the subcontractor's negligence. The case was submitted to the jury and a verdict was returned for the defendant. Transit's motion for a new trial was denied. It appeals. We remand for a new trial.

I. It was an error to permit the subject of reinsurance to be interjected into the law suit by the defense.

During the cross-examination of an officer of Transit, the defense counsel interjected the fact that Transit had reinsurance treaties with other companies:

"Q. * * * Was there any arrangement with any other company made by Transit Casualty to reduce its loss, reinsurance or excess insurance?

"Mr. O\'Doherty: I object.

"The Court: Be overruled.

* * * * * *

"Mr. O\'Doherty: * * * The court has indicated here that it\'s going to allow defense counsel to inquire into reinsurance treaties —

* * * * * *

"Mr. O\'Doherty: * * * I feel it is prejudicial to this plaintiff\'s case to allow Mr. Cleary to interrogate this witness regarding reinsurance treaties, which every insurance company in the United States carries on * * all of its business written, * * * but if it\'s the question of whether we have the right to bring the action, that\'s not in dispute in this case. It was never raised by any affirmative pleading, * * *

"Mr. Cleary: I would like the record to show that Transit Casualty is one of two plaintiffs here and it is suing in an effort to recover from this jury $308,000. Now, I\'m interested in ascertaining, and I have a right to know, what loss it actually sustained. Companies, of necessity, or necessarily, or however, it was described, carry excess or reinsurance on a loss, some of them do, some of them don\'t. Certainly, the real party in interest here is not Transit Casualty Company if it only sustained, say a $50,000 loss, and I\'m entitled to inquire into that in view of the pleadings here.

"The Court: I don\'t think it\'s a question on an affirmative defense; it\'s a question of defense period. You people have the burden of doing the other. I\'ll overrule the objection." (Emphasis added.)

As this colloquy indicates, the defense justified interjecting the issue of reinsurance on the grounds that Transit was not the real party in interest. It has, for all practical purposes, abandoned this argument on appeal conceding, in effect, that the evidence was irrelevant. It now argues that the evidence, though irrelevant, was not prejudicial.

We do not agree. The interjection of the issue of reinsurance was prejudicial error under either Rule 61, Fed. R.Civ.P., or Missouri case law.³ E. g., Whitman v. Carver, 337 Mo. 1247, 88 S. W.2d 885 (1935); Olian v. Olian, 332 Mo. 689, 59 S.W.2d 673 (1933).

In Olian, the Court stated:

"* * * The fact that the liability of a defendant in a tort action is covered by insurance will, in the minds of the average jury, not only justify a verdict for plaintiff but a very generous assessment of damages as well. * * * With this in mind, plaintiffs\' counsel in actions such as this, and we speak generally, cannot resist the temptation of bringing into the view of the jury an insurance company, a corporate entity that is able to discharge, and whose business it is to discharge, any liability that they may assess for defendant\'s wrongdoing. * * *"

Id. at 677.

The reasoning of Olian is applicable here. The fact that Transit was reinsured and stood to bear only five percent of this loss is a fact that obviously would impress the jury, and might well lead it to return a defendant's verdict, as the alternative to such a verdict, in its mind, could well be a windfall to Transit.⁴

If counsel, interjecting the issue of insurance, demonstrates that it was done in good faith and was slight, a new trial might not be required. Pitcher v. Schoch, 345 Mo. 1184, 139 S.W.2d 463 (1940); Carter v. Rock Island Bus Lines, 345 Mo. 1170, 139 S.W.2d 458 (1940). Here, however, the interjection was neither in demonstrable good faith nor slight.

The reasons now advanced by the defendant as to why evidence of reinsurance was not prejudicial are: first, the length of jury deliberations do not indicate that it was impassioned against the plaintiff; second, the instructions admonished the jurors to decide the issues fairly and without regard to who the parties were; finally, the error, if any, went only to the issue of damage and as the jury decided against Transit on the issue of liability, it was not prejudicial.

The fact that the jury deliberated at length in this long and difficult case does not, in our view, substantiate the defendant's position that the jury was not prejudiced by the irrelevant evidence. In our view, it is more likely that the irrelevant evidence confused the jury and thus prolonged its deliberations. But cf., Sheffield Steel Corp. v. Vance, 236 F.2d 928 (8th Cir. 1956).

Even if the jury instructions had clearly admonished the jury to disregard the issue of reinsurance,⁵ the error is, nevertheless, prejudicial. Buehler v. Festus Mercantile Co., 343 Mo. 139, 119 S.W.2d 961 (1938) (en banc); Rytersky v. O'Brine, 335 Mo. 22, 70 S.W.2d 538 (1934); Olian v. Olian, supra; Lindsey v. Rogers, 220 S.W.2d 937 (Mo.App. 1949); Page v. Unttereiner, 106 S.W.2d 528 (Mo.App.1937). But cf., Robinson v. McVay, 44 S.W.2d 238 (Mo.App.1931).

Finally, the argument that the evidence as to reinsurance went only to the issue of damages is neither realistic⁶ nor supported by the case law. Whitman v. Carver, supra; Olian v. Olian, supra; Hanna v. Butts, 330 Mo. 876, 51 S.W.2d 9 (1930); Henry v. Tinsley, 240 Mo.App. 163, 218 S.W.2d 771 (1949). Cf., Walton v. United States Steel Co., 362 S.W.2d 617, 627 (Mo.Sup.1962) (dictum); Taylor v. Kansas City Southern Ry. Co., 293 S.W.2d 894 (Mo.Sup. 1956); Davis v. Gould, 234 Mo.App. 42, 131 S.W.2d 360 (1939).

II. It was an error to refuse to submit Count II to the jury.

Transit alleges that the defendant elected to repair the windstorm damage, and that the company with whom it contracted sublet to a second contractor, who in turn sublet to Bittner Boiler and Engineering Company, which performed the work.⁷ Bittner used electric arc welding equipment operating at 9000° in performing the work. The heat from this equipment ignited a fire in the building and extensive damage occurred.

The defendant denies that it elected to repair the windstorm damages. It further contends that even if it did so, the lessee had no right of recovery against it, and that Transit cannot recover as its rights are as a subrogee of the lessee.

Transit contends it can recover on either of two theories: The first of these was set out in Count I: that by electing to repair, the defendant assumed the obligations of a building contractor; that the repairs present an inherently dangerous risk in the absence of safety precautions;⁸ that the defendant is liable in tort for failing to see that Bittner took adequate safety precautions in performing the work. The second theory was set out in Count II: that the lessor was required to maintain the premises in a tenable condition; that by electing to repair, the defendant was satisfying the lessor's obligation; that the lessee was a third party beneficiary of the defendant's obligations resulting from the election to repair; that a part of the obligation to repair was a non-dischargeable duty to perform the work with due care; that the performance of the work in a negligent manner resulted in damage.

Under Count I, the defendant's liability, if any, for the acts of the independent contractor arose from its duty to see that adequate safety precautions were taken in the light of a peculiar danger inherent in the nature of the work; whereas under Count II, the defendant's liability, if any, for the act of the independent contractor stemmed from a non-dischargeable duty by reason of a contract which required that the work be done with due care.

Under Count I, Transit was required to establish that the repair presented an inherently dangerous risk in the absence of safety precautions. While under Count II, Transit need only prove simple negligence on the part of the independent contractor; it required Transit to establish that the lessee was a third party-creditor beneficiary of the defendant's obligation to repair.

The court refused to submit Count II to the jury. While the record does not indicate the court's reasons, the defendant argues that the refusal was proper because: (1) Count II failed to state a good cause of action; and (2) the doctrine of election of remedies precluded submission of both counts.

We do not agree with either contention.

(1) In determining whether Count II stated a good cause of action, the Erie doctrine requires that we look to state law. Erie R. Co....