Transport Ins. Co. v. Michigan Mutual Liability Ins. Co.

• Decision Date: 07 May 1974
• Docket Number: No. 72-1850.,72-1850.
• Citation: 496 F.2d 265
• Parties: TRANSPORT INSURANCE COMPANY, a Texas corporation, Plaintiff-Appellee, v. MICHIGAN MUTUAL LIABILITY INSURANCE CO., a Michigan corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

496 F.2d 265 (1974)

TRANSPORT INSURANCE COMPANY, a Texas corporation, Plaintiff-Appellee, v. MICHIGAN MUTUAL LIABILITY INSURANCE CO., a Michigan corporation, Defendant-Appellant.

No. 72-1850.

United States Court of Appeals, Sixth Circuit.

Argued February 12, 1974.

Decided May 7, 1974.

Lawrence A. Bohall, Detroit, Mich., for defendant-appellant ; Martin, Bohall, Joselyn, Halsey, & Rowe, Detroit, Mich., on brief.

William P. Cooney, Detroit, Mich., for plaintiff-appellee ; Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, Detroit, Mich., on brief.

Before EDWARDS, McCREE and LIVELY, Circuit Judges.

PER CURIAM.

This diversity action involves a dispute between two insurance companies growing out of a fatal highway accident which took place in 1959. A truck tractor owned by William Frost and leased to Allied Van Lines (Allied) collided with a small truck being operated by Emil Ketola, who died as the result of injuries received in the collision. Frost had completed a trip for Allied and unloaded in Minneapolis on Friday and agreed to pick up another Allied load in Minneapolis the following Tuesday. He left the trailer in Minneapolis and returned to his home in Sault Sainte Marie for the weekend. As he was returning to Minneapolis to pick up the next Allied load the accident occurred in Schoolcraft County, Michigan. He had planned to make a stop enroute to check on personal business, but had not reached the turnoff for this stop when he collided with the Ketola truck.

Transport Insurance Company (Transport) had in force a policy in which Allied was the named insured and agents "thereof . . . engaging in the business" of Allied were additional insureds. This policy provided coverage of $1,000,000 for bodily injury or death. Michigan Mutual Liability Insurance Co. (Michigan Mutual) also had in force a policy by which it provided Frost with liability coverage with limits of $25,000 for each bodily injury or death claim. In connection with its policy Michigan Mutual issued a certificate to Allied by which it agreed to conduct investigations, negotiate settlements and defend or settle suits brought against Allied "as the result of an occurrence arising out of operations conducted by the Named Insured Frost while not engaging in the business of Allied." The certificate also required Michigan Mutual to make certain payments in connection with such litigation. Frost was an agent of Allied within the meaning of the Transport policy.

Suit was filed in a Michigan court by Ketola's estate against Frost and Allied and the Declaration alleged that at the time and place of the accident Frost "was engaged in carrying out the business and affairs of the said Allied Van Lines Inc. . . ." This particular allegation was denied by Allied and admitted by Frost in their separate answers. The jury returned a verdict for $75,000 in favor of the plaintiff and against both defendants. In denying Allied's motion for judgment n.o.v. the trial judge held that Allied was an owner of the tractor by virtue of a Michigan statute which treated a lessee for a period of more than 30 days as the owner of a vehicle and that:

Since Allied Van Lines were deemed the owner, Frost was their agent. He was in the scope of his employment, returning to Minneapolis on a direct route at the time of the accident. He was engaged in service for them even though the cost of this trip would have to be borne by Frost himself. His riding on the road at this time and place, even though he had an incidental stop proposed at Ishpeming, was on a direct route and for the benefit of the owner, Allied Van Lines. Joint Appendix, p. 39a.

Both parties appealed to the Supreme Court of Michigan which affirmed in Ketola v. Frost, 375 Mich. 266, 134 N. W.2d 183 (1965). The Michigan Court held that Allied was liable as an owner under the statute ". . . whether defendant Frost was or was not engaged at the time in carrying out a purely personal mission. . . ." 375 Mich. at 279-280, 134 N.W.2d at 190. Transport paid the judgment, interest and costs in the total amount of $88,275.76 and brought this action to recover this payment plus other damages, charging a bad faith refusal of Michigan Mutual to defend, negotiate or pay any part of the judgment and expenses. Michigan Mutual denied that it acted wrongfully or in bad faith, asserted that Transport was the primary insurer of the vehicle involved in the accident and denied that Frost was not engaged in the business of Allied.

In denying Transport's motion for partial summary judgment, the district court held it to be a question of fact whether Frost was engaging in the business of Allied at the time. A trial was held limited to this issue and the jury answered "was not" to the question, "Do you find that . . . Frost . . . was or was not engaged in the business of Allied Van Lines on December 7, 1959 at the time of his collision with the Ketola vehicle. . . ." The jury was then dismissed and the district judge proceeded to try the issue of bad faith without a jury.

Transport introduced evidence, largely consisting of intracompany correspondence which indicated that certain claims personnel and the trial attorney employed by Michigan Mutual felt that Frost was engaged in personal business at the time of the Ketola collision. The failure to acknowledge this and to assume defense of the Ketola suit was the basis of the bad faith claim. The trial court concluded that Michigan Mutual had been guilty of bad faith in refusing to defend and to settle within its limits and entered judgment for the entire amount of the Ketola judgment, even though it was in excess of the limits of the Michigan Mutual policy. Judgment for Transport also included interest and costs and all of Transport's litigation expenses. Transport Ins. Co. v. Michigan Mutual Liability Ins. Co., 340 F.Supp. 670 (E.D.Mich.1972). We affirm in part and reverse in part.

The trial court reasoned that Michigan Mutual was bound to abandon its legal position in the Ketola case because certain employees subjectively concluded that its position was not sound. Regardless of the opinion of these employees, the determination of which insurance company owed the duty to defend the Ketola case was dependent entirely on a resolution of the question of whether Frost was engaged in Allied's business, and it...