U.S. Fidelity & Guaranty Co. v. Louis A. Roser Co., Inc., 78-1148

• Decision Date: 01 November 1978
• Docket Number: No. 78-1148,78-1148
• Citation: 585 F.2d 932
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, a Maryland Corporation, Appellee, v. LOUIS A. ROSER COMPANY, INC., a Utah Corporation, Appellant, and A. Kemp Fisheries, Inc., a Minnesota Corporation.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 932

585 F.2d 932

UNITED STATES FIDELITY AND GUARANTY COMPANY, a Maryland Corporation, Appellee, v. LOUIS A. ROSER COMPANY, INC., a Utah Corporation, Appellant and A. Kemp Fisheries, Inc., a Minnesota Corporation.

No. 78-1148.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 14, 1978.

Decided Nov. 1, 1978.

Thomas M. Burton and Richard H. Harris, Jr., of Hancock, Rothert & Bunshoft, San Francisco, Cal., for appellant.

Tyrone P. Bujold, Hanft, Fride, O'Brien & Harries, Duluth, Minn., for appellee.

Before GIBSON, Chief Judge, MATTHES, Senior Circuit Judge, and MARKEY ^*, Chief Judge, U.S. Court of Customs and Patent Appeals.

MATTHES, Senior Circuit Judge.

This appeal by Louis A. Roser Company, Inc., referred to as appellant or Roser, presents the basic and underlying question whether the United States District Court for the District of Minnesota should have granted the motion of appellant to require the United States Fidelity & Guaranty Company, referred to as USF&G, to reimburse appellant for attorney's fees and other necessary costs or fees expended by appellant in defending an action filed on August 4, 1970. In that action, A. Kemp Fisheries, Inc., referred to as Kemp, sought to recover damages of $250,000 from appellant in connection with an industrial refrigeration system purchased by the Kemp company from appellant. Liability was predicated upon negligence, strict products liability, and breach of warranty. Jurisdiction was based upon diversity of citizenship and the amount in controversy. That proceeding was under the supervision of the Honorable Philip Neville.

USF&G sold to appellant on October 1, 1968, a "Master Insurance Policy" providing comprehensive general and contractual liability coverage. The policy contained an exclusion designated as "K" which specifically excluded coverage for liability by virtue of product design defects. The maximum coverage provided by the policy was $100,000. Under the liability provisions of the policy, USF&G had the "right and duty to defend any suit against the insured seeking damages on account of . . . property damage, even if any of the allegations of the suit are groundless, false, or fraudulent . . .."

On August 12, 1970, appellant tendered defense of the action brought by Kemp to USF&G. A claims agent for the latter, by letter dated August 25, 1970, informed appellant that USF&G accepted the defense subject to the coverage and limitations of the policy, and invited Roser to "join at your own expense for the defense of . . . those allegations . . . which are not within the contemplation of the policy." Subsequent to this suggestion, appellant retained counsel to represent it in the Kemp action.

Thereafter, on October 12, 1970, USF&G filed a declaratory action in Judge Neville's division of the district court against Roser and Kemp, seeking a determination that, by virtue of the design defect coverage exclusion, the USF& G policy did not cover Roser against Kemp's claim.

By an order entered on December 21, 1970, Judge Neville consolidated the Kemp v. Roser suit and the declaratory judgment action filed by USF&G for the reason that "the same factual issues and evidence will be involved in the trial of both cases." Following the consolidation of the two cases, a prehearing conference was held. In a lengthy colloquy between Judge Neville, the independent counsel retained by appellant, and the attorney representing USF&G, it was agreed that the consolidated actions would be tried together, that a jury would decide the issue of liability in the Kemp case, and that Judge Neville would decide the question of coverage which was the subject of the declaratory judgment action.

The jury found for Kemp and against appellant on the basis of breach of an implied warranty and awarded Kemp damages in the amount of $112,000. Roser appealed to this court, but later the action was settled and the appeal dismissed.

In the declaratory judgment action, Judge Neville concluded that the jury found that Kemp was entitled to recover for breach of contract based on express warranty, or, in effect, for product design defect, and not on negligence nor strict liability. He held that exclusion "K" relieved USF&G from liability to pay the judgment against Roser. Both Roser and Kemp appealed Judge Neville's decision to this court which affirmed without opinion. U.S. Fidelity and Guaranty Co. v. Kemp Fisheries, 465 F.2d 1407 (8th Cir. 1972).

It is important to note that the independent counsel retained by appellant had submitted a bill to USF&G in April, 1971, for their services in defending the Kemp action. On November 15, 1971, one month after Judge Neville's decision and while both cases were pending on appeal, Roser filed a motion in the district court seeking an order to compel USF&G to reimburse Roser for fees paid to defend the Kemp suit. Judge Neville denied the motion because the pending appeals had removed jurisdiction over the case from the district court. However, Judge Neville stated that his order did not prejudice Roser's right to renew its motion after the appellate proceedings were completed, and stated further that he would be inclined to award Roser attorney's fees.

Although attorney's fees continued to be a matter of discussion between USF&G and appellant both during the period that the appeals were pending and after the completion of the appeals process, Judge Neville was never able to rule on the issues now before us in this appeal. Disease cut his judicial career tragically short. Judge Neville died on February 13, 1974, after a long illness. The Honorable Donald D. Alsop was appointed as judge of the district court for Minnesota on January 17, 1975. On September 2, 1976, appellant's independent counsel proposed that the issue of attorney's fees be resubmitted to the district court.

On January 27, 1977, Roser did renew its motion for attorney's fees and costs in the district court. Judge Alsop entered an order on December 30, 1977, denying Roser's motion. Judge Alsop premised his decision on a finding that Roser had essentially waived any right it may have had to reimbursement from USF&G. It is from this order that Roser appeals to this court. ¹

Other facts material to a determination of this appeal will be set out in the opinion as they become necessary to a discussion of the issues.

I

We perceive the central question in this case to be whether or not, under the undisputed facts, USF&G is required to reimburse appellant for the reasonable value of the services its independent counsel rendered in defense of the Kemp action. In that regard, a disputed has developed for the first time in this court as to whether the controversy is to be resolved by application of the law of Utah, as claimed by appellant, or the law of Minnesota, as claimed by USF& G. Although there is a brief reference in Judge Alsop's memorandum order indicating that he regarded Minnesota law as controlling, the record on appeal is inadequate to convince us that the choice of law issue was properly raised and presented to the district court.

In our view, this matter merits scant analysis or discussion. This is so not only because the parties failed to properly submit the question to the district court, but also for the more important reason that we conclude that the result will be the same in this case whether the law of Utah or the law of Minnesota is applied. ²

II

Appellant's motion is premised on the assumption that USF&G had a duty to defend appellant in the Kemp suit. USF&G vigorously denies that it had any such duty, and argues that because Judge Neville decided in the declaratory judgment action that Kemp's recovery was based on a theory of product design defect, a ground of recovery specifically excluded by the policy, it was never obligated to defend the suit brought by Kemp against appellant. In effect, USF&G contends that the duty of an insurer to defend an action brought against its insured depends upon the outcome of that action. We cannot agree.

It is the general rule that the duty of an insurance company to defend its insured is to be determined by the allegations of the complaint or petition in the action brought against the insured. An insurer must defend its insured if the pleadings in the action against the insured allege facts which, if established, would support a recovery within the coverage of the policy. Ritter v. U.S. Fidelity & Guaranty Co., 573 F.2d 539, 542 (8th Cir. 1978); Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531, 536 (8th Cir. 1970); Lee v. Aetna Casualty & Surety Co., 178 F.2d 750 (2d Cir. 1949); Annot., 50 A.L.R.2d 459, 465-69 (1956); 14 G. Couch, Insurance, § 51:38-40 at 532-33 (2d ed. 1965). Thus, the duty of an insurer to defend its insured is broader than its duty to pay a judgment rendered against its insured. Ritter v. U.S. Fidelity & Guaranty Co., supra at 542; Carter v. Aetna Casualty & Surety Co., 473 F.2d 1071, 1075 (8th Cir. 1973). As Judge Learned Hand stated in Lee v. Aetna Casualty & Surety Co., supra at 751, "(I)t is the claim which determines the insurer's duty to defend; and it is irrelevant that the insurer may get information from the insured, or from any one else, which indicates, or even demonstrates, that the injury is not in fact 'covered.' "

Corollary to the above stated rule is the proposition that where a complaint states a claim for relief alleging differing facts or theories of recovery and at least one, but not all, of the alleged theories would be covered by the policy if proved, the insurer has a duty to defend its insured. This court discussed this duty in its opinion in Babcock & Wilcox Co. v. Parsons Corp., supra at 537:

We conclude, therefore, that the trial court correctly held that count three of the complaint filed by Babcock stated a claim potentially within the coverage of the policy. And, once a complaint states one claim within the policy's coverage, the insurer has a duty to...