U.S. Fidelity & Guaranty Co. v. Maryland Cas. Co.

• Decision Date: 14 May 1960
• Docket Number: No. 41800,41800
• Citation: 352 P.2d 70,186 Kan. 637
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY, a Corporation, Appellant and Cross-Appellee, v. MARYLAND CASUALTY COMPANY, a Corporation, Appellee and Cross-Appellant.
• Court: Kansas Supreme Court

Page 70

352 P.2d 70

186 Kan. 637

UNITED STATES FIDELITY & GUARANTY COMPANY, a Corporation Appellant and Cross-Appellee, v. MARYLAND CASUALTY COMPANY, a Corporation, Appellee and Cross-Appellant.

No. 41800.

Supreme Court of Kansas.

May 14, 1960.

Syllabus by the Court.

1. In an action by one workmen's compensation insurance carrier against another seeking to shift liability for the payment of workmen's compensation awards in favor of the dependents of three deceased workmen, the allegations of an amended petition, as more particularly set forth in the opinion, challenged on demurrer, are examined and it is held:

(a) The district court has jurisdiction of the subject of the action; and

(b) The amended petition states a cause of action upon the theory of 'legal' subrogation.

2. 'Legal' subrogation is grounded in equity and arises by operation of law. But no general rule can be laid down which will determine all cases for application of the doctrine. Whether or not it is applicable depends on the facts and circumstances of each particular case as it arises, but ordinarily the remedy is broad enough to include every instance in which one person, not a mere volunteer, pays a debt for which another is primarily liable and which in equity and good conscience should have been discharged by the latter.

3. The general rule that one may not be subrogated to the rights and securities of a creditor until the claim of that creditor has been paid in full is subject to limitation. The rule against subrogation on part payment is that a creditor cannot equitably be compelled to split his securities, and give up control of any part until he is fully paid. Such rule is for the benefit of creditors, and the creditor alone can object to subrogation under partial payment, and only to the extent that it would impair his preferred rights. But the rule extends only so far as its reason goes and is never invoked to defeat contract obligations in the interest of the debtor alone.

4. Where the insurer secondarily liable is required to furnish the money to pay compensation awards, upon facts and circumstances more fully stated in the opinion, it should in equity be subrogated pro tanto and entitled to recover from the insurer primarily liable for the payments made on such awards, and such action may be prosecuted even though only partial payment on the awards has been made, since the dependents of the deceased workmen (the creditors) in whose favor running awards have been entered would be deprived of nothing by permitting partial subrogation, but would, if anything, be furnished the additional security of the insurer primarily liable.

James K. Cubbison, Kansas City, argued the cause, and Blake A. Williamson, Lee Vaughan, Donald A. Hardy and A. C. Cocke, Kansas City, were with him on the brief, for appellant.

Thos. M. Van Cleave, Kansas City, argued the cause, and Willard L. Phillips, P. B. McAnany, Thos. M. Van Cleave, Jr., and James J. Lysaught, Kansas City, were with him on the brief, for appellee.

SCHROEDER, Justice.

This is an action by the insurance carrier of the Griffin Construction Company, covered by the workmen's compensation act, against the insurance carrier of Wea Constructors, also covered by the workmen's compensation act, seeking to shift liability for the payment of workmen's compensation awards. The action is the outgrowth of this court's decision in Attebery v. Griffin Construction Co., 181 Kan. 450, 312 P.2d 598. Appeal has been duly perfected to this court from an order of the trial court sustaining a demurrer to the amended petition.

The basic questions presented are (1) whether the district court has jurisdiction of the subject of the action; and (2) whether the amended petition alleges facts sufficient to constitute a cause of action.

The United States Fidelity & Guaranty Company, a corporation, appellant (hereafter referred to as U. S. F. & G.), the insurance carrier of the Griffin Construction Company, (hereafter referred to as Griffin), filed an amended petition in the district court of Wyandotte County, Kansas, on the 8th day of October, 1958, against the Maryland Casualty Company, a corporation appellee, (hereafter referred to as Maryland), the insurance carrier of Wea Constructors, a co-partnership of Paola, Kansas, (hereafter referred to as Wea), which insofar as material herein alleges in substance as follows:

Maryland insured Wea on a three-phase sewer job with the City of Paola, Kansas. On the third phase of the job, the building of the sanitary sewer, Wea subcontracted the work to Griffin. At the time the general contract was entered into between Wea and the City of Paola, Wea was operating with nonunion employees and Griffin was operating with union employees. In order to avoid imminent labor difficulties, which Wea was already encountering on its phase of the work under the contract 'Wea and Griffin mutually, orally, agreed, * * * on or about the first day of September, 1955, with respect to the subcontracted work, at approximately the time when the Griffin subcontract operation was about to commence at Paola, that Wea would carry all of the workmen to be employed on the Griffin subcontract job on the Wea payroll, pay the workmen, and make whatever deductions, for withholding taxes and for social security required to be made.'

Thereupon a number of workmen were employed and the work of digging and laying sewer pipe commenced. Weekly payrolls on the sewer project were kept and processed by Wea who made deduction for withholding and social security taxes from the wages due the workmen, and thereafter the net earnings were paid to the workmen upon checks of Wea.

Wea from time to time received money from the City of Paola as the work progressed and accounted to Griffin, making deductions in such accounting for the wages Wea had paid, for performance and statutory bond premiums, and for payroll insurance for workmen's compensation and credited Griffin with the remainder of the money received.

Under the provisions of the general construction agreement between Wea and the City of Paola, Wea agreed, if a part of the contract was sublet, to cover any and all subcontractors' risks involved in Wea's insurance policies, including workmen's compensation risk, or in the alternative, that Wea could require the subcontractor, in lieu thereof, to secure insurance against such risks as were not covered by the Wea policies. The agreement also provided that no subcontractor would be allowed to start any construction work until all insurance certificates required under said general contract were filed with the City. The amended petition then alleges:

'* * * that Wea did not request Griffin, at any time, to furnish any workmen's compensation insurance or certificate showing Griffin was carrying workmen's compensation; that Wea furnished an insurance certificate to the city, certified to by defendant herein, that it and defendant company were carrying all risks required under the general contract, including workmen's compensation (defendant's policy No. 01-186694 which is made a part hereof by reference as though fully set out herein); that no certificate of insurance was ever filed with the city showing Griffin was carrying any insurance risks on said job, either by Griffin or by plaintiff herein (who, at the time, was Griffin's general insurer), on employees carried on Griffin's payroll.

'8. That said sanitary sewer construction operations were thus carried on by Griffin until the ninth day of January, 1956, when three workmen were crushed to death, by a cavein in the sewer ditch in which they were working, i. e., Buford E. Attebery, Roy Ludwig and Wayne Cokely.

'9. That during the period while said sanitary sewer operations were being carried on, under the Workmen's Compensation policy of insurance furnished by Maryland to Wea, as referred to in the certificate furnished the City of Paola, defendant was authorized to audit Wea's books quarterly; that the premiums prescribed for said policy were to be based on the entire payroll of the said contractors; that more than one quarter period of time had expired under said policy before the death of said laborers; that under said policy, Wea was required to maintain records of the information necessary for premium computation by defendant; and to send copies of all such records to defendant; that said records, showing said sanitary sewer payroll of Wea, including the said deceased workmen's names, were furnished defendant by Wea.'

The amended petition further alleges that claims for benefits under the workmen's compensation act were filed against both Wea and Griffin by the dependents of the three deceased workmen, and that during the trial thereon, said claimants elected to proceed against Griffin only, and dismissed their actions against Wea. The proceedings based upon these workmen's compensation claims resulted in a final award or judgment for compensation against Griffin and U. S. F. & G., said claims and the amounts awarded being respectively set forth in the amended petition, and alleging payments due in weekly installments. It is alleged U. S. F. & G. has made all payments required to be made under the running awards.

The prayer reads:

'Wherefore, defendant is primarily liable for the payment of said awards or judgments; that plaintiff is entitled to reimbursement for all sums paid under said awards and judgments; that subrogation should be invoked and applied; that defendant's liability to the dependents of the deceased workmen for the unpaid portions of the running awards or judgments should be established without releasing the plaintiff as secondarily liable for the payment of said awards or judgments to said claimants; and plaintiff prays that subrogation be invoked in favor of the plaintiff and against the defendant; that plaintiff be reimbursed for all sums it has paid under said workmen's compensation awards or judgments;...