Western Casualty and Surety Company v. Salerno
| Decision Date | 13 June 1963 |
| Docket Number | No. 62 C 159(2).,62 C 159(2). |
| Citation | 224 F. Supp. 584 |
| Parties | WESTERN CASUALTY AND SURETY COMPANY, a Corporation, Plaintiff, v. Carmen N. SALERNO and Wallace W. Humes, Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
Rene J. Lusser, Lusser & Morris, St. Louis, Mo., for plaintiff.
Robert E. Staed, Kappel & Neill, St. Louis, Mo., for defendant Salerno.
Hal B. Coleman, Clayton, Mo., for defendant Humes.
This action for declaratory judgment was instituted by the plaintiff to determine the rights of all parties pursuant to 28 U.S.C.A. § 2201. The cause was tried to the Court without a jury and the Court hereby makes the following findings of fact and conclusions of law:
The plaintiff is a corporation organized under the laws of the State of Kansas with its principal office there; the defendants are both citizens and residents of the State of Missouri; the amount involved is in excess of $10,000, and the Court has jurisdiction.
Plaintiff issued a comprehensive personal liability policy covering the period April 7, 1958, to April 7, 1961, to the defendant Carmen N. Salerno, 900 Charbonier Road, St. Louis County, Missouri, with a limit of liability of $50,000 for each occurrence and $500 medical payments for each person.
On March 23, 1959, during the effective period of the policy of insurance, defendant Wallace W. Humes was employed by the defendant Carmen N. Salerno to "pony" three horses owned by the defendant Salerno on the premises at 900 Charbonier Road. On that date, while so employed, one of the horses, a race horse named "Sal's Son", bit defendant Humes in the leg. The incident was promptly reported by defendant Salerno to plaintiff insurance company and that company began its investigation. Plaintiff's adjuster, William McCleod, interviewed defendant Salerno at his office, and on April 1, 1959, took a statement at the Salerno residence at 900 Charbonier Road from Mrs. Salerno in which she stated that defendant Humes was ponying the stallion around the one-sixth mile track on the premises and that defendant Humes was a regular jockey at Fairmount and Cahokia and had ridden for them at the tracks.
On June 22, 1959, defendant Humes filed suit against defendant Salerno and his wife Mildred Salerno, seeking damages in the amount of $26,750, in the Circuit Court in St. Louis County. The petition alleged, in part, that defendants were the owners of a race horse and that in preparation for the forthcoming season, defendants hired Humes to train and exercise the race horse and that he was injured while training and exercising the race horse.
Plaintiff retained counsel to protect the rights of defendant Salerno and this counsel continued to do all the necessary things in preparation for trial, including the taking of depositions, submitting interrogatories, filing motions regarding answers thereto and investigative work. Defendant Salerno cooperated as provided by the policy. Plaintiff controlled the defense.
On July 30, 1959, defendant's adjuster McCleod, accompanied by a court reporter, took defendant Salerno's statement at his office. This fifteen-page question and answer statement reveals that defendant Salerno had yearlings to be broken every year, that he had raised Sal's Son and that the horse involved was a race horse.
On September 16, 1959, defendant Salerno's deposition was taken by Humes in the state court action. In this deposition, taken at the offices of counsel retained by the plaintiff insurance company, defendant Salerno stated that he had from twelve to twenty-two horses at 900 Charbonier Road.
On March 31, 1960, the petition in the state court action was amended to increase the amount of damages to $80,000.
On or about April 1, 1960, the plaintiff in making further investigation at the race tracks in East St. Louis, Illinois, discovered that defendant Salerno's racing activities were extensive in nature. On April 6, 1960, the insurance company filed a declaratory judgment action in the state court naming as defendants, Carmen N. Salerno and Wallace W. Humes. This suit was instituted for the purpose of ascertaining the rights of the parties and particularly as to whether or not defendant Salerno was covered under the policy issued by plaintiff in regard to the law suit filed by defendant Humes against Salerno. Plaintiff asserted in that action that it had ascertained that the insured, defendant Salerno, was operating a racing horse farm and that he was engaged in the business of buying, selling, raising and racing horses for profit and that under the provisions of the policy of insurance, such business pursuits of defendant Salerno were specifically excluded.
On April 7, 1960, by letter, plaintiff insurance company notified defendant Salerno of three occurrences: (1) that a serious question as to coverage had arisen and, therefore, it would continue defense of the insured only under an express reservation of rights, which was set out, (2) that a declaratory judgment action had been filed, and (3) that in Humes v. Salerno, the petition had been amended to increase the prayer to an amount in excess of the policy limits and advised defendant Salerno to retain his own counsel.
Defendant Salerno rejected the plaintiff's continuance of the defense with a reservation of rights.
On April 26, 1960, the counsel for defendant Salerno, who was employed by plaintiff insurance company to defend the suit of Humes v. Salerno, applied to the Circuit Court of St. Louis County, Missouri, to withdraw as counsel for defendant Salerno. Objection was made by the counsel for the plaintiff Humes to the withdrawal of defendant Salerno's counsel and on May 9, 1960, the Judge of the St. Louis Circuit Court denied permission to defendant Salerno's counsel to withdraw.
The trial in the Circuit Court of St. Louis County in the case of Humes v. Salerno was commenced on June 13, 1960, and resulted in a judgment in the amount of $32,000 against Salerno and in favor of Humes. On the basis of the state court's denial of permission to withdraw as counsel for defendant Salerno, the plaintiff insurance company herein continued with the defense in that case to final judgment through appeal to the Supreme Court of Missouri. On December 28, 1961, the Supreme Court of Missouri affirmed the judgment in the case of Humes v. Salerno on condition of remittitur by the plaintiff to reduce the judgment to the amount of $23,500. This was done and the judgment now stands against defendant Salerno in the amount of $23,500.
In the declaratory judgment suit filed by the insurance company against Salerno no and Humes in the state court on April 6, 1960, a number of proceedings were had and the suit was dismissed by the plaintiff without prejudice on April 17, 1962.
In the meantime, on November 29, 1961, a petition for declaratory judgment suit was filed in the Federal Court for the Eastern District of Missouri embodying the same cause of action as is now before this Court in this suit.
The suit in the Federal Court of the Eastern District of Missouri was argued before the Court on April 16, 1962, on motion of the defendants Salerno and Humes to dismiss for the reason that an identical suit was pending in the Circuit Court of St. Louis County, Missouri. An order of dismissal in the Federal District Court was entered on April 20, 1962. The present declaratory judgment suit was filed here on April 23, 1962, and the declaratory judgment suit in the state court was dismissed.
Turning now to the question of whether or not the defendant Salerno was engaged in a business at his residence which would exclude coverage under the terms of the policy in the suit of Humes v. Salerno, the accountant who prepared the tax returns for defendant Salerno testified that he had prepared joint returns for defendant Salerno and his wife and these returns for the years 1956 through 1960 were introduced in evidence.
In Schedule C, Form 1040, denominated "Profit or Loss from Business or Profession", in Item A of said Schedule, the defendant Salerno stated the principal activity to be "race horse stable and farm". For the five years in question, 1956 through 1960, he showed a total gross income of $60,081.55, expenses of $169,404.96, and a net loss from farm and racing stables of $109,323.41. The business deductions for these same years included deductions for jockey mounts and training fees, feed for horses, care-taker's wages, vaning and breeding, depreciation on buildings and equipment, depreciation of horses, and traveling. These same tax returns show that defendant Salerno's net profit from his profession as an osteopathic physician during those five years was $184,912.26, his net loss from farm and stables operations amounted to $113,923.41 and his adjusted gross income amount of $70,988.85. The net tax savings for the five-year period in question as a result of deducting the losses from his farm and stables operations was a tax saving of approximately $42,000.
The 1958 and 1959 tax returns of defendant Salerno listed 19 horses as being owned by him during the two-year period. Of these horses, 11 were bred or born at 900 Charbonier Road, St. Louis County, Missouri, and 8 of these horses were purchased. In claiming a depreciation in the schedules applicable to farm and stable operations, defendant Salerno claimed depreciation on the following real and personal property all situated at 900 Charbonier Road: hay barn and garage, caretaker's house, horse barn, smoke house, cow barn and garage, chicken house, tractor, weed mower, paint sprayer, hot water heater, Plymouth station wagon.
In defendant Salerno's depositions made on January 3, 1962, and November 13, 1962, he stated as of March 23, 1959, the date of the Humes accident, he owned 9, 10 or 11 horses, that these horses were kept at his residence and that two of them were in New Orleans for racing purposes, that he traded horses at public sales and at various race...
To continue reading
Request your trial