Forman, Freedman and Seitz, Circuit Judges.
This is a declaratory judgment action to determine which of two liability insurance carriers owed primary coverage for the liability of the driver of a tractor-trailer involved in a serious accident.
Various actions were commenced by injured parties and by the personal representatives of those killed in the accident to recover damages. One of the defendants in those actions was Arco Auto Carriers, Inc. ("Arco"), the owner of the tractor-trailer involved. It was insured by Allstate Insurance Company ("Allstate"), the plaintiff in this declaratory judgment action. The other defendant in the negligence actions was F. W. Myers Drive-Away System, Inc. ("Myers"), which had leased the equipment with driver prior to the accident. It was insured by Liberty Mutual Insurance Company ("Liberty"), the defendant in this action.
The present declaratory action was instituted while the negligence actions were pending. However, those actions were settled before the trial of this case by an agreement to pay plaintiffs a stipulated amount.*fn1 The insurance carriers agreed that each would pay one-half with the understanding that the insurer found to be ultimately liable in this action would reimburse the other carrier one-half of the settlement sum plus costs and reasonable attorneys' fees. The issue of liability as between Allstate and Liberty was tried by the court. It held that the driver of the equipment was an "insured" under the Myers policy at the time of the accident and therefore found that Liberty's policy provided primary coverage. It further declared that Allstate had no obligation in connection with the accident. Liberty appeals.
We proceed to a statement of the facts either as found by the trial judge or as reflected in the record without dispute. We are therefore not concerned with any issue as to whether the "clearly erroneous" rule applies. Rather we are concerned with the determination and application of the correct legal principle to undisputed facts.
Arco, the lessor of the equipment, and Myers, the lessee, were both interstate automobile transport carriers with terminals in South Bend, Indiana. One of Myers' accounts involved the hauling of a certain make of taxicabs from South Bend to New York City. Myers had the required I.C.C. authority for such route, including the return. Arco did not have I.C.C. authority to transport automobiles on this route. Presumably it had the right to return its empty trucks to its home terminal.
On October 10, 1958, Arco and Myers entered into an equipment lease agreement wherein Arco agreed to supply Myers vehicles and drivers as needed for the transportation of automobiles. Although the lease was for one year and never formally renewed, it was considered by the parties and the court below as operative at the time of the accident. We shall view it similarly.
Under the equipment lease Arco was to pay all the cost of operation and maintenance of any vehicle supplied. Arco also furnished a qualified driver and paid all his wages, social security, etc. Arco was also responsible for any damage or wear and tear occurring to the leased equipment. However, it was agreed that Myers was to "have the full control and discretion of the leased unit while operated under this lease and that 'Lessee' shall be fully responsible to the public for the operation of the leased unit.". Arco was to pay Myers the amount of Myers' public liability, property damage and cargo insurance premiums under a formula related to the revenue earned by Myers in the use of the equipment. Myers paid as rental for each piece of leased equipment a sum equal to 95% of the revenue earned by Myers in the use of the equipment.
The lease provided that "The terms of this lease as to any unit involved shall be considered effective when such vehicle is so delivered and shall be considered terminated when such vehicle is released."
On February 10, 1960, Arco provided Myers with a tractor-trailer unit and a driver, James Rider. On that day Arco and Myers executed a document entitled "Memorandum of Lease" which identified the particular unit to be leased and provided for the transportation of the unit from South Bend, Indiana to Bronx, New York "under lease agreement which on this date is in full force and effect."
Rider drove the unit in question east, having properly affixed the Myers' decals to the door sides of his cab as required by the I.C.C. regulations. Rider delivered the taxicabs to their proper point in New York City on the morning of February 22, 1960. He then removed the Myers' decals, placed them in an envelope for mailing back to Myers, and put them on the cab seat. Rider then drove to Arco's terminal in Port Newark, New Jersey, which was Arco's closest terminal to the delivery point. This action was taken pursuant to standard Arco instructions. This procedure was followed because the driver was supposed to turn in his log book and other documents and arrange to be paid for the completed trip. A written receipt on the Memorandum of Lease acknowledging the return of the equipment from the lessee would normally be executed by Arco at such terminal. This was required by I.C.C. regulations. Also, upon reporting to the nearest Arco terminal the driver would be advised by Arco whether arrangements had been made for a load west-bound.
When Rider arrived at Arco's terminal on February 22, he discovered that it was closed because of the holiday and thus he could not deliver the documents and obtain the receipt for the equipment. Another Arco-employed driver was also at the terminal. A phone call was placed, in effect on behalf of both of them, to Arco's terminal in Scranton, Pennsylvania. They asked for instructions and were advised by an authorized agent of Arco to head west. No receipt for the unit was executed. Rider started west with the documents including the decals still in his possession. Near Allentown, Pennsylvania he was involved in the accident which generated the lawsuits described above. The accident was immediately reported ...