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Federal Rice Drug Co. v. Queen Insurance Co.

decided: June 29, 1972.

FEDERAL RICE DRUG COMPANY, A CORPORATION, APPELLANT IN NO. 19,540,
v.
QUEEN INSURANCE COMPANY OF AMERICA, A CORPORATION, APPELLANT IN NO. 19,541



Seitz, Chief Judge, and Kalodner and Gibbons, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

The appellant, Federal Rice Drug Company (the insured) in this diversity action brought suit against Queen Insurance Company of America, appellee and cross appellant (the insurer) for wrongful denial of coverage under a Comprehensive Business Policy. In a non-jury trial the district court held that the insured was not entitled to indemnity under the policy with respect to the claim in issue, but that the insurer should have undertaken defense of the claim. It entered judgment in favor of the insured for the amount of the counsel fees incurred by the insured in defense of the claim, and in favor of the insurer on its demand for indemnity in the amount of $24,500 paid in settlement of the claim.

The claim in issue was made on behalf of the Estate of Gerson N. Rogow (the decedent), a former employee of the insured who on July 19, 1966 committed suicide in the insured's place of business by hanging himself. The decedent had been discharged by the insured on July 5, 1966 following a long series of disputes with his superior over his job performance.

On July 17, 1967 decedent's estate filed suit in the Court of Common Pleas of Allegheny County against the insured. That complaint alleged that beginning in January 1966 the president of the insured, acting in that capacity and within the scope of his employment began a course of criticizing, embarrassing, harassing and humiliating the decedent, alone and in front of business associates, friends, and subordinates, and of placing decedent in situations calculated to create great emotional distress, for the ultimate purpose of forcing decedent to relinquish his employment with the insured. These actions, it was alleged, caused decedent to suffer great emotional and physical stress, which prevented him from realizing the nature of his actions, made it impossible to resist an impulse created by an insanity, deprived him of capacity to govern his conduct, and caused decedent to commit suicide. Decedent's death was alleged to be the direct and proximate result of the intentional, willful, wanton and/or negligent conduct of the insured.

The insured gave prompt written notice of the action by decedent's estate and sent the insurer a copy of the complaint. On August 28, 1967 the insurer by letter denied coverage, writing:

"We have thoroughly reviewed our policy coverage and conclude that there is no coverage based on Exclusion F and G in the liability section of the policy. I would recommend that this matter be referred to the compensation insurers of Federal Rice Drug Company." (Exhibit B, 11a).

On September 20, 1967 counsel for the insured wrote to the insurer:

"In behalf of Federal Rice Drug Company, your insured, you are hereby notified that said insured will expect and demand strict compliance on your part with the terms of the policy . . . both as to defense of the action and coverage of the damages and in all other respects whatsoever." (Exhibit C, 12a).

The insurer refused to defend or to indemnify. The attorney for the insured thereupon undertook investigation and defense. On March 12, 1968 the claim of decedent's estates was settled for $24,500.00. The insured demanded this sum plus $3,000 incurred for counsel fees. The demand was refused and the instant suit resulted.

The Comprehensive Business Policy (Exhibit A, 7a) contains these insuring agreements:

"I. COVERAGE A -- BODILY INJURY LIABILITY:

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, ...


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