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Carolina Casualty Insurance Co. v. Insurance Co.

decided: March 5, 1979.



Before Gibbons, Van Dusen and Rosenn, Circuit Judges.

Author: Van Dusen


The pattern of facts in this case is a common one. See, for example, Insurance Co. of North America v. Continental Casualty Co., 575 F.2d 1070, 1071 (3d Cir. 1978); Carolina Casualty Insurance Co. v. Underwriters Insurance Co., 569 F.2d 304, 306 (5th Cir. 1978); Walter v. Dunlap, 368 F.2d 118 (3d Cir. 1968). An ICC-certified motor carrier (here, Refrigerated Transport Co.) leases a truck; the lessor of the vehicle (here, Charles Stanford) also provides the driver (here, Hugh F. Wicker). The truck, while carrying goods on the lessee's business and displaying the lessee's ICC placards, is involved in an accident. Members of the public (here, the Babcocks), alleging injury in the accident, sue lessee, lessor and driver for damages. The insurers of the defendants in that case, meanwhile, stand anxiously by, each trying to bow the other through the courtroom door first. The result is a separate declaratory judgment action in which the lessor's insurer (here, the Carolina Casualty Insurance Co.) and the lessee's insurer (here, The Insurance Company of North America) seeks a determination as to which has the unwanted honor of first entering to defend and pay a settlement or judgment in the underlying action against their insureds.

This is an appeal from such a declaratory judgment. The district court in this declaratory action granted summary judgment in favor of the lessor and his insurer, declaring that the defendants had primary responsibility for defending and paying any settlement or judgment in the underlying tort action, which was then pending in the District Court of Delaware. We affirm in part and reverse in part, holding that the lessor and his insurer also have duties of defense and payment, and we remand for further determinations of fact and law.


The Carolina Casualty Insurance Company ("Carolina") and Charles Stanford ("Stanford"), appellees in this appeal, brought the action in the district court, alleging jurisdiction under 28 U.S.C. § 1332*fn1 and seeking a declaration that Carolina's "policy of liability insurance applies only as excess insurance over other valid and collectible insurance . . ." (5a). Carolina is the insurance carrier for Stanford. Stanford is the owner of a tractor-trailer rig which he leased to Refrigerated Transport Co. ("Refrigerated"), appellant in this appeal and defendant in the declaratory judgment action. Also a defendant in that action was The Insurance Company of North America ("INA").*fn2 Refrigerated held a special contract of automobile liability insurance with INA, under which Refrigerated was in effect a self-insurer for the first $25,000. of loss resulting from any one occurrence,*fn3 while INA's coverage extended to the amount of loss in excess of $25,000. up to a combined limit of $1,000,000.*fn4

After defendants had filed an answer and a counterclaim for a declaration that Carolina's coverage was primary and their own merely excess (40a-42a), plaintiffs and defendants moved for summary judgment (51a, 52a).

For the purpose of the cross-motions for summary judgment, the parties entered into the following stipulation of facts (53a-55a):

"On or about August 29, 1973, Refrigerated entered into a trip-lease contract with Charles Stanford by which Refrigerated paid a specified compensation for the use of Mr. Stanford's 1969 white (sic) tractor and 1971 utility van trailer, with driver, for the hauling of certain goods over Refrigerated's interstate commission's route to New York City, New York. (*fn5 ) . . .

"On and prior to August 30, 1973, Refrigerated engaged in interstate trucking as a certificated carrier licensed by the Interstate Commerce Commission. Refrigerated's ICC permit No. is 107515. To protect itself against liability for certain motor vehicle accidents, Refrigerated, as required by ICC rules and regulations and federal law, entered into a contract of liability insurance with INA. (*fn6 ) Under that policy the driver (Hugh F.) Wicker, was an "additional insured' by virtue of plaintiff's "omnibus clause'. INA certified its policy with refrigerated (sic) to the ICC as required by 49 U.S.C.A. § 315. . . .

"Stanford, the owner-lessor, was not in the business of transporting freight and merchandise, except exempt agricultural commodities, in Inter-State Commerce. Stanford is and was not licensed as a certificated carrier by the Inter-State Commerce Commission. At the time of the lease of his tractor-trailer to Refrigerated, Stanford had in effect a liability insurance policy with the Carolina Casualty. (*fn7 ) . . .

"On August 30, 1973, the tractor-trailer, during the lease by Charles Stanford to Refrigerated, and while engaged in hauling goods and materials under the authority of Refrigerated's ICC permit and displaying the latter's ICC placards, collided with a 1973 BMW driven by Courtland T. Babcock, II, at the toll booths of the Delaware Memorial Bridge. Courtland T. Babcock, II, was the operator of the 1973 BMW; his (then-) wife, Barbara, was riding in the right front seat; their two children were riding as passengers in the rear seat. Courtland and Barbara Babcock brought suit in this Court for their alleged personal injuries. (The title of that action is Babcock v. Wicker, Stanford & Refrigerated Transport Co., Civil No. 75-133 (D.Del., Nov. 30, 1978). During the course of trial, Barbara Babcock withdrew her claim for relief against all defendants.) . . .

"Both INA and Carolina Casualty contend that its (sic) respective policy of liability insurance applies only as excess insurance over the other company's valid and collectible insurance for the claims of the Babcocks. Both companies take the position that the other's policy is primary, valid and collectible insurance. In the alternative, both companies contend that each policy should apply to the claim of the Babcocks, with each insurance company being obliged to contribute to the satisfaction of any judgment obtained or settlement achieved in the same ratio as their respective limits bear to each other."

The district court entered summary judgment in favor of plaintiffs on February 13, 1978, declaring that Refrigerated and INA, "to the extent of coverage and within the limits of liability contained in the insurance contract, are primarily responsible for defending" the Babcocks' underlying tort case, "and for paying any settlement or judgment recovered by the Babcocks in that suit" (80a-81a). The court's accompanying memorandum opinion (82a-89a) stated that these primary responsibilities fell to Refrigerated and its insurer, because, under federal motor carrier regulations, "liability for damages to the Babcocks is imputed to, and imposed by law on, Refrigerated . . . ." (85a). The court held that a purported "hold harmless" agreement, executed by the driver on behalf of the lessor and in favor of the lessee, could not shift primary responsibility to Stanford and his insurer. In addition, the court declined to rule on other issues relating to possible common law rights to indemnity from Stanford and Carolina on the ground that "these issues would require advisory opinions . . . because the underlying Babcock case has not yet been resolved" (89a).

Refrigerated moved for reargument under Local Rule 16 (109a-110a); the district court denied this motion (114a-115a). Thereupon Refrigerated filed notice of this appeal (116a).*fn8 INA has not appealed from the declaratory judgment.

After the filing of briefs in this appeal, but before oral argument, the underlying Babcock case went to trial. The claims which were presented to the jury in that case included: (1) common law negligence of the driver Wicker; (2) vicarious liability of both Refrigerated and Stanford for the negligent acts of Wicker as employee of both Refrigerated and Stanford; (3) per se negligence of Wicker, Stanford and Refrigerated for failure to maintain operative brakes and inability to stop within a specified distance, as required by Department of Transportation regulations, 49 C.F.R. §§ 393.48*fn9 and 393.52;*fn10 (4) per se negligence of Refrigerated for failure to inspect or for negligent inspection of the tractor-trailer before commencement of the trip lease, in violation of 49 C.F.R. § 1057.4(c);*fn11 and (5) strict liability of Stanford, as the lessor of defective equipment.*fn12 In addition, Refrigerated and Stanford had each filed cross-claims against the other for contribution and indemnification in the event that Babcock's claims should prove successful.*fn13

The findings of fact in Babcock were made by the jury's answers to a series of special interrogatories and a subsequent questionnaire, which the trial court submitted to the jury after the charge. This court granted the motion of the parties to supplement the record on appeal with copies of the special interrogatories and subsequent questionnaire and the jury's answers thereto. In the answers to the special interrogatories the jury awarded damages of $34,000. to Courtland Babcock. It allocated 20% Of the fault for the accident to Stanford, lessor of the tractor-trailer, and 80% To the lessee, Refrigerated, while finding no fault on the part of the driver, Wicker. In its answers to the subsequent questionnaire, the jury found: (1) that it had not been adequately proved that the tractor-trailer involved had at the time of leasing a defective braking system which proximately caused the accident and injuries; (2) that Refrigerated, the lessee of the rig, had failed to perform, or negligently performed, its non-delegable duty to inspect the tractor-trailer as required by 49 C.F.R. § 1057.4(c), and that this failure or negligence proximately caused the accident and injuries; (3) that Refrigerated, but not Stanford, was independently negligent in violating 49 C.F.R. § 393.48 by not having operative brakes on the rig, which failure or negligence proximately caused the accident and injuries; (4) that both Refrigerated and Stanford were independently negligent in violating 49 C.F.R. § 393.52 by reason of the fact that the rig was incapable of being stopped in time to avoid the collision, and that this failure or negligence was a proximate cause of the accident and injuries; and (5) that there was no valid hold-harmless agreement entitling Refrigerated to indemnity from Stanford. The special interrogatories (Exhibit A) and subsequent questionnaire (Exhibit B) are annexed to this opinion.

On November 30, 1978, the trial court in Babcock entered judgment on the jury's verdict, providing in part:

"It is Ordered and Adjudged that the judgment be entered in favor of the plaintiff Courtland T. Babcock, II, and against defendant Charles Stanford and defendant Refrigerated Transport Co., Inc., Jointly and severally in the amount of $34,000 with the primary responsibility for paying said judgment being that of Refrigerated Transport Co., Inc., and allocation of fault for contribution being as follows: defendant Charles Stanford 20%; defendant Refrigerated Transport Co., Inc. 80%.

"It Is Further Ordered and Adjudged that the judgment be entered in favor of the defendant Hugh F. Wicker and against plaintiff Courtland T. Babcock, II."

(Emphasis added.)


The handing down of a verdict and entry of judgment in the underlying tort case have narrowed the issues which were originally before this court on appeal of the declaratory judgment.

Refrigerated in its briefs on this appeal contended (1) that the question of duty to pay any judgment recovered in the Babcock case was not justiciable; (2) that the district court erred in imposing the primary duty to defend upon Refrigerated; and (3) that even if the issue of duty to pay was justiciable, the district court's order was ambiguous and overly broad in imposing on Refrigerated the primary duty to defend and to pay as to all causes of action asserted in Babcock.*fn14

Refrigerated now concedes that the jury verdict in Babcock has mooted certain of its contentions. First, it concedes that there is no longer any question about the justiciability of the duty to pay issue.*fn15 Motion of the Parties to Supplement the Record at 2. Further, it is conceded that the jury's findings of fact narrowed the controversy relating to Refrigerated's duty to pay by rendering moot that issue as affected by Stanford's potential liability for (a) Respondeat superior, and (b) strict liability.*fn16 Id. Finally, Refrigerated concedes that this court need no longer consider the effect of the district court's declaratory judgment order upon its right to indemnification.*fn17 Id.

The questions which remain in this appeal are the following:

(1) Does the district court's declaratory judgment order erroneously destroy Refrigerated's rights to contribution from Stanford or his insurer ...

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