Hardware Mut. Casualty Co. v. Hilderbrandt

119 F.2d 291

• Court: Court of Appeals for the Tenth Circuit
• Decided: January 13, 1941
• Docket: 1985
• Status: Published

Opinions

PHILLIPS, Circuit Judge.

The Hardware Mutual Casualty Company¹ *3brought this action against G. W. Hilderbrandt, C. S. Humphrey, J. C. Thompson, and Mildred Gilbert, administratrix of the estate of H. C. Gilbert, deceased, seeking a declaratory judgment determining its liability under an insurance policy.

The facts as disclosed by the findings of the trial court, which are supported by substantial evidence, are not clearly erroneous, and are therefore binding on this court,² are these:

During the year 1937, Hilderbrandt was the owner of certain lots located in Oklahoma City, Oklahoma, and an apartment hotel situated thereon. The hotel was operated by Humphrey under a month-to-month lease.

On January 13, 1937, the Casualty Company issued its policy of liability insurance to Hilderbrandt for a term of one year from January 5, 1937, insuring Hilder-brandt against liability imposed by law for damages for death or bodily injuries accidentally sustained on the hotel premises by any person or persons other than employees of Hilderbrandt.

The policy provided:

“II. The Company further agrees: * * 2. To defend in his name and behalf any suit against the Assured seeking damages on account of such injury, even if such suit is groundless, false, or fraudulent; *

On and prior to December 1, 1937, the hotel was equipped with a steam heating plant consisting of a boiler in the basement, radiators in the rooms, and steam pipes leading from the boiler to the radiators. About December 1, 1937, it became necessary to install a new boiler for the steam plant. Humphrey ascertained that it would take about a week to secure a new boiler. Believing that a gas heating system could be installed more quickly than a new boiler, Humphrey sought the consent of Hilderbrandt to install such a system. Hil-derbrandt agreed that Humphrey might install the gas heating system, advance the cost thereof and deduct such cost from future rentals. On December 2, 1937, Humphrey entered into an oral contract with Thompson, a licensed plumber, whereby the latter agreed to install the gas system at the cost of materials, supplies and labor, plus ten per cent of the cost thereof. After talking with Thompson, Humphrey decided to use the old steam pipes instead of gas pipes in order to save expense and secure heat for the hotel more quickly. Humphrey secured a temporary permit from the city inspector to install the gas system, using the old steam pipes. Under the contract, Thompson was to have full and complete charge of the method and manner of work. He employed II. C. Gilbert and other workmen to install the gas system. The contract contemplated the disconnecting of the steam pipes from the boiler in the basement, repair of any leaks in the pipes, their connection with a gas supply, the installation of gas stoves in the rooms, the removal of the radiators, and the connection of the steam pipes with the gas stoves.

On the evening of December 3, 1937, while Thompson and Gilbert were examining a gas leak in one of the pipes in a room on the second floor of the hotel, an explosion occurred in the room resulting in serious injuries to Gilbert and Thompson. On December 9, 1937, Gilbert died as the result of the injuries. Mildred Gilbert, the surviving wife of Gilbert, was appointed administratrix of his estate and on December 23, 1937, as such administratrix, she commenced an action in the District Court of Oklahoma County, Oklahoma, seeking damages for the wrongful death of Gilbert, for pain and anguish suffered by Gilbert during the period from December 3 to. December 9, 1937, and for hospital, medical, surgical and funeral expenses. In her original petition, the administratrix sued Hil-derbrandt and Humphrey as partners. She also joined Thompson and John Munson as partners. She alleged that Gilbert was an employee of Hilderbrandt and Humphrey and that Thompson caused the explosion by lighting a match in the gas-filled room. With leave of court, she later withdrew that petition and filed a substituted petition in which she sued Hilderbrandt and Humphrey as landlord and tenant, respectively, and as partners, did not join Thompson and Munson, and omitted the allegation as to Thompson lighting the match. In her substituted petition, she alleged that at the time of the accident, Gilbert was employed by Hilderbrandt and Humphrey to assist them in installing the gas system and was. acting subject to their orders and directions; that the steam pipes had long been in use, were rusted, cracked and corroded and that such pipes, their joints, fittings and connections were inadequate and insufficient for retaining and transporting natural gas, and that Hilderbrandt and Humphrey knew, or by the exercise of ordinary care might have known, the condition of such pipes and that they failed to furnish Gilbert a reasonably safe place in which to work.

On February 18, 1938, Thompson commenced an action in the District Court of Oklahoma County, Oklahoma, against Hil-derbrandt and Humphrey, individually, as owner and tenant, respectively, and as partners to recover damages on account of the injuries suffered by him as a result of the explosion. In his petition, Thompson alleged that he was employed by Hilderbrandt and Humphrey to assist them in installing a gas heating system; that the work was done under the direction of Humphrey; that the steam pipes had long been in use, were rusted, cracked and corroded, and that such pipes, their joints, fittings and connections were inadequate and insufficient for retaining and transporting natural gas, and that Hilderbrandt and Humphrey knew, or by the exercise of ordinary care and diligence might have known, the condition' of such pipes and that they negligently failed to provide Thompson with a reasonably safe place in which to work.

The steam pipes had been in use in the hotel for a number of years and were worn, corroded, defective and broken in many places. Hilderbrandt knew, or by the exercise of reasonable care could have known, the condition of the pipes and that the use of same for the transmission of natural gas would create a dangerous situation in the hotel.

Notice of the accident was given by Hil-derbrandt to the Casualty Company and it caused an investigation of the accident to be made between January 10 and January 13, 1938, inclusive, and ascertained the true relation existing at the time of the accident between Hilderbrandt and Humphrey, between Hilderbrandt and Thompson, and between Thompson and Gilbert.

Hilderbrandt delivered copies of the pleadings and the summonses in the actions brought by the administratrix and Thompson to the Casualty Company and demanded that it defend the actions.

The Casualty Company denied liability under the policy and advised Hilderbrandt that it would not defend the actions unless Hilderbrandt would execute a nonwaiver agreement. Hilderbrandt refused to execute such an 'agreement and employed counsel to defend the actions.

On September 19, 1938, Hilderbrandt entered into a compromise settlement. of the Gilbert case under which he agreed to pay the sum of $2,500, plus costs of $16.75, and the additional sum of $2,500 if and when he recovered the same from the Casualty Company. On the same day he entered into a compromise settlement of the Thompson case whereby he agreed to pay Thompson the sum of $10,000, plus costs of $21.45. The agreed amounts were paid by Hilderbrandt and the actions were dismissed with prejudice. Hilderbrandt also incurred expenses in the preparation of the cases aggregating $181.50 and attorneys’ fees aggregating $750.

On October 17, 1938, Hilderbrandt, through his attorneys, advised the Casualty Company of the settlement of the cases and demanded reimbursement for the amounts expended.

The relationship existing between Hil-derbrandt and Humphrey at the time of the accident was that of landlord and tenant and not that of copartnership. In installing the gas system, Thompson was acting as an independent contractor. Gilbert was an employee of Thompson. Neither Gilbert nor Thompson was an employee or servant of Hilderbrandt. The compromise settlements were entered into in good faith and were fair, reasonable, and prudent. Hil-derbrandt was solvent at the time he entered into such settlements.

The trial court concluded that Thompson was an independent contractor and not the employee of Hilderbrandt; that Gilbert was an employee of Thompson and not an employee of Hilderbrandt; that Humphrey, in making the contract with Thompson, acted for Hilderbrandt as the latter’s agent or vice principal; that Thompson and Gilbert were invitees of Hilderbrandt and that he owed them the duty of furnishing and maintaining a reasonably safe place for them to perform the work in which they were engaged and that the failure to perform that duty rendered him liable, notwithstanding they were not his employees; that it was the duty of the Casualty Company to defend the actions brought by the administratrix and Thompson and that its denial of liability and refusal to defend was a breach of the terms of the policy; that upon such refusal, Hilderbrandt had the right to defend such actions and to compromise them provided he acted in good faith; that the compromise settlements were fair, reasonable, and prudent and that Hil-derbrandt was entitled to recover from the Casualty Company the amounts expended in defending the actions and paid in compromises of the claims.

From a judgment in favor of Hilder-brandt on his counterclaim for $13,469.70, plus interest at six per cent, from October 17, 1938, and for the costs of suit, the Casualty Company has appealed.

The policy expressly excluded from the coverage, accidents sustained by persons employed by Hilderbrandt. Whether the claim is within the coverage of fhe policy must be determined from the allegations of the petition in the action brought against the insured.³

Had the Casualty Company defended the actions without a reservation of right to deny liability, it would have been obligated to pay any judgments recovered therein.⁴

We conclude that the Casualty Company did not breach the terms of the policy by refusing to defend the actions without a nonwaiver agreement on the part of Hilderbrandt.

While Hilderbrandt took general releases from the administratrix and Thompson, the payments made by him to the adminis-tratrix and Thompson were in settlement and discharge of the claims asserted in the actions brought by the administratrix and Thompson. These claims were not within the coverage of the policy. The Casualty Company was not obligated to reimburse Hilderbrandt for the amounts expended in settlement of such claims.

The judgment is reversed and the cause remanded with instructions to grant the Casualty Company a new trial.

1 Hereinafter referred to as the Casualty Company.

2 See F. W. Fitch Co. v. Camille, Inc., 8 Cir., 108 F.2d 635, 638; Cherry-Bur-rell Co. v. Thatcher, 9 Cir., 107 F.2d 65, 69.

3 Fessenden School v. American Mut. Liability Ins. Co., 289 Mass. 124, 193 N.E. 558, 560; Brodek v. Indemnity Ins. Co. of North America, 292 Ill.App. 363, 11 N.E.2d 228, 238, 239; United States Fidelity & Guaranty Co. v. Baldwin Motor Co., Tex.Com.App., 34 S.W.2d 815, 819; Morgan v. New York Casualty Co., 54 Ga.App. 620, 188 S.E. 581, 582; Ocean Accident & G. Corporation v. Washington Brick & T. C. Co., 148 Va. 829, 139 S.E. 513, 517; Commercial Standard Ins. Co. v. McKinney, Tex.Civ.App., 114 S.W.2d 338, 341, 342; Isaacson Iron Works v. Ocean Accident & G. Corp., 191 Wash. 221, 70 P.2d 1026, 1031; United Waste Mfg. Co. v. Maryland Casualty Co., 85 Misc. 539, 148 N.Y.S. 852, 858; Id., 169 App.Div. 906, 153 N.Y.S. 1148.

In Fessenden School v. American Mut. Liability Ins. Company, supra, the court said [289 Mass. 124, 193 N.E. 560]:

“It is plain the insurance company would not have been bound under its policy to indemnify the plaintiff if the plaintiff Ada Gauthier had recovered judgment on her declaration against the Fes-senden School, Incorporated, as amended. We think the contention of the defendant is sound, that the obligation of the defendant insurance company is to be determined by the allegations of the declaration and it is not required to defend if it would not be held bound to indemnify the defendant in the action if the plaintiff prevailed upon the allegations of the declaration.”

In Ocean Accident & G. Corp. v. Washington Brick & T. C. Co., supra, the court said [148 Va. 829, 139 S.E. 517]:

“It is contended, however, by counsel for the brick company, that the insurer was bound by the terms of its policy to defend all suits and actions, or other proceedings, instituted against the employer ; basing the argument in this respect upon the third clause of the policy above transcribed. We cannot agree with the argument in this respect. It is true that the provisions of the policy alluded to-may have the effect of binding the insurer to defend all suits, although ‘such suits, or other proceedings, allegations, or demands are wholly groundless, false, or fraudulent,’ as stated in the policy. It is-scarcely logical to hold that this provision concerning the right and obligation to defend the suit, which is often contained in the indemnity policies, would be intended to bind the insurer to take-charge of and defend a suit in which, under the terms of the policy, it had no interest. If this is true, it would result in-compelling- the insurer to waive its claim of nonliability, because it is quite generally held that, if the insurer does defend and a judgment results against the employer, the insurer is bound to pay the judgment.”

4 Meyers v. Continental Casualty Co., 8 Cir., 12 F.2d 52, 55, 56; Ocean Accident & G. Corp. v. Washington Brick & T. C. Co., supra; Note, 76 A.L.R. 23, 159—177; Note, 81 A.L.R. 1326.