COLLIER v. HARVEY et al., 179 F.2d 664

PHILLIPS, Chief Judge.

On February 24, 1947, Employers Mutual Liability Insurance Company of Wisconsin issued its policy of automobile insurance to Harvey by which it agreed to pay on behalf of Harvey all sums which he should become obligated to pay by reason of liability imposed upon him by law for damages because of bodily injury sustained by any person caused by accident and arising out of the ownership, maintenance, or use, “for the purposes stated as applicable thereto in the declarations” of the automobile described in the policy and to “defend in his name and behalf any suit against the insured alleging such injury * * * and seeking damages on account thereof, even if such suit is- groundless, false or fraudulent. * * * ” Collier brought an action against Harvey in the superior court of Seminole County, Oklahoma, to recover damages for personal injuries.

In his complaint, Collier alleged that he suffered personal injuries on or about May 1, 1947, by reason of the negligence of Harvey in the operation of a truck belonging to Harvey, and sought damages in the sum of $32,642.37. The policy was in full force and effect on May 1, 1947, and described such truck. On July 1, 1948, the Insurance Company brought this action against Harvey and Collier for a declaratory judgment. It alleged the issuance of the policy and attached a copy thereof to its complaint.

It alleged the filing of the state court action by Collier against Harvey and that Collier, in his petition, alleged that Collier received personal injuries on or about May 1, 1947, by reason of the negligence of Harvey in the operation of the truck; that Harvey had demanded that the Insurance Company defend the state court action and pay any judgment that might be rendered against Harvey therein; that the truck involved in the accident was owned by Harvey and that prior to the accident, Harvey had loaned the truck to the City of Seminole and that it was being used under the direction of the Street Superintendent of the City in setting electric light poles in the ball park of the City and not in connection with any maintenance or use of Harvey; that the accident was not within the coverage of the policy; that Harvey did not give written notice of the accident to the Insurance Company as soon as practicable as required by the policy and did not give notice of the accident to the Insurance Company until May 26, 1948; and that by reason of non-coverage and the failure to give timely notice, no obligation existed under the policy on the part of the Insurance Company, either to defend the state court action or to pay any judgment rendered therein against Harvey.

It sought a declaratory judgment determining the rights, obligations, and liabilities of the parties to the action and declaring and adjudging that the Insurance Company had no obligation or liability to Harvey or Collier under such policy on account of such accident. Harvey filed an answer and counterclaim, and a cross-claim against Collier.

In his answer, Harvey alleged that the truck involved in the accident was owned by him, but that at the time of the accident, it was loaned to the City without charge and was not under the control of Harvey or any agent or employee of his, but was under the control of the City, acting through its Street Superintendent; that the petition in the state court action alleged that Harvey was responsible for the operation of the truck at the time of the accident and was guilty of negligence, rendering him liable to Collier; that the issue of his liability to Collier gives rise to disputed questions of fact and law, and that if he is liable in the state court action to Collier, the Insurance Company is obligated to pay any judgment rendered against him therein; and that it is the obligation of the Insurance Company under the policy to defend such state court action and that the Insurance Company has neglected and refused so to do.

In his counterclaim, Harvey alleged by reference the facts set up in his answer and sought a declaratory judgment adjudging and declaring that the Insurance Company was obligated under the policy to defend the state court action and to pay within the limits of the policy any judgment that may be rendered against Harvey therein. Harvey asserted that the delay in giving notice did not result in any prejudice to the Insurance Company.

In his cross-claim against Collier, Harvey alleged by reference the facts set up in his answer and further alleged that on May 1,1947, the City owned and operated a baseball park; that he loaned to the City without charge the truck, equipped with gin poles and a mechanical winch to lift and erect necessary electric light poles at the baseball park of the City upon which to affix flood lights, and men to operate such equipment ; that the equipment was placed in the control and under the supervision, of the City Engineer and Street Superintendent who were supervising and directing the work of electrification of the baseball park; that at the time of the accident, the truck and equipment were operated and controlled by the City and not by Harvey, and Harvey’s employees operating the truck were controlled and supervised by the City and not by Harvey.

Harvey sought a declaratory judgment against Collier declaring and adjudging that Harvey was not responsible for the negligence of his employees loaned to the City at the time of the accident and that Harvey was not liable to Collier for any injuries received in such accident.

Collier filed an answer to the complaint of the Insurance Company in which he denied: that the truck had been loaned to the City without charge; that at the time of the accident it was being used under the direction of the Street Superintendent of the City and not in connection with any maintenance or use by Harvey; that the accident was not within the coverage of the policy; that there was no obligation on the part of the Insurance Company, either to defend the state court action or to pay any judgment Collier might recover therein; and prayed for a declaratory judgment adjudging the Insurance Company to be liable under the policy to him and to Harvey for the damages sustained by Collier as a result of the accident.

Collier filed no pleading to Harvey’s cross-claim. Certain admissions of fact were requested and made; certain interrogatories were propounded and answered; and certain depositions were taken and filed. The Insurance Company and Harvey interposed a motion for

summary judgment. The trial court found there was no genuine issue of fact with respect to Harvey’s liability to Collier, sustained the motion, and entered a judgment in which it adjudged that at the time of the accident in which Collier was injured, the truck and the employees operating the same were loaned to the City and were under its control and supervision, and not under the control or supervision of Harvey, and that neither Harvey nor the Insurance Company was liable to Collier for the injuries incurred by him as a result of the accident. I.

Jurisdiction of the Principal Claim The Insurance Company is a corporation organized under the laws of Wisconsin and is not a citizen of Oklahoma. Harvey and Collier are citizens of Oklahoma. There was a genuine dispute between the Insurance Company and Harvey with respect to the obligation of the Insurance Company to defend the state court action and to pay any judgment within the limits of the policy that Collier might recover against Harvey therein.

The mere fact that Harvey asserted a defense in the state court action which, if adjudged to be true, would establish that the claim of Collier for injuries was not within the coverage of the policy would not constitute an admission on the part of Harvey that the Insurance Company was not obligated to defend the state court action or render the controversy, between the Insurance Company and Harvey respecting the former’s obligation to defend the state court action, non-substantial.

The policy obligated the Insurance Company to defend in Harvey’s name and his behalf any suit brought against him alleging an injury within the coverage of the policy, even if such suit be groundless. The duty of the Insurance Company to defend must be determined, not from the facts asserted by Harvey as a defense to Collier’s claim, but from the allegations of Collier’s petition in the state court action, seeking to recover damages for personal- injuries against Harvey. Such petition alleged facts in support of a claim for damages for personal injuries.

If such facts were true, Harvey was liable to Collier on such claim and his liability was within the coverage of the policy. Accordingly, it is our conclusion that there was an existing substantial controversy between the Insurance Company and Harvey, that Harvey should not be realigned as a party plaintiff for the purpose of determining jurisdiction, and that the court had jurisdiction of the principal claim. American Fidelity Casualty Co. v. Service Oil Co., 4 Cir., 164 F.2d 478, Indemnity Insurance Co. of North America v. Schriefer, 4 Cir., 142 F.2d 851, and State Farm Mutual Automobile Insurance Co. v.

Hugee, 4 Cir., 115 F.2d 298, 132 A.L.R. 188, are distinguishable. In each of those cases, the insurance company admitted its obligation to defend the state court action and there was no real controversy between the insurance company and the insured. II. Jurisdiction of the Cross-Claim A proper cross-claim is auxiliary or ancillary to the principal claim to which it is related and the jurisdiction which supports the claim will support the cross-claim.

Prior to the adoption of the Rules of Civil Procedure for the District Courts of the United States, 28 U.S.C.A. there was a divergence in the authorities with respect to the proximate relation which the matters in the cross bill had to bear to the original matter in controversy in order to make the cross bill proper. Some of the cases held that a cross-complaint is only proper where its determination is necessary to the effective exercise of the primary or main jurisdiction or it is essentially ancillary to the original action. Illustrative is Republic National Bank and Trust Company v. Massachusetts Bond & Ins.

Co., 5 Cir., 68 F.2d 445.

Other cases adopting a more liberal rule held that a cross bill is a bill brought by a defendant in a suit against the plaintiff in the same suit, or against another defendant in the same suit, or against both, touching the matters in question in the original bill; and that its purpose is either to obtain discovery of facts from the complainant or codefendant in aid of the defense of the original bill or to bring before the court new matter in aid of the defense to the original bill; • or to obtain full relief for all parties and a complete determination of all controversies which arise out of the matters charged in the original bill.

Illustrative is Mathis v. Ligon, 10 Cir., 39 F.2d 455, and Queenan v. Mays, 10 Cir., 90 F.2d 525, 535, and cases there cited. See discussion of conflicting views in Moore’s Federal Practice Under the New Federal Rules, Vol. 1, § 13.08. The confusion in the cases as to the extent of the cross-claim has been clarified and the scope of the cross-claim broadened by Rule 13(

g) of the Rules of Civil Procedure for the District Courts which reads: “(

g) Cross-Claim against Co-Party. A pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject matter of the original action.

Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against a cross-claimant.” In Moore’s Federal Practice Under the New Federal Rules, Vol. 1, § 13.08, p. 726, the author says: “The confusion in the early cases as to the extent of the cross-claim has been clarified, and the scope of the cross-claim broadened. The subdivision clearly applies to all claims, legal or equitable.

The cross-claim need not affect the plaintiff; it is enough if it arise ‘out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein.’ As pointed out above, this language parallels language in subdivision (

a) and should receive similar construction. The power of the court to order separate trials of claims or issues as provided in subdivision (

i) answers the objections made in the early cases that involved cross-claims, and which led the courts to restrict the use of cross-claims.” Here, the transaction or occurrence which was the subject matter of the original action was the accident which resulted in personal injury to Collier.

If, at the time of the accident, the truck loaned to the City was under the control of the City and not Harvey, and if the employees loaned by Harvey to the City were under the sole control and direction of the City, then Harvey was not liable to Collier for the negligence of süch employees and Harvey was not using the truck at the time of the accident and the claim of Collier was not within the coverage of the policy.

On the other hand, if, at the time of the accident, the truck was under the control of Harvey and the employees loaned to the City were under the control and direction of Harvey, then Harvey was liable to Collier for the negligence of such employees and Harvey was using the truck at the time of the accident and the claim of Collier was within the coverage of the policy. Hence, an adjudication with respect to the facts at the time of the accident would determine whether Collier’s claim was within the coverage of the policy and also determine whether Harvey was liable to Collier for the negligence of the employees.

In other words, the issues of fact necessary to determine both legal questions were identical. Accordingly, we conclude that the cross-claim of Harvey against Collier was one arising out of the transaction or occurrence which was the subject matter of the principal claim to which it was related and the jurisdiction which supports the claim also supports the cross-claim.

If Harvey is not permitted to maintain his cross-claim against Collier, he will be in the anomalous position of having an adjudication by the Federal court as between the Insurance Company as plaintiff and Harvey and Collier as defendants that at the time of the accident the truck was under the control of the City and the employees loaned to the City were under the sole control and direction of the City and, therefore, Harvey was not using the truck, and the claim of Collier was not within the coverage of the policy, and being subject to the danger of a future adjudication by the state court that at the time of the accident the truck was under the control of Harvey and the employees under the control and direction of Harvey, and that Harvey is liable to Collier for the negligence of such employees.

In order to protect the right of Harvey, it was necessary to completely adjudicate the issues referred to above as between all of the parties.8 But the judgment should have been limited to an adjudication of those issues. Whether Collier predicated his claim against Harvey solely on the negligence of the two employees of Harvey loaned to the City or on those grounds and also on other grounds, the record does not clearly disclose.

If Collier alleged in his petition in the state court, in addition to the negligence of the employees of Harvey loaned to the City, other grounds for recovery against Harvey, the trial court should not have adjudicated that Harvey was not liable to Collier for the injuries received as a result of the accident and the judgment should be modified accordingly. Otherwise, it should be affirmed. Collier filed an answer to the complaint of the Insurance Company and asked for affirmative relief.

He did not request the court, in the exercise of a sound discretion, to refuse to entertain the action for a declaratory judgment. Whether) the court, in the exercise of a sound discretion, should have refused to entertain the declaratory judgment action may not be raised for the first time in this court. ' The cause is remanded with instructions to the trial court to ascertain whether Collier alleged in his petition in the state court, in addition to the negligence of the employees of Harvey loaned to the city, other grounds for recovery against Harvey.

If it finds Collier did so allege, the judgment will be modified in accordance with the views above expressed. If it finds Collier did not allege additional grounds for recovery, the judgment will stand affirmed. . Hereinafter called , the Insurance Company. . Hereinafter referred to as the state court action. . Goldberg v. Lumber Mut. Casualty Ins. Co., 297 N.Y. 148, 77 N.E.2d 131, 133; Maryland Casualty Co. v. Moritz, Tex.Civ.App., 138 S.W.2d 1095, 1097; Commercial Casualty Ins. Co. v. Tri-State Transit Co., 190 Miss. 560, 1 So.2d 221, 223, 133 A.L.R. 1510; Lamb v.

Belt Casualty Co., 3 Cal.App.2d 624, 40 P.2d 311, 315; Greer-Robbins Co. v. Pacific Surety Co., 37 Cal.App. 540, 174 P. 110, 111. . Till v. Hartford Accident & Indemnity Co., 10 Cir., 124 F.2d 405. . Mathis v. Ligon, 10 Cir., 39 F.2d 455, 457; Rickey Land & Cattle Co. v. Miller & Lux, 218 U.S. 258, 263, 31 S.Ct. 11, 54 L.Ed. 1032; Moore’s Federal Practice Under the New Federal Rules, Vol. 1, § 13.08, p. 724. . Sanchez v. United States, 10 Cir., 1949, 177 F.2d 452; Wylie-Stewart Machinery Co. v. Thomas, 192 Okl. 505, 137 P.2d 556, 559-562; Aderhold v.

Bishop, 94 Okl. 203, 221 P. 752, 755, 60 A.L.R. 137; Balinovic v. Evening Star Newspaper Co., 72 App.D.C., 176, 113 F.2d 505, 506; Braun v. Averdick, 113 Ohio St. 613, 150 N.E. 41, 42; Devaney v. Lawler Corporation, 101 Mont. 579, 56 P.2d 746, 749; McFarland v. Dixie Machinery & Equipment Co., 348 Mo. 341, 153 S.W.2d 67, 70, 136 A.L.K. 516. . City of Tulsa v. Randall, 174 Okl. 630, 52 P.2d 33. 1. Cf. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 274, 61 S.Ct. 510, 85 510, 85 L.Ed. 826.