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THILL CANDY CO. v. FARM BUR. MUT. AUTO. INS. CO.

February 27, 1959

THILL CANDY COMPANY, Inc., a New York corporation, Plaintiff,
v.
FARM BUREAU MUTUAL AUTOMOBILE INSURANCE COMPANY, an Ohio corporation, Defendant



The opinion of the court was delivered by: STEEL

The questions for decision are whether the 'indemnification' and 'defense' clauses of the 'Standard Workmen's Compensation and Employers' Liability Policy', which defendant issued to plaintiff, obligated defendant (1) to indemnify plaintiff against a judgment suffered in an action brought against plaintiff by one of plaintiff's employees, and (2) to defend the employee's action on plaintiff's behalf. Plaintiff seeks a declaratory judgment under 28 U.S.C. § 2201 to resolve an actual controversy between the parties concerning the responsibilities of defendant to plaintiff under the 'indemnification' and 'defense' clauses.

Plaintiff is a New York corporation; defendant is an Ohio corporation; and the amount in controversy, exclusive of interest and costs, exceeds $ 3,000. Jurisdiction exists under 28 U.S.C. § 1332(a)(1).

 The following facts which gave rise to the litigation are not in dispute:

 On September 1, 1952 defendant executed and delivered its policy to plaintiff in Pennsylvania. While the insurance was in effect, Truman Morton, an employee of plaintiff, was injured when riding toward his home at the end of his work day, as an occupant of a box-body truck which another of plaintiff's employees was returning to a rental agency from which plaintiff had leased it. The injury occurred in Philadelphia when the top of the truck struck an overhanging tree limb. Morton was a regular employee of the plaintiff whose hours were from 9:00 a.m. to 4:30 p.m. Prior to the accident Morton's duties for the day had terminated. Plaintiff had no agreement with Morton to provide him with transportation to and from work. When Morton was injured he was not using the truck in the course of his employment by plaintiff but for his own personal convenience as an invitee of plaintiff. The truck driver was operating the truck in the course of his employment by plaintiff and was doing the business of the plaintiff.

 Although Morton and plaintiff were subject to the Workmen's Compensation Act of Pennsylvania, 77 P.S. § 1 et seq., Morton made no claim under it. *fn1" Instead, Morton filed an action against plaintiff in the United States District Court for the Eastern District of Pennsylvania alleging that while he was a 'passenger' in the truck being operated by plaintiff upon its exclusive purpose and business he was injured as a result of the negligent operation of the truck by plaintiff. The complaint made no reference to the fact that Morton was employed by plaintiff. Plaintiff filed an answer which alleged, among other things, that (a) Morton was an employee of plaintiff and, hence, his sole remedy was under the Workmen's Compensation Act of Pennsylvania, and (b) Morton was not acting within the scope of his employment, but was a trespasser on the truck, and accordingly plaintiff owed Morton no duty except to refrain from acts of gross and willful negligence. The action resulted in a verdict and judgment in favor of Morton against plaintiff in the sum of $ 3,000. Plaintiff paid the judgment, together with costs of Morton in the sum of $ 129, its own costs of $ 250, and its own counsel fees in the amount of $ 600. These items, totalling $ 3,979, were paid by plaintiff on or before July 19, 1957.

 Immediately after the accident, plaintiff reported the accident to defendant, and thereafter kept defendant's representative fully and promptly informed of all developments in connection with the claim. Although plaintiff requested defendant to defend the action, defendant refused to do it. Plaintiff then engaged counsel at its own expense in order to investigate the claim and to defend the action.

 The instant action was begun on July 20, 1956 prior to the trial of the Morton action which took place on June 4 and 5, 1957.

 Obligation to Indemnify

 The indemnification problem arises because the injury for which Morton recovered his judgment did not occur in the course of his employment by plaintiff.

 Paragraph 1.(a) of the policy relates to the obligation of the defendant to pay workmen's compensation claims. Thereby the defendant agreed 'as respects personal injuries sustained by employees * * *':

 '1.(a) To pay promptly to any person entitled thereto, under the Workmen's Compensation Law * * * the entire amount of any sum due * * *

 '(1) to such person because of the obligation for compensation for any such injury imposed upon or accepted by this Employer under such of certain statutes, * * *' *fn2"

 Paragraph 1.(b), as amended by an endorsement captioned 'Employers' Liability for Damages by Action at Law' attached to the policy before issuance, relates to the obligation of the defendant to indemnify the plaintiff against liability imposed by law on account of injuries to employees. Thereby the defendant agreed 'as respects personal injuries sustained by employees * * *':

 '1. To indemnify this Employer against loss by reason of the liability imposed upon him by law for damages on account of such injuries sustained by employees within the territorial limits of the United States of America or the Dominion of Canada * * ...


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