Case Name: Jerry Williams, Plaintiff-Appellant, v. Community Drive-in Theatre, Inc., and Donna Kinder McKenna (Hatmen), Defendants-Appellees, and Insurance Company of North America, Garnishee-Appellee
Court: Kansas Court of Appeals
Jurisdiction: Kansas
Decision Date: 1979-06-01
Citations: 3 Kan. App. 2d 352
Docket Number: No. 49,861
Parties: Jerry Williams, Plaintiff-Appellant, v. Community Drive-in Theatre, Inc., and Donna Kinder McKenna (Hatmen), Defendants-Appellees, and Insurance Company of North America, Garnishee-Appellee.
Judges: Before Foth, C.J., Rees and Parks, JJ.
Reporter: Kansas Court of Appeals Reports
Volume: 3
Pages: 352–361

Head Matter:
(595 P.2d 724)
No. 49,861
Jerry Williams, Plaintiff-Appellant, v. Community Drive-in Theatre, Inc., and Donna Kinder McKenna (Hatmen), Defendants-Appellees, and Insurance Company of North America, Garnishee-Appellee.
Petition for review denied July 13, 1979.
Opinion filed June 1, 1979.
John A. Bausch, of Ascough, Bausch, Eschmann, of Topeka, for the appellant.
Frederick K. Starrett and Robert D. Ochs, of Fisher, Ralston, Ochs and Heck, P.A., of Topeka, for the appellee Insurance Company of North America.
Before Foth, C.J., Rees and Parks, JJ.

Opinion:
Parks, J.:
Plaintiff judgment creditor, Jerry Williams, sought to attach by garnishment a debt which he claimed was owed by defendant Insurance Company of North America to its alleged omnibus insured, Donna McKenna, now Hatmen. After finding that no debt existed, the Shawnee County District Court entered summary judgment for the defendant insurance company. Plaintiff appeals.
Plaintiff was shot by Hatmen while on the premises of the Community Drive-In Theatre. He initiated a tort action against her and her employer, the theatre. Summary judgment was rendered for the theatre. On appeal, our Supreme Court reversed the summary judgment and remanded the case for a jury to determine whether Hatmen was acting within the scope of her employment at the time plaintiff was injured. Williams v. Community Drive-In Theatre, Inc., 214 Kan. 359, 368, 520 P.2d 1296 (1974). Upon remand a jury found that Hatmen was not acting within the scope of her employment, thus the damages awarded to plaintiff were assessed against Hatmen alone.
As Hatmen's creditor, plaintiff takes her place and stands in her shoes, taking only what she herself could enforce. Harpster v. Reynolds, 215 Kan. 327, Syl. ¶ 1, 524 P.2d 212 (1974). Plaintiff's primary contention is that the insurance company breached a contractual duty when it failed to defend Hatmen in the tort action against both Hatmen and her employer.
Because the policy issued by the insurance company to Hat-men's employer limited the coverage under the omnibus provision to employees acting within the course of their employment, the insurance company vigorously argues that the jury verdict "laid to rest" any claim that it owed Hatmen a defense. We agree.
Our Supreme Court has recognized the general principle that an insurer's obligation to provide a defense is ordinarily determined by both the pleadings and facts known or reasonably ascertainable by the insured. If those facts give rise to a "potential of liability" under the policy, the insurer owes its insured the duty to defend. This prospective test of the duty to defend the insured applies even though the claim is ultimately found to be groundless. Spruill Motors, Inc. v. Universal Underwriters Ins. Co., 212 Kan. 681, 686, 512 P.2d 403 (1973).
The central question is whether this same principle applies to situations where the contested issue is whether the defendant is in fact an insured. The decisions from other jurisdictions are divided; some apply a prospective test and others adopt an ultimate showing test.
PROSPECTIVE TEST
Jurisdictions applying the rule that the insurer's duty to defend, unlike its duty to pay, arises when the petition or complaint is filed and is to be determined at that stage of the proceedings rather than after the case has been decided on its merits, include Illinois, Texas, Idaho and Washington. Allstate Ins. Co. v. Gleason, 50 Ill. App. 2d 207, 200 N.E.2d 383 (1964); Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22 (Tex. 1965); Pendlebury v. Western Casualty and Surety Company, 89 Idaho 456, 406 P.2d 129 (1965); Holland Amer. Ins. v. National Indemn., 75 Wash. 2d 909, 454 P.2d 383 (1969).
Those courts reason that the contract of the company to defend the insured whenever suit is brought against it to enforce a claim for damages would have little value and be rendered almost meaningless, if that duty did not arise during the early stages of an action brought against the named or omnibus insured. See Bloom-R.-K. Co. v. Indem'y Co., 121 Ohio St. 220, 226, 167 N.E. 884 (1929); Holland Amer. Ins. v. National Indemn., 75 Wash. 2d at 912.
The prospective test fosters judicial economy, with two fringe benefits being the avoidance of both extra legal fees and delay in processing the damage action. Under this theory, money spent by an insurance company in a declaratory judgment action to determine the defendant's status as an insured is better spent in defending the main action. The same proof would undoubtedly be offered and the result would presumably be the same. Holland Amer. Ins. v. National Indemn., 75 Wash. 2d at 914.
ULTIMATE SHOWING OR RETROSPECTIVE TEST
Arizona, Louisiana and California apply an "ultimate showing test" of the duty to defend an alleged "omnibus insured." See Navajo Freight Lines, Inc. v. Liberty Mutual Ins. Co., 12 Ariz. App. 424, 471 P.2d 309 (1970), rev. denied October 20, 1970; Smith v. Insurance Co. of State of Pennsylvania, 161 So.2d 903 (La. App.), rev. denied 246 La. 344, 164 So.2d 350 (1964); Butler v. Maryland Casualty Company, 147 F. Supp. 391 (E.D. La. 1956); Chicken Delight of Cal., Inc. v. State Farm Mut. Auto. Ins. Co., 35 Cal. App. 3d 841, 864, 111 Cal. Rptr. 79 (1973).
These cases hold that before the general principle regarding the duty to defend applies, it must be shown that under the policy the defendant is in fact an insured, named or omnibus. This must be so because the insurer's obligation is not to provide a defense for a stranger merely because the plaintiff alleges that the defendant is an insured or alleges facts which, if true, would make him an insured. While an insurer may not decline the defense of an insured against an ultimately groundless claim, neither may it be compelled to defend an action against a party not entitled thereto under the policy provisions. Stated otherwise, the plaintiff may not create an obligation on the part of the insurer where no obligation previously existed. See Navajo Freight Lines, Inc. v. Liberty Mutual Ins. Co., 12 Ariz. App. at 430-431, where the following rationale for this view was cited by the Arizona Court of Appeals:
"If an insurer erroneously takes the position that notwithstanding the allegations of the complaint it has no obligation to defend, and facts subsequently establish that such duty did exist, then we are confident that the law will allow the injured party an adequate remedy for the breach by the insurer of its obligations under the policy. (See the many cases affording such a remedy cited in Annot., 50 A.L.R.2d 461 (1956)). On the other hand, if the insurer's position is ultimately shown to be correct, then it should not be penalized by being forced to bear an expense which it did not contractually obligate itself to incur." (p. 431.)
We adopt the ultimate showing test of the duty to defend an omnibus insured and accordingly, in determining whether the defendant had a duty to defend Hatmen, we look first to the language of the policy and then to the jury verdict in the instant case:
"INA [Insurance Company of North America] shall have the right and duty to defend any suit against the Insured seeking damages on account of such personal injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent .
"HI. PERSONS OR ENTITIES INSURED .
"The unqualified word Insured includes:
"(a) The Named Insured;
"(e) any other employee of the Named Insured while in the course of his employment . . . ."
The policy language would fully justify a finding that it was the intent of the parties that the insurer have a duty to its insured to defend all suits against it for injuries which appear, from the investigation of the allegations of the complaint, to be within the ambit of the policy coverage. The policy language does not support a conclusion that it was intended that the pleadings be of controlling influence in determining who is, or is not, an insured within the policy definition. The fact remains that if Hatmen was acting within the course of her employment, the insurer contracted to defend her. If Hatmen was not acting within the course of her employment, she was a stranger and the insurer had not contracted either to defend her or to pay any damages which might be assessed against her. Cf. Navajo Freight Lines, Inc. v. Liberty Mutual Ins. Co., 12 Ariz. App. at 429. When the jury determined that at the time of the shooting Hatmen was not working as an employee of the Community Drive-In Theatre and not acting within the scope of her employment, she became a stranger to the contract.
We conclude that the defendant insurance company owed no defense to Donna Hatmen, nor was it required to pay damages on her behalf; thus it owes nothing to plaintiff Jerry Williams. Having reached this decision, it is not necessary to consider the other questions which emanate from plaintiff's estoppel contentions.
We are mindful of the rules governing appellate review of summary judgment decisions and have applied them in this case. Pedi Bares, Inc. v. First National Bank, 223 Kan. 477, Syl. ¶ 1, 575 P.2d 507 (1978). No issues of material fact remain; therefore the trial court properly sustained the garnishee insurance company's motion for summary judgment.
Judgment is affirmed.