Court Opinion

ID: 9603203
Source: CourtListenerOpinion
Date Created: 2023-08-22 02:04:02.232893+00
Date Added: 2024-06-11T18:02:09.498649
License: Public Domain

Rees, J.,
concurring: I concur in the affirmance of the summary judgment. However, the majority opinion, as I read it, varies somewhat from my analysis and affords undeserved credence to a so-called “prospective test.”
In the underlying negligence case, plaintiff sought a joint and several damages judgment against Hatmen and the theater for personal injury purportedly caused by negligent conduct of Hat-men. Plaintiff alleged in his petition that Hatmen was acting in the course of her employment as an agent of the theater. The only asserted basis of plaintiff’s claim against the theater was vicarious liability for Hatmen’s conduct. By their answers, Hatmen and the theater each specifically denied her agency. The jury, as reflected by its answer to a special question, determined Hatmen was not acting as an agent. Accordingly, the jury verdict and the judgment entered were for damages against Hatmen only. In the teeth of explicit trial determination of the agency issue, plaintiff now claims entitlement to payment of the damages judgment under a policy issued by the insurer to the theater.
A garnishment proceeding as in the present action, whether one to establish an indebtedness within policy limits or one to establish an indebtedness outside the policy limits, is a contract action. Gilley v. Farmer, 207 Kan. 536, 543-544, 485 P.2d 1284 (1971). It is correct that plaintiff, the judgment creditor, stands in the shoes of Hatmen, the judgment debtor. Plaintiff’s entitlement to recover in this garnishment proceeding is, at best, to be measured by determination of Hatmen’s contractual entitlement to indemnification by the insurer if the claim were made by her.
*357The insurer was not a named party participating in the trial of the underlying case. Yet had Hatmen not been a named defendant and had plaintiff obtained judgment against the theater, plaintiff doubtless would argue an express or necessarily implicit finding of agency to be binding upon the insurer by reason of collateral estoppel. The same would be true if judgment had been entered against both Hatmen and the theater and prosecution of the garnishment proceeding was on the basis of the insurer’s contractual responsibility to satisfy the theater’s several judgment liability. In similar vein, it must be held that the express adjudication of no agency collaterally estops the plaintiff in this garnishment proceeding. There is mutuality (each of the present parties is in privity with a party to the prior adjudication), but even if this were not so, this is a classic and proper instance for application of the “Bernhard rule” of collateral estoppel. Bernhard v. Bank of America, 19 Cal. 2d 807, 122 P.2d 892 (1942); Crutsinger v. Hess, 408 F. Supp. 548 (D. Kan. 1976).
Plaintiff’s position before us is that because agency was alleged in the underlying action and therefore there was the possibility agency would be found upon trial, the insurer has the contractual duty to pay the judgment against Hatmen. Plaintiff also argues that because the insurer’s attorneys appeared on behalf of Hat-men in initial stages of the underlying case, the insurer is obligated to pay the judgment. Wisely, plaintiff does not refute the trial determination of no agency. Instead, he seeks by circumvention to shed himself of its consequence.
Does this insurer have a contractual duty to pay the damages judgment because of plaintiff’s allegation of agency in his petition in the underlying action and the then consequent possibility of a finding of agency? No.
Although the majority opinion quotes language of two parts of the policy issued by the insurer, I believe it helpful to somewhat differently quote from the policy. The material portions of the manuscript policy issued by the insurer to the theater, identified as the “Named Insured” in the policy declarations, read in the order they appear as follows:
“INA [i]n consideration of the payment of the premium, in reliance upon the statements in the declarations made a part hereof and subject to all of the terms of this policy, agrees with the Named Insured as follows:
“I. . . .
“INA will pay on behalf of the Insured all sums which the Insured shall *358become legally obligated to pay as damages because of personal injury or property damage to which this insurance applies, caused by an occurrence and arising out of (1) the ownership, maintenance or use, including loading and unloading of any automobile, (2) all other operations of the Insured, and INA 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;
(b) any executive officer, partner, director or stockholder of the Named Insured while acting on behalf of such Named Insured;
(e) any other employee of the Named Insured while in the course of his employment by the Named Insured . . . .”
This quoted language includes four specific elements. First, the contracting parties are identified:
“INA . . . agrees with the Named Insured . . . .”
Second, the insuring, or indemnity agreement is stated:
“INA will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of personal injury ... to which this insurance applies . . . .”
Third, the agreement to defend is stated:
“INA shall have the . . . duty to defend any suit against the Insured seeking damages on account of such personal injury . . . even if any of the allegations of the suit are groundless, false or fraudulent . . . .”
Fourth, the word “Insured” is defined:
“The . . . word Insured includes:
(e) any . . . employee of the Named Insured while in the course of.his employment by the Named Insured . . . .”
The language of the insuring agreement clearly and unambiguously provides that the insurer’s duty to pay is for judgments against the insured. Likewise, the language of the agreement to defend explicitly states the insurer’s duty to defend is owed for suits against the insured. Where suit allegations are groundless, false or fraudulent, the duty to defend is owed for suits against the insured. Cf. Brown v. Green, 204 Kan. 802, 808, 466 P.2d 299 (1970). Plaintiff would have us hold that because he alleged *359Hatmen was acting as an agent of the theater, she was an insured to whom the insurer owed a duty to defend. The policy language recites no agreement by the insurer to defend anyone other than an insured. The plain language of the agreement to defend cannot be read to say there is a duty to defend a stranger who, directly or by reason of other allegations, is groundlessly, falsely or fraudulently alleged to be an agent of the named insured.
Spruill Motors, Inc. v. Universal Underwriters Ins. Co., 212 Kan. 681, 512 P.2d 403 (1973), is not to the contrary. In Spruill, the named insured was the named defendant in the underlying action. The possibility of coverage there considered was the possibility of liability of the insured because of an occurrence that was an insured risk. To argue that Spruill is applicable here is to read too much into that decision. In American Fidelity Ins. Co. v. Employers Mut. Cas. Co., 3 Kan. App. 2d 245, 593 P.2d 14 (1979), our court has said:
“In [Spruill Motors, Inc. v. Universal Underwriters Ins. Co.] our Supreme Court adopted the rule that an insurer may not rely on the pleadings alone in determining whether it has a duty to defend a suit against its insured. Instead it must take into account any facts known to it or reasonably discoverable by it, and if there is a possibility that coverage exists there is a duty to defend. The Court there observed that the duty to defend is independent of the duty to indemnify, and may exist even where, in the long run, there proves to be no indemnity coverage.
“. . . The issue there was whether the ‘occurrence’ giving rise to the insured’s potential liability was an insured risk; i.e., whether it was a noncovered intentional tort or a covered negligent tort. The insurer, the Court said, had a duty to investigate the underlying facts before refusing to defend.
“As we read Spruill, the possibility of coverage referred to is a possibility that under the facts of the case the insured may be found legally obligated to pay damages because of an occurrence that was an insured risk; that is, a possibility there may be a duty to indemnify arising out of the facts of the case.” 3 Kan. App. 2d at 250-251; emphasis supplied.
Spruill is no authority upon which to argue that because the allegations of a petition make it possible that a named defendant’s status may be found to be such that he would be within the policy definition of an insured, a duty to defend arises upon the filing of the petition. Kansas case authority prior to Spruill that expressed the rule that coverage is to be measured by the allegations of the petition is all addressed to risk coverage. None deal with coverage of a purported insured. See, for example, Gowing v. Great Plains Mutual Ins. Co., 207 Kan. 78, 483 P.2d 1072 (1971); Brown v. Green, 204 Kan. 802; Leonard v. Maryland Casualty Co., 158 *360Kan. 263, 146 P.2d 378 (1944); El Dorado Refining Co. v. United States Fidelity & G. Co., 157 Kan. 198, 139 P.2d 369 (1943).
No coverage of Hatmen arose upon the filing of plaintiff’s petition. Its allegations did not make her an agent and therefore an additional insured under the policy. The insurer’s duty to defend was owed to no one not an insured. Plaintiff’s allegations did not give birth to a duty to defend Hatmen. Absent the duty, there was no breach.
Each of the case authorities cited in the majority opinion in support of a so-called prospective test is distinguishable, unpersuasive, or both. No particular service would be afforded by explanation of this conclusion. The presentation of a so-called prospective test view in the majority opinion discomforts me. It affords that view undeserved credence.
In regard to the underlying case, the insurer owed contractual duties. Upon the commencement of and during the pretrial stages of that action, the insurer chose as a matter of business judgment to proceed as if Hatmen was not acting as an agent of the named insured. Its decision was vindicated at trial. It cannot now be held contractually obligated as if the facts were other than as had been determined. If it had erred in its elected course of conduct, it would be obligated to fulfill its contractual duties by payment of both the judgment and the costs of Hatmen’s defense, all as owed to an insured under its policy. In the context of this litigation, the insurer cannot be faulted because it did not undertake Hatmen’s defense. To have done so would have placed it in a position of conflict of interest that could have been otherwise dealt with only by employment of separate counsel for Hatmen and the theater. Even to have done this would have involved assumption by the insurer of a position contrary to Hatmen’s own denial of agency.
Plaintiff’s second argument, withdrawal of the insurer’s attorneys from representation of Hatmen bars the insurer from denial of responsibility to pay the judgment, is also without merit. In the pretrial stages of the underlying action, the insurer’s attorneys engaged in two courses of conduct. On behalf of the theater, they entered their appearance, answered, successfully prosecuted a motion for summary judgment on the ground Hatmen did not act as the theater’s agent, and unsuccessfully represented the theater on the first appeal. Williams v. Community Drive-In Theatre, Inc., 214 Kan. 359, 520 P.2d 1296 (1974). While plaintiff was *361attempting to perfect service upon Hatmen, who was then a minor, the insurer’s attorneys requested and obtained orders for extension of time for her answer or other response to plaintiff’s petition. No pleadings were filed by the insurer’s attorneys on behalf of Hatmen following perfection of service. Although there was no withdrawal of record by the insurer’s attorneys as counsel for Hatmen in compliance with Rule 117 (224 Kan. lxii), Hat-men’s personal counsel appeared on her behalf as early as October 26, 1971, at pretrial hearings and thereafter by the filing of her answer on November 10,1971, and at trial on September 9-11, 1974. The record reflects not the slightest showing of prejudice to Hatmen by reason of the factual but not formal withdrawal by the insurer’s attorneys from participation on her behalf and the assumption of representation by her personal counsel.
“Waiver,” “estoppel” and “bar” are terms often loosely used in opinions concerning denial of responsibility by an insurer. Here, there was no waiver because the actions of the insurer’s attorneys cannot be said to have constituted the intentional relinquishment of a known right. Prather v. Colorado Oil & Gas Corp., 218 Kan. 111, 117, 542 P.2d 297 (1975). There is no equitable estoppel because there is no demonstration of detrimental reliance by Hatmen. Clawson v. Garrison, 3 Kan. App. 2d 188, 199, 592 P.2d 117 (1979). To argue that withdrawal of representation by an insurer’s attorneys is presumptively prejudicial and thus this insurer’s denial of contractual responsibility is barred, is an argument without merit. The record refutes any contention Hat-men was prejudiced; the nonexistence of the presumed fact is clearly established. Further, the doctrines of waiver and equitable estoppel could not create a contract for coverage of Hatmen as an insured.
The trial court correctly granted summary judgment.