Appeal from the Superior Court of Baltimore City; Oppenheimer, J.
Brune, C. J., and Hammond, Horney, Marbury and Sybert, JJ. Sybert, J., delivered the opinion of the Court.
This appeal presents the question whether an insurer properly denied coverage under its policy and refused to defend its insured who was sued for personal injuries in a motor vehicle collision case.
The insured, National Paving and Contracting Company (plaintiff below and appellee here), is in the business of manufacturing asphalt paving material and of paving streets and roadways for public and private customers. At the time of the accident, National operated extensive equipment of its own, including dump trucks. However, since its supply of dump trucks was inadequate during its busy season, it was National's custom to hire, under an annual oral contract, additional dump trucks and drivers from Elizabeth May Sudbrook, a hauling contractor, whose business was managed by her son Redmond. On July 25, 1955, a Sudbrook dump truck, operated by a Sudbrook driver, Lloyd Ogle, and hired by National that day for its purposes, crossed over to the left of the center of Pimlico Road and crashed into a Baltimore Transit Company bus, seriously injuring its driver, Ernest H. Keitz. In the suit which resulted, Keitz named as defendants Ogle, Elizabeth May Sudbrook, Redmond Sudbrook and National.
At the time National had two contracts of liability insurance with the appellant, United States Fidelity and Guaranty Company (U.S.F. & G.), defendant below, a schedule liability policy, with limits of $100,000 for each person and $300,000 for each accident, and an automobile liability and physical damage policy, with non-ownership endorsement and with the same limits. Sudbrook had an automobile liability policy with another insurance company with limits of $20,000 and $40,000. When notice of the damage suit was served on Dr. Ward, the president of National, he notified U.S.F. & G. through its agent, Carl F. Gail. Mr. Gail had previously advised National with respect to its liability coverage and had issued the policies in question to it on behalf of U.S.F. & G. Mr. Gail requested that the suit papers be sent to him, which was done. An adjuster of U.S.F. & G. then called on Dr. Ward and requested and received a written statement as to the relationship
that existed between National and Sudbrook. Soon after, the adjuster of U.S.F. & G. returned the suit papers with a letter which stated in part:
"The case against you as set forth in the allegations of the Declaration does not fall within the coverage of the insurance policies you have with our company and we therefore are not in a position to defend you in this action."
Despite vigorous exception by Gail, U.S.F. & G.'s own agent, to this denial of coverage, National was obliged to engage other legal counsel to represent it in the damage suit. At the trial a verdict was directed in favor of National at the conclusion of the plaintiff's case on the ground that there was no legally sufficient evidence upon which the jury could determine that Ogle, the driver, was National's servant when the collision occurred. A directed verdict was also granted in favor of Redmond Sudbrook and the jury returned a verdict for Keitz for $70,000 against Ogle and Elizabeth May Sudbrook. An appeal was taken from all three judgments by Keitz for the principal purpose of disputing the trial court's directed verdict in favor of National.
This Court in Keitz v. National Paving Co., 214 Md. 479, 134 A.2d 296 (1957), reversed the judgment on directed verdict for National, holding that there was legally sufficient evidence in the case to require the submission to the jury of the question whether or not Ogle was a servant of National at the time of the accident, and stating in effect that even though Ogle was Sudbrook's servant when the accident occurred, a servant can have two masters, not joint employers, at one time as to one act, provided that the service to one does not involve abandonment of the service to the other (pp. 491 and 493 of 214 Md.). The Court, after a reargument, further held that the judgment against Ogle and Sudbrook was binding upon National as to the issues of Ogle's negligence and the amount of damages. The case was therefore remanded for a new trial on the sole issue of whether Ogle was a servant of National at the time of the accident. (214 Md. 496, 136 A.2d 229 (1957).)
After the decision in Keitz, Sudbrook's insurance company paid to Keitz $20,000, representing the limit of its liability under its policy. This reduced National's possible liability on the retrial to $50,000. Attorneys for National, after consulting among themselves and with outside counsel, convinced National that a compromise settlement would be the safer course of action rather than risking a retrial on the issue of the agency relationship between National and Ogle (with respect to which National felt it was not in a position to controvert the plaintiff's evidence), and thus possibly becoming liable for the whole sum of $50,000. After giving notice to U.S.F. & G. of the proposed compromise and an opportunity to participate (which resulted in no reply), a settlement was consummated by National with Keitz for $37,500. National then sued U.S.F. & G. under the two aforementioned policies of casualty insurance for damages claimed because of denial of coverage by U.S.F. & G. and failure to defend Keitz's suit against it. Its claim of coverage under the automobile liability and physical damage policy, however, was abandoned at the trial and its case was based on certain relevant provisions of the schedule liability policy. The trial court, Judge Oppenheimer presiding without a jury, found in favor of National. Without finding it necessary to decide the question of whether or not Ogle was a servant of National, the trial court held that hazard Division 5, the "independent contractors" provision of the schedule liability policy, covered National's potential liability arising out of the accident, and that U.S.F. & G. had breached its contract of insurance by its refusal to defend National in the Keitz suit. Judgment was entered for National in the amount of $50,316.48, which included the settlement figure paid to Keitz by National, with interest, plus National's attorneys' fees and incidental expenses incurred in defending the Keitz suit. U.S.F. & G. appealed from this judgment.
U.S.F. & G. maintains that in the absence of a finding of fact that Ogle was the servant of National at the time of the accident there could be no finding that National was liable for
damages as a result of the accident, and hence no liability could be imposed on its insurer. This contention is predicated on the theory that in the Keitz case this Court based the potential liability of National upon the sole issue of whether Ogle was a servant of National at the time of the accident. Appellant urges that until that question is decided, liability of National and any consequent liability of U.S.F. & G. cannot be determined.
The contention is not sustainable. It is true, of course, that this Court in the Keitz case considered the question of National's possible liability to Keitz under the doctrine of respondeat superior on the basis of a potential master-servant relationship existing between Ogle, as the driver of the truck, and National. In that case this Court did not have before it the contract of insurance defining the conditions under which U.S.F. & G. would be liable to National and this Court's decision in the Keitz case can in no way limit U.S.F. & G.'s liability if the insurance policy it issued to National creates a liability on its part even in the absence of a judicial determination of whether Ogle was or was not the servant of National at the time of the accident. Thus the fundamental question in this case is not the basis of the legal liability of National to Keitz, but rather what coverage was afforded to National under the terms of the contract issued by U.S.F. & G.
Appellant relies upon one of the terms of the contract to show its freedom from liability. It cites ...