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Faribault Canning Co. v. Northwestern National Casualty Co.

December 26, 1961


Author: Kiley

Before HASTINGS, Chief Judge, DUFFY and KILEY, Circuit Judges.

KILEY, Circuit Judge.

This is a diversity suit to recover amounts "loaned" by plaintiff, Employers Mutual, to its insured, plaintiff Faribault Canning Company, to settle personal injury suits against it and for expenses in defending the suits. The trial, without a jury, resulted in a judgment for $22,374.67. Defendant appeals.

On October 26, 1951, a 1941 Studebaker automobile driven by Lawrence Bettinger, then seventeen years old, collided with an automobile owned and driven by Reuben Tweed, near Hastings, Minnesota. Tweed and his passengers, Clara Egge and Lillian Hanson, were injured, and Tweed's automobile was damaged.

At the time of the collision, Marie Bettinger, mother of Lawrence, was insured by defendant against liability arising from ownership and use of the automobile. Lillian Hanson and Clara Egge sued Lawrence Bettinger and his mother in the United States District Court of the District of Minnesota, Third Division. The Bettingers tendered defendant the defense of these suits. Defendant disclaimed liability and refused to accept the defense. Clara Egge, Lillian Hanson, and Reuben Tweed sued Faribault Canning company, in the same court, for damages to cover their injuries, on the ground that Bettinger, while driving the automobile, was acting in the course and scope of his employment with Faribault. Faribault, claiming to be an omnibus insured under defendant's policy issued to Marie Bettinger, also tendered to defendant the defense of the actions against it. Defendant refused to accept tender and denied any obligation to Faribault under its policy with Marie Bettinger.

Before the Hanson and Egge suits against the Bettingers were tried, defendant filed a declaratory judgment suit, also in the United States District Court, Third Division, Minnesota, for declaration that it was not liable under its policy with Marie Bettinger at the time of the collision.

The Hanson and Egge suits against the Bttingers were tried before Judge Bell and a jury in the District Court, with total directed verdicts and judgments of $27,500.00. The court decided as a matter of law that Marie Bettinger was owner of the automobile. Thereafter the declaratory judgment action was tried before Judge Donovan without a jury. The result was a judgment which declared that at the time of the collision Marie Bettinger was not the owner of the automobile driven by her son at the time of the accident, and that she had no insurable interest in the automobile. Northwestern Nat. Cas. Co. v. Bettinger, 111 F.Supp. 511 (D.Minn.1953). The judgment was affirmed by the United States Court of Appeals for the Eighth Judicial Circuit by a divided court. Bettinger v. Northwestern Nat. Cas. Co., 8 Cir., 213 F.2d 200 (1954). The suits against Fribault were settled by it, using funds "loaned" it by its insurer, Employers Mutual. It was to recover these funds and expenses of defending these suits that the instant action was brought.

The first question is whether the declaratory judgment in favor of defendant barred the instant action under the doctrine of res judicata.

The omnibus clause in defendant's policy is as follows:

"III. Definition of Insured

"With respect to the insurance for bodily injury liability and for property damage liability the unqualified word 'insured' includes the named insured and also includes any person while using the automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with his permission. * * *"

Defendant contends that Faribault under that clause was a creditor beneficiary privy to Marie Bettinger, and that therefore Faribault's claim fell with the declaratory judgment against her.

The District Court found that the plaintiffs, here, were strangers to the declaratory judgment action, had had no notice of it, did not participate in it, had no right of appeal, and that Judge Donovan's judgment was not res judicata.

Both parties have cited Minnesota real property or mechanics lien cases for the governing law. None of these involves a claim of an unnamed beneficiary under an omnibus clause in an automobile liability insurance policy. The general rules in them, however, indicate, we think, that under Minnesota law Faribault would not be privy to Marie Bettinger because its right had accrued before the declaratory judgment was entered. ...

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