MATTHES, Chief Judge.
This appeal comes to us from a judgment of the United States District Court for the District of Nebraska holding Insurance Company of North America (INA) liable to Parsons Corporation (Parsons) and The Babcock and Wilcox Corporation (Babcock) on two insurance policies issued by INA to Parsons. Jurisdiction in the district court was premised on the diverse citizenship of the parties. Because of the complex and rather unique issues raised on appeal, we detail the factual setting of the litigation.
Parsons and Babcock were corporations involved in the construction of a power plant near Stanton, North Dakota. As is customary in the trade, they had agreed to perform services for each other, although they were working under independent contracts. On May 21, 1964, pursuant to the agreement, Babcock furnished its large crane to Parsons for the purpose of moving a derrick used by Parsons on the project. The operation was undertaken with an employee of Babcock operating the crane under instructions of Parsons' employees. During the lifting of the derrick, the crane boom broke and the boom and derrick fell to the ground. Both the crane and derrick were extensively damaged.
Parsons immediately notified INA of the accident, and an investigation was conducted.
On receipt of the complaint Parsons notified INA and tendered it the defense. Parsons had two policies issued by INA — a general liability policy and a machinery floater policy. The former provided for indemnification of Parsons should it be held liable to a third party for damages. It also contained the following defense clause:
The machinery floater policy was designed to protect property owned, rented, etc., by Parsons. The floater policy contained no defense clause.
INA declined to accept the defense of the lawsuit under the general liability policy on the basis of an exclusionary clause which exempted from coverage injury to property owned, occupied by or rented to Parsons, or property in the care, custody, or control of Parsons. However, INA did offer to defend under the floater policy on the condition that Parsons sign a "non-waiver agreement."
Parsons refused INA's conditional offer and defended through its own counsel. An answer was filed denying that Parsons had rented or loaned the crane and denying any negligence. In addition, Parsons filed a counterclaim alleging damage to the derrick because of Babcock's negligence and further damages for breach of contract. Parsons also filed a third-party complaint against INA, pursuant to Rule 14, Fed.R.Civ.P., against INA seeking two forms of relief: (1) that INA be held liable on its policies for any judgment rendered against Parsons in the primary action, and (2) that INA be held liable to Parsons for the reasonable expenses incurred in defending the primary action.
INA filed an answer and moved for a separate trial of the third-party action. With the consent of Parsons the motion for a separate trial was granted.
The claims between Babcock and Parsons were tried to a jury which returned verdicts for both parties. On motion of Babcock the verdicts were vacated and a new trial ordered. At the second trial the case was submitted on special interrogatories. In answering them, the jury found that the operator of the crane was acting as a servant of Parsons, that neither Babcock nor Parsons was negligent in operating the crane, that Babcock had sustained damages to its crane in the amount of $10,000, and that Parsons had sustained damages to its derrick in the amount of $8,000. The court entered an appropriate judgment on the basis of
Thereafter, pursuant to leave, Parsons filed an amended complaint against INA in which it limited its claim to recovery of expenses incurred in defending the primary action. It alleged that INA was obligated to so defend under the liability and floater policies. Thereupon, Babcock, on February 27, 1968, sought leave to intervene under Rule 24 (a) (2), Fed.R.Civ.P., urging that its interests would be inadequately represented by Parsons and that it might be bound by a judgment entered in the third-party litigation. As a part of the motion to intervene, Babcock filed a complaint against INA alleging that the crane was in the possession of Parsons at the time of the accident, that Parsons was entitled to recover for the damage to the crane under the floater policy, and that Babcock as owner of the crane was a third-party beneficiary of the floater policy and therefore entitled to recover over against INA for damage sustained to the crane. The motion to intervene was apparently not challenged by either INA or Parsons, and the district court granted it.
After trial before the court, judgments were rendered in favor of Babcock for $9,950, and Parsons for $12,559.77.
As is apparent from the foregoing, the trial from which this appeal arose involved two independent claims. INA, the appellant, challenges the district court's decision on both claims — Parsons' right to recover expenses incurred in defending the primary suit, and Babcock's right to recover on the floater policy as a third-party beneficiary.
THE DUTY TO DEFEND
In support of its conclusion that it was not obligated to defend, INA submits the following contentions: (1) it was obligated to undertake defense under the general liability policy only of those claims within the policy's coverage, and Babcock's complaint showed that its claims were excluded from coverage; (2) under Nebraska law it was disqualified from defending Parsons once it had denied liability and was unable to secure a "non-waiver agreement"; (3) it was excused from defending Parsons, because to undertake the defense would estop it from denying liability under the policy; (4) the potential conflict of interest between it and Parsons absolved it of its duty to defend; (5) even if it were initially required to defend, the duty extended only until Babcock answered Parsons' interrogatories, at which time it became manifest that the claim was outside the policy's coverage.
We look to Nebraska law to determine whether INA was obligated to accept defense of Babcock's claim against Parsons.
Initially, it may be observed that the insurer is required to undertake defense only of those claims asserted against the insured which fall within the coverage of the policy. Gottula v. Standard Reliance Insurance Co., 165 Neb. 1, 84 N.W.2d 179 (1957); Pickens v. Maryland Casualty Co., 141 Neb. 105, 2 N.W.2d 593 (1942). And, the allegations contained in the plaintiff's pleadings are the reference for deciding whether the claim is within the policy's coverage. Only recently the Nebraska Supreme Court has had occasion to rearticulate the appropriate standards:
To this point there is no disagreement between the parties. The dispute arises when these principles are applied to our facts. As we have noted, Babcock's complaint charged three separate counts. The first two sought recovery based on the theory that the crane had been loaned or rented to Parsons and had been returned damaged. The third count, however, sounded only in negligence, and alleged no facts premising recovery on Parsons' rental, possession, or control of the crane. Nor does it incorporate any such facts from counts one or two.
INA submits that counts one and two must be considered in assessing the scope of count three, an argument which is contrary to the principle that, under the federal rules a claimant may plead inconsistent facts in support of alternative theories of recovery. Rule 8(e) (2), Fed.R.Civ.P. It is not unreasonable to read Babcock's complaint as premising liability on alternative grounds, the first requiring a showing of possession or control on behalf of Parsons, and the second based on Parsons' negligence, apart from any possession or control.
When fairly read, we do not believe the third count of Babcock's complaint necessarily rests on facts excluding it from coverage under the "possession-control" exclusion of the policy. INA asserts, however, that the third count is ambiguous and does not clearly state facts bringing it within the policy's coverage. It is contended that under Nebraska law an insurance company has no duty to defend in such a case.
The generality of the phrasing of the third count is consistent with, and an outgrowth of, the spirit of the Federal Rules of Civil Procedure. Specificity is no longer a requirement for a complaint filed pursuant to the rules, and clearly the third count satisfied the requirements of Rule 8(a) (2).
INA's urgings to the contrary notwithstanding, the Nebraska cases have not promulgated a principle contrary to that established in Lee and the cited authority. As so frequently occurs in diversity cases, we are confronted
We conclude, therefore, that the trial court correctly held that count three of the complaint filed by Babcock stated a claim potentially within the coverage of the policy. And, once a complaint states one claim within the policy's coverage, the insurer has a duty to accept defense of the entire lawsuit even though other claims in the complaint fall outside of the policy's coverage. Lee v. Aetna Casualty & Surety Co., supra; Danek v. Hommer, supra; Annot. 50 A.L.R.2d 458, 506-507 (1956). Accordingly, we hold that INA breached its contractual obligation by refusing to accept Parsons' tender of defense.
INA also argues that, for any one of three reasons, it was disqualified or excused from fulfilling that obligation under the circumstances of this case. It is first asserted that Hawkeye Casualty Co. v. Stoker, 154 Neb. 466, 48 N.W.2d 623 (1951), disqualifies an insurer from defending a suit when the insurer has unequivocally denied liability under the policy and has failed to secure a "non-waiver agreement" from the insured. INA's reliance in Hawkeye is misplaced. Hawkeye involved, inter alia, the question whether the insured had breached the policy's "cooperation clause" by hiring its own counsel after the insurer, who had accepted defense, unequivocally denied liability and then instituted a declaratory judgment action to have itself freed from the burden of defending. The case does not stand for the proposition that the insurer can absolve itself from liability under the defense clause merely by tendering an offer of conditional defense and denying liability under the policy.
INA further contends that unconditional acceptance of the defense would have estopped it from contesting liability under the policy, and therefore it was relieved of any duty to defend. Whether under the circumstances INA would in fact have been estopped from denying liability once it had undertaken the defense, we need not decide. As the Hawkeye case reveals, an insured is under no obligation to sign a "non-waiver agreement." See also Youghiogheny & Ohio Coal Co. v. Employers' Liability Assurance Corp., 114 F.Supp. 472 (D. Minn. 1953) aff'd 214 F.2d 418 (8th Cir. 1954); 7A Appleman, Insurance Law
Finally, appellant justifies its refusal to defend by noting the potential conflict of interest between it and Parsons because of the disputed coverage. Two cases are cited as support for the proposition — Farm Bureau Mutual Automobile Insurance Co. v. Hammer, 177 F.2d 793 (4th Cir. 1949); Stout v. Grain Dealers Mutual Insurance Co., 201 F.Supp. 647 (M.D. N.C. 1962) aff'd 307 F.2d 521 (4th Cir. 1962). However, neither case is controlling. In both, the court held that the claim against the insured was not covered by the policy. The potential conflict of interest between insurer and insured was merely pointed to as a further reason for excusing the insurer from defending. The majority of courts which have considered the conflict of interest problem have refused to excuse the insurer from defending on that basis alone. See e.g., Lee v. Aetna Casualty & Surety Co., supra; Maryland Casualty Co. v. Texas Co., 114 F.2d 952 (8th Cir. 1940); Employers' Fire Insurance Co. v. Beals, supra; Magoun v. Liberty Mutual Insurance Co., 346 Mass. 677, 195 N.E.2d 514 (1964). See also, 114 Pa.L.Rev. 734 (1966); Note, Liability Insurance Policy Defenses and the Duty to Defend, 68 Harv.L.Rev. 1436 (1955). We are satisfied that the potential conflict of interest between INA and Parsons did not absolve INA of its liability to Parsons for the cost of defending the primary suit. Cf. National Union Fire Insurance Co. v. Bruecks, supra.
Finally, it is argued by INA that, its obligation if any to defend was extinguished when Babcock filed answers to Parsons' interrogatories. Consequently, it is submitted that INA should be liable only for litigation expenses incurred up to the time the answers were filed. INA relies on a principle recognized, chiefly in dictum, by several courts that an insurer's obligation to defend, which is initially premised on ambiguous allegations in plaintiff's complaint, survives only until the insurer can show that the plaintiff's claim actually rests on facts taking it outside the policy's coverage. Lee v. Aetna Casualty & Surety Co., supra; Sears, Roebuck & Co. v. Liberty Mutual Insurance Co., 199 F.Supp. 769 (N.D. Ill. 1961); Vappi & Co. v. Aetna Casualty & Surety Co., 348 Mass. 427, 204 N.E.2d 273 (Mass. 1965). See also Hagen Supply Corporation v. Iowa National Mutual Insurance Co., 331 F.2d 199 (8th Cir. 1964); Annot. 50 A.L.R.2d 458, 500 (1956). But see, McFadyen v. North River Insurance Co., 62 Ill.App.2d 164, 209 N.E.2d 833 (1965); Employers' Fire Insurance Co. v. Beals, supra; Annot. 50 A.L.R.2d at 498.
Whether Nebraska would follow this rule need not be determined, for we believe that INA has failed to make a sufficient showing that Babcock's claim was "narrowed" by the answers to the interrogatories. Before an insurer may be permitted to step out of a suit in which it has accepted the defense, it must be clearly and unequivocally demonstrated that the plaintiff's claim against the insured no longer potentially falls within the policy's coverage. If there remains a possibility that the plaintiff may recover on a claim within the policy's coverage, the insurer must continue its defense even though it may ultimately be absolved of any liability. Here, INA chose to rest its refusal to defend solely on the basis of the allegations of the complaint. It never entered the litigation between Parsons and
The experienced trial judge, an observer of the entire proceedings, noted that Parsons' control of the crane had not been established prior to the jury's verdict in the primary litigation and concluded that Babcock's claim had not been sufficiently narrowed prior to that time. The only evidence INA offers in opposition to this conclusion is several answers to interrogatories, which when taken out of context can be read to suggest that Babcock was basing its negligence claim on Parsons' control of the crane at the time of the accident. However, we do not believe that these answers, when placed in the context of the entire litigation would have precluded Babcock from recovering in negligence even though it could not establish that Parsons was in control or possession of the crane at the time of the accident.
INA was not without remedies. If it were convinced that Babcock's allegations were premised on facts clearly excluding coverage, it could have accepted the defense and submitted its own interrogatories directed specifically to Babcock's theory of recovery. Alternatively, it could have sought a declaratory judgment on the question of its duty to defend. It chose to do neither, and, under the circumstances, must suffer the consequences.
Accordingly, we affirm in its entirety the judgment of the district court holding INA liable for the expenses incurred by Parsons in defending the lawsuit.
BABCOCK AS THIRD-PARTY BENEFICIARY
We are met at the outset of this issue with the contention that the federal district court lacked subject matter jurisdiction of the claim Babcock as intervenor brought against INA. It is submitted, and we agree, that the prayer for damages "in the amount of $10,000, plus costs herein expended and a reasonable attorney fee," failed to satisfy the amount in controversy requirement of 28 U.S.C. § 1332(a).
Were it not for the jurisdictional question, we would have no hesitancy in denying INA's belated challenge to Babcock's entrance into this suit. No objections were raised at the time of trial to the intervention, the case was tried and a final disposition was made of all the issues raised. However, because subject matter jurisdiction cannot be waived by the parties, conferred by consent or ignored by the court, we examine the question. Rock Island Millwork Co. v. Hedges-Gough Lumber Co., 337 F.2d 24 (8th Cir. 1964).
First we conclude that invocation of Rule 24 was proper. We are not persuaded by the argument that Babcock's intervention was in reality a Rule 14 claim by "plaintiff" against "third-party defendant." Babcock did not file a claim against INA until after the primary litigation between Babcock and Parsons had been laid to rest. The jury had returned a verdict exonerating both parties of liability for damage to crane and derrick, and Babcock's complaint against Parsons had been dismissed with prejudice. Thus there was no longer any relationship between Babcock and INA (through Parsons) which would justify the invocation of Rule 14. In short, Babcock was no longer a "plaintiff" within the meaning of the Rule.
We turn then to the more troublesome question, i.e., was the intervention one of right or permission. Jurisdiction over a claim brought by an intervenor depends on the nature of the intervention. If the intervention is a permissive one the claim must be supported by independent jurisdictional grounds. Hunt Tool Co. v. Moore, Inc., 212 F.2d 685 (5th Cir. 1954); Berbiglia, Inc. v. Cheney, 249 F.Supp. 258 (W.D. Mo. 1965); Olivieri v. Adams, 280 F.Supp. 428 (E.D. Pa. 1968). Wright, Federal Courts § 75, p. 331 (2d ed. 1970); 3B Moore's Federal Practice, ¶ 24.18 (2d ed. 1969). Where intervention is of right, however, the courts and authorities are in substantial agreement that there need be no independent jurisdictional grounds to support the intervenor's claim. Kozak v. Wells, 278 F.2d 104 (8th Cir. 1960); Black v. Texas Employers Insurance Ass'n, 326 F.2d 603 (10th Cir. 1964); Formulabs, Inc. v. Hartley Pen Co., 318 F.2d 485 (9th Cir.), cert. denied, 375 U.S. 945, 84 S.Ct. 352, 11 L.Ed.2d 275 (1963). See also Wright and Moore, supra.
Rule 24(a) (2), as amended in 1966, provides that a person is entitled to intervene as a matter of right:
Permissive intervention under Rule 24(b) (2) is appropriate, "[w]hen an applicant's claim or defense and the main action have a question of law and fact in common."
Careful analysis of the respective claims of Parsons and Babcock reveals, in our view, that Babcock's intervention was permissive rather than as a matter of right. After Parsons amended its
Assuming arguendo that Babcock had an "interest" in the Parsons-INA suit,
Babcock vigorously argues that, had it not been allowed to intervene, its claim would not have been presented to the court by either of the participating parties.
In summary, we conclude that Babcock was, at best a permissive intervenor and its claim, lacking the requisite jurisdictional amount, was not cognizable by a federal court. Accordingly, the judgment in favor of Babcock must be and is reversed.
Affirmed in part; reversed in part. Costs to be taxed equally between Babcock and INA.
The "non-waiver agreement" provided that INA's defense of the suit would not constitute a waiver of its right to later challenge liability under the policy. Such an agreement is necessary in Nebraska because that jurisdiction has adopted the rule that an insurer is estopped from denying liability under the policy once it undertakes defense of the claim for the insured.