In August, 1973, Campbell Piping Contractors, Inc. (Campbell) entered into an agreement with Hess Pipeline Company (Hess) to build a pipeline for Hess in Mobile County. United States Fidelity and Guaranty Company (U.S.F. & G.) insured Campbell pursuant to the contract. Morgan Nelson was an employee of Campbell and was injured in October, 1973, while attempting to remove some timbers which were being used to support a heavy 36-inch pipe.
The contract between Campbell and Hess contained the following provision:
"B-27 Injuries and Damages
In February, 1974, Morgan Nelson filed what was designated a "PETITION FOR DISCOVERY BEFORE ACTION PURSUANT TO RULE 27(a) and RULE 34, ALABAMA RULES OF CIVIL PROCEDURE," in which he sought discovery of various kinds. Among others, Hess and Campbell were named as corporations expected to be adverse parties in a suit to be brought for his personal injuries.
On February 14, 1974, attorneys retained by U.S.F. & G. sent the following letter to U.S.F. & G. and Hess:
Re: The Petition of Morgan G. Nelson; In the Circuit Court of Mobile County, Alabama, Case No: 43,598
Thereafter, on March 25, 1974, the same law firm advised Hess that the court had denied Morgan's petition for discovery for failure to come within the provisions of Rule 27, ARCP. In this letter, the attorney, retained by U.S.F. & G., stated:
On May 16, 1974, Nelson filed a damage suit against Hess charging Hess with negligence, resulting in his injuries.
On May 22, 1974, the following letter was sent to Hess by the firm representing U.S.F. & G.:
"Re: Petition of Morgan G. Nelson Circuit Court of Mobile County Case No. 43,598
In July, 1974, Hess filed a third-party complaint against Campbell and U.S.F. & G. seeking a declaration that, if Hess was liable to Nelson, it was entitled to recover from Campbell and U.S.F. & G., its insurer, under the provisions of the contract set out above; and that Campbell was obligated to defend Hess in the damage suit brought by Nelson under the same contractual provision.
At the request of Campbell and U.S.F. & G., the third-party claim of Hess was severed from the Nelson damage suit. Thereafter, Hess filed motion for summary judgment against Campbell, supported by an affidavit outlining the following facts which are not disputed:
That Campbell did enter into the contract with Hess, a copy of which was made an exhibit to the motion for summary judgment; that Nelson was injured on the construction site; that the contract contained the provision set out above; that Campbell had presented a sworn affidavit to Hess stating that no liens, charges or claims of any nature existed growing out of the work performed under the contract; that Nelson had filed a petition for discovery prior to instituting his claim for damages, a copy of which was annexed to the motion for summary judgment; and that on or about February 14, 1974, Norton Brooker, Jr., on behalf of the firm of Lyons, Pipes and Cook, wrote to Hess Pipeline Company to advise Hess that U.S.F. & G., the insurer of Campbell, had agreed to defend Hess in the litigation pursuant to the aforementioned contract, and that U.S.F. & G. had tendered the defense to the firm of Lyons, Pipes and Cook. Because of Mr. Brooker's prior representation of Hess, he requested that Hess advise the firm if it had any objections to that firm representing Hess in the litigation, pursuant to the instructions of U.S.F. & G.; no objection was made and Lyons, Pipes and Cook appeared on behalf of Hess in the proceedings.
Based upon the foregoing facts, the trial court entered its order finding that, as a matter of law, Hess was entitled to a judgment declaring that Campbell is obligated to defend Hess against the complaint of Nelson and to pay any judgment entered against Hess in the action brought against it by Nelson.
Campbell and U.S.F. & G. appealed from this order. The only issue before us is the propriety of the trial court's granting summary judgment in favor of Hess.
This is a proper case for summary judgment. There are no disputed facts, and the issues have been reduced to questions of law only. There are two such issues: Are
The trial court had a record before it, as we do now, which shows without contradiction, that the law firm of Lyons, Pipes and Cook represented Hess in the negotiations with Campbell leading to the contract between them. Mr. Brooker, with that firm, had represented Hess in drawing the contract which contains the indemnity provision. As Hess' lawyer, Mr. Brooker would have been attempting to draw a broad indemnity provision which would require Campbell to indemnify his client from all claims arising out of the construction of the pipeline. When Nelson filed the so-called discovery petition, it clearly indicated that Nelson intended to file a suit for damages for personal injuries against Hess. At that stage, U.S.F. & G., as insurer of Campbell, agreed to defend Hess under the agreement between Campbell and Hess and retained Hess' lawyer for that purpose. Mr. Brooker, promptly and properly, pointed out to both U.S.F. & G. and Hess that, only because Campbell and U.S.F. & G., its insurer, had agreed to undertake the defense of the litigation on behalf of Hess, was a conflict of interest eliminated, permitting him to represent both parties.
No objection was raised to Mr. Brooker's proceeding, at the instigation of U.S.F. & G., to defend both Campbell and Hess in the litigation.
Only after Nelson filed the suit for damages did U.S.F. & G. raise a question about defending Hess. However, it was perfectly clear from the time the petition for discovery was filed by Mr. Nelson that Hess would be an adversary party in the damage suit. It was also obvious from Mr. Brooker's letter that only if Campbell and U.S.F. & G., as Campbell's insurer, agreed to defend Hess, could he possibly represent U.S.F. & G. and Hess, too. This, for the reason that if Campbell and U.S.F. & G. denied that Campbell was obligated to defend Hess under the indemnity provision of the contract, then the positions of U.S.F. & G. and Campbell on the one hand and Hess on the other, would be in direct conflict. Hess, as Mr. Brooker's original client, had a right to object to his representing both Campbell and Hess, at the behest of U.S.F. & G., if Campbell and U.S.F. & G. were prepared to deny that Campbell owed Hess the representation under the contract between them. Relying on Campbell and U.S.F. & G.'s agreement to defend against Nelson's petition for discovery, pursuant to the contract, Hess made no objection to Mr. Brooker appearing on its behalf and also Campbell's.
Under these circumstances, we think it is too late for U.S.F. & G., insurer of Campbell, to now take the position that it owes no defense to Hess. With full knowledge that the lawsuit was inevitable, and without any reservation of rights to later deny liability, it undertook to defend both Campbell and Hess in the Nelson litigation. It is now estopped to deny that it is so obligated.
The doctrine of estoppel is said to be founded upon principles of equity, morality and justice. 31 C.J.S. Estoppel § 1. When a liability insurer, by assuming the defense of an action leads one to believe liability to do so is not denied, it would be unfair to subsequently permit that insurer to deny coverage, when, without reservation and with knowledge, it assumes exclusive control of the defense of an action. See 38 A.L.R.2d 1148, § 5[b], citing Security Ins. Co. v. Jay, 109 F.Supp. 87 (D.C.Minn.1952); Lincoln Park Arms Bldg. Corp. v. U. S. F. & G. Co., 287 Ill.App. 520, 5 N.E.2d 773 (1936); General Tire Co. v. Standard Acci. Ins. Co., 65 F.2d 237 (CA8th Minn.1933). The general rule is limited by the principle that the insurer may avoid the operation of the rule
The general rule is stated in the following manner at 38 A.L.R.2d 1151, § 3:
Cases from thirty jurisdictions are said to follow this general rule.
A like number of jurisdictions also hold that the insurer need only give timely notice that its undertaking to defend does not constitute a waiver of any coverage question it might have. We can see no reason for a distinction to be made in this case.
Applying these general rules to the facts of this case leads us to conclude that Campbell and U. S. F. & G. are estopped to deny that Campbell, and thereby U.S.F. & G. as its insurer, owes Hess a defense of the Nelson litigation. An examination of the indemnity provision of the contract between Campbell and Hess raises real questions as to whether it was intended that Campbell was to defend Hess against claims based upon the alleged negligence of Hess itself. We have repeatedly held that such provisions must be construed in favor of the indemnitor in instances where the indemnity is not contracted for from an insurance company engaged in the business of writing, for consideration, such coverage, and that such provisions must succinctly and clearly indicate that the indemnitor is required to indemnify the indemnitee against loss occasioned by his own negligence. U.S.F. & G. v. Mason & Dulion Co., 274 Ala. 202, 145 So.2d 711 (1962).
Under the undisputed facts in this case, U.S.F. & G. undertook to defend the action brought by Nelson against Campbell and against Hess. It retained an attorney for that purpose. When the attorney pointed out that a conflict would exist which would prohibit his representing both Campbell and Hess if Campbell (or U.S.F. & G. as its insurer) denied that Campbell was obligated to Hess under the indemnity provisions of the contract, it was conceded on all sides that Campbell and U.S.F. & G. agreed to defend Hess pursuant to the contract.
Campbell and U.S.F. & G. argue on appeal that U.S.F. & G.'s undertaking to defend Hess in the Nelson litigation should be limited to the defense offered in the discovery proceedings and should not be treated as an agreement to defend Hess in any further litigation brought by Nelson against Hess. This position is not tenable. First, if U.S.F. & G. or Campbell, had so intended to limit the defense undertaken, it was incumbent, at least upon U.S.F. & G., to so state. Both U.S.F. & G. and Campbell were aware of the provisions of the contract, which Hess now claims requires Campbell to defend the Nelson damage suit. Neither of them raised any question about whether it did require Campbell to defend, but instead U.S.F. & G. volunteered, as Campbell's insurer, to undertake to defend. It should have indicated to both Campbell and Hess that in so doing it was reserving any rights it may have to deny coverage under its policy and, further, should have indicated that it questioned Campbell's obligation to defend any further litigation under the contract terms. U.S.F. & G. had issued its policy covering Campbell under the "hold harmless" provision of its contract with Hess. Its liability was dependent upon Campbell's liability under that provision. It had every opportunity to reserve its right to deny that Campbell, its insured, was required to indemnify Hess under that provision, when it received notice that Nelson was preparing to bring suit against Hess. It did not do that, nor did Campbell do that. Instead, U.S.F. & G. proceeded without any mention that either it or its insured questioned their obligation to provide a defense.
U.S.F. & G. and Campbell, presumably knowing that, nevertheless undertook and
We are mindful that no ruling adverse to U.S.F. & G. has been made by the trial court. It granted Hess' motion for summary judgment against Campbell only. However, since the position of Campbell and U.S.F. & G. are identical on this appeal, we need not pass upon the assertion of Hess that U.S.F. & G. has no standing as an appellant.
The judgment of the trial court is affirmed.
TORBERT, C. J., and MADDOX, FAULKNER and BEATTY, JJ., concur.