United States Fidelity & Guaranty Company v. Heritage Mutual Insurance Company

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1157
UNITED STATES FIDELITY & GUARANTY COMPANY,
Plaintiff-Appellee,
v.
HERITAGE MUTUAL INSURANCE COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 96-C-0523--Richard L. Young, Judge.
Argued September 14, 2000--Decided October 16, 2000
Before BAUER, DIANE P. WOOD, and EVANS, Circuit
Judges.
Evans, Circuit Judge. Two insurance companies
are battling here over coverage growing out of a
serious accident involving a dump truck and two
automobiles. The accident caused the death of the
driver of one of the cars and injuries to the
other. Heritage Mutual Insurance Company appeals
from a decision finding that it, not United
States Fidelity and Guaranty Company, must
provide coverage for the damages.
The driver of the dump truck, Charles Oldham,
was an employee of V&S Transport, Inc. Heritage
insured V&S with both a primary and umbrella
policy. V&S had an oral contract under which it
did hauling for Irving Materials, Inc. (IMI), the
owner of concrete manufacturing plants and sand
and gravel pits. IMI was insured by USF&G.
After the collision, the estate of John Reeves,
who was killed in the accident, filed a lawsuit,
which Heritage settled. The injured man, John
Grabowski, filed a separate suit. Contending that
its primary policy will be exhausted by claims
other than the one Grabowski was pursuing,
Heritage looked to USF&G to step in and cover the
Grabowski suit. Heritage argues that USF&G’s
policy should be paid out before it is forced to
dip into its umbrella policy. Not surprisingly,
USF&G maintains that its policy simply does not

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provide coverage for Oldham or V&S--none at all.
The parties presented their positions on cross-
motions for summary judgment. Judge Richard L.
Young in the district court granted USF&G’s
motion, and we review that decision de novo.
Kincaid v. Vail, 969 F.2d 594 (7th Cir. 1992).
The USF&G policy states:
A. COVERAGE
* * *
1. WHO IS AN INSURED
a. You for any covered "auto."
b. Anyone else while using with your permission a
covered "auto" you own, hire or borrow except:
(1) The owner or anyone else from whom you hire or
borrow a covered "auto."
A basic issue, then, is whether IMI "hired" or
"borrowed" the dump truck. If it did not, there
is no coverage under the policy. Heritage thinks
it is clear that the truck was "hired"; USF&G
thinks it is just as clear that it was not hired.
Instead, USF&G says that V&S was an independent
contractor providing services to IMI.
The USF&G policy does not define what "hire"
means, but that is not required. Jones v. Western
Reserve Group, 699 N.E.2d 711 (Ind. App. 1998).
And under the law of Indiana, which controls this
case, the failure to define a term does not
render it ambiguous. American Family Life
Assurance Co. v. Russell, 700 N.E.2d 1174 (Ind.
App. 1998). It does, however, mean that we must
look to the ordinary meaning of the word as it is
applied to the facts of the case. Even were we to
find the word ambiguous, we need not construe its
meaning in favor of Heritage because it has never
paid "a penny’s premium to the insurer." Harden
v. Monroe Guar. Ins. Co., 626 N.E.2d 814 n.2
(Ind. App. 1993). Furthermore, because the
dispute is between insurance companies, we are
not required to construe the USF&G policy
strictly in favor of Heritage but rather must
determine the general intent of the agreement
from a neutral perspective. Indiana Lumbermens
Mut. Ins. Co. v. Statesman Ins. Co., 291 N.E.2d
897 (Ind. 1973).
On the issue whether the truck was hired, or
whether V&S was an independent contractor
providing services to IMI, Heritage’s contention
is that the amount of control IMI exercised over
the hauling requires us to find that the trucks
(particularly the one involved in the accident)
were hired.

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Heritage relies on factors which show that V&S
had been hauling for IMI pursuant to an oral
agreement since 1983. Each workday V&S’s
employee, Oldham, picked up his truck from V&S
and reported to IMI to be dispatched to various
jobs. IMI could contact Oldham on a two-way radio
and direct him to particular locations. Oldham’s
workday was as long as IMI had loads for him to
haul. In addition, V&S drivers were required to
be union members in order to haul for IMI, and
IMI retained the right to tell V&S not to send a
particular driver to the IMI plant. V&S also
operated a fuel facility on the premises of the
IMI gravel pit.
USF&G, on the other hand, looks to other
factors. It emphasizes that IMI used services of
hauling companies to transport its product and
dealt with all of them on an at-will basis with
no formal contract. On a typical day, IMI would
call V&S and request a number of trucks, but not
a specific truck, based on its hauling needs that
day; if V&S was unable to supply the trucks, IMI
called a different company. The truck Oldham was
driving was owned by V&S and had a V&S decal on
its door. V&S provided the maintenance and the
fuel for the trucks. IMI did not control how many
hours a V&S driver worked, except to the extent
that it would tell Oldham when there was no more
hauling to be done. In addition, while Oldham
regularly delivered materials for IMI, he also
hauled for other contractors at the instruction
of V&S. IMI did not pay V&S’s drivers but paid
V&S for its services. V&S, in turn, paid its
drivers. V&S also provided its drivers with
insurance benefits, withheld taxes, and paid
social security on their behalf. All complaints
from IMI customers regarding V&S drivers were
referred to V&S.
We must determine what these facts add up to.
Although we are not the first court to determine
the scope of a hired-automobile clause, the fact-
specific nature of the inquiry makes prior cases
of limited help, to say nothing of the fact that
they seem to come down firmly on both sides of
the issue. For example, in Kresse v. Home
Insurance Co., 765 F.2d 753 (8th Cir. 1985), a
dump truck hit a train. Clarence Kresse, the
owner of the truck, claimed that he was an
insured under a policy issued by the Home
Insurance Company to Cass County, North Dakota.
For simplicity’s sake, we will note that Kresse
is in a similar position to V&S in the present
case and Cass County is similar to IMI. The issue
was whether the Kresse truck was a hired vehicle.
The factors which caused the court to find that,
in fact, the truck was a hired vehicle included
the following: the relationship of the parties

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was pursuant to a letter from the county in which
the trucks were referred to as "hired trucks" and
the drivers as "hired truck drivers." At the
beginning of the season, a truck’s hauling
capacity was measured by the county and Kresse
was thereafter required to use that specific
truck for the entire season. The county loaded
the trucks, determined the route the trucks
traveled, and had the right to dismiss any driver
that deviated from the prescribed route. The
trucks had specified hours of operation which
were determined by the county. Not surprisingly,
on these facts, which make a much stronger case
for coverage than the one before us, the Court of
Appeals for the Eighth Circuit called the Kresse
truck a hired vehicle covered under the Home
policy.
Some years later, in Chicago Insurance Co. v.
Farm Bureau Mutual Insurance Co., 929 F.2d 372
(1991), that same court found a trucking company
to be an independent contractor not covered under
the hired vehicle clause; obviously the facts
were different. Junior Anderson Trucking, Inc.
had a contract for hauling with the El Campo,
Texas, Farmer’s Cooperative. Unable to provide
all the trucks needed, Anderson in turn contacted
other trucking firms for help, including a
trucking firm called Locust Farms. Locust Farms
had an umbrella policy with Farm Bureau Mutual
Insurance and Anderson was insured by Chicago
Insurance. Farm Bureau contended that under its
hired automobile provision, the Chicago policy
covered the Locust Farm truck involved in a fatal
accident. The court found that the provision did
not apply because Locust Farms was an independent
contractor. The facts showed that Locust Farms
chose how many and which trucks and drivers to
send to El Campo; it maintained the trucks and
carried insurance on them. The driver was a
Locust Farms employee, and Locust Farms
maintained his workers’ compensation insurance.
The Locust Farms drivers could chose their own
routes for deliveries. Thus, Locust Farms was not
an insured under the Chicago policy.
Another example is Toops v. Gulf Coast Marine
Inc., 72 F.3d 483 (5th Cir. 1996), in which the
court said that a distinction must be made
between hiring a company that provides
transportation and hiring a truck. The court
required that for a vehicle to be a hired
vehicle, a separate contract must exist and the
vehicle must be under the named insured’s
exclusive control. Relevant inquiries to
determine whether a truck is under the possession
or control of an insured are whether the insured
furnished gas or oil and maintained the trucks,
required the trucks to be of a particular size,
selected individual drivers, had the ability to

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fire the drivers, and did the loading or
unloading itself.
Indiana cases, while not directly on point,
indicate that, like the courts in our three
examples, Indiana would look to matters of
control in assessing whether a vehicle is hired
or borrowed. For example, in Protective Insurance
Co. v. Coca-Cola Bottling Co., 423 N.E.2d 656,
660 (Ind. App. 1981), Cox Motor Transport had a
contract with Coca-Cola to transport Coke
trailers to various destinations. An accident
occurred during the unloading of a tractor
trailer at one of the sites. The hired automobile
clause in the policy issued to Cox provided
coverage for injuries incurred during loading or
unloading only if the entity claiming coverage
under the hired automobile provision, in this
case Coca-Cola, was a lessee or borrower of the
vehicle. In language instructive to us, the court
said that to be a borrower, a person
must have possession of the vehicle, possession
connoting the right to exercise dominion and
control over the vehicle. Liberty Mut. Ins. Co.
v. American Employers Ins. Co., (Tex. 1977) 556
S.W.2d at 244. General supervision or even the
actual performance of loading or unloading
operations will not make one a borrower of the
vehicle involved; there must be evidence of
possession.
The fact that a Coca-Cola dispatcher instructed
the driver of the truck where to park was seen as
evidence of control, but it was insufficient to
make the company a borrower as a matter of law,
and summary judgment for Coca-Cola was reversed.
See also Protective Ins. Co. v. Coca-Cola
Bottling Co., 467 N.E.2d (Ind. App. 1984), and
Indiana Ins. Co. v. O.K. Transp., Inc., 587
N.E.2d 129 (Ind. App. 1992).
Although, because of the fact-specific nature of
the inquiry, the cases do not answer our question
for us, they reinforce our independent conclusion
that the truck Oldham was driving was not a hired
vehicle; rather, V&S was an independent
contractor. V&S maintained its trucks and
provided gas for them. It paid the drivers for
the amount of material they hauled and paid for
their benefits. The fact that IMI did the
dispatching seems more a matter of efficiency
than of control. IMI did not dictate the routes
the drivers must use nor did it maintain
exclusive control over them. So these facts, we
think, lead us to the same conclusion reached by
Judge Young: Heritage must foot the bill--USF&G
is off the hook.
The decision of the district court is
AFFIRMED.

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