United States Court of Appeals,
Fifth Circuit.
No. 94-60861
Summary Calendar.
Steve KNIGHT, Jr., d/b/a Steve Knight Steel Fabricators and Steve
Mark Knight, as the Administrator of the Estate of Willie Steve
Knight, Jr., Plaintiffs,
Steve Knight, Jr., d/b/a Steve Knight Steel Fabricators,
Plaintiff-Appellant,
v.
UNITED STATES FIDELITY & GUARANTY INS. CO. and Chicago Insurance
Co., Defendants,
United States Fidelity & Guaranty Ins. Co., Defendant-Appellee.
Sept. 21, 1995.
Appeal from the United States District Court for the Southern
District of Mississippi.
Before KING, SMITH and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
Plaintiff-Appellant Steve Mark Knight ("Knight") appeals an
adverse summary judgment granted in favor of Defendant-Appellee
United States Fidelity & Guaranty Insurance Company's ("USF & G").
The district court found that USF & G's act of withdrawing its
defense for Knight in a wrongful death action was reasonable
because there was no indication, from the information uncovered by
USF & G in its investigation, that the vehicle driven by Knight's
employee was covered under USF & G's insurance policies, or that
Knight's employees was acting in the course of his employment at
the time of the accident. Therefore, the court concluded that
there was no basis for the imposition of punitive or
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extracontractual damages against USF & G. Finding no reversible
error, we affirm.
FACTS AND PROCEDURAL HISTORY
Steve Knight, Jr. ("Knight, Jr."), owner of Steve Knight Steel
Fabricators, Inc. ("Knight Steel"), operated a barge steel
fabrication plant at Port Bienville in Pearlington, Mississippi and
a gravel pit in Nicholson, Mississippi. Knight, Jr.'s insurance
agent, Burt Young ("Young") of Crystal Springs Insurance Agency
("Crystal"), an authorized USF & G agency, issued Knight three
insurance policies for his business; a business auto policy, a
trucker's policy, and a general liability policy. The policies
covered all of the vehicles Knight, Jr. used in his business.
Gary Brock ("Brock"), an employee of Knight, Jr., was
required, on occasion, to be available around-the-clock seven days
a week. During these periods, Brock lived at the steel fabrication
plant in a rent-free mobile home. On June 1, 1984, Brock purchased
one of Knight, Jr.'s company pick-up trucks. Knight, Jr. assisted
Brock in obtaining financing for the truck through a Louisiana
bank, and assisted Brock in obtaining insurance coverage with Young
at Crystal. At that time, Knight, Jr.'s bookkeeper notified
Crystal that the truck was no longer Knight, Jr.'s property.
On July 6, 1984, Brock had been working at the gravel pit. He
then drove to Slidell, Louisiana to visit a friend. As he was
driving back to the steel fabrication plant in the truck he
purchased from Knight, Jr., Brock collided with another vehicle
driven by Mary Virginia Buice ("Buice") and fatally injured her.
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Brock was intoxicated at the time of the accident.
On August 17, 1987, Buice's estate filed a wrongful death suit
against Knight Steel and Time Saver Stores, Inc. alleging that
Knight, Jr. was liable because Brock was acting within the scope of
his employment at the time of the accident.1 Stanford Morse, Jr.
("Morse"), who was retained by USF & G as counsel for Knight Steel
in August 1988, filed an answer On August 12, 1988 admitting
Brock's negligence, but denying that he was acting within the scope
of his employment at the time of the accident.
In the course of its investigation, USF & G determined that
none of the three insurance policies provided coverage for the
accident. Darwin Ezell, a claims adjuster at USF & G, informed
Morse that there was no coverage under the policies, and advised
Morse that USF & G did not owe Knight Steel a duty to defend.
Morse subsequently met with Knight, Jr., informed him that there
was no coverage under the policies and told Knight, Jr. that he
would have to retain his own attorney. Morse also sent a letter to
Knight, Jr. dated September 21, 1988, stating that USF & G "does
not insure the above-referenced claim," and informing him that a
motion to withdraw as counsel for Knight Steel would be filed. On
September 22, 1988, Morse filed his motion to withdraw. Knight,
Jr. did not file an objection to the motion. Morse was allowed to
withdraw as attorney of record for Knight Steel on January 23,
1989.
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An amended complaint, filed December 27, 1988, added
Knight, Jr. individually d/b/a Knight Steel as a defendant.
3
After Morse withdrew, Knight, Jr. consulted with attorney
Joseph H. Montgomery ("Montgomery") about the wrongful death suit.
On February 8, 1989, Montgomery wrote a demand letter to USF & G,
and sent copies of the letter to Crystal and counsel for the Buice
estate. Morse responded by indicating that the policies did not
cover the Buice estate claims.
On March 28, 1989, the Buice estate filed a motion to strike
Knight Jr.'s answer and for entry of default judgment against
Knight, Jr. On June 18, 1990, the district court entered default
judgment for $1,173,591.00. The Buice estate then instituted a
garnishment action against USF & G.
On August 1, 1991, Knight, Jr. filed suit against USF & G
seeking punitive damages for tortious breach of contract and bad
faith. Knight, Jr. subsequently died, and Steve Mark Knight,
Administrator of the Estate of Willie Steve Knight, Jr.2, was
substituted as the party plaintiff in place of Steve Knight, Jr.
d/b/a Steve Knight Steel Fabricators on May 12, 1994. Knight's
suit was consolidated with the Buice estate's wrongful death and
garnishment action, but was severed just before trial began on the
garnishment action. The garnishment action proceeded to trial
without a jury on December 14, 1992.
On April 20, 1994, the district court entered its bench
opinion releasing USF & G from the writ of garnishment. The court
concluded that no coverage existed under any of the USF & G
2
Willie Steve Knight, Jr. and Steve Knight, Jr. are one and
the same.
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policies; specifically finding that at the time of the accident
Brock was not using the pick-up truck solely for business purposes
as required under the provisions of the applicable business auto
policy to trigger coverage.3
USF & G filed a motion for summary judgment in Knight's bad
faith action claiming that the bench opinion in the garnishment
action disposed of all claims in the bad faith action because with
no coverage there is no duty to defend, and that as a matter of law
the bench opinion established that USF & G had an arguable or
legitimate reason not to defend Knight in the underlying action.
On November 16, 1994, the district court granted USF & G's summary
judgment motion, and subsequently entered final judgment dismissing
Knight's bad faith action. Knight now appeals the summary judgment
order and final judgment of the district court.
STANDARD OF REVIEW
We review the district court's summary judgment de novo.
Bodenheimer v. PPG Industries, Inc., 5 F.3d 955, 956 (5th
Cir.1993). Summary judgment is appropriate when there exists no
genuine issue of material fact so that the moving party is entitled
to judgment as a matter of law. See FED.R.CIV.P. 56(c). "The
construction and effect of an insurance policy are questions of law
reviewable de novo." E.E.O.C. v. Southern Pub. Co., Inc., 894 F.2d
785, 789 (5th Cir.1990) (citing Diversified Group, Inc. v. Van
Tassel, 806 F.2d 1275, 1277 (5th Cir.1987)).
3
A separate appeal on the garnishment action is now pending
before this Court.
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DUTY TO DEFEND
Part IV of the business auto policy issued to Knight by USF
& G and in effect at the time of the accident at issue in this case
provides in pertinent part:
A. WE WILL PAY
1. We will pay all sums the insured legally must pay as
damages because of bodily injury or property damage to
which this insurance applies, caused by an accident and
resulting from the ownership, maintenance or use of a
covered auto.
2. We have the right and duty to defend any suit asking for
these damages. However, we have no duty to defend suits
for bodily injury or property damage not covered by this
policy. We may investigate and settle any claim or suit
as we consider appropriate. Our payment of the LIABILITY
INSURANCE limit ends our duty to defend or settle.
The business auto policy also contains a non-owned vehicle
endorsement, which states as follows:
It is agreed that the unqualified word "insured" wherever used
in Part IV—Liability Insurance includes only you and any
organization legally responsible for the use of the
automobile, provided the actual use of the automobile is by
you or with your permission.
Exceptions: The foregoing limitation does not apply with
respect to private passenger automobiles, or to operation of
other automobiles while being used solely for business
purposes in connection with your business.
Knight contends that USF & G became contractually obligated to
defend him, pursuant to his insurance policies, as soon as he was
served with the Buice estate's complaint alleging wrongful death
caused by the negligence of Knight's employee, Brock. He argues
that USF & G's contractual obligation to defend the action remained
in effect despite the fact that USF & G's investigation revealed
that the vehicle involved in the accident was no longer covered
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under any of the insurance policies because the language non-owned
vehicle endorsement arguably still covered Brock's actions at the
time of the accident. Specifically, Knight asserts that the use of
the word "solely" in the non-owned vehicle endorsement does not
intend to prevent coverage where a mission combines elements of
both business and personal affairs of the employee if the accident
occurs at a time when the employee is acting in the course and
scope of the business of his employer.
Under Mississippi law, the determination of an insurer's duty
to defend an action is accomplished by measuring the allegations in
the plaintiff's pleadings without regarding the ultimate outcome of
the action. Southern Pub. Co. Inc., 894 F.2d at 789. The Buice
estate complaint alleges that Brock, an employee of Knight, was in
the course and scope of his employment when he negligently,
carelessly and recklessly drove a truck across the center line of
the highway and struck Buice's vehicle, causing her death. The
district court found that at the time that USF & G attorney Morse
filed his motion to withdraw as counsel for Knight there was no
indication that the truck driven by Brock was covered under any of
the USF & G policies. We agree. When Knight sold the truck to
Brock, he notified USF & G, through Crystal, that he no longer
owned the truck. USF & G's investigation also revealed no
indication that Brock was acting within the course and scope of his
employment. At the time of the accident, Brock was out driving at
approximately midnight while under the influence of alcohol.
Therefore, it was reasonable for USF & G to conclude that Brock was
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not operating the truck solely for the business purposes of Knight
as required for coverage under the non-owned vehicle endorsement of
the business auto policy.
Having concluded that USF & G did not have a duty to defend
Knight in the Buice estate action, we further find no basis for the
imposition of punitive or extracontractual damages against USF & G.
See Hans Constr. Co. v Phoenix Assurance Co. of New York, 995 F.2d
53, 55 (5th Cir.1993) (punitive damages unavailable if insurer has
a legitimate or arguable reason for denying coverage) (citing
Universal Life Ins. Co. v. Veasley, 610 So.2d 290, 293
(Miss.1992)).
CONCLUSION
For the reasons articulated above, the judgment of the
district court is AFFIRMED.
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