Insurers Do The Right Thing to Protect Insured

Who’s on First?

Prudent insurers who dispute which is responsible for an insured’s loss must apply the covenant of good faith and fair dealing owed to the insured. To do so they resolve the tort claim against their mutual insured by splitting the cost. Then, after the insured is protected, they litigate which is responsible to indemnify the insured in a declaratory relief action.

In Star Insurance Company v. Progressive Specialty Insurance Company, United States District Court, M.D. Alabama Case No. 2:15-cv-884-DAB (06/07/2017) the USDC in Alabama was asked to deter who owed what to whom after a tort action was resolved. 

Star Insurance Company (“Star”) and Progressive Specialty Insurance Company (“Progressive”) each seek reimbursement of monies paid in settlement of underlying litigation against their mutual insured, Gilow Wood, Inc. (“Gilow Wood”), for Gilow Wood’s liability arising from an automobile accident.


Gilow Wood was incorporated in Alabama in 1995. Although Gilow Wood was originally incorporated with a third party, at all times material to this matter, Gilow Wood was exclusively owned and operated by Charles R. Owens, Sr., and Charles R. Owens, Jr.  “Gilow Wood is a timber dealership,” in the business of negotiating the sale of timber from landowners to various mills, and contracting with pulpwood haulers to do the actual harvesting and hauling of the timber.

CR Owens Pulpwood, Inc., (“Owens Pulpwood”) is a timber harvesting and hauling corporation owned by Charles R. Owens, Sr., and Charles R. Owens, Jr.  All the timber harvesting brokered by Gilow Wood is contracted to Owens Pulpwood for harvesting and hauling, but Owens Pulpwood occasionally hauls for other companies.  Owens Pulpwood employs a number of workers for its hauling crew, including Larry Savage, a pulpwood truck driver.

Star issued a Commercial General Liability policy (“the Star policy”) to Gilow Wood which was in force at the time of the underlying accident. The Star policy included an exclusion of coverage for “Aircraft, Auto or Watercraft.”

The Star policy further provided that, “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.” Neither Owens Pulpwood nor Savage are shown as Named Insureds in the Declarations of the Star policy.

Progressive issued a commercial auto policy (“the Progressive policy”) to Gilow Wood which was in force at the time of the underlying accident. The Progressive policy specifically provides, under the Employer’s Non-Ownership Liability endorsement, that: “This includes autos owned by your employees, partners (if you are a partnership), members (if you are a limited liability company), or members of their households, but only while such autos are used in your business or your personal affairs.” The Progressive policy further provides that, “The insurance provided by this endorsement does not apply to bodily injury or property damage arising out of the ownership, maintenance or use of any non-owned auto in the conduct of any partnership or joint venture of which you are a partner or member which is not shown as the named insured on the Declarations Page.”

On September 17, 2013, Savage was driving a pulpwood truck and trailer owned by Owens Pulpwood to a timber harvesting site in Butler County, Alabama, when the truck and trailer collided with a car being driven by Delores Smith Johnson, causing her death. The estate of Mrs. Johnson sued Owens Pulpwood and Savage, and later added Gilow Wood as a defendant.

The underlying lawsuit was settled in 2015, in which “Star and Progressive each paid $500,000 in settlement of the claims against Gilow Wood.” On November 25, 2015, Star sued in federal court seeking a declaratory judgment “that the Star Policy does not afford insurance coverage in connection with the Underlyling Lawsuit” and “that Progressive is obligated to reimburse Star for the amount it paid in settlement of the Underlying Lawsuit.”

The truck and trailer involved in the underlying accident were owned, operated, and maintained by Owens Pulpwood. Gilow Wood does not own any trucks, trailers, or other equipment for hauling timber, and does not have a Department of Transportation number. Owens Pulpwood and Gilow Wood share the same office building.  The two companies maintain separate bank accounts, maintain separate insurance polices, and file separate tax returns. Owens Pulpwood and Gilow Wood were incorporated separately at different times, and neither company engages in the type of business performed by the other.


The material facts of this case are undisputed, and both parties have moved for summary judgment on those same facts for their respective claims and counterclaims. The parties have each argued that the insurance coverage their respective companies issued to Gilow Wood is not triggered, is excluded, or at best excess, and that the other policy’s coverage is triggered and primary. At oral argument, the parties each recognized and argued that the resolution of this matter hinges on whether Savage was a dual employee of Owens Pulpwood and Gilow Wood.

Viewing the facts in the light most favorable to Progressive as the nonmoving party to Star’s motion for summary judgment, Owens testified that he alone direct the employees of Owens Pulpwood, including Savage and that Savage confirmed Owens alone directed him.

The undisputed facts did not indicate that Savage was an employee of Gilow Wood such that the “non-owned auto” endorsement in the Progressive policy would be triggered and provide coverage for the accident.

Under Alabama law, the test for determining whether a person is an agent or employee of another, rather than an independent contractor with that other person, is whether that other person has reserved the right of control over the means and method by which the person’s work will be performed, whether or not the right of control is actually exercised.

It is undisputed that the two businesses had the same two owners and on rare occasions, the owners informally loaned money from one of their businesses to the other. However, the remainder of the evidence, especially as it relates to the employment of Savage, indicates that Owens, Sr., and Owens, Jr., maintained and operated the two businesses for two distinct purposes, including the retention of employees for only one of those businesses, Owens Pulpwood.

Savage testified that his only employment duty was driving the pulpwood truck. Savage did not assist with the cutting of the timber, and he was never engaged in searching for or purchasing timber.  Savage’s pre-employment paperwork indicated he was working for Owens Pulpwood, and his paychecks were all drawn on the Owens Pulpwood bank account and bore the Owens Pulpwood company name. Savage was not even aware of the owner of the property from which he was to haul lumber on the day of the accident.  In short, the undisputed evidence indicates that Savage was an employee of Owens Pulpwood but no evidence indicating that Gilow Wood employed Savage or otherwise reserved the right of control over the means and method by which the [Savage’s] work will be performed.

Specifically, the Star policy states that it applies to “‘bodily injury’ or ‘property damage’ … caused by an ‘occurrence’ that takes place in the ‘coverage territory’ … during the policy period…” There is no dispute that the accident was an occurrence involving property damage and bodily injury in the coverage territory during the coverage period specified by the Star policy.

The underlying claims for negligence and wantonness brought directly against Gilow Wood were covered under the Star policy but excluded by the Progressive policy.


The two insurers did the right thing – they shared the cost of the settlement and then asked the USDC to resolved the dispute. The fact that two corporations are owned by the same people does not make the employees of each employees of the other. Since Gilow Wood had no right to control or direct the work of the driver Star’s claim that he was also an employee failed and they are obligated to repay the $500,000 paid by Progressive, plus interest. Had they conducted a thorough investigation and understood the facts they would have paid the entire settlement and not wasted money suing Progressive.


ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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