(D.C. Civil Action No. 70-97) APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
Before KALODNER, ADAMS and HUNTER, Circuit Judges
In this diversity action, tried to the District Court upon stipulated facts, the appellant insurance companies were held liable to the appellee Capitol Bus Company, t/a Trailways of Pennsylvania ("Trailways"), for $13,700 damages to one of its buses on November 8, 1969, while it was being operated in the franchise area of the appellant Blue Bird Coach Lines. ("Blue Bird"), under an "Equipment Lease Agreement" ("Agreement"), designed to provide for the continuous carriage of passengers, without change of buses, over the franchise areas of the five bus lines party to the Agreement. The appellant American Fidelity Fire Insurance Company ("American") was the property damage insurance carrier for Trailways, and the appellant Aetna Casualty and Surety Company ("Aetna") was Blue Bird's property damage insurance carrier.
The bus lines party to the Agreement participated in operating a scheduled run from Washington, D.C. to Erie, Pennsylvania through their franchise areas.
Trailways' franchise area extends from Washington, D.C. to Elmira, New York. Blue Bird's franchise area extends from Corning, New York to Jamestown, New York.
Two drivers, working in eight-hour shifts, were employed in the run; one from Washington, D.C. to Olean, New York, and the other from Olean to Erie, Pennsylvania, and return to Olean.
Trailways furnished the driver on the Washington to Olean shift. Blue Bird furnished the driver on the Olean to Erie, and return to Olean, shift.
Trailways paid its driver his mileage pay rate on his Washington to Olean shift. It also paid incidental Social Security taxes, federal and Pennsylvania unemployment and Workmen's Compensation. Blue Bird reimbursed Trailways for use of Trailways' driver on a non-profit basis at the rate of 13 cents per mile from the driver's entry into Blue Bird franchise area at Corning until the end of his shift at Olean.
Blue Bird received all the revenue benefits from the operation of the bus by the Trailways driver between Corning and Olean. It paid Trailways 18 cents per mile for use of the bus after it entered its franchise area at Corning, in consonance with Paragraph 11 of the Agreement which provided that "[each] operating carrier agrees to pay the owning carrier of buses leased hereunder a rental of eighteen cents (18) for each mile that such leased buses are operated by such operating carrier." (emphasis supplied).
The bus was damaged when it ran off the road while being driven by the Trailways driver at Andover, New York. Andover lies between Corning and Olean, Blue Bird franchise area.
The question here presented is whether American, Trailways' property damage insurance carrier, or Aetna, Blue Bird's property damage insurance carrier, is liable for payment of the damages sustained by the bus. American contends it is not liable since in its view Blue Bird was the "operating carrier" of the bus when it was damaged, and American's policy provides that its coverage "shall cease while owned buses are being operated by other bus companies under... interchange agreements." Aetna contends "Blue Bird, Aetna's insured, was not an operating carrier within the meaning of the Equipment Lease Agreement," and that the coverage of its policy specifically extends "only with respect to the terms and conditions of the equipment lease agreement." Aetna further contends that "[the] principles of agency and respondeat superior also indicate that the Trailways operator remained in the employ of its [sic] original master and Blue Bird is not responsible for the damage to the bus."
As earlier stated, the District Court ruled that both American and Aetna were liable under their policies for payment of the damage to the bus. It based its ruling on its holding that the Trailways driver was the "servant" of both Trailways and Blue Bird when the bus was damaged and thus the two bus lines were "operating carriers" under the Agreement which made an "operating carrier" liable for damage to a bus.
The District Court resorted to general agency principles in ruling that the Trailways driver was the "servant" of the two bus lines, citing Dickerson v. American Sugar Refining Co., 211 F.2d 200 (3 Cir. 1954); Restatement (Second) ...