author: CLARK, Circuit Judge:

text:
    BANK OF COMMERCE OF LAREDO, Plaintiff-Appellant, v. CITY NATIONAL BANK OF LAREDO et al., Defendants-Appellees.
    No. 73-2217
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Sept. 13, 1973.
    Rehearing Denied Oct. 25, 1973.

      J. G. Hornberger, Laredo, Tex., for plaintiff-appellant.
    Horace C. Hall, III, Laredo, Tex., for City Nat’l Bank, Hall, Sanchez, Magnon, Guerra & Zuniga.
    George P. Kazen, Laredo, Tex., for Laredo Nat’l Bank, Mandel & Jacobs.
    Anthony J. P. Farris, U. S. Atty., William L. Bowers, Jr., Asst. U. S. Atty., Houston, Tex., for Doman & Camp.

      Morton Hollander, Ronald R. Glancz, Dept, of Justice, Civil Div., Washington, D. C., for Comptroller of Currency.
    Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

       Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of N.Y., 431 F.2d 409, Part I (5th Cir. 1970).

   CLARK, Circuit Judge:

The Bank of Commerce of Laredo appeals from the district court’s refusal to set aside the grant of a national bank charter by the Comptroller of the Currency of the United States to the City National Bank of Laredo. The Bank of Commerce contends that the trial court erred in denying it access to the discovery process, in refusing to order the Comptroller to explain the reasons for his approval of the charter application, and in granting defendant’s motion for summary judgment. We affirm.

City National was organized as an affiliate of the Laredo National Bank, a competitor of the Bank of Commerce, which vigorously opposed the application from the beginning. Pursuant to City National’s application, a national bank examiner from the Comptroller’s office conducted a field investigation of the proposed new bank, its management and organizers, gathered and confirmed statistical data, talked to personnel from the various competitor banks, and interviewed businessmen in the proposed service area. Subsequently, he tendered written findings, including a comprehensive economic profile of the service area and its prospects, and recommended that the application be approved. At appellant’s request, the Regional Comptroller of the Currency held a public hearing on the application, and following an examination of additional economic reports and other information proffered by the interested parties, he likewise recommended approval, furnishing written reasons for his action. Thereafter, the Comptroller and his staff reviewed the entire record and ultimately granted City National a certificate of authority to commence banking.

After these efforts in the administrative proceedings had proved unavailing, Bank of Commerce turned to the court below seeking a declaratory judgment that the Comptroller’s approval of the charter application was unlawful, an injunction prohibiting City National and its organizers from participating in the banking business pursuant to the charter, and a trial de novo on the merits of City National’s charter application. From fourteen grounds of unlawfulness alleged in plaintiff’s wide ranging complaint, the district court distilled three general bases for the allegation that the Comptroller’s action was arbitrary and capricious: (1) the procedure employed by the Comptroller was illegal; (2) his approval of the charter application circumvented the Texas prohibition against branch banking; and (3) the grant of a bank charter to City National violated the antitrust laws of the United States. After dismissing the complaint against Laredo National Bank and its executive officers, who had participated in the organization of City National, and against Michael Doman, The Regional Administrator of National Banks, for failure to state a claim upon which relief could be granted, that court denied appellant’s request for a trial de novo and granted summary judgment for the remaining defendants, City National Bank, its organizers, and William B. Camp, Comptroller of the Currency. Neither ground (2) or (3) is urged by the Bank of Commerce on this appeal.

The Bank of Commerce alleges 37 specific arbitrary and capricious acts by the Comptroller and his staff. Furthermore, appellant complains that the trial court wrongfully denied its motion to depose and serve interrogatories on the Comptroller, several members of his staff, the organizers of City National, and the officers of Laredo National Bank who testified in favor of City National’s application. Finally, in an attempt to tailor its appeal so as to invoke the relief ordered in Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973), the Bank of Commerce contends that the Comptroller so failed to explain his decision as to frustrate effective judicial review.

In Bank of Dearborn v. Saxon, 244 F.Supp. 394 (E.D. Mich. 1965), aff’d sub nom. Bank of Dearborn v. Manufacturers National Bank of Detroit, 377 F. 2d 496 (6th Cir. 1967), the Comptroller approved the defendant bank’s new charter application, which when coupled with the relocation of another established bank, permitted the defendant by sleight of hand to circumvent a Michigan statute regulating branch banking. Finding a prima facie case of sham and subterfuge, the district court overturned the Comptroller’s approval of the application as an abuse of discretion and forced disclosure of the administrative file, denying a claim of privilege advanced by the Secretary of the Treasury. In Camp v. Pitts, swpra, the Comptroller denied plaintiff’s bank charter application with only a very cursory explanation. The Supreme Court held that if “there was such failure to explain administrative action as to frustrate effective judicial review, the remedy was not to hold a [trial] de novo . . . but . to obtain from the agency, either through affidavits or testimony, such additional explanation of the reasons for the agency decision as may prove necessary.” 411 U.S. at 142, 93 S.Ct. at 1244. The Bank of Commerce asks this court to reverse and remand with instructions that the district court elicit further commentary from the Comtproller explaining his decision and accord appellant access to the discovery process.

Appellant’s reliance on these decisions, however, is misconceived. The preponderant weight of judicial precedent bars plaintiffs from deposing the Comptroller or requiring him to answer interrogatories. United States v. Morgan, 313 U.S. 409, 422, 61 S.Ct. 999, 1004-1005, 85 L.Ed. 1429 (1941); Warren Bank v. Saxon, 263 F.Supp. 34 (E.D. Mich. 1966), aff’d sub nom. Warren Bank v. Camp, 396 F.2d 52, 56 (6th Cir. 1968); Klanke v. Camp, 320 F.Supp. 1185 (S.D. Tex. 1970). The Supreme Court recently affirmed this policy in Camp v. Pitts, supra, stating that “the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court.” 411 U.S. at 142, 93 S.Ct. at 1244. Here, the fact that it had the entire administrative file before it fully enabled the district court to conclude that the Comptroller’s decision was neither arbitrary nor capricious.

When juxtaposed to such a complete administrative record and the applicable principles of law, appellant’s conclusory objections to the hearing officer’s refusal to grant a continuance, to the absence of a formal adversary hearing, and to ex parte meetings between the Comptroller’s staff and City National’s organizers, clearly fail to make out a prima facie ease of misconduct. In reliance on the literal wording of the National Banking Act, see 12 U.S.C. §§ 26, 27 (1970) , no court has held that the Comptroller must hold an adversary hearing in passing úpon bank charter applications, nor has any tribunal restricted the use of ex parte methods to obtain information from the banks and parties involved, even if such methods are utilized after a hearing has taken place. First National Bank of Fairbanks v. Camp, 465 F.2d 486, 603-604 (D.C. Cir. 1972), cert, denied, 409 U.S. 1124, 93 S.Ct. 936, 35 L.Ed.2d 256 (1973); Sterling National Bank of Davie v. Camp, 431 F.2d 514, 516 (5th Cir. 1970), cert: denied, 401 U. S. 925, 91 S.Ct. 879, 27 L.Ed.2d 829 (1971) ; Ramapo Bank v. Camp, 425 F.2d 333, 347-348 (3d Cir.), cert, denied, 400 U.S. 828, 91 S.Ct. 57, 27 L.Ed.2d 58 (1970); Citizens Bank of Hattiesburg v. Camp, 387 F.2d 375 (5th Cir. 1967), cert, denied, 391 U.S. 904, 88 S.Ct. 1652, 20 L.Ed.2d 418 (1968). Here, the Bank of Commerce was afforded the opportunity of a public, albeit nonadversary, hearing in which to register its protest. The administrative file was left open for ex parte submissions by anyone so interested for five days thereafter. Furthermore, the refusal to grant a continuance was well within the ambit of the Comptroller’s discretion. Viewed in their overall context, these assertions simply do not warrant the conclusion that the procedure before the Comptroller was a sham and subterfuge. Thus, we accept the observation of the district judge that “the real crux of the matter is simply that [the Bank of Commerce] disagrees with the Comptroller’s finding; [appellant] seeks to persuade this court that it, rather than the Comptroller, has the right answers.”

Similarly, in Warren Bank v. Saxon, supra, the same district court strictly limited application of its prior decision in Bank of Dearborn v. Saxon, supra, which the Bank of Commerce cites as controlling.

The case, then, does not go to the extreme argued for it by plaintiff. What the plaintiff is actually arguing, with respect to deposing the Comptroller, is that if a plaintiff merely alleges the Comptroller to be arbitrary, he can thereupon question him to see whether or not he really is arbitrary, despite a showing in the administrative file of the exercise of a careful and conscientious discretion. There is no precedent for such a course of action, it is not warranted in the statutes, and it would be utterly destructive of the manifested Congressional intent to vest a broad discretion to the expertise of an administrative official in this sensitive and complex area of banking. Plaintiff has the cart before the horse. Plaintiff wants to depose the Comptroller to expose wrongdoing. The law is the other way around. If Plaintiff can show wrongdoing (not in the sense of proving it, but merely showing circumstances that to a reasonable view would indicate sham, subterfuge or similar wrong) he may then depose the Comptroller as required.

263 F.Supp. at 39.

A punctilious review of the administrative record, which of course is the same as was before the court below, also fails to indicate any such paucity of administrative explanation as would frustrate effective judicial review of the Comptroller’s action. The district court correctly deferred to the Comptroller’s expertise where the administrative record adequately explained and justified his decision to grant a national bank charter. See First National Bank of Southaven v. Camp, 471 F.2d 1322, 1326-1327 (5th Cir. 1973). Here that voluminous record surely indicated the determinative reason for the final agency action: a finding that the new bank was soundly organized, capitalized and managed and constituted a sound economic venture in light of the banking needs and services already available in the surrounding community. When findings of fact, rendered contemporaneously with the concomitant administrative decision, are subsequently available, a reviewing court may not require the agency officials who participated in that decision to give testimony explaining their action unless there has been a strong showing of bad faith or improper behavior. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971). As stated by the Court in Camp v. Pitts, supra, also relied on by appellant:

The validity of the Comptroller’s action must, therefore, stand or fall on the propriety of that finding, judged, of course, by the appropriate standard of review. If that finding is not sustainable on the administrative record made, then the Comptroller’s decision must be vacated and the matter remanded to him for further consideration. It is in this context that the Court of Appeals should determine whether and to what extent, in the light of the administrative record, further explanation is necessary to a proper assessment of the agency’s decision.

411 U.S. at 143, 93 S.Ct. at 1244 (citations omitted). The appellant’s assertions of misconduct and collusion are wholly refuted by the record.

Lastly, the Bank of Commerce contends that the Comptroller abused his discretion in approving City National’s charter application and that this charge was inappropriate for summary disposition by the court below. When reviewing a case disposed of under Fed. R. Civ. P. 56, an appellate court must apply the same general standard as that initially employed by the trial court — whether there is any genuine issue as to any material fact and whether the movant is entitled to judgment as a matter of law. 10 C. Wright & A. Miller, Federal Practice and Procedure § 2716, at 430 (1973). Moreover, when a plaintiff who has no right to a trial de novo brings an action to review an administrative record which is before the reviewing court, “the case is ripe for summary disposition, for whether the order is supported by sufficient evidence, under the applicable statutory standard, or is otherwise legally assailable, involve matters of law.” 6 J. Moore, Federal Practice j[ 56.17[3], at 2472 (1965). The appropriate legal standard for conducting such review is that established by the legislation authorizing the agency action and the appurtenant provisions of the Administrative Procedure Act.

The National Banking Act, 12 U.S.C. § 21 et seq. (1970), which authorizes the Comptroller to grant new certificates of authority to commence banking, accords him broad discretion to approve or reject new charter applications. See 12 U.S.C. §§ 26, 27 (1970). Since neither the National Banking Act nor the Administrative Procedure Act, 5 U. S.C. §§ 701-706 (1970), requires the Comptroller to conduct a hearing or make formal findings when passing upon new bank charter applications, 5 U.S.C. § 557 (1970); 12 U.S.C. §§ 26, 27 (1970), the appropriate standard for judicial review is not the “substantial evidence” test, which applies when findings made on a hearing record are to be reviewed, 5 U.S.C. § 706(2) (E) (1970); rather, the inquiry is whether the Comptroller’s adjudication was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2) (A); Camp v. Pitts, supra; Sterling National Bank of Davie v. Camp, supra; Citizens Bank of Hatties-burg v. Camp, supra. See Investment Company Institute v. Camp, 401 U.S. 617, 626, 91 S.Ct. 1091, 1097, 28 L.Ed.2d 367 (1971). After reviewing the Comptroller’s administrative file and appellant’s pleadings and briefs, the district court applied the required test in haec verba, finding “that the Comptroller’s decision was not arbitrary, capricious, or otherwise not in accordance with law.” Our independent review of the entire record on appeal, including the administrative file and other exhibits, confirms that this decision was clearly correct.

Since the record provided a substantial basis for the agency action and foreclosed the existence of any material fact issues, the entry of summary judgment was entirely proper. Indeed, such summary dispositions are the form commonly employed in reviews of similar Comptroller action. See Camp v. Pitts, supra; First National Bank of Southaven v. Camp, supra; First National Bank of Crown Point v. Camp, 463 F.2d 595 (7th Cir. 1972); Sterling National Bank of Davie v. Camp, supra; Warren Bank v. Camp, supra.

The decision of the district court is

Affirmed.


source: Caselaw Access Project

license: Public Domain

text:
    Lester STACY, Plaintiff-Appellee, v. The AETNA CASUALTY & SURETY COMPANY, Defendant-Appellant.
    No. 72-3268.
    United States Court of Appeals, Fifth Circuit.
    Aug. 27, 1973.
    Rehearing and Rehearing En Banc Denied Nov. 8, 1973.

      See also, D.C., 334 F.Supp. 1216.

      W. P. Mitchell, Jess B. Rogers, Tupe-lo, Miss., for defendant-appellant.
    William S. Lawson, John L. Long, Tu-pelo, Miss., for plaintiff-appellee.
    Before WISDOM, GEWIN and CLARK, Circuit Judges.
   CLARK, Circuit Judge:

Lester Stacy lost his right leg when he fell into a rotating auger in the floor of the ice storage room of the poultry processing plant where he was employed. Having received the statutory benefits provided under the Mississippi Workmen’s Compensation Law, Stacy brought this action against the Aetna Casualty and Surety Company, his employer’s compensation insurance carrier. He alleged that Aetna’s failure to use reasonable care in performing inspections and safety engineering services was a proximate cause of his injury which rendered the carrier directly liable to him for damages in excess of compensation benefits. Aetna moved for summary judgment on the ground that as workmen’s compensation carrier for Stacy’s employer, Purnell’s Pride, Inc., it was immune from this suit for plenary damages because of the exclusive liability provisions of the Mississippi Workmen’s Compensation Law, Miss.Code Ann. § 6998-05. Aetna’s motion for summary judgment was denied with an opinion reported at 334 F.Supp. 1216 (N.D.Miss.1971).

The case was tried to a jury which found by answers to special interrogatories that Aetna did not exercise reasonable care when it failed to inspect the ice storage room of Purnell’s poultry processing plant and that its negligence proximately caused or contributed to Stacy’s injury. On appeal, Aetna contends, inter alia (1) that the district court erred in holding that under Mississippi law a workmen’s compensation carrier may be subject to actions at law arising from negligent performance of inspection and safety engineering services and (2) that its motion for a directed verdict should have been granted since the evidence was insufficient to warrant submission of the case to the jury on the issue of liability. We do not reach or decide the correctness of the district court’s Erie interpretation of the exclusive liability provision of the Mississippi Compensation Law since we agree with Aetna that the evidence, when viewed in the light most favorable to Stacy, failed to establish a cause of action.

On the morning of the accident Stacy arrived at Purnell’s plant prior to his fellow workers. Having turned on the ice conveyer system, he entered the ice storage room for the purpose of breaking up crushed ice which had frozen into a solid mass overnight so that it would feed into a trench in the center of the storage room from which a metal auger would convey it to the assembly line on an upper level. The floor of the ice storage room sloped toward this central trench at an angle of 7 to 10 degrees. Stacy slipped on a sheet of ice and slid into the trench where the rotating auger entrapped his right leg and slowly and painfully amputated it above the knee. At the time of Stacy’s accident, there were no grates or grills covering the trench to prevent workmen from coming into contact with the auger, nor had any other accident-prevention or safety devices been installed for the protection of employees such as Stacy who would be required to work in the ice storage room.

For about two years preceding Stacy’s accident, Purnell’s operated its own company safety program covering all of the various installations making up its complete operation — the poultry processing plant, feed mill, vehicle maintenance shop, hatchery, commercial egg operation and warehousing facilities. During this time and prior thereto Aetna had provided workmen’s compensation liability insurance to Purnell’s. Under its policy, Aetna reserved the right to inspect all of the premises it insured. For at least two years before Stacy was hurt, an Aetna representative who was a trained “loss control” engineer had visited Purnell’s on a monthly basis. During these regular visits this Aetna engineer had consulted with Dick Guyton, Pur-nell’s personnel director who also served as its plant safety officer, to discuss any accidents which had occurred since his last visit. They checked with the company nurse for her inquiries and comments and “looked into” areas where accidents had occurred. Aetna’s engineer also attended meetings called by Pur-nell’s to discuss safety with its employees. On occasion, Aetna made recommendations concerning safety improvements when Purnell’s safety program personnel encountered problems they could not answer. Where Purnell’s regarded these recommendations as practical within the industry and its own operation and not in conflict with the U. S. Department of Agriculture regulations, they were usually followed.

Distilling the most favorable facts proven which would support the jury verdict, we find that Aetna had a contractual right to make inspections at any point in Purnell’s operations; in a two year period prior to Stacy’s accident Aetna did make regular monthly inspections of those parts of Purnell’s complete operation to which Aetna was directed by Purnell’s or at which Purnell’s accident reports indicated workmen had been hurt; Aetna was never requested to inspect the ice storage room because no accident had ever been reported there before Stacy’s injury; and Aetna never undertook to inspect this room prior to that day.

Stacy contends that, having reserved the right to inspect and having undertaken to participate in Purnell’s safety program, Aetna’s failure to inspect the ice storage room and to discover the dangerous conditions therein rendered the carrier directly liable to him. This contention is founded on the legal principles expressed by § 324A of the Restatement of Torts, Second (1965):

One who undertakes, gratuitiously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to [perform] his undertaking, if
(a) his failure to exercise reasonable care increases the risk of such harm, or
(b) he has undertaken to perform a duty owed by the other to the third person, or
(c) the harm is suffered because of reliance of the other or the third person upon the undertaking.

While we find no Mississippi case precisely in point, we assume from the favorable citation of a related section, § 325 of the First Restatement of Torts, in Long v. Patterson, 198 Miss. 554, 22 So.2d 490, 492 (1945), that the Mississippi courts would now adopt the rule of 324A. Accord Hill v. United States Fidelity & Guaranty Co., 428 F.2d 112, 115-116 (5th. Cir. 1970), cert, denied, 400 U.S. 1008, 91 S.Ct. 564, 27 L.Ed.2d 621 (1971); Roberson v. United States, 382 F.2d 714, 718 (9th Cir. 1967). However, even giving Stacy the benefit of the progressive principles of § 324A, we find that the evidence failed to establish that Aetna was under a legal duty to inspect the ice storage room and therefore the case should not have been submitted to the jury to determine whether its failure to do so amounted to negligence.

Because no representative of Aetna, at any time prior to Stacy’s accident, conducted an actual inspection of Purnell’s ice storage room or of the ice conveyer system Stacy’s case is immediately distinguishable from the situation where an inspecting workmen’s compensation carrier undertakes, but negligently performs, an inspection of the injury-producing instrumentality. See, e. g., Beasley v. MacDonald Engineering Co., 287 Ala. 189, 249 So.2d 844, 846 (1971); Nelson v. Union Wire Rope Co., 31 111.2d 69, 199 N.E.2d 769, 779 (1964); Fabri-cius v. Montgomery Elevator Co., 254 Iowa 1319, 121 N.W.2d 361, 362, 93 A. L.R.2d 591 (1963); Smith v. American Employers’ Ins. Co., 102 N.H. 530, 163 A.2d 564, 566 (1960).

On the facts of the present case, Aetna’s liability must find support in proof that it undertook an inspection program which obligated it to seek out and report safety defects anywhere in Purnell’s processing facility and that this undertaking amounted to an assumption of a duty of inspection owed by Purnell’s to its employees or that Stacy’s injury resulted from reasonable reliance on Aetna’s undertaking. Stacy’s only claim of proof that Aetna had undertaken such a comprehensive safety inspection is based upon that portion of Aetna’s amended answer which states:

Defendant admits that it made periodic inspections of said plant and the complete operation of said employer pursuant to permission granted by Paragraph 3 of the conditions of said policy of workmen’s compensation insurance which provided in part as follows:
“The company and any rating authority having jurisdiction by law shall each be permitted but not obligated to inspect at any reasonable time the work places, operations, machinery and equipment covered by this policy. Neither the right to make inspections nor the making thereof, nor any report thereon shall constitute an undertaking on behalf of or for the benefit of the insured or others, to determine or warrant that such work places, operations, machinery or equipment are safe.”
Defendant avers that such inspections were on a consultant basis and denies all other allegations of Paragraph III of the complaint.

According to the uncontradicted evidence developed at trial “periodic inspections of said plant and the complete operation of said employer” amounted to a limited undertaking to conduct safety engineering services in those areas of all of Purnell’s various facilities where either the director of the company’s own safety program or records of previous accidents indicated that professional consultation was needed. Testimony that Aetna’s undertaking was thus limited in its scope was admitted without objection that such proof was in anywise at variance with Aetna’s original pleading. F.R.Civ.P., 15(b) provides:

When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues.

If Stacy desired to take the position that Aetna’s admission in its answer was a concession that it had actually inspected the ice storage room or that it had undertaken an inspection program of such broad scope that in the exercise of due care it should have inspected that particular part of Purnell’s poultry processing plant, it was incumbent upon Stacy to oppose the introduction of evidence directly at variance with his claim of admission. Instead of an objection we find that Stacy not only allowed the full development of a line of inquiry which established that Aetna engaged in a much more limited undertaking of acting as a consultant to Purnell’s safety program, but also conducted vigorous cross-examination into the particulars of this specialized, responsive sort of consultation service. By operation of Rule 15(b), any contrary admission, plain or ambiguous, was amended out of Aetna’s pleading.

An amended pleading cannot be properly considered by the fact-finder unless it is properly introduced into evidence as a party admission. Borel v. United States Cas. Co., 233 F.2d 385, 387 (5th Cir. 1956); Proctor & Gamble Defense Corp. v. Bean, 146 F.2d 598, 601 (5th Cir. 1945), see also Shell v. Parrish, 448 F.2d 528, 530 (6th Cir. 1971); Fruco Const. Co. v. McClelland, 192 F.2d 241, 245 (8th Cir. 1951), cert, denied, 342 U.S. 945, 72 S.Ct. 558, 96 L.Ed. 703 (1952). In the present case, Aetna’s answer was not so introduced.

Purnell, of course, was required by law to maintain a safe work place for its employees. Long v. Woollard, 249 Miss. 722, 163 So.2d 698 (1964). Included in this obligation is the duty to inspect its own premises to discover hazardous conditions. See, e. g., Alexander v. Jackson County Historical Society, Inc., 227 So.2d 291 (Miss.1969), citing § 343 of the Restatement of Torts, Second (1965). The record shows without equivocation that the company at no time delegated to Aetna or Aetna’s loss control engineer, either by contract or by a course of conduct, any part of its direct and primary duty to discover unsafe conditions. Proof that the insurer assisted Purnell in those particular areas of its operation where the company. felt it needed outside advice and recommendations falls far short of system-wide assumption of Purnell’s duty to discover latent hazards.

Finally, there is no evidence that Stacy’s accident occurred because of reliance by either the plaintiff himself or by Purnell’s management on Aetna’s undertaking. Although Stacy testified that he had seen Aetna’s loss control engineer in the plant and that he had attended at least one plant safety meeting at which Aetna’s representative was also present, Stacy offered no testimony that he had seen the Aetna engineer inspect the ice storage room or that he had relied upon the completeness or accuracy of Aetna’s inspection service for his own protection, cf. Evans v. Liberty Mutual Ins. Co., 398 F.2d 665, 667 (3d Cir. 1968) ; DeJesus v. Liberty Mutual Ins. Co., 423 Pa. 198, 201, 223 A.2d 849, 850 (1966); Bartolotta v. Liberty Mutual Ins. Co., 411 F.2d 115, 119 (2d Cir. 1969) . Under the Restatement rule, reliance by the plaintiff-employee on the inspection service undertaken by the defendant-insurer is not the sole path to liability. The carrier may also be liable if the employer so relied on the insurer’s undertaking that it neglected its own safety inspection program to his detriment. See Corson v. Liberty Mutual Ins. Co., 110 N.H. 210, 265 A.2d 315, 318-319 (1970). As this court recently pointed out in applying the rule of § 324A to the liability of an inspecting insurance company,

. an insurer may by the manner of conduct of safety inspections, or its representation concerning safety inspections, create serious risk of harm to third persons if the insured relies on what the insurer says or does. If the [insured] in reliance on what the insurer undertakes to do lessens or omits its own safety measures and the insurer does not perform with due care what it has undertaken to do [third persons foreseeably using the insured’s premises] are potential victims.

Hill v. United States Fidelity & Guaranty Co., supra, 428 F.2d at 120. However, reliance will not be assumed merely from the existence of a permissive inspection clause in an insurance policy. Mann v. Highland Ins. Co., 461 F.2d 541 (5th Cir. 1972). The insurer’s liability must rest upon proof of actual reliance by the insured on the contractual undertaking or on the subsequent representations by the insurer which resulted in acts or omissions by the insured. Cf. Keller v. Dravo Corp., 441 F.2d 1239, 1243 (5th Cir. 1971), cert, denied, 404 U.S. 1017, 92 S.Ct. 679, 30 L.Ed.2d 665 (1972). The evidence in the present case fails to establish that Purnell had relied on Aetna’s inspection services to Stacy’s detriment. To the contrary, the proof discloses that the decision of Pur-nell’s management not to undertake safety improvements in the ice storage room area was not the result of a belief that Aetna had inspected this area of the plant or that Aetna in any way approved the operations there for safety purposes.

The court submitted the issue of liability to the jury on the theory that Aet-na had undertaken to perform a general safety engineering service which obligated Aetna to inspect any area of Pur-nell’s operations where latent safety defects might exist. Our review of the record reveals no proof that Aetna ever contracted or undertook to conduct such a comprehensive inspection service. At most, it undertook to inspect and therefore was obliged to use reasonable care in inspecting those areas of Purnell’s operations which were called to its attention by the management or by reports of previous accidents.

The court was in error in refusing to direct a verdict for Aetna at the close of the evidence. The final judgment appealed from is reversed and the cause is remanded with directions to enter a judgment for the defendant.

Reversed and remanded.

      . Miss.Code Ann. § 6998-01 to § 6998-59 (1952).

      . Aetna also contends that it was entitled to a directed verdict because the proof showed that as a matter of law the plaintiff had assumed the risk of his own injury and that the procedure followed by the court in reassembling the jury to inquire into their understanding of the special interrogatory concerning damages was improper. Because of our disposition of the case, we do not reach these issues.

      . Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

      . We discuss here only the applicability of subparts (b) and (c) of § 324A. There is no contention that any act or omission by Aetna resulted in construction, alteration, or deterioration of any facility or condition within the ice storage room which increased the likelihood of harm to Purnell’s employees within the meaning of subpart (a) of § 324A. This case is clearly distinguishable from Bufkin v. Grisham, 157 Miss. 746, 128 So. 563 (1930), a Mississippi decision cited as an illustration of subpart (a). In that case the manager of a bottling plant was held liable for his personal negligence in permitting a foreign substance to get into a bottle of soft drink filled under his supervision. The court held that the failure of the manager to remain “properly watchful” directly increased the likelihood of injury to consumers, since he was the person immediately responsible for keeping deleterious substances out of the bottling process.

      . President Purnell testified that the company program had been instituted at his personal suggestion. Aetna’s role in this safety program was that “they were available on a consulting basis, if [Purnell’s] called on them. . ” When questioned as to why Aetna did not inspect the ice storage room prior to the accident, Purnell testified: “I am sure that he inspected where we needed the help the most. We had not had an accident in there in over 15 years. ... we had [other] areas we thought needed attention more.” Company Safety Director Guyton testified that Aetna’s periodic visits “basically [concerned] the investigation of accidents that had happened in the past.” Since no accidents had occurred in the ice storage room prior to Stacy’s fateful slip, Guyton testified that Aetna’s attention had never been directed to that area of the plant.

      . As an illustration of subpart (b) of § 324A, the authors of the Restatement of Torts, Second, cite Miss. Power & Light Co. v. Smith, 169 Miss. 447, 153 So. 376 (1934). Smith was killed by a broken drive belt in a cotton gin owned by M.P.&L. Smith’s widow sued both the owner and Tynes, the superintendent of the gin. Affirming a verdict against Tynes, the Mississippi Supreme Court stated “Tynes is held liable because ... he did not discharge the common-law duty which he owed to Smith. Tynes was the only man who assumed to direct Smith and it was Tynes’ duty to exercise reasonable care to prevent injury to him.” 169 Miss, at 465, 153 So. at 380. The evidence in the case sub judice does not suggest that Aetna assumed to direct Purnell’s plan safety program in a manner in any way comparable to Tynes operation of M.P.&L.’s gin. Cf. Clark v. Employers Mutuals of Wausau, 297 F.Supp. 286 (E.D.Pa.1969).


author: THORNBERRY, Circuit Judge: PER CURIAM: PER CURIAM:

text:
    Wilson J. PARFAIT, Plaintiff, v. JAHNCKE SERVICE, INC., Defendant-Third Party Plaintiff-Appellee, Yo-Ro Diesel Service, Inc., Third Party Defendant-Fourth Party Plaintiff-Appellee-Appellant, Home Indemnity Company, Third Party Defendant-Appellee, The Travelers Indemnity Company, Fourth Party Defendant-Appellant.
    No. 72-3316.
    United States Court of Appeals, Fifth Circuit.
    Aug. 31, 1973.
    Rehearings Denied Oct. 3 and Oct. 24, 1973.

      John R. Peters, Jr., New Orleans, La., for Travelers Indemnity Co.
    Walter F. Gemeinhardt, New Orleans, La., Leonard N. Bouzon, New Orleans, La., for Yo-Ro Diesel Service.
    Christopher Tompkins, New Orleans, La., for Jahneke Service, Inc.
    Michael A. Britt, M. N. Grossel-Rossi, New Orleans, La., for Home Indemnity Co.
    William J. Daly, S. C. Gainsburgh, New Orleans, La., for Wilson J. Parfait.
    Before THORNBERRY, AINS-WORTH and RONEY, Circuit Judges.
   THORNBERRY, Circuit Judge:

In this multiparty admiralty case we must determine whether the district court properly awarded a shipowner indemnity under the Ryan doctrine for amounts it paid in settlement of a claim against it and whether the district court correctly interpreted two insurance policies.

On October 1, 1967, Wilson Parfait, an employee of Yo-Ro Diesel Service, Inc., was injured while he was aboard a diesel dredge owned and operated by Jahneke Service, Inc. to repair a broken cylinder block of one of the vessel’s engines. Parfait sued Jahneke to recover for his injuries, alleging negligence and unseaworthiness. Jahneke filed a third-party complaint against Yo-Ro for indemnity under the Ryan doctrine. Jahneke and Yo-Ro both filed fourth-party actions against Yo-Ro’s two insurers, Travelers Indemnity Company and Home Indemnity Company. Jahneke settled the original suit brought by Parfait, and the third- and fourth-party suits were tried to the Court. The district court awarded Jahneke indemnity from Yo-Ro, and held Yo-Ro’s loss to be covered by the Travelers policy, but not by the Home policy. Travelers and Yo-Ro appeal, testing the strength of all links by which they are connected to the liability chain. Additionally, Yo-Ro seeks to forge a new protective link, arguing that the Home insurance policy, as well as the Travelers policy, should be construed to cover any loss which Yo-Ro may eventually suffer as a result of Parfait’s injury. We affirm the district court’s ruling that Jahneke is entitled to indemnity from Yo-Ro but reverse as to coverage under each insurance policy.

The district court summarized the facts relating to Parfait’s injuries as follows:

Upon discovering that the main pump engine aboard The Manchac was broken, Jahneke contracted with Yo-Ro to weld the broken part. Parfait, the working foreman for Yo-Ro, came aboard the vessel to inspect the broken pump engine and determine what equipment should be used to make the repair. After completing his inspection, Parfait left the vessel to obtain the tools and equipment needed for performance of the repair job. About two hours later Parfait returned with his son, Wilson J. Parfait, Jr., who was employed by Yo-Ro as an apprentice welder and was to assist his father in the welding job. While Parfait was gone, Jahncke’s employees had dismantled part of the engine to enable Parfait to perform his repair work, and, in doing so, the Jahncke employees disconnected a fuel line from which fuel oil was allowed to drip and accumulate on the catwalk adjacent to the engine, creating a dangerous condition. The Jahncke employees were not aware that fuel oil had dripped and created a hazard. Parfait, while standing on the catwalk to work on the engine, noticed that fuel oil was dripping and that it had accumulated on the floor where he was working; however, he neither attempted to remove the oil nor did he request Jahncke’s employees to clean it up.
After working for approximately two hours on the repair, Parfait reached a point where the weld had to cool before he could continue. He walked to the end of the catwalk and up a short ladder to the deck above and proceeded straight to a wash stand a short distance away. After washing his hands he returned, in the same direction from which he had come, and headed for the ladder leading down to the catwalk. As he neared the ladder he slipped and fell, either as a result of fuel oil on the soles of his shoes that had been picked up while he worked on the catwalk where fuel oil had accumulated, or as a result of fuel oil tracked on the steel deck by his shoes when he walked toward the wash stand.

Parfait v. Jahncke Service, Inc., E.D. La.1972, 347 F.Supp. 485, 488-489. The fall caused serious injury to Parfait’s neck and back.

As outlined above, Parfait sued Jahncke on theories of negligence and unseaworthiness, Jahncke impleaded Yo-Ro as the third-party defendant, and both Yo-Ro and Jahncke impleaded Yo-Ro’s insurers as fourth-party defendants. In early January of 1972, counsel for Parfait offered to settle the $160,000 suit for $90,000. Upon receiving notice of the offer, counsel for Yo-Ro wrote Jahncke, Travelers, and Home indicating that he would regard as favorable a settlement in any amount within the $100,000 limit of Yo-Ro’s general liability insurance policy with Travelers and called upon Travelers and Home to effect such a settlement immediately. In reply counsel for Jahncke offered Yo-Ro the defense of the action in exchange for a hold-harmless agreement, and indicated he would attempt to settle the case along the lines indicated by Yo-Ro if Yo-Ro did not accept the offer to take over the defense. In the absence of any further objection by Yo-Ro, Jahncke settled with Parfait for a total of $74,635.-84 shortly before trial of Parfait’s action was to begin. At trial of the third- and fourth-party claims Yo-Ro objected to the reasonableness of the settlement, and Travelers and Home denied coverage under their respective policies.

The district court found that the oil which had dripped on to the catwalk created an unseaworthy condition which was a proximate cause of the accident, and that, even assuming substantial contributory negligence on the part of Parfait, the settlement was reasonable in amount. The court held further that Yo-Ro had breached its duty to Jancke to perform its work in a workmanlike manner and that Jahncke was therefore entitled to indemnification from Yo-Ro for the sum it paid to satisfy its potential liability to Parfait. Finally, the district court construed the Travelers policy, but not the Home policy, as covering the indemnity expense incurred by Yo-Ro, so that the cost of the settlement ultimately fell on Travelers.

I. Indemnity

We treat first the question whether the district court properly awarded Jahncke indemnity from Yo-Ro. To establish its entitlement to indemnity for the amount paid in settlement of Parfait’s claim, Jahncke was required to show first that an indemnitor-indemni-tee relationship existed between Yo-Ro and itself. If there was such a relationship, Jahncke had the additional burden of satisfying the district court that it, Jahncke, had acted in accordance with equitable indemnity principles in making the settlement and had not spent its in-demnitor’s money too freely.

Below Jahncke relied on the breach of warranty theory set forth in Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, 1956, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 to establish an indemnitor-indemnitee relationship. Under the Ryan doctrine stevedores and other shore-based contractors who go aboard a vessel by the owner’s arrangement or by his consent to perform service for the ship’s benefit impliedly warrant to the shipowner that they will accomplish their task in a workmanlike manner. The essence of the contractor’s warranty of workmanlike performance is to perform its work “properly and safely.” Id. 350 U.S. at 133, 76 S.Ct. at 237. See also Whisenant v. Brewster-Bartle Offshore Company, 5th Cir. 1971, 446 F.2d 394, 399. The maritime contractor’s warranty, just as a manufacturer’s warranty against defective products, may be breached even when the contractor has not been negligent. Italia Societa v. Oregon Stevedor-ing Company, 1964, 376 U.S. 315, 84 S. Ct. 748, 11 L.Ed.2d 732. If the contractor breaches its warranty, and ■ the breach proximately causes liability on the part of the shipowner, then the shipowner is entitled to indemnity unless its own conduct is “sufficient to preclude indemnity.” Weyerhaeuser Steamship Company v. Nacirema Operating Company, 1958, 355 U.S. 563, 567, 78 S.Ct. 438, 441, 2 L.Ed.2d 491. To determine whether the shipowner has engaged in conduct sufficient to preclude indemnity, the conduct in question must be weighed against the contractor’s breach of warranty under contract principles. Waterman Steamship Corporation v. David, 5th Cir. 1966, 353 F.2d 660. If the shipowner did not “prevent or seriously handicap the stevedore in his ability to do a workmanlike job,” then its conduct will not preclude indemnity. Albanese v. N. Y. Nederl. Amerik Stoomv., 2nd Cir. 1965, 346 F.2d 481. Negligence on the shipowner’s part is not necessarily fatal to its claim for indemnity. Weyer-haeuser Steamship Company v. Nacire-ma Operating Company, supra; see Ital-ia Societa v. Oregon Stevedoring Company, supra, 376 U.S. at 320, 84 S.Ct. at 751. In summary, “[t]he determination of whether contractual indemnity should be allowed involves a weighing process evaluating the conduct of both parties to determine (1) whether the WWLP [warranty of workmanlike performance] was breached; (2) whether that breach proximately caused the injury; and (3) whether the shipowner’s conduct prevented the workmanlike performance.” Garner v. Cities Service Tankers Corp., 5th Cir. 1972, 456 F.2d 476, 481.

This Court has previously recognized the “equitable spirit behind the Ryan doctrine.” Whisenant v. Brewster-Bartle Offshore Company, supra, at 400 of 446 F.2d. Its purpose is generally to place “the burden ultimately on the company whose default caused the injury.” Italia Societa v. Oregon Stevedor-ing Company, supra, 376 U.S. at 324, 84 S.Ct. at 754. The Ryan doctrine is not, however, a precision instrument for allocating the burden according to the relative amounts of fault, but a rough all- or-nothing device. Even where the shipowner and the contractor are both at fault, under the Ryan warranty doctrine indemnity will be allowed wholly or not at all, as the trier of fact may determine by weighing the conduct of the two parties as described above. See Garner v. Cities Service Tankers Corp., supra, at 480 n. 6 of 456 F.2d; G. Gilmore & C. Black, The Law of Admiralty, § 6-57 at 373 (1957).

In attacking the district court’s conclusion • that an indemnitor-indemnitee relationship existed between Yo-Ro and Jahncke under the Ryan doctrine, appellants make three arguments. First, with regard to the breach of warranty issue, eschewing any contention that fuel oil may not be an unseaworthy condition or that a maritime contractor’s failure to stop work or eliminate the hazard may be a breach of the contractor’s warranty of workmanlike performance, they attack the district court’s findings of underlying facts. Specifically, appellants argue that the record shows that no oil accumulated on the catwalk where Parfait was working, so that failure to eliminate the nonexistent hazard could not have been a breach of Yo-Ro’s warranty of workmanlike performance. They urge that the oil upon which Parfait slipped came from a barrel on the upper deck in which Jahncke employees were cleaning engine parts. This attack must founder on the “clearly erroneous” rule. Fed.R. Civ.P. 52(a); McAllister v. United States, 1954, 348 U.S. 19, 75 S.Ct. 6, 99 L.Ed. 20. It is true that Parfait’s testimony, which was the principal evidentiary source of the district court’s findings, was impeached at trial by the introduction of prior inconsistent statements given at depositions and that it was inconsistent in some particulars with the testimony of other witnesses. We note, however, that at least two other witnesses’ testimony tended to corroborate that the fuel oil on the upper deck was clear of Parfait’s path at the time of the fall. The district court carefully considered this factual question and specifically rejected appellants’ version of the facts in favor of plaintiff’s version. On the record before us we cannot say this finding was clearly erroneous. Secondly, with regard to the causation issue, appellants make a related factual argument that even if Yo-Ro breached its Ryan warranty by failing to clean up oil on the catwalk, this breach was not the cause of Parfait’s fall, since he slipped on oil from the upper deck. Again, we cannot hold the district court’s contrary finding clearly erroneous.

Thirdly, appellants advance a fundamentally misconceived argument that Jahncke can have no right of indemnity against Yo-Ro because Jahncke was actively negligent and Yo-Ro was at most passively or secondarily negligent. “Indemnity may arise either in contract or in tort.” General Electric Company v. Cuban American Nickel Company, 5th Cir. 1968, 396 F.2d 89, 90. The two types of indemnity rights rest on separate and distinct theoretical bases and require proof and evaluation of different elements. See, e. g., Halliburton Company v. Norton Drilling Company, 5th Cir. 1962, 302 F.2d 431, reh. denied 1963, 313 F.2d 380, cert, denied 374 U.S. 829, 83 S.Ct. 1870, 10 L.Ed.2d 1052; American President Lines, Ltd. v. Marine Terminals Corporation, 9th Cir. 1956, 234 F.2d 753, cert, denied 352 U.S. 926, 77 S.Ct. 222, 1 L.Ed.2d 161. As between two joint tort-feasors, the passively negligent party may recover indemnity from the actively negligent party. This type of indemnity was explored in depth in Tri-State Oil Tool Industries, Inc. v. Delta Marine Drilling Company, 5th Cir. 1969, 410 F.2d 178. See also Magnum Marine v. Kenosha Auto Transport Corporation, 5th Cir. 1973, 481 F.2d 933. Although principles of equity underlie both this tort indemnity doctrine and the Ryan doctrine, indemnity under the latter does not rest on the tort concepts implicit in the former, but on a contractual warranty theory. Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, supra, 350 U.S. at 133, 76 S.Ct. at 237. If the Ryan case itself left any doubt as to the distinctly contractual nature of the warranty doctrine it established, that doubt was removed in the final paragraph of Weyerhaeuser Steamship Company v. Nacirema Operating Company, supra, 355 U.S. at 569, 78 S.Ct. at 442, where the Court pointed out “that in the area of contractual indemnity an application of the theories of ‘active’ or ‘passive’ as well as ‘primary’ or ‘secondary’ negligence is inappropriate.” Thus, appellants’ active-or-passive negligence argument is made in the wrong case; it does not touch on the pivotal issues of the Ryan doctrine, upon which the district court relied in determining that an in-demnitor-indemnitee relationship existed in this case.

Construing appellants’ active-negligence argument as a challenge to the district court’s determination that the shipowner’s conduct was not sufficient to preclude indemnity, we find it without merit. We agree with the district court that “any fault by Jahncke and unseaworthiness created thereby, would not have prevented Yo-Ro from performing its operations in a workmanlike manner.” 347 F.Supp. at 490.

Being unpersuaded by appellants’ assaults on the district court’s determination that an indemnitor-indemnitee relationship existed between Yo-Ro and Jahncke, we proceed to the second major part of appellants’ attack on the district court’s order of indemnity. The district court held that in order to exercise its right of indemnity against YoRo for the amount of the settlement, Jahncke was required to show only potential liability, not actual liability to Parfait, and that the amount of the settlement was reasonable. And it found that Jahncke made the required showings. Appellants argue that Jahncke was required to show actual liability to Parfait and that the amount of the settlement was not reasonable.

The actual-versus-potential liability problem is unique to cases in which the original defendant (indemnitee) has settled with the original plaintiff without giving the third-party defendant (indemnitor) an opportunity to approve the amount of the settlement or to conduct the defense, and in which traditional indemnity principles are not modified by express contract between the parties. To be distinguished are “cases in which (1) the original defendant’s claim for indemnification was founded on a judgment, or (2) the indemnitor was tendered the defense and refused it, or (3) the indemnitee’s claim against the indemnitor was founded upon a written contract.” Whisenant v. Brewster-Bartle Offshore Company, 5th Cir. 1971, 446 F.2d 394, 401-402; see Tankrederiet Gefion A,/S v. Hyman-Michaels Company, 6th Cir. 1969, 406 F.2d 1039, 1042. In settlement cases such as the instant one, the indemnitee has the special problem of showing that his disposition of the indemnitor’s funds has not contravened equitable indemnity principles.

Such principles require at a minimum that the indemnitee demonstrate his potential liability to the original plaintiff. Smith v. Brown & Root Marine Operators, Inc., W.D.La.1965, 243 F.Supp. 130, aff’d per curiam sub nom. Underwater Services, Inc. v. Brown & Root Marine Operators, Inc., 5th Cir. 1967, 376 F.2d 852. This Court has recognized that under some circumstances, when the original claim has been settled, a showing of actual liability may be required to support the indemnity claim. Whisenant v. Brewster-Bartle Offshore Company, supra at 401-403 of 446 F.2d. We have approved the view of the Fourth Circuit expressed in Jennings v. United States, 4th Cir. 1967, 374 F.2d 983, 986 that:

The indemnitee’s unilateral acts, albeit reasonable and undertaken in good faith, cannot bind the indemnitor; notice and an opportunity to defend are the indispensable due process satisfying elements.

See Whisenant v. Brewster-Bartle Offshore Company, supra at 403 of 446 F. 2d. This Circuit has not, however, unreservedly adopted the “general rule” of the Sixth Circuit “that an indemnitee must show actual liability to recover against an indemnitor.” Tankrederiet Gefion A/S v. Hyman-Michaels Company, 6th Cir. 1969, 406 F.2d 1039, 1042.

In this case we do not find any circumstances present which, in fairness to the indemnitor, call for proof of actual liability. A practical device by which an indemnitee can protect himself against the awkward possibility of having to prove the original plaintiff’s case against himself, the original defendant, is to offer the indemnitor before any settlement is concluded the choice of (1) approving the settlement or (2) taking over the defense of the case and agreeing to hold the indemnitee harmless in any event for damages which may be assessed against him in excess of the amount of the proposed settlement. See Tankrederiet Gefion A/S v. Hyman-Michaels Company, supra at 1043-1044 of 406 F.2d. If the indem-nitor approves the settlement or defends unsuccessfully against the original claim, he cannot later question the in-demnitee’s liability to the original claimant. If the indemnitor declines to take either course, then the indemnitee will only be required to show potential liability to the original plaintiff in order to support his claim over against the in-demnitor. Although the record in this case does not conclusively show that Jahncke formally made to Yo-Ro the type of pre-settlement offer described in Tankrederiet Gefion A/S v. Hyman-Michaels Company, supra, it does show that Yo-Ro was afforded substantially the same protection as if the Tankreder-iet Gefion procedure had been followed. Yo-Ro was continuously informed of the settlement negotiations in progress and was offered and declined defense of the original action. The only variation from the Tankrederiet Gefion procedure was the apparent failure of Jahncke to tender the final settlement offer to Yo-Ro for approval. In view of Yo-Ro’s awareness of the progress of the negotiations and its failure to object to settlement on the terms contemplated, we do not view this omission as serious in the circumstances of this case. Yo-Ro had a clear opportunity to challenge the Jahncke-Parfait liability to protect its own interest as an indemnitor, yet it declined to do so. Under the circumstances, we conclude that only a showing of potential liability was necessary. The finding of potential liability is strongly supported by the record.

The Whisenant case, in which a showing of actual liability was required, is distinguishable. There the original negligence theory on which the original plaintiff had proceeded appeared questionable as a basis for liability, and the indemnitee had attempted to justify the settlement by amending its pleadings to introduce a new unseaworthiness theory. Further, the indemnitor in that case had no real opportunity to contest the original claim, and the record indicated that, given the chance, he would have chosen to do so. None of these circumstances, nor any others suggesting unfairness to the indemnitor, are present in the instant case.

In addition to potential liability, Jahncke had the burden of showing that the settlement was reasonable in amount. Appellants urge that the amount of the settlement was excessive because if the claim had been tried, contributory negligence of the plaintiff would have diminished the amount of his recovery by a fraction approaching one hundred percent. We cannot say, however, that the contrary finding of the district court was clearly erroneous.

Thus, we conclude that the district court properly held an indemnitor-in-demnitee relationship existed between Yo-Ro and Jahncke by virtue of the Ryan doctrine and that Jahncke, having shown potential liability and the reasonableness of the amount of its settlement with Parfait, was entitled to indemnification from Yo-Ro.

II. Coverage Under the Policy of Travelers Indemnity Company

It was stipulated at trial that Yo-Ro offered its insurers an opportunity to defend in accordance with its contractual obligations and that each insurer denied coverage. Whether the insurance companies must pay Yo-Ro’s damages depends wholly on whether the loss is covered under their respective policies.

The pertinent insuring language in the Travelers $100,000 “Commercial Automobile — General Liability Policy” reads:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage A. Bodily injury.
Coverage B. Property damage.
to which this insurance applies . [emphasis in original.]

As defined in the policy, “bodily injury” means “bodily injury, sickness or disease sustained by any person,” and “property damage” means “injury to or destruction of tangible property.” Travelers contends that two exclusionary paragraphs preclude coverage for Yo-Ro’s loss. The first is exclusion (d), also called the “watercraft exclusion.” We do not deal with this exclusion, since we agree with Travelers that the second one, exclusion (h), makes plain that the policy does not cover the type of loss involved in this case.

The exclusionary provision reads:

This insurance does not apply to:

(h) bodily injury to any employee of the insured arising out of and in the course of the employment by the insured; but this exclusion does not apply to liability assumed by the insured under an incidental contract, [emphasis in original.]

The parties agree that Parfait was Yo-Ro’s employee, that he was injured in the course of his employment, and that no “incidental contract,” as that term is defined in the policy, existed between Yo-Ro and Jahncke. Thus, the exclusion would appear to defeat coverage in this case. Yo-Ro’s argument in favor of coverage is that the exclusion applies only to liability resulting from an action by the injured employee directly against the employer, and not to an obligation to indemnify a third party which has been found primarily liable to compensate an injured employee of the insured.

We agree with Yo-Ro that the insuring language in the policy, which speaks broadly of “all sums” which the insured shall become obligated to pay as damages “because of” bodily injury, is broad enough to cover'both (1) liability directly to an injury victim and (2) liability to indemnify a third party which is based ultimately on bodily injury, but we cannot agree that exclusion (h) applies only to the former type of liability. The insuring language covers only liability — whether direct or indirect via indemnity under the Ryan doctrine — for bodily injury “to which this insurance applies.” Exclusion (h) provides expressly that the insurance does not apply to injury to the insured’s employees in the course of their employment. The employee status of the injury victim is made the key to the exclusion, not the procedural route by which the liability comes to rest on the insured. Bodily injury coverage of the policy extends only to non-employees. We do not find such an exclusion anomalous in Travelers’ “Commercial Automobile — General Liability Policy,” for employee injuries have long been treated as a special kind of risk and covered under special policies.

Exclusion (a) is not inconsistent with exclusion (b) and does not change our conclusion. Under exclusion (a) the insurance does not apply:

(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but with respect to bodily injury or property damage occurring while work performed by the named insured is in progress, this exclusion does not apply to a warranty that such work will be done in a workmanlike manner. [emphasis in original.]

In exempting from its sweep warranty liability under the Ryan doctrine, exclusion (a) is consistent with our broad reading of the insuring language. Exclusion (a) is limited by exclusion (h), but the two are not inconsistent, since liability arising from injury to a non-employee might be imposed under the Ryan doctrine.

Indemnity Insurance Company v. California Stevedore & Ballast Company, 9th Cir. 1962, 307 F.2d 513, upon which Yo-Ro relies, is not apposite, since the policy language in that case was significantly different from the language in question in this case. The applicability of Larson Construction Company v. Oregon Automobile Insurance Company, 9th Cir. 1971, 450 F.2d 1193, is doubtful because only brief fragments of the insuring and exclusionary language are quoted in that opinion.

We are, of course, aware of the rule that ambiguities in an insurance policy must be construed against the insurer, but we can discover no ambiguities or inconsistencies in the Travelers policy as applied to the facts of this case. The plain language of the policy shows that it does not cover liability originating in injuries to the insured’s employees. Accordingly, we must reverse that portion of the district court’s judgment holding that the Travelers policy covered Yo-Ro’s obligation to indemnify Jahncke.

ILL Coverage Under the Policy of Home Indemnity Company

In its “Standard Workmen’s Compensation and Employers’ Liability Policy” Home agreed:

1. Coverage A — Workmen’s Compensation : To pay promptly when due all compensation and other benefits required of the insured by the workmen’s compensation law.
2. Coverage B — Employers’ Liability: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom, sustained . by any employee of the insured arising out of and in the course of his employment by the insured

The policy limit of liability is $25,000. As was true of the Travelers policy, the insuring language in the Home policy is broad enough to cover both direct liability to the injury victim and indirect liability under the Ryan doctrine on account of bodily injury. This breadth of coverage is made explicit in condition 9 of the policy:

The words “damages because of bodily injury by accident or disease, including death at any time resulting therefrom,” in coverage B include damages for care and loss of services and damages for which the insured is liable by reason of suits or claims brought against the insured by others to recover the damages obtained from such others because of such bodily injury sustained by employees of the insured arising out of and in the course of their employment.

Consistently, exclusion (c), relating to liability assumed by the insured under a contract, expressly exempts from its scope liability to indemnify under the Ryan doctrine. Unlike the Travelers policy, the Home policy is aimed specifically at liability resulting from employees’ injuries.

In denying coverage, Home relies on the “Exclusion of Maritime Liability Endorsement,” which reads:

It is agreed that the policy does not apply to injury, including death resulting therefrom, sustained by a master or a member of the crew of any vessel or by any person in the course of an employment subject to the United States Longshoremen’s and Harbor Workers’ Compensation Act, U.S.Code (1946) Title 33, Sections 901-949.

Home argues that this exclusion excludes both direct liability to employees covered by the Longshoremen’s and Harbor Workers’ Act and Ryan warranty liability originating in injuries to such employees.

As we read the maritime exclusion, however, it is somewhat narrower than the insuring language and may be read as excluding only direct liability to an employee covered by the Longshoremen’s and Harbor Workers’ Act. The words “the policy does not apply to injury” are ambiguous as applied to liability under the Ryan doctrine, which arises not directly from the injury, but from breach of a warranty obligation. The exclusion may reasonably be read as only a counterpart of Coverage A, providing Workmen’s Compensation coverage — as an exclusion of coverage for liability directly to the employees for maritime injuries, either under the Act or apart from it— and not as an exclusion of Ryan indemnity liability. We conclude that, in view of the clear thrust of those portions of the policy providing coverage both for direct liability to employees and for indemnity liability originating from employees’ injuries and in view of the uncertain application of the maritime exclusion to indemnity liability, the policy must be construed as providing coverage for indemnity liability originating from an employee’s maritime injuries. If an exclusion is to take away what the insuring language provides, it must do so in unmistakably clear terms. Accordingly, we hold the Home policy does cover Yo-Ro’s liability to Jahneke within its liability limits.

The judgment of the district court is affirmed in part and reversed in part. Costs are taxed equally against Yo-Ro and Home.

ON PETITION FOR REHEARING

PER CURIAM:

It is ordered that the petition for rehearing filed on behalf of Home Indemnity Company, Appellee in the above entitled and numbered cause be and the same is hereby denied.

ON PETITION FOR REHEARING

PER CURIAM:

In its petition for rehearing, Yo-Ro Diesel Service, Inc. raises four points. The first three concern the reasonableness of its opportunity to defend, the fact finding that there was oil on the catwalk, and the construction of the exclusionary clause in the Travelers insurance policy. We think our original opinion adequately disposes of these issues.

Point four of the petition, however, raises the issue of costs of the defense, including attorney’s fees. The district court had awarded these costs against Travelers and allowed the parties sixty days from the date of the judgment to agree on their amount. In the absence of an agreement, any party was invited to apply to that court for a hearing to determine the amount. We have reversed as to the liability of Travelers and as to the nonliability of Home, but we have not dealt with the issue of the costs as a matter of contractual liability under the policies.

Both the Home and the Travelers policies contain clauses obligating the insurers to bear the costs of defense to suits on claims covered by the policies. It is probable that both insurers are therefore liable for the costs of this suit, including attorney’s fees, even though only Home has beeii held liable for the basic claim, since there was a reasonable possibility that each policy might have covered this claim. See J. Appleman, Insurance Law and Practice, § 4683 (1962). Although this issue has been raised by Yo-Ro in its brief, neither Home nor Travelers has argued it. We could, of course, grant the petition for rehearing on this point, hear further argument on it, and remand to the district court for a determination of the amount of any defense costs we determined might be allowable. In the interests of judicial economy, however, we feel that the most expeditious way to handle this whole issue is to remand to the district court for a hearing on both the existence of liability for costs on the part of either Home or Travelers or both and the amount of those costs.

The petition for rehearing is DENIED and the case is REMANDED for a hearing on these issues.

      . Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, 1956, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133.

      . The January 14, 1972, letter from counsel for Yo-Ro to counsel for Jahncke, for Home, and for Travelers read:
      Reference is made to a letter offer by Mr. Samuel Gainsburgh, co-counsel for the plaintiff, Wilson Parfait, wherein he indicated he would settle the pending lawsuit for the sum of $90,000.00. Obviously, this figure would be within the policy limits. Further, it would be to the best interest and advantage of the assured to have this lawsuit settled for any sum beneath the maximum amount of the general liability policy in the amount of $100,000.00.
      As attorney for Yoro Diesel Service, Inc., I respectfully request that the insurers settle this lawsuit to avoid exposure by Yoro of amounts in excess of the policy limit and because of the various facts and circumstances which directly affect the economic interests of Yoro. Accordingly, it is submitted that it would be to the best interest of the assured to have this lawsuit settled and I call upon you to immediately effect a settlement of the pending lawsuit, with full reservation of the attorney’s fees for Yoro, and I reiterate that in the event a settlement is not consummated immediately, there is a continuing duty on your behalf to defend this matter. I re-urge your obligations under the policy and request compliance therewith, and re-assert our claim for reasonable attorney’s fees.
      This letter could reasonably be read as a request to Jahncke to settle for any amount under $100,000. In a letter to Yo-Ro dated January 20, 1972, counsel for Yo-Ro “explained” that the request for settlement in the January 14 letter was directed only to the insurers, and not to Jahncke. Since we cannot ascertain with confidence from the record a clear intent on Yo-Ro’s part to approve the Jahncke-Parfait settlement and since the district court made no finding on this issue, we accord Yo-Ro the benefit of the doubt and treat the January 14 letter as a request for settlement directed to the insurers only. See note 8, infra.

      . The full text of the January 20, 1972, letter from counsel for Jahncke to counsel for Yo-Ro read:
      I have a copy of your letter of January 14, 1972, to counsel for your clients’ insurers and I note that you consider that settlement in the amount of $90,000.00 would be desirable.
      As I told you over the telephone yesterday, I have been talking to Sam Gains-burgh in an attempt to work out a compromise agreement and if the opportunity presents itself in which we think that settlement can be made on an attractive basis, we will settle the principle [sic] claim and proceed against your client for indemnity.
      I invite you again to come in and defend Jahncke Service, Inc. in this matter and satisfy us that your client will hold it harmless and fully indemnify it for any adverse judgment in the premises. If I do not have your immediate acceptance of this offer, I will proceed with settlement along the above lines, if a reasonable opportunity presents itself to settle the case at a reasonable figure.

        See note 8, infra.

        . We note that the Ryan doctrine was abrogated by the 1972 amendments to the Longshoremen’s and Harbor Workers’ Act, 33 U.S.C.A. § 901 et seq. See 33 U.S.C.A. § 905(b). Of course, the amendments do not affect this action which arose and was tried long before they became effective.

      . Such an argument is foreclosed, as the district court observed, by Burrage v. Flota Mercante Grancolombiana, 5th Cir. 1970, 431 F.2d 1229.

      . See also Jennings v. United States, 4th Cir. 1967, 374 F.2d 983; American Export Lines v. Norfolk Shipbuilding & Drydock Corporation, 4th Cir. 1964, 336 F.2d 525; Damanti v. A/S Inger, 2d Cir. 1963, 314 F.2d 395, 397, cert, denied sub nom. Daniels & Kennedy, Inc. v. A/S Inger, 375 U.S. 834, 84 S.Ct. 46, 11 L.Ed.2d 64; Paliaga v. Luckenbach Steamship Company, 2d Cir. 1962, 301 F.2d 403; California Stevedore & Ballast Company v. Pan-Atlantic Steamship Corporation, 9th Cir. 1961, 291 F.2d 252.

      . The district court determined only that Jahncke demonstrated its potential liability to Parfait, but the court’s finding that the accumulated oil on the catwalk beside the engine constituted an unseaworthy condition which was a proximate cause of the accident closely approaches a determination that Jahncke’s actual liability was established. Because the district court did not rule in the first instant on Parfait’s status as a SieraeM seaman or on the extent of his contributory negligence, if any, however, we do not treat the district court’s finding of unseaworthiness which proximately caused the accident as a conclusive finding of factual liability. See Jackson v. Lykes Brothers Steamship Company, 1967, 386 U.S. 731, 734, 87 S.Ct. 1419, 1421 n. 4, 18 L.Ed.2d 488; Seas Shipping Company v. Sieracki, 1946, 328 U.S. 85, 94, 66 S.Ct. 872, 877 n. 11, 90 L.Ed. 1099; Whisenant v. Brewster-Bartle Offshore Company, 5th Cir. 1971, 446 F.2d 394, 403 n. 31.

      . The letter quoted in note 3, supra, appears to be such a presettlement offer, but it may not have arrived before the settlement was concluded. The letter is dated January 20, 1972, a maximum of three days before the settlement, which was concluded at an undisclosed time before trial began on Monday, January 24, 1972.
      But for the January 20, 1972 letter from Yo-Ro to Jahncke (whose arrival time in relation to the time of the settlement is also unknown to us) which “explained” the earlier January 14 letter from Yo-Ro to Jahncke, see note 2, supra, we would construe the January 14 letter as an effective approval of any settlement under $100,000 that Jahncke might make with Parfait, es-topping Yo-Ro from questioning the Jahncke-Parfait liability and rendering a formal Tankrederiet Gefion offer unnecessary.

      . After explaining the contractual nature of the Ryan warranty of workmanlike performance, under which the shipowner may recover from the stevedore the amount of damages the shipowner has paid on account of injuries to the stevedore’s employee, the Supreme Court explained:
      And a like liability for breach of contract accrues to a shipowner against a stevedoring contractor in any instance when the latter’s improper storage of cargo causes an injury on shipboard to someone other than one of its employees. The coincidence that the loading contractor here happens to be the employer of the injured longshoreman makes no difference in principle.
      Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, 1956, 350 U.S. 124, 130-131, 76 S.Ct. 232, 236, 100 L.Ed. 133.


author: PER CURIAM:

text:
    Morris JOHNSON, Jr., Appellant, v. UNITED STATES of America, Appellee.
    No. 73-1197.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 11, 1973.
    Decided July 24, 1973.
    Certiorari Denied Nov. 19, 1973.
    See 94 S.Ct. 539.

      Walter J. Matejka, Omaha, Neb., for appellant.
    William K. Schaphorst, U. S. Atty., Omaha, Neb., for appellee.
    Before Mr. Justice CLARK, and HEANEY and BRIGHT, Circuit Judges.

       Associates Justice Tom C. Clark, United States Supreme Court, Retired, is sitting by designation.

   PER CURIAM:

Appellant Morris Johnson was convicted of knowingly and intentionally distributing heroin. On appeal he challenges (1) the denial of his motion to discharge the jury panel or grant a continuance, (2) certain comments by the prosecutor referring to Johnson as a “pusher” and (3) an instruction stating that no inference of guilt could be drawn from Johnson’s “failure” to testify. We find no merit in any of Johnson’s claims and affirm the conviction.

(1) The District Court conducted the basic voir dire questioning of the jury panel, but it gave counsel the opportunity to conduct further inquiry. During voir dire several prospective jurors said that they had heard certain government witnesses, Hutton, Ryan and Frazier, testify in previous trials. These same witnesses were expected to and subsequently did in fact testify against Johnson. At the conclusion of voir dire Johnson’s counsel expressly declined to challenge any juror for cause. Johnson's first objection to the jury panel was made immediately prior to the exercise by him and the prosecutor of their respective peremptory challenges. Johnson based his motion, in part, on the per se argument that no fair and impartial jury could be selected from the panel since a majority of these jurors had heard Hutton, Ryan and Frazier testify at one or more previous trials. The District Court denied the motion.

Johnson failed to establish that any juror was actually prejudiced in favor of the three government witnesses. He does not point to the voir dire of any particular juror as indicating actual prejudice, nor does he complain that the voir dire was in any way inadequate. Indeed, he did not even attempt to have any juror dismissed for cause. His claim that he was denied an impartial jury must therefore rest wholly on a per se theory of implied bias. We do not think that the danger of prejudice against the accused arising from jurors having served in prior cases involving the same government witnesses but different, unrelated defendants and entirely different and independent transactions is great enough to justify a per se rule of bias. The “mere existence of any preconceived notion” relevant to the accused’s guilt or innocence is not sufficient to negate impartiality. Irvin v. Dowd, 366 U.S. 717, 723, 81 S.Ct. 1639, 6 L.Ed.2d 751 (1961). See Fabian v. United States, 358 F.2d 187, 191 (1966). Johnson does not cite any federal ease reversing a conviction on the per se rule that he advances and we have discovered none. On the contrary, the cases uniformly reject the argument. United State v. Haynes, 398 F.2d 980 (2d Cir. 1968); Cwaeh v. United States, 212 F.2d 520 (8th Cir. 1954); Haussenerv. United States, 4 F.2d 884 (8th Cir. 1925). See Casias v. United States, 315 F.2d 614 (10th Cir. 1963). While we do not endorse the procedure followed here, we do not regard it as reversible error in the absence of some showing of actual prejudice.

(2) During rebuttal argument the prosecutor made the following statement to the jury:

“Early in the case the defense counsel suggested how easy it was to get narcotics in this town; like talcum powder in a medicine cabinet, is the example he used. Well, it’s easy to get it in this town because pushers like the defendant will sell to anybody, and they will sell to three people that walk up to them on the street. That it why it is easy to get.”

Johnson moved for a mistrial on the basis that this statement was not supported by the evidence. We think the court properly denied the motion. A “pusher” is someone who sells illicit drugs. There was ample evidence that Johnson had in fact sold heroin illegally, and the comment was to some extent invited by the earlier comments of Johnson’s counsel to which the prosecutor referred. The statement was neither so inflammatory nor so misleading as to require a mistrial. See.United States v. Lewis, 423 F.2d 457 (8th Cir. 1970), cert, denied 400 U.S. 905, 91 S.Ct. 146, 27 L.Ed.2d 142.

(3) Finally, Johnson complains of Instruction No. 18:

“The law does not compel a defendant in a criminal case to take the witness stand and testify, and no presumption of guilt may be raised, and no inference of any kind may be drawn from the failure of a defendant to testify.” (Emphasis supplied.)

His complaint is that the word “failure” carries negative connotations and implies a dereliction of duty on his part. Johnson had previously requested the court to instruct: “The jury is cautioned not to hold anything against the defendant’s willful exercise of his right not to testify.” The judge advised that he would give this instruction in substance. He also informed Johnson’s counsel that he would pause after reading the instructions to the jury to allow counsel an opportunity to make any objections he wished to the instructions as given. Counsel, however, made no objection until after the jury had been excused and had commenced its deliberations. We have difficulty in perceiving any significant difference between the instruction requested and the one actually given, and we very seriously doubt that the court’s choice had any effect on the jury’s attitude toward Johnson’s refusal to testify. In any event, Johnson waived his objection by not asserting it at the proper time.

The judgment is affirmed.