Maryland Casualty Co. v. Pacific Coal & Oil Co.

Maryland Casualty Co. (plaintiff) was an insurer that issued a standard liability-insurance policy to Pacific Coal & Oil Co. (Pacific) (defendant). Under the policy, Maryland Casualty was required to indemnify Pacific if automobiles “hired by [Pacific]” injured or damaged third parties who then made a claim against Pacific (claimants). Additionally, Maryland Casualty was required to defend Pacific in covered actions brought by claimants. While the policy was in effect, a collision occurred between a car driven by Orteca (defendant) and a truck driven by a Pacific employee. Orteca was injured, and he sued Pacific in state court to recover damages. If Orteca ultimately obtained a judgment against Pacific that Pacific failed to timely satisfy, Orteca could sue Maryland Casualty to satisfy the judgment. While the state-court action was pending, Maryland Casualty brought an action under the Declaratory Judgment Act in federal district court against Pacific and Orteca, alleging the facts regarding the collision and the additional fact that, at the time of the collision, the Pacific employee was driving a truck that Pacific had sold to the employee on a conditional sales contract. According to Maryland Casualty, the truck was not one “hired by [Pacific]” and thus was not covered under the insurance policy. Maryland Casualty sought a declaratory judgment that the collision was excluded from coverage and that the insurer was neither liable to nor obligated to defend Pacific. Orteca demurred to the complaint on the ground that Maryland Casualty had no actual controversy with him and therefore the complaint failed to state a cause of action as to Orteca. The district court sustained the demurrer, and the court of appeals affirmed. The United States Supreme Court reviewed the matter.