The Travelers Insurance Company and the Travelers Indemnity Company v. Rean William McElroy Jr.

Rean William McElroy, Jr., was injured when the truck in which he was a passenger collided with an automobile. On May 20, 1963, he obtained a default judgment in an Arizona superior court for $105,000 against the driver of the truck. This judgment has remained wholly unsatisfied. McElroy filed the present action in the district court against Travelers Insurance Company (Travelers), alleging that Travelers is liable for the unsatisfied judgment under the terms of a policy of liability insurance issued to Colonial and Pacific Frig-idways, Inc., (C & P), the lessee of the truck. Federal jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332 (1964).

The facts concerning the accident and the insurance policy are not in dispute. C & P, on September 10, 1962, sold Donald L. Jacobs a 1957 White Freight-line Tractor on a conditional sales contract. On the same date, Jacobs and C & P entered into a lease agreement whereby Jacobs leased his newly-acquired truck to C & P. These instruments were executed in Iowa where C & P maintained offices.

Contemporaneously, Travelers issued a comprehensive automobile liability policy to C & P for the period of September 10, 1962 to…