Insured cannot rely on others to notify carrier of a claim
(This case is a good reminder to readers that insureds themselves must report lawsuits or threat of suits to their insurers. We aren't told whether the insurer's "agent" was an agent or an adjuster, but one can imagine the probability of an E&O claim against the agent. If the agent was told of a lawsuit (a point of dispute), would it have been unreassonable for the insured to expect the agent to inform or remind him of his duties under the policy?)
A customer left his automobile at a repair shop. The auto was inoperable, its engine partially disassembled. After examining the car, the shop owner said he decided not to repair it and waited for the customer to retrieve it.
While the shop owner was on vacation, the automobile disappeared from the shop's lot. Upon the shop owner's return, the car owner confronted him about the whereabouts of the missing automobile and contacted the police. According to a report prepared by the investigating police officer, the shop owner believed that the customer had retrieved his automobile, but the customer stated that he "had no idea who could have taken it."
A couple of months later, the shop owner received a letter from his customer's attorney demanding that he pay $7,500 for the missing automobile. The shop owner took the demand letter to his carrier's agent. The agent took statements from both the shop owner and the customer. Based on the investigation, the carrier concluded that either the customer had taken his own automobile from the lot or that it was not liable because there was an intervening criminal act by a third person.
After the carrier denied the claim, the customer sued the shop owner in March 2001, alleging in part that the shop owner was a bailor; that the shop owner had negligently, willfully and wantonly failed to return the customer's automobile; that he had converted the automobile; and that he had attempted to defraud the customer. The customer alleged that he was entitled to $10,000 as damages.
According to the customer's counsel, he mailed a copy of the summons and complaint, along with a cover letter, to the carrier's agent via regular mail the day after the complaint was filed. The agent denied he received it.
On March 23, 2001, the shop owner accepted service of the complaint. However, he did not forward a copy of it to his carrier's agent or otherwise contact him regarding the complaint.
After the insured failed to file an answer or other response to the complaint, the customer's attorney filed for a judgment by default. On May 24, a court entered a judgment granting $10,000, plus interest and costs.
On June 8, the customer's attorney wrote to the carrier requesting payment of the judgment. The carrier refused to pay it.
A year later, in July 2002, the shop owner filed a complaint against the carrier, alleging that he had delivered the complaint to the carrier and that an agent of the carrier had informed him that it would defend him, as provided for in his insurance policy. The complaint charged the carrier with breach of contract and fraudulent misrepresentation, and demanded payment of the $10,000 default judgment entered against the shop owner.
In response, the carrier denied receiving a copy of the complaint or informing the shop owner that it would defend him. The insurer alleged that the shop owner failed to comply with the terms of his insurance policy, which required him to inform the carrier of any claim immediately.
In March 2003, the shop owner amended his complaint, alleging that in March 2001, the customer's attorney had mailed a letter and copy of the customer's complaint to the carrier's agent. He argued that the carrier failed to defend him and that, as a result of the carrier's "false representations and the (insured's) reliance thereon," a default judgment was entered against him. He also alleged that the carrier failed to take any action to set aside the default judgment.
In June 2003, the carrier filed a motion for a summary judgment. The trial court denied the motion in regard to the shop owner's breach-of-contract claim. In October, following a hearing on that claim, the court entered a judgment against the insurance company for $10,000, plus court costs.
The carrier appealed, contending, among other things, that the shop owner failed to satisfy the conditions of coverage under his insurance policy by not personally forwarding to the carrier copies of the summons and complaint that were served on him by the claimant car owner.
The appeals court considered these questions:
–Whether the evidence supported a finding that the carrier's agent received a copy of the summons and complaint from the claimant's attorney immediately after the complaint was filed.
–Assuming the carrier received timely notice from the claimant's attorney, whether the shop owner's failure to personally forward to his carrier copies of the summons and com- plaint abrogated the carrier's obligation to provide coverage to the shop owner.
The court noted that the shop owner's policy stated that one of the duties of an insured is to "immediately send (the carrier) copies of any … notice, summons or legal paper received concerning the claim or 'suit.'" The policy further stated:
"No one may bring a legal action against us under this Coverage Form until:
"a. There has been full compliance with all the terms of this Coverage Form; and
"b. Under Liability Coverage, we agree in writing that the 'insured' has an obligation to pay or until the amount of that obligation has finally been determined by judgment after trial. No one has the right under this policy to bring us into an action to determine the 'insured's' liability."
As to whether the carrier received a copy of the summons and complaint "immediately" after it was filed, the appeals court said it was undisputed that the shop owner did not send the carrier a copy until after a default judgment had been entered against him and the time for filing a motion to set aside the judgment had expired. There was conflicting evidence, however, regarding whether the carrier received a copy of the summons and complaint from the claimant's attorney. The attorney testified that on March 13, 2001, the day after he filed the complaint in the district court, he mailed the carrier's agent a letter about the claim, along with a copy of the summons and complaint. On the other hand, the agent insisted that neither he nor anyone in his office received this information.
Where evidence is presented ore tenus (verbally), said the appellate court, "the judgment of the trial court is presumed correct and will not be disturbed on appeal absent a showing of plain and palpable error. [Pilalas vs. Baldwin County Savings. & Loan Ass'n., 549 So. 2d 92 (Ala. 1989)]. This rule is based on a recognition of the trial court's unique position to evaluate both the demeanor and the credibility of the witnesses. [Justice vs. Arab Lumber & Supply, Inc., 533 So. 2d 538 (Ala. 1988).]"
Given the conflicting evidence presented to the trial court, its determination that the carrier did receive timely notice of the filing of the complaint should be upheld, the appeals court said. It added that the carrier had failed to demonstrate that this determination was not supported by substantial evidence or that it was otherwise erroneous.
The next question was whether the shop owner was entitled to rely on this notice, despite the fact that he had not given it, as required by the policy. The appeals court ruled that he wasn't. It said the shop owner failed to cite any case in which an insured who breached his contractual obligation to forward suit papers to his insurer was able to take advantage of an injured party's notice to the insured's carrier. The trial court's judgment was reversed.
Alfa Insurance Co. vs. Templeton, No. 2030217 (Ala.Civ.App. 05/20/ 2005) 2005.AL.0000237 (www.versuslaw.com).
Readers can get in touch with Don Renau via e-mail at drenau@thepoint.com.
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