McPherson v. St. Paul Fire & Marine Insurance Company

• Citation: 350 F.2d 563
• Decision Date: 20 July 1965
• Docket Number: No. 21808.,21808.
• Parties: J. B. McPHERSON and James W. McPherson, Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, et al., Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

350 F.2d 563 (1965)

J. B. McPHERSON and James W. McPherson, Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, et al., Appellees.

No. 21808.

United States Court of Appeals Fifth Circuit.

July 20, 1965.

Don Graf, Nelson, McCleskey & Harriger, Lubbock, Tex., for appellants.

Bernard P. Evans, Key, Carr & Clark, Lubbock, Tex., for appellees.

Before BROWN and GEWIN, Circuit Judges, and KILKENNY,^* District Judge.

GEWIN, Circuit Judge:

This diversity case involves a controversy between insured and insurer. The appellants, J. B. McPherson and James W. McPherson, each had separate personal liability insurance policies; the former with Ocean Accident and Guaranty Corporation Ltd., and the latter with St. Paul Fire and Marine Insurance Company. The insurers sought and obtained a declaratory judgment in the United States District Court for the Northern District of Texas that they were not obligated to defend a damage suit against appellants which was then pending in the District Court of Bailey County, Texas or to indemnify them against any judgment rendered therein. The district court granted the motion of the insurers for summary judgment pursuant to F.R.Civ.P. 56.

Appellants contend that the trial court erred in granting summary judgment because there were disputed material issues of fact with respect to the following: (1) failure of the insured to give proper notice to the insurers of the lawsuit filed in the state court; (2) the question of coverage in view of a provision in the policies excluding damages intentionally caused.¹

J. B. McPherson owned certain land which he and his son James farmed as partners. The plaintiffs in the state court damage suit, A. C. Bryant, Durwood Patterson, and Leona Patterson, owned lands which adjoined the McPherson property. The adjoining owners claimed that in the summer of 1962 the appellants cut or caused to be cut a certain dike and levee which had been in existence for a number of years to retain the overflow of water from the Double Mountain Fork of the Brazos River and direct its flow through a low lying area known as Muleshoe Draw. It is further claimed that from May 20 to June 3, 1963, appellants constructed a series of dikes, levees and ditches upon their land which diverted the natural flow of flood waters and caused such waters to flow through and upon the lands of the plaintiffs. They sought to recover permanent damages because of alleged deposits of silt and trash on their land, and temporary damages from the alleged loss of crops totaling more than $30,000. In addition, they requested a temporary injunction restraining appellants from cutting and interfering with the dike and levee and requiring them to destroy the dikes, levees and ditches which they had constructed and which resulted in diverting the water from the McPherson land to the adjoining property.

The original petition or complaint was filed in the state court on June 10, 1963. Service of process was perfected on J. B. McPherson on June 12 and on James W. McPherson on June 13. On or about June 19 the adjoining owners filed their first amended original petition, the chief purpose of which seems to have been to correct certain property descriptions. On or about September 18 they filed their second amended original petition in the state court. All three of the petitions alleged the cutting of the dike and levee in the summer of 1962 and the construction of dikes, levees and ditches from May 20 to June 3, 1963, and all three claimed compensatory damages which had allegedly resulted from the above-mentioned acts of the appellants. The second amended petition also alleged that the acts of the appellants were "wrongful and malicious" and sought exemplary damages² and additional compensatory damage which occurred "during the crop year 1963." No additional acts on the part of the McPhersons are alleged in the first or second amendments. All of the acts alleged to have been committed are substantially identical in all three sets of pleadings.³

The appellants gave no notice to their insurers until August 6, 1963, 54 days after the original suit was filed. In their brief filed in this court the appellants do not undertake to explain their delay; they only seek to avoid possible adverse consequences because of it. Their position before the trial court was more forthright. They admitted to the trial court that the reason for the delay in giving notice was that they did not know that they had insurance coverage.⁴

The arguments advanced by the appellants as to undisputed facts both here and in the trial court are far from clear. They have repeatedly asserted that one of the amended petitions alleged new or additional acts by the McPhersons on the 28th of July 1963.⁵ There is no factual basis in the record for such an assertion. We are convinced that the trial court, after patient and continued interrogation of counsel, clearly understood the undisputed facts as to the dates when the acts were committed and the nature of the allegations in all three petitions in the state court. The only support for the quoted assertion is a similar misstatement by counsel for the appellants in the trial court. We do not suggest that there was an intentional misrepresentation of facts. The confusion of the appellants which persisted from the very beginning probably resulted from their interpretation of pleadings filed in the contempt proceeding. In any event, the pleadings in the contempt proceeding are not disclosed by the record; and if they were, we seriously doubt that they would have any bearing on the issues in this case.

The insurers filed their complaint seeking a declaratory judgment on August 21, 1963. The appellants answered on September 25, 1963. In their motion for summary judgment the insurers relied upon the depositions of both McPhersons and certified copies of the original petition and the first and second amended original petitions filed in the state court. The appellants did not controvert any of the evidence offered and filed nothing in opposition to the motion. They cannot rely on their pleadings alone to create an issue of fact. F.R.Civ.P. 56(e); Gauck v. Meleski et al. (5 Cir. 1965) 346 F.2d 433; Dressler v. M/V Sandpiper (2 Cir. 1964) 331 F.2d 130. Extensive oral argument was heard and thereafter the court entered summary judgment for the insurers. We fully agree with the action taken by the trial court and affirm its judgment. This is a typical case for the application of the summary judgment rule.

The chief question is whether the McPhersons' delay in giving notice to their insurers relieves the insurers of their duty to defend the Bailey County lawsuit or indemnify the McPhersons in the event liability is imposed upon them as a result of that suit. Under the Erie doctrine, we are bound by Texas law. The Texas courts have construed "as soon as practicable" and "immediately" to mean within a reasonable time in light of the circumstances involved. A failure to give timely notice is a breach of the insurance contract and relieves the insurer of the obligations to defend or indemnify. The rule is succinctly stated in New Amsterdam Casualty Company v. Hamblen (1945) 144 Tex. 306, 190 S.W.2d 56:

"Our conclusion is that, viewing the notice requirement under its designation as a condition and in connection with the proviso, the necessary implication to be drawn therefrom is that failure to give notice of an accident or suit as soon as reasonably possible invalidates the claim for indemnity. This conclusion, we think, is well supported by authority." (Citing cases)

See also Klein v. Century Lloyds (Tex. Civ.1954), 275 S.W.2d 91, affd. 154 Tex. 160, 275 S.W.2d 95; State Farm Mutual Automobile Insurance Company v. Hinojosa (Tex.Civ.App.1961) 346 S.W.2d 914, ref'd. n. r. e.; Lane v. Anchor Casualty Company (Tex.Civ.App.1962) 355 S.W.2d 90, no writ hist.; National Surety Corp. v. Wells (5 Cir. 1961) 287 F.2d 102; Yorkshire Indemnity Co. v. Roosth & Genecov Production Co. (5 Cir. 1958) 252 F.2d 650; Appleman, Insurance Law & Practice (1962), Vol. 8, § 4734.

It is immaterial whether the insurance company sustained loss or damage because of the delay. The question of whether notice is reasonable is usually a question of fact, but if the facts are undisputed, the question then becomes one of law. See New Amsterdam Casualty Company v. Hamblen, supra; Klein v. Century Lloyds, supra; State Farm Mutual Automobile Insurance Company v. Hinojosa, supra; Kellum v. Pacific National Life Insurance Company (Tex. Civ.App.1962) 360 S.W.2d 538.

We are fully aware of the fact that there may be circumstances in which there is a valid distinction between the duty to defend and the duty to indemnify. See Green v. Aetna Ins. Co. (5 Cir. 1965) 349 F.2d 919, 925, in which we held that it was proper to make a declaration that the insurer was under no obligation to defend a suit under the allegations of the original petition, but that it would be inappropriate to make a declaration as to the obligation to indemnify until the facts bearing on coverage were decided in the state court.⁶ However, we recognized that a failure to give timely notice in violation of policy provisions could justify a declaration of non-liability:

"The obligation to pay such claim would, of course, depend on

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