FEDERAL SAV. & LOAN INS. v. Aetna Cas. & Sur. Co.
Decision Date | 12 December 1988 |
Docket Number | Civ. A. No. 3-88-132. |
Citation | 701 F. Supp. 1357 |
Court | U.S. District Court — Eastern District of Tennessee |
Parties | The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. The AETNA CASUALTY & SURETY CO., a Connecticut Corporation, Defendant, v. J. Garrett BURDETTE, et al., Third-Party Defendants. |
Ronald C. Koksal, Butler Vines Babb & Threadgill, J. Michael Winchester, Lacy & Winchester, P.C., David L. Buuck, Michael M. Downing, Claiborne Davis Buuck & Hurley, Charles A. Wagner, III, Wagner Myers & Sanger, P.C., R. Franklin Norton, Norton & Luhn, P.C., Steven Oberman, Daniel & Oberman, Knoxville, Tenn., Arnold Tackett, Chattanooga, Tenn., Charles W.B. Fels, Ritchie Fels & Dillard, P.C., Knoxville, Tenn., for J. Garrett Burdette, et al.
Elizabeth S. Tonkin, Walt Dyer & James, Knoxville, Tenn., for Federal Sav. & Loan Ins. Corp.
William B. Luther, Luther Anderson Clearly Ruth & Speed, Chattanooga, Tenn., for Aetna Cas. & Sur. Co.
This matter comes before the court on Aetna's motion for summary judgment pursuant to Fed.R.Civ.P. 56.1 The parties having fully briefed the issues, and the court having heard argument on the motion in Knoxville, Tennessee, on July 18, 1988, this motion is now ready for resolution.
On May 1, 1982, a savings and loan blanket bond which Aetna issued to the now defunct Knox Federal Savings & Loan Association (Knox) went into effect. Of particular relevance to the instant motion is the following language found in Section 4 of that bond, which reads as in pertinent part:
At the earliest practicable moment after discovery of any loss hereunder the Insured shall give the Underwriter written notice thereof and shall also within six months after such discovery furnish to the Underwriter affirmative proof of loss with full particulars. If claim is made under this bond for loss of securities, the Underwriter shall not be liable unless each of such securities is identified in such proof of loss by certificate or bond number. Legal proceedings for recovery of any loss hereunder shall not be brought prior to the expiration of sixty days after such proof of loss is filed with the Underwriter nor after the expiration of twenty-four months from the discovery of such loss, except that any action or proceeding to recover hereunder on account of any judgment against the Insured in any suit mentioned in General Agreement C or to recover attorneys' fees paid in any such suit, shall be begun within twenty-four months from the date upon which the judgment in such suit shall become final.
(Emphasis added). Pursuant to provisions contained in this bond and prior to its expiration, Knox requested that the period in which losses could be discovered under this bond be extended, and on December 18, 1983, an agreement was entered into by Knox and Aetna extending this discovery period for one year, and also containing the following proviso:
The Underwriter hereby grants to the Insured a period of 12 months from ... the 18th day of December, 1983, to ... the 18th day of December, 1984, within which to discover loss sustained by the Insured.... Such additional period of time shall terminate immediately ... upon takeover of the Insured's business by any State or Federal official or agency, or by any receiver or liquidator, acting or appointed for this purpose without the necessity of the Underwriter giving notice of such termination.
On December 12, 1983, Knox sent a notice of loss to Aetna indicating that losses covered by the bond had been discovered. On April 13, 1984, Knox followed upon this notice with the filing with Aetna of two proofs of loss. The first was for approximately $1.4 million,2 and the second for $328,048.14, an alleged loss caused by the "apparent dishonesty" of former Knox president, Arnold Tackett (referred to as Proof # 1). Accompanying these proofs was a letter by Knox President Richard B. Alexander, stating that Knox was reserving the right to file further proofs of loss as more losses were discovered. Indeed, on July 25, 1984, another proof of loss was filed (referred to as Proof # 2), again alleging dishonesty by certain Knox employees, this time to the sum of $13,189,670. Shortly thereafter, on August 6, 1984, Aetna wrote to Knox acknowledging the receipt of the three proofs of loss, and requesting information related to these proofs so that these claims could be investigated.
On November 16, 1984, the FSLIC was appointed receiver of Knox. As a result of this action, a new federal savings and loan was chartered to take over some of the Knox accounts, and to facilitate this process audits were conducted of all Knox branches. The audit of the West Town branch revealed some irregularities, and the auditors scheduled a meeting at that branch on December 13, 1984. That morning, Linda Collins, the assistant manager of that branch, committed suicide, and subsequent audits revealed an embezzlement scheme involving Collins and the West Town branch manager, Merele Wyrick. As of that date the FSLIC receiver concluded that another loss had been suffered under the Aetna bond, and a notice of loss was sent to Aetna on February 19, 1985. On March 13, 1985, Aetna informed the FSLIC that this claim was not valid under the bond. This action was based on Aetna's claim that the discovery occurred after the FSLIC was appointed receiver, and that persuant to the terms of the agreement between Knox and Aetna the time within which discovery of losses must occur ended at the time FSLIC became receiver for Knox (November 16, 1983). On August 16, 1985, the FSLIC submitted a proof of loss on the Collins/Wyrick loss (referred to as Proof # 3) indicating a loss of $1.1 million.
On March 25, 1986, a formal "time freeze" agreement was entered into by Aetna and the FSLIC, providing that if any action under the bond was filed by the FSLIC by September 30, 1986, it would be treated as if it had been filed on March 25, 1986. This agreement was extended several times, with the final extension providing that the FSLIC action could be filed as late as February 28, 1988, and still be considered to have been filed on March 25, 1986. Aetna formally denied Proofs # 1 and # 2 on August 20, 1986, after several requests had been made by Knox and the FSLIC for a report on the status of these claims. Subsequently, the FSLIC filed the instant action on February 24, 1988, seeking recovery under the Aetna bond. This complaint contains two counts, the first relating to Proofs # 1 and # 2, and the second count dealing with Proof # 3.
Summary judgment under Fed.R.Civ.P. 56 is appropriate when the record, taken as a whole, could not led a rational trier of fact to find for the non-moving party. In such a case there is no genuine issue for trial. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). When ruling on a motion for summary judgment, all inferences drawn from the facts must be viewed in a light most favorable to the non-moving party. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. However, a movant need not negate every aspect of the non-movant's claim, it need only support its claim that there is no genuine issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).
While the Aetna motion raises several questions, some legal and some factual, at the core of the motion is the twenty-four month limitation period from "discovery of such loss" for bringing an action for recovery under the bond which is set out above. The parties do not agree as to applicable dates of discovery of losses represented in the three instant proofs of loss,3 and both sides attempt to blame the other for any delays in the resolution of the Know claims caused by the Aetna investigation of these claims.4
A two-step analysis is appropriate in resolving the questions at issue in this motion. First, how should the bond language in question be interpreted, particularly in light of what occurred after the proofs of loss were filed? Second, applying the appropriate methods of interpretation to each proof at issue, is a claim based on a loss outlined in a particular proof time-barred?
Aetna argues that the bond limitations language should be read literally, therefore, two years from the date of discovery of a loss the right to sue Aetna on that loss expires, no matter what happens during that two years. The FSLIC responds that the two-year period does not begin to run until a cause of action against Aetna accrues, and under the relevant bond language that is not until sixty days after the proof of loss is filed. Alternatively, the FSLIC contends that Aetna waived any right to assert this bond limitations language because it failed to act one way or the other on the Knox claims prior to two years after the losses were discovered.
In the absence of a statutory provision to the contrary, in an action between the insured and the insurer, the validity of a provision in an insurance policy requiring suit under the policy within a prescribed period cannot be disputed. Thompson v. Phenix Inc. Co., 136 U.S. 287, 298, 10 S.Ct. 1019, 1023, 34 L.Ed. 408 (1890); Arcon Corp. v. Liberty Mutual Ins. Co., 591 F.Supp. 15, 18 (M.D.Tenn.1983). In Tennessee, such contractual limitations provisions have been declared valid and not contrary to any statute or public policy. Webb v. Insurance Co. of North America, 581 F.Supp. 244, 250 (W.D.Tenn.1984); Hill v. Home Insurance Co., 22 Tenn.App. 635, 125 S.W.2d 189, 192 (1939). It should also be noted that under Tennessee law, insurance contracts are not to be strictly construed against the insurer unless an ambiguity in the...
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