Yates v. Transamerica Ins. Co., Inc.

• Decision Date: 29 April 1991
• Docket Number: 90-5305,Nos. 90-5304,s. 90-5304
• Parties: David YATES, d/b/a Excel Technology, Inc., Plaintiff, William E. Wilson and Lillian K. Wilson, Intervening Plaintiffs, Southland Optical Company (90-5305) and Robert Cook, d/b/a Graphic Productions (90-5304), Intervening Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 199

928 F.2d 199

David YATES, d/b/a Excel Technology, Inc., Plaintiff,

William E. Wilson and Lillian K. Wilson, Intervening Plaintiffs,

Southland Optical Company (90-5305) and Robert Cook, d/b/a

Graphic Productions (90-5304), Intervening Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY, INC., Defendant-Appellee.

Nos. 90-5304, 90-5305.

United States Court of Appeals,

Sixth Circuit.

Argued Dec. 3, 1990.

Decided March 15, 1991.

Rehearing Denied April 29, 1991.

Leslie Rosenbaum, Rosenbaum & Rosenbaum, Lexington, Ky., for Southland Optical Co.

E. Douglas Stephan (argued), Geralds, Moloney & Jones, Lexington, Ky., for Robert Cook dba Graphic Productions.

Thomas M. Cooper, John McNeill (argued), Landrum & Shouse, Lexington, Ky., for Transamerica Ins. Co., Inc.

Before RYAN and NORRIS, Circuit Judges; and JOINER, Senior District Judge. ^*

JOINER, Senior District Judge.

This action was filed October 1, 1987, seeking a declaratory judgment that Transamerica Insurance Company, Inc. (TIC), was liable under a casualty insurance contract numbered 18867788, effective March 3, 1983, for judgments against plaintiff David Yates, d/b/a Excel Technology, Inc. (Excel), arising out of a fire caused by Excel's alleged negligent installation of an air conditioner. William E. Wilson and Lillian K. Wilson (hereinafter collectively referred to as Wilson), judgment creditors of Yates, intervened on January 14, 1988. On July 22, 1988, TIC moved for summary judgment against Yates and Wilson. Cross-motions for summary judgment against TIC were filed by Yates and Wilson on August 15, 1988.

Southland Optical Company (SOC) and Robert Cook, d/b/a Graphic Productions, also judgment creditors of Yates, were granted leave to intervene on March 9 and April 18, 1989, respectively. Their claims were made under the same policy referenced in the complaints of Yates and Wilson. On December 7, 1989, the district court ruled on the cross-motions for summary judgment filed by TIC, Yates, and Wilson. The district court granted summary judgment for TIC, denied summary judgment for Yates and Wilson, and dismissed the case. Neither Yates nor Wilson have appealed the decision of the district court.

On December 15, 1989, Cook and SOC filed a motion to alter or amend the dismissal, arguing that the district court's ruling on the summary judgment motions between TIC, Yates, and Wilson should not have resulted in dismissal of their claims, and, in the alternative, that the district court's analysis of the summary judgment motions was in error. At the time of this ruling, ongoing discovery had revealed the existence of a subsequent policy numbered 19172448, discussed in more detail below. The district court denied the Cook/SOC motion on January 26, 1990, and Cook and SOC brought the present appeal.

I.

The facts relevant to the present dispute are as follows. Yates purchased Excel early in the spring of 1984. Excel was then insured under a one-year casualty insurance policy numbered 18867788 issued by TIC, with an expiration date of March 4, 1984. On March 8, 1984, Yates contacted David Deaton, the agent with whom Excel's prior owner had dealt, to inform him that he wished to renew the policy. Deaton's agency agreement with TIC gave him authority to "bind coverage"--enter into insurance contracts--on TIC's behalf. On March 12, 1984, Deaton completed the appropriate documents to inform TIC that the policy had been renewed.

TIC issued and mailed a written one-year policy numbered 19172448 to Deaton effective March 4, 1984. By letter dated April 18, 1984, Deaton informed Yates that "the renewal policy has been effective since 3-3-84," and that Deaton needed "the downpayment of $126.78 plus the first payment due 4-18-84 of $68.02." On April 25, 1984, apparently because Yates had not yet responded to the April 18 letter, Deaton sent a copy of the April 18 letter to Yates with an added marginal notation, "I need for you stop [sic] by and see me before the first of May. It is necessary I return the policy to the company by the first if not paid for."

Yates called Deaton's office on April 30, 1984, and left a message for Deaton, inquiring about the increase in the 1984-85 policy premium ($633.90) over the 1983-84 policy premium ($573.06). Yates called again on May 2, 1984, and informed Deaton that he would be mailing a check the next day. By memo of the same date, Deaton wrote Yates:

I have tried to call you several times, no luck. Have you arranged for replacement insurance? I can't hold the policy any longer. The company is after me for the renewal premium, which was due March 3, 1984. Give me a call or stop by and see me. I will hold the policy until Friday, May 4, 1984. I just can't hold the policy any longer for you. The policy will terminate back to March 3, 1984, for non payment of the renewal premium.

It is not clear from the record whether this memo was prepared before or after Deaton was informed that Yates would be mailing a check on May 3, 1984.

On May 7, 1984, Deaton sent Yates a memo stating that the premium had not been received, and, in pertinent part, that "payment is too long past due. It is necessary to mail the policy back to the company for cancellation effective March 3, 1984." On May 8, 1984, Deaton wrote TIC asking for a "flat" cancellation--as if coverage had never existed--which had the effect of relieving the agent from his obligation to pay TIC for the period of coverage. The agency agreement between TIC and Deaton provided that "[m]onthly balances due to the Company or the Agent shall be paid not later than 45 days after the close of the month for which said statement was prepared by the Company or reported by the Agent, whether such premiums are collected by the Agent or not." Deaton would therefore have become liable to TIC for the amount of the premium on approximately May 15, 1984.

Deaton received Yates' check for the downpayment and first installment payment on May 9, 1984. Although the check was dated May 4, 1984, the envelope which contained it was postmarked May 8, 1984. Deaton returned the check to Yates with a memo stating, in part:

I received your initial payment to [sic] late to renew your business insurance policy. The renewal date was March 3, 1984. I have 45 days to collect and remit the payment to the insurance company. As a favor to you I did hold the policy until May 8, 1984. I mailed the policy back to the company on May 8, 1984, with a request to cancel the policy effective March 3, 1984.

The fire which gave rise to the judgment against Yates occurred on June 21, 1984. Yates subsequently filed a claim with TIC, which was denied.

The manner in which cancellation of a policy could be effected was set forth in a cancellation provision incorporated from the 1983-84 policy by the 1984-85 policy. ¹ The cancellation provision stated that "[t]his policy may be cancelled by the Company by mailing to the named insured ... written notice stating when not less than ten days thereafter such cancellation shall be effective."

The district court's conclusion that the policy numbered 18867788 did not provide coverage for the fire which occurred June 21, 1984, is not challenged here. The district court found for TIC under the policy numbered 19172448 on grounds that no contract for insurance ever arose, either for lack of consideration or for "non-acceptance" of TIC's "offer" by failure to pay the premium. The district court further found that TIC was under no duty to give notice to Yates under Ky.Rev.Stat.Ann. section 304.20-320(3)(b) (Baldwin 1987), which provides that notice of non-renewal is not required. The intervening plaintiffs challenge the district court's conclusions. TIC asserts that the intervening plaintiffs may not raise policy No. 19172448 here because their complaints mentioned only policy No. 18867788. Because the district court erred in its ruling regarding "lack of consideration" and "non-acceptance" of the policy of insurance...