Aig Centennial Ins. Co. v. Fraley-Landers

• Decision Date: 13 June 2006
• Docket Number: No. 05-2918.,05-2918.
• Parties: AIG CENTENNIAL INSURANCE COMPANY, Appellee, v. Jane FRALEY-LANDERS, as Administrator of the Estate of Sidney Pippin, Deceased; Jane Fraley-Landers, Individually; Katie Fraley, as Administrator of the Estate of Vicky Crisp, Deceased; Katie Fraley, Individually, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

450 F.3d 761

AIG CENTENNIAL INSURANCE COMPANY, Appellee, v. Jane FRALEY-LANDERS, as Administrator of the Estate of Sidney Pippin, Deceased; Jane Fraley-Landers, Individually; Katie Fraley, as Administrator of the Estate of Vicky Crisp, Deceased; Katie Fraley, Individually, Appellants.

No. 05-2918.

United States Court of Appeals, Eighth Circuit.

Submitted: February 13, 2006.

Filed: June 13, 2006.

Phillip Votaw, argued, Fort Smith, AR, for appellant.

Thomas E. Robertson, argued, Fort Smith, AR, for appellee.

Before WOLLMAN, FAGG, and ARNOLD, Circuit Judges.

ARNOLD, Circuit Judge.

Two children died after they were left strapped in their car seats inside a closed vehicle for hours on a warm day. Four years later, the survivors and administrators (referred to in this opinion as survivors) sued Ricky Crisp, the man who left the children alone in the car. They contended that an insurance policy issued to Mr. Crisp's father by Colonial Penn Insurance Company (now AIG Centennial Insurance Company) provided coverage for the incident. AIG then filed this federal action for declaratory relief, naming the survivors as defendants. The district court,¹ applying Arkansas law, granted AIG's motion for summary judgment; the court held that the policy did not provide coverage because the insured parties had failed to comply with a provision in the insurance contract that required them to notify the insurer of the loss as soon as possible. We affirm.

I.

One day when Mr. Crisp was babysitting two infant children, he borrowed a vehicle that belonged to Katie Fraley and placed the children in the back seat. He left the children in the car unattended for most of that day; by the time that he returned they had died of hyperthermia. A jury subsequently convicted Mr. Crisp of second-degree murder. See Crisp v. State, 341 Ark. 893, 20 S.W.3d 394 (2000).

Almost two years after the children's deaths, the survivors' attorney sent a letter to Mr. Crisp's father. In the letter, the survivors contended that their loss was covered by an insurance policy issued to Mr. Crisp's father and asked him to send the letter to the insurer, AIG, which he did. The survivors then filed separate state actions against Mr. Crisp, which were dismissed without prejudice. About a year later, the survivors returned to state court and jointly filed an action against Mr. Crisp.

While the jointly-filed lawsuit was pending, AIG filed this action for declaratory relief. AIG alleged that its policy did not cover Mr. Crisp or the deaths of the children, and that even if it did, no coverage was available because the policyholders had failed to notify the insurer of the loss in the timely manner required by the insurance contract. All parties moved for summary judgment.

The district court granted AIG's motion for summary judgment. The court focused on the following provisions in the insurance policy:

As soon as possible after an accident or loss, You [the named policyholder] must give written notice to us or any of our authorized representatives.

...

An insured person must comply with all terms of this policy before bringing any legal action against us under this policy.

The district court determined that under Arkansas law, the policy made the giving of notice a condition precedent to coverage. The court agreed with the survivors that noncompliance with the "notice of suit" provision was not an issue in this case because the first lawsuits were dismissed without prejudice and timely notice was given of the later action. But the court determined that the survivors' failure to give AIG "notice of loss" before they did, discharged any obligation by AIG to provide coverage. The district court held that Arkansas law does not excuse the failure to give notice of loss even when the insurer has not been prejudiced by the delay.

II.

The survivors contend that, contrary to the district court's reading of the relevant cases, Arkansas law requires an insurance company to show prejudice when it seeks to avoid coverage because of a failure to satisfy a notice-of-loss provision in its policy. Alternatively, the survivors assert that the district court erred when it determined as a matter of law that the notice of the loss was not given to AIG "as soon as possible." We review the district court's grant of summary judgment de novo. Stone Motor Co. v. General Motors Corp., 400 F.3d 603, 607 (8th Cir.2005).

A.

This case involves one of the basic building blocks of contract law, the condition precedent. A condition precedent is "an act or event, other than a lapse of time, that must exist or occur before a duty to perform something promised arises." Black's Law Dictionary (8th ed.2004). Unlike a mere contract term, the breach of which must be material before it excuses another party from performing, one party's failure to fulfill a condition precedent entirely excuses any remaining obligations of the other party. See Richard A. Lord, Williston on Contracts § 38:7 (4th ed.1990); Restatement (Second) of Contracts § 224 (1981).

Arkansas law has long recognized the validity of conditions precedent, particularly in insurance contracts. The Arkansas Supreme Court's historical application of the doctrine was explored exhaustively by Judge Miller in M.F.A. Mut. Ins. Co. v. Mullin, 156 F.Supp. 445 (W.D.Ark.1957). In Mullin, the plaintiff insurance company sought a declaratory judgment that it was not required to defend one of its insureds following a fatal automobile accident. Id. at 447, 452. The insurer argued that its insured failed to comply with a condition precedent of the policy, namely, that the insured failed to forward information regarding a lawsuit related to the accident until two months after it was filed in state court. Id. at 456-57.

To determine whether the failure to give timely notice of the lawsuit discharged the insurer's obligation to defend, Judge Miller reviewed the Arkansas cases on point. Id. at 457-60. He noted that in Hope Spoke Co. v. Maryland Cas. Co., 102 Ark. 1, 9, 143 S.W. 85, 87 (1912), the Arkansas Supreme Court determined that absent any prejudice, breach of a notice provision in an insurance contract is not a defense to coverage so long as the provision was not made a condition precedent to recovery. Judge Miller then turned to Home Life & Acc. Co. v. Beckner, 168 Ark. 283, 270 S.W. 529 (1925). In that case, the Arkansas Supreme Court cited Hope Spoke and said, "this court is committed to the doctrine that failure to give notice under a clause in a policy ... `does not operate as a forfeiture of the right to recover, unless the policy in express terms or by necessary implication makes the giving of the notice within the time specified a condition precedent to recover.'" Beckner, 168 Ark. at 288, 270 S.W. at 531 (quoting Hope Spoke, 102 Ark. at 9, 143 S.W. at 87); see also Home Indem. Co. v. Banfield Bros. Packing Co., 188 Ark. 683, 689-90, 67 S.W.2d 203, 206 (1934). Judge Miller further noted that in American Fid. & Cas. Co. v. Northeast Ark. Bus Lines, Inc., 201 Ark. 622, 623, 146 S.W.2d 165, 166 (1941), the Arkansas court determined that when the giving of notice was made a condition precedent to recovery, the party seeking coverage had the burden of proving compliance with the provision. Mullin, 156 F.Supp. at 459-60.

Judge Miller concluded that "the Arkansas decisions seem to establish the following rules: (1) if the required notices are conditions precedent, they must be given by the insured ...; (2) even if the notices are not conditions precedent, the insurer has a right to insist upon substantial compliance by the insured with the notice provisions; (3) the notice provisions may be conditions precedent even though the specific words `conditions precedent' are not used in the policy." Id. at 460-61. Applying these rules to the facts in Mullin, Judge Miller held that timely notice was made a condition precedent to coverage by a provision in the policy that said "[n]o action shall lie against [the insurer] under any coverage until after full compliance with all the terms of this policy." Id. at 461. Because the insured breached a condition precedent by failing to deliver timely notice of the proceedings in the state tort case, Judge Miller held that it was "unnecessary for the Court to determine whether any prejudice resulted to the [insurer] by reason of the failure of [the insured] to give the proper notices." Id.

Two years later, in Hartford Accident & Indem. Co. v. Loyd, 173 F.Supp. 7, 11 (W.D.Ark.1959), Judge Miller described Mullin as establishing that when notice is a condition precedent to coverage, "the insurer, under the decisions of the Supreme Court of Arkansas, is not required to show that he is injured or prejudiced by the failure of the insured to furnish the required notice." Similarly, in Providence Washington Ins. Co. v. Yellow Cab Co. of Fayetteville, Inc., 331 F.Supp. 286, 291-92 (W.D.Ark.1971), Judge Miller again reiterated that the failure of an insured to fulfill a condition precedent to coverage discharges any duty of the insurer to defend the action.

Judge Miller's conclusions regarding Arkansas law and notice provisions in insurance policies have been relied upon in a number of other federal cases. In State Farm Fire & Cas. Co. v. Michael, 822 F.Supp. 575, 578-80 (W.D.Ark.1993), the district court discussed Judge Miller's opinions in Mullin, Loyd, and Yellow Cab, before concluding that "these cases correctly stated the law in Arkansas when decided, and our research indicates that the principles announced in those cases have not been changed by subsequent Arkansas Supreme Court cases." We reviewed the decision in Mullin six years ago in Kimbrell v. Union Standard Ins. Co., 207 F.3d 535 (8th Cir.2000). In Kimbrell, we determined that an insured's failure to send his insurer papers regarding a lawsuit that had been filed against him violated a condition precedent of the policy. Id. at 537. Citing Mullin and ...