Alcazar v. Hayes

• Citation: 982 S.W.2d 845
• Parties: David ALCAZAR, Plaintiff-Appellant, v. Christopher HAYES, Defendant, and Government Employees Insurance Company, Defendant-Appellee,
• Decision Date: 21 December 1998
• Court: Supreme Court of Tennessee

Page 845

982 S.W.2d 845

David ALCAZAR, Plaintiff-Appellant, v. Christopher HAYES, Defendant, and Government Employees Insurance Company, Defendant-Appellee,

Supreme Court of Tennessee,

at Knoxville.

Dec. 21, 1998.

Jimmy W. Bilbo, Logan, Thompson, Miller, Bilbo, Thompson & Fisher, P.C., Cleveland, for Appellant.

Donald W. Strickland, Steven W. Grant, Grant, Konvalinka & Harrison, P.C., Chattanooga, for Appellee.

Brian H. Trammell, Thomas Stratton Scott, Jr., Knoxville, TN, Tennessee Defense Lawyers Assoc., G.Brian Jackson, Amanda Haynes Young, Nashville, TN, National Association of Independent Insurers, for Amicus Curiae.

OPINION

DROWOTA, Justice.

This suit arose from a motor vehicle accident in which plaintiff David Alcazar was injured. Alcazar appeals from the Court of Appeal's affirmance of the trial court's award of summary judgment to defendant Government Employees Insurance Company ("GEICO"). The sole issue for our determination is whether an insurance policy is automatically forfeited when the insured does not comply with the policy's notice provision, regardless of whether the insurer has been prejudiced by the delay. For the reasons stated hereinafter, we reverse the judgments of the lower courts and remand the case to the trial court.

I. FACTS & PROCEDURAL HISTORY

On November 3, 1995, plaintiff Alcazar and defendant Christopher Hayes were working in chicken houses on a farm in Bradley County owned by Alcazar's mother. Alcazar asked Hayes for a ride to pick up Alcazar's truck. Hayes agreed under the condition that Alcazar ride on the trunk of the car, since he was extremely dirty. Alcazar acquiesced and during the drive Alcazar was flung from the trunk, striking his head on the paved roadway. Alcazar, who was eighteen years old and living with his mother, was hospitalized for a couple of days and then returned home. Alcazar alleges that he suffers injuries as a result of the accident, including permanent brain damage.

At the time of the accident, Alcazar was covered under a "Family Automobile Insurance Policy" issued by GEICO to Alcazar's mother, Deborah Wheatley. An "uninsured motorist coverage" provision in this policy includes the following clauses:

1. Notice

As soon as possible after an accident notice must be given us or our authorized agent stating:

(a) the identity of the insured;

(b) the time, place and details of the accident; and

(c) the names and addresses of the injured, and of any witnesses.

* * *

3. Action Against Us

Suit will not lie against us unless the insured or his legal representative have fully complied with all the policy terms.

(Italics in original). It is undisputed that Alcazar qualified as an "insured" under the policy.

Although the exact date that GEICO received notice of the accident is somewhat uncertain, it is clear that notice was not provided until approximately one year after the accident. At this time, Alcazar filed a Complaint seeking damages for his personal injuries suffered as a result of the accident. Hayes ¹ was listed as a defendant and GEICO was added as a party defendant in accordance with Tennessee's uninsured motorist statute, Tenn.Code Ann. §§ 56-7-1201 et seq. (Repl.1994 & Supp.1998). Alcazar and Wheatley testified that notice was not provided to GEICO earlier because they mistakenly assumed that the policy did not apply since Alcazar was not the driver of the automobile involved in the accident. Wheatley also testified that she did not intend to make a claim on the insurance policy until nearly a year after the accident, because she did not learn until this time the extent of Alcazar's brain injury.

GEICO filed a motion for summary judgment, asserting that under the terms of the policy, they could not be sued since the notice provision was breached. Alcazar insisted that notice was provided "as soon as possible" and, alternatively, argued that the policy could not be forfeited since there was no evidence that GEICO was prejudiced by the delay. The trial court granted summary judgment to GEICO and Alcazar appealed. The Court of Appeals affirmed, finding that GEICO could not be listed as a party defendant since Alcazar breached the notice provision. Although finding plaintiff's "no prejudice" argument "appealing," the Court of Appeals, citing case law precedent in this State, held that prejudice to the insurer is immaterial to the issue, stating: "It is not our prerogative to overrule controlling Supreme Court precedent."

II. ANALYSIS

The sole issue for our review concerns whether an insured, who fails to comply with the notice provision of his or her insurance policy, may nevertheless enforce the policy in the event that the insurer has not been prejudiced by the delay. ² While conducting this review, we must reexamine established precedent in this State holding that prejudice to the insurer is irrelevant to the inquiry.

A. Standard of Review

Summary judgment is appropriate if the movant, GEICO, demonstrates that no genuine issues of material fact exist and that GEICO is entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.03. We must take the strongest view of the evidence in favor of the nonmoving party, Alcazar, allowing all reasonable inferences in favor of Alcazar and discarding all countervailing evidence. Shadrick v. Coker, 963 S.W.2d 726, 731 (Tenn.1998) (citing Byrd v. Hall, 847 S.W.2d 208, 210-11 (Tenn.1993)). Since our review concerns only questions of law, the trial court's judgment is not presumed correct, and our review is de novo on the record before this Court. Warren v. Estate of Kirk, 954 S.W.2d 722, 723 (Tenn.1997); Bain v. Wells, 936 S.W.2d 618, 622 (Tenn.1997).

B. Construction of Insurance Contracts

In general, courts should construe insurance contracts in the same manner as any other contract. McKimm v. Bell, 790 S.W.2d 526, 527 (Tenn.1990); Draper v. Great Am. Ins. Co., 224 Tenn. 552, 458 S.W.2d 428, 432 (Tenn.1970). In Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578 (Tenn.1975), we stated:

The cardinal rule for interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention, consistent with legal principles. It is the Court's duty to enforce contracts according to their plain terms. Further, the language used must be taken and understood in its plain, ordinary and popular sense. The courts, of course, are precluded from creating a new contract for the parties.

Id. at 580 (internal citations omitted); see also Galyon v. First Tenn. Bank, 803 S.W.2d 218, 219 (Tenn.1991); Whaley v. Underwood, 922 S.W.2d 110, 112 (Tenn.App.1995).

Tennessee, like most states, recognizes the validity of conditions precedent for insurance coverage, including uninsured motorist coverage. McKimm, 790 S.W.2d at 528; Phoenix Cotton Oil Co. v. Royal Indem. Co., 140 Tenn. 438, 442, 205 S.W. 128, 130 (1918). In the instant case, GEICO contends that Alcazar's compliance with the notice provision was a condition precedent for coverage. Because Alcazar failed to provide notice "as soon as possible" pursuant to the insurance contract, GEICO asserts that coverage was automatically forfeited.

C. Traditional Approach

For years Tennessee has consistently adhered to the traditional common law approach that:

(1) notice is a condition precedent to recovery under the policy and (2) there need not be any showing of prejudice.

Hartford Acc. & Indem. Co. v. Creasy, 530 S.W.2d 778, 779 (Tenn.1975) (citing Phoenix Cotton, 140 Tenn. 438, 205 S.W. 128). Although this approach is grounded on a strict contractual interpretation methodology, this Court has acknowledged underlying public policy rationales that serve as the basis for the inclusion of this "vital and indispensable condition precedent" in an insurance policy:

[W]e recognize that the notice requirement of an insurance policy providing uninsured motorist coverage based on hit-and-run incidents, while founded in contract, also are deeply rooted in public policy considerations. Not only is the insuror entitled to notice in order that it may make prompt investigation and prepare for the defense of the claim, it is entitled to protect its interests in an area susceptible to the presentation of spurious claims. Also, it is in the public interest that litigation be minimized and, to this end, it is essential that the insurance company be in a position to settle claims on a knowledgeable basis.

Creasy, 530 S.W.2d at 779; see also Allstate Ins. Co. v. Fitzgerald, 743 F.Supp. 539, 542 (W.D.Tenn.1990). One commentator has noted:

The purpose of a policy provision requiring the insured to give the company prompt notice of an accident or claim is to give the insurer an opportunity to make a timely and adequate investigation of all the circumstances. An adequate investigation often cannot be made where notice is long delayed, because of the possible removal or lapse of memory on the part of witnesses, the loss of opportunity for examination of the physical surroundings and making photographs thereof for use at the trial, and the possible operation of fraud, collusion, or cupidity. Such a requirement tends to protect the insurer against fraudulent claims, and also against invalid claims made in good faith. If the insurer is given the opportunity for a timely investigation, reasonable compromises and settlements may be made, thereby avoiding prolonged and unnecessary litigation.

1 Eric Mills Holmes & Mark S. Rhodes, Appleman on Insurance § 4.30 (2d ed.1996); see also 13A George J. Couch, et al., Couch on Insurance § 49:50 (2d rev. ed.1982); Richard L. Suter, Insurer Prejudice: An Analysis of an Expanding Doctrine in Insurance Coverage Law, 46 Me. L.Rev. 221, 223-24 (1994); F. Warren Jacoby, Comment, The Materiality of Prejudice to the Insurer as a Result of the Insured's Failure to Give Timely Notice, 74 Dick. L.Rev. 260, 262-63 (1970); Comment, 68 Harv. L.Rev. 1436, 1436-38 (1955). Conversely, the public is harmed by untimely...