American Home Assurance Company v. Sand

• Decision Date: 11 April 1966
• Docket Number: No. Civ. 4442-Phx.,Civ. 4442-Phx.
• Citation: 253 F. Supp. 942
• Parties: AMERICAN HOME ASSURANCE COMPANY, a New York corporation, Plaintiff, v. Martin SAND et al., Defendants.
• Court: U.S. District Court — District of Arizona

253 F. Supp. 942

AMERICAN HOME ASSURANCE COMPANY, a New York corporation, Plaintiff, v. Martin SAND et al., Defendants.

No. Civ. 4442-Phx.

United States District Court D. Arizona.

November 3, 1965.

On Motion for New Trial January 6, 1966.

Amended Judgment April 11, 1966.

COPYRIGHT MATERIAL OMITTED

Rex H. Moore, William R. Jones, Jr., of Jennings, Strouss, Salmon & Trask, Phoenix, Ariz., for plaintiff.

Leroy W. Hofmann, Kenneth S. Scoville, Mark Wilmer, of Snell & Wilmer, Phoenix, Ariz., for defendant.

MUECKE, District Judge.

This is a declaratory relief action brought by American Home Assurance Company which had issued a garage keeper's policy on or about December 19, 1959, to Joseph F. Chavers who owned Joe's Paint and Body Shop in Glendale, Arizona.

Chavers owned a 1960 DeSoto which was primarily his family car but was used occasionally in his business to pick up parts, run errands and as a "loaner." During 1960 Chavers decided to sell the car and employed Robert Haile who, on a number of occasions, had sold cars for Chavers and who worked as a salesman for State Motor Sales, a used-car lot next door to Joe's Paint and Body Shop. Haile had also, on a number of occasions, found cars for Defendant Donald Perry who was engaged in business as a wholesaler of used autos and who paid Haile $25.00 each time Haile found an automobile for him. In fact, Haile had acted as a go-between or as co-agent for Chavers and Perry on a number of prior occasions. Haile informed Perry of the 1960 DeSoto and brought him to Chavers' body shop some time prior to the date of the accident in question. Chavers said he wanted $2700.00 for the car. Perry offered $2500.00. On September 15, 1960, Chavers informed Haile that he would accept Perry's offer of $2500.00. Haile so advised Perry, who first told Haile that he would pick up the car himself, but then changed his mind and told Haile to pick up the vehicle for him and that he would give him a $2500.00 draft for Chavers when the car was delivered. Chavers agreed to this arrangement and brought the car to Haile late in the afternoon so that the transaction could be completed. However, Haile stopped to have a few beers and did not deliver the car immediately. Following this, he was involved in the accident that resulted in the injuries to Martin Sand and Peter Traxler on the evening of September 15, 1960.

Chavers heard nothing about the accident until he read about it in the newspaper the day after the accident, and having heard from neither Haile nor Perry, he picked up his DeSoto, repaired it in his own body shop at a cost to him, at his own estimate, of over $300.00 which he never charged to Perry. Chavers later sold the car to Don Perry for $2400.00, $100.00 less than the original price agreed upon.

On the date of the accident, Chavers still held record title to the vehicle, still owed $2700.00 to the Valley National Bank which held a record lien on the vehicle and physical possession of the title papers. Following the accident, he filed a claim as owner of the vehicle with his own insurance company, State Farm Mutual, for the cost of repairing his vehicle and was repaid as owner for such loss.

Sand and Traxler filed separate lawsuits in the Arizona state courts against Chavers, Haile and Perry for damages.¹ The Sand case was tried and the jury returned a verdict against Haile and Perry and in favor of Chavers. The Traxler case was also tried and the jury rendered a verdict against defendants Haile and Perry but in favor of Chavers.

The following are the five issues presented for the Court's determination.

1. Did the accident arise out of the hazards as defined in the insurance contract?

2. Did the named insured own the vehicle at the time of the accident?

3. Is lack of notice a valid policy defense under the circumstances of this case?

4. If there is coverage, to whom does it extend?

5. Did there exist any conflict of interests violative of Canon 6 in the litigation of this matter in the state courts, and if so, what effect, if any, does this conflict have on the coverage questions?

Hazards

The language of the Automobile Garage Liability Policy issued by plaintiff to Joseph Chavers in connection with the operation of his business is such that this accident falls within the hazards as they are expressly defined in the policy.²

The facts of this case are such, the Court finds, that there is no doubt of the use of the automobile by Joseph Chavers and his agents in connection with his business.

While the automobile in question was used primarily as a family car, there is a definite pattern in the way Joseph Chavers bought, repaired, used, and sold cars, including the 1960 DeSoto, that indicates he occasionally sold cars he personally owned in addition to his regular business of repairing, remodeling and painting automobiles owned by others.

In connection with his regular business, the 1960 DeSoto was used as a "loaner" to individuals who had left their cars with Chavers to be repaired. Both he and his brother, Clyde Chavers, also drove the car to work on occasion, and used the car to pick up parts and to write estimates on wrecked vehicles.

Finally, on the day the accident in question occurred, the 1960 DeSoto was brought by Joseph Chavers to Robert Lucas Haile to drive, with Chavers' permission, to Donald Perry for the purpose of selling the car.

We can say therefore that the 1960 DeSoto was used in connection with and was a necessary operation incidental to the business of Joseph Chavers' repair shop. "To own a vehicle `in connection with' service station operations means only that its ownership must be related to or associated with the service station operations, without any necessary connotation that the primary or only purpose of ownership or use of the vehicle be for such service station use." Keenan v. Wactor, La.App., 130 So.2d 800 (1961).

It was also an automobile owned by the named insured, Joseph Chavers, which was used for non-business purposes, i. e., as a family car, and was used at the time of the accident for other business purposes, i. e., selling it to Perry.

Ownership

The Court is also of the view that Chavers owned the vehicle at the time of the accident. The following facts support this conclusion.

After the accident Chavers exercised dominion and control over the car, took possession, made repairs at his own expense, made a claim with his insurance company and then sold the vehicle to Perry for $100.00 less than the original agreed-upon price.³ Furthermore, Chavers could not sell the vehicle until he could obtain clear title in himself, and in this case, record title resided in the Valley National Bank who retained control over the title papers. In addition, Chavers himself admitted he owned the car. He stated on cross-examination that Haile "had an accident with my car * * *." Therefore, the conclusion is inescapable that Chavers owned the vehicle at the time of the accident.

Notice

The Court is of the view that there exists no valid policy defense with respect to lack of notice in this case. The facts are uncontradicted that the first notice of the accident which was received by the insurer was given by one of the attorneys for Defendant Sand, in a telephone call to a Mr. Miller, an independent adjuster, about three months after the accident. Mr. Miller in turn gave notice to the plaintiff. The policy in question specifically provides:

"10. Notice of Accident: When an accident occurs written notice shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable. Such notice shall contain particulars sufficient to identify the insured and also reasonably obtainable information respecting the time, place and circumstances of the accident, the names and addresses of the injured and of available witnesses." (Emphasis added)

"14. Action Against Company— Coverages A, B, and D: No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, * * *."

Construing the policy most strongly against the insurer, the provision "no action shall lie against the company unless * * *" has no application in this case since the defendants have not brought this suit.

In any event, the phrase "as soon as practicable" is not an exact time such as a fixed period would be and the Court therefore finds that three months is not an unreasonable length of time under the circumstances of this case, especially where Chavers either might not have had knowledge of the existence of coverage or might have labored under a mistaken belief of his lack of liability for the accident when he was not driving the vehicle himself at the time of the accident.⁴ In addition, the plaintiff insurer has admitted that the lapse of 90 days proved to be no hardship or prejudice to it, even though plaintiff takes the position that prejudice or the lack of it is immaterial. In any case plaintiff was ultimately successful in defending Chavers.

Furthermore, neither Haile nor Perry procured the policy, Chavers did, and there is no showing that either of them knew of its existence so as to make them responsible for giving notice to plaintiff.

"An additional insured could not be expected nor required to give notice before he knew of the existence of the policy or of the fact that he was covered thereby." 8 Appleman, Insurance Law & Practice, § 4738, p. 54 (1942).

Any question concerning notice, therefore, should not affect either Haile or Perry.

With regard to whether or not prejudice to the insurer is an issue in the matter of untimely notice, State Farm Mutual Auto Insurance Company v. Palmer, 237 F.2d 887, at 891 (9th Cir. 1956), offers a helpful analogy although the facts are not precisely the same. The Court stated: "We find no Arizona case squarely in point deciding the question whether or not prejudice need be shown where the...