Colonial Ins. Co. v. Barrett

• Decision Date: 06 December 2000
• Docket Number: No. 27772.,27772.
• Citation: 208 W.Va. 706,542 S.E.2d 869
• Court: West Virginia Supreme Court
• Parties: COLONIAL INSURANCE COMPANY, Plaintiff below, Appellee, v. Floyd BARRETT and John Douglas Watkins, Defendants below, Appellants, John Douglas Watkins, Defendant below, Appellant.

542 S.E.2d 869

208 W.Va. 706

COLONIAL INSURANCE COMPANY, Plaintiff below, Appellee, v. Floyd BARRETT and John Douglas Watkins, Defendants below, Appellants, John Douglas Watkins, Defendant below, Appellant.

No. 27772.

Supreme Court of Appeals of West Virginia.

Submitted October 4, 2000.

Decided December 6, 2000.

Robert P. Martin, Esq., Robert L. McKinney, II, Esq., Bastien & Martin, L.C., Charleston, West Virginia, Attorneys for Appellee.

Kenneth E. Chittum, Esq., Bluefield, West Virginia, Attorney for Appellant John Douglas Watkins.

STARCHER, Justice:

This appeal of a declaratory judgment from the Circuit Court of Mercer County concerns a requirement in a liability insurance policy that notice of a claim against a policyholder be given to the insurance company as soon as possible.

In the instant case, the insurance company received prompt notice of a claim from a person injured by a policyholder's negligence. However, the insurance company argued below that the policyholder had failed to give any notice of the claim to the insurance company, and the policy's notice requirements had not been met. The circuit court entered an order holding that because the policyholder had failed to give the insurance company notice of the claim, there was no coverage under the policy.

As set forth below, we conclude that the notice requirements of an insurance policy may be satisfied when notice of a claim is provided to the insurance company from any source, including a person injured by a policyholder's negligence. We therefore reverse the circuit court's declaratory judgment order.

I. Facts and Background

On July 26, 1995, an automobile accident occurred between the appellant, John Douglas Watkins, and Floyd Barrett. As appellant Watkins was turning left across traffic, Mr. Barrett, driving in the opposite direction, collided with the right side of Mr. Watkins' car. A witness to the collision stated that Mr. Barrett had run a red light. A police officer subsequently arrested Mr. Barrett for driving while intoxicated.

The appellant sustained back and neck injuries as a result of the collision. A few days after the accident, the appellant personally contacted Mr. Barrett's automobile liability insurance company, appellee Colonial Insurance Company.¹ The appellant spoke by telephone with David Duvall, a claims representative for Colonial, and apparently discussed the nature of the collision and his injuries.

On August 1, 1995, Mr. Duvall mailed the appellant a letter stating that he had "carefully examined the circumstances surrounding this accident," and "[a]fter a careful evaluation of the facts" had determined that his insured, Mr. Barrett, was not responsible for the accident. Mr. Duvall further informed the appellant that Colonial was declining to make any payment on the claim. A second letter was sent by certified mail to the appellant on August 1, 1995, by Mr. Duvall, stating that Colonial was reserving its right to disclaim coverage for the July 26, 1995 accident.

Appellant Watkins then retained an attorney. The appellant's attorney wrote a letter to Mr. Duvall on August 15, 1995, stating that witnesses had seen Mr. Barrett run a red light and hit the appellant, and that Mr. Barrett's intoxication had contributed to the accident. Mr. Duvall responded to the attorney on September 12, 1995, stating that "[a]fter careful review of this file we have determined your client to be at fault for the accident." Mr. Duvall, acting on behalf of Colonial, again refused to make any payment on the appellant's claim.

On November 6, 1995, the appellant's attorney mailed to Mr. Duvall copies of statements taken from two witnesses to the accident, as well as a copy of the police report. The attorney asked Mr. Duvall to review the materials and reevaluate Colonial's position. Mr. Duvall responded on November 15, 1995, stating in a letter that:

I have taken statements from the parties involved and I have concluded my investigation and have determined your client to be responsible for this loss as your client did not have the right of way. No further consideration will be taken in this matter.

Appellant Watkins filed a civil complaint for damages against Mr. Barrett on January 18, 1996. Attempts to serve Mr. Barrett with the complaint and summons were not successful until October 3, 1997, when Mr. Barrett was personally served. On that same day, October 3, 1997, appellant Watkins' attorney mailed a copy of the complaint and the return of summons to Mr. Duvall.

Mr. Barrett never answered the complaint. Furthermore, neither Mr. Duvall nor any other representative for Colonial answered or otherwise responded to the mailed copy of the complaint. Pertinent to the instant action, Colonial asserts that Mr. Barrett never forwarded a copy of the complaint to Colonial, and never advised Colonial of the existence of a claim or a lawsuit.

After receiving no response from Mr. Barrett and Colonial, almost 6 months later, on April 1, 1998, the appellant filed a Motion for Default Judgment, and mailed notices of the motion by certified mail to Barrett's two known addresses.² Both certified letters were returned unopened. By order dated April 17, 1998, the circuit court entered a judgment in favor of appellant Watkins on the issue of liability. A judgment order was later entered on August 13, 1998, awarding the appellant damages in the amount of $15,214.50.

Subsequently, the attorney for appellant Watkins mailed a copy of the judgment order to Mr. Duvall, demanding payment of the judgment amount plus interests and costs, for a total of $20,636.00.

Upon receiving the appellant's demand for payment of the judgment, Colonial retained counsel and, on December 28, 1998, moved to set aside the default judgment on the ground of "excusable neglect." The circuit court denied the motion on March 25, 1999, finding that Colonial had made no showing of excusable neglect. The circuit court also found that the appellant had provided adequate notice of the default judgment motion and the hearing on damages. Neither Colonial nor Mr. Barrett appealed the circuit court's order.

On May 3, 1999, Colonial instituted the present declaratory judgment action against Mr. Barrett and appellant Watkins, asking the circuit court to determine whether it had a duty to "further defend or indemnify or provide coverage in any manner" to Mr. Barrett. Colonial also asked whether it had a duty to pay the demand by appellant Watkins. Colonial argued that Mr. Barrett had breached the insurance contract by failing to notify Colonial of the appellant's lawsuit.³ After examining the record, on August 16, 1999 the circuit court entered an order granting a declaratory judgment in favor of appellee Colonial. The circuit court found that Mr. Barrett had never notified Colonial of the collision or the subsequent lawsuit filed by the appellant. Accordingly, the circuit court concluded that Mr. Barrett had failed to give notice of a claim to Colonial within a reasonable period of time. The circuit court therefore held that Colonial had no duty to indemnify, provide coverage, or to further defend Mr. Barrett for claims arising from the July 26, 1995 accident.

Appellant Watkins now appeals the circuit court's declaratory judgment order.

II. Standard of Review

This Court reviews a circuit court's entry of a declaratory judgment de novo, since the principal purpose of a declaratory judgment action is to resolve legal questions. Syllabus Point 3, Cox v. Amick, 195 W.Va. 608, 466 S.E.2d 459 (1995). When a declaratory judgment proceeding involves the determination of an issue of fact, that issue may be tried and determined by a judge or a jury, just as issues of fact are tried and determined in other civil actions. W.Va.Code, 55-13-9 [1941]. Any determinations of fact made by the circuit court or jury in reaching its ultimate judgment are reviewed under a clearly erroneous standard. Cox, 195 W.Va. at 612, 466 S.E.2d at 463.

In this case we are asked to review a circuit court's interpretation of an insurance contract. In Payne v. Weston, 195 W.Va. 502, 506-7, 466 S.E.2d 161, 165-66 (1995), we stated that the interpretation of an insurance contract "is a legal determination which, like the court's summary judgment, is reviewed de novo on appeal." The basis for our plenary review is that the determination of the proper extent of the coverage of an insurance contract, when the facts are not in dispute, is a question of law. Murray v. State Farm Fire & Cas. Co., 203 W.Va. 477, 482, 509 S.E.2d 1, 6 (1998).

III. Discussion

The circuit court in this case ruled that Mr. Barrett breached his insurance contract with appellee Colonial by failing to notify Colonial of the existence of a claim against the insurance coverage.

On appeal of the circuit court's ruling, the parties dispute whether Colonial was prejudiced by Mr. Barrett's failure to notify Colonial about the accident and subsequent lawsuit. This Court has addressed various situations where a policyholder has delayed giving notice of a claim to an insurance company. We have repeatedly held that in order for the insurance company to avoid responsibility under an insurance policy, the insurance company must demonstrate that it was prejudiced by the policyholder's delayed notice. See, e.g. Dairyland Ins. Co. v. Voshel, 189 W.Va. 121, 428 S.E.2d 542 (1993)

(delayed notice of claim against liability insurance coverage); State Automobile Mut. Ins. Co. v. Youler, 183 W.Va. 556, 396 S.E.2d 737 (1990) (delayed claim against uninsured motorist and underinsured motorist coverages).

In the instant case, Colonial argues that it was prejudiced not by delay, but rather by Mr. Barrett's complete and total failure to communicate with Colonial regarding the accident and the appellant's lawsuit. Appellant Watkins, however, argues that Colonial bears the burden of demonstrating prejudice, and that no evidence was introduced to show any prejudice...