Foundation Reserve Insurance Company v. Kelly

• Decision Date: 10 January 1968
• Docket Number: No. 9621.,9621.
• Parties: FOUNDATION RESERVE INSURANCE COMPANY, Appellant, v. Joseph L. KELLY, Administrator of the Estate of Viola J. Robbins, Deceased, and G. D. Madden, Jr., Administrator of the Estate of George D. Madden, Deceased, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

388 F.2d 528 (1968)

FOUNDATION RESERVE INSURANCE COMPANY, Appellant, v. Joseph L. KELLY, Administrator of the Estate of Viola J. Robbins, Deceased, and G. D. Madden, Jr., Administrator of the Estate of George D. Madden, Deceased, Appellees.

No. 9621.

United States Court of Appeals Tenth Circuit.

January 10, 1968.

John P. Duffy, Albuquerque, N. M. (LeRoi Farlow, Albuquerque, N. M., on the brief), for appellant.

J. A. O'Toole, Oklahoma City, Okl., and J. Rex Spurr, Shawnee, Okl. (Cook, O'Toole, Ming & Tourtellotte, Oklahoma City, Okl., Alfred M. Parsons, Shawnee, Okl., Joseph J. Mullins, and Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., on the brief), for appellees.

Before HILL and SETH, Circuit Judges, and DOYLE, District Judge.

HILL, Circuit Judge.

This appeal is from an order granting summary judgment in favor of appellees, who were plaintiffs in the trial court, and against appellant insurance company, the defendant in that court. No question is raised here as to use of summary judgment, therefore, we must assume at the outset that there were no genuine issues of fact in the case and that the case was a proper one for use of summary judgment procedure.

Viola J. Robbins, on October 26, 1963, was the insured under an automobile liability insurance contract with appellant, Foundation Reserve Insurance Company. On the above date Mrs. Robbins, while driving her automobile in the state of Oklahoma, was involved in a serious accident with another vehicle driven by George D. Madden. As a result both Mrs. Robbins and Madden died. Appellee, G. D. Madden, Jr., was soon thereafter duly appointed Administrator of the George D. Madden Estate in Oklahoma. On November 11, 1963, after learning about the above mentioned insurance contract, he gave notice in writing of the accident to both appellant and its agent who wrote the policy. On February 21, 1964, appellee Kelly was appointed Administrator of the Robbins Estate in Oklahoma and on February 25 he gave written notice of the accident to both appellant and its agent. Appellant denied coverage.

Madden's administrator thereafter brought suit in Oklahoma against the Robbins estate to recover for George D. Madden's wrongful death. Appellant refused to defend this action. In this suit a judgment in the amount of $12,217.15 was rendered against the Robbins estate. It is important that both prior to trial and after the judgment was obtained appellant rejected offers to settle within the limits of the policy, which was $5,000.00.

This action was thereafter instituted in the United States District Court for New Mexico by the two administrators against Foundation Reserve to recover upon the prior judgment and for attorney fees, court costs and interest. The causes of action asserted were bottomed upon the alleged bad faith of Foundation Reserve by failing and refusing to compromise, settle and pay the asserted claim against it. Expressly they alleged, "Defendant's unwarranted refusal to honor its contract constituted a breach of an implied covenant of good-faith and fair dealing with its insured" thereby making the company liable in an amount in excess of the policy limits.

Foundation Reserve, for its defense, relied upon the "notice of claim" provision of the policy and contended that notice had not been given as required by the policy.¹ It also denied any bad faith on its part in its refusal to defend or to settle within the policy limits.

The trial court found for appellees with the provision that the Madden estate be limited to recovery on the amount covered by the policy but that the Robbins estate could collect the excess necessary to satisfy the judgment against it held by the Madden estate. Also included were $500.00 for funeral expenses and $1,000.00 for attorney fees owed the Robbins estate under provisions of the insurance policy.

Appellant urges that the district court erred in holding as a matter of law that appellant was guilty of bad faith in its failure to settle and in holding that appellant was liable for an amount in excess of the policy limit of $5,000.00. In support of this appellant first argues that it was not guilty of bad faith in refusing to defend or settle because it was justified in contending that there was no coverage under the policy due to the breach of the notice requirements. Appellant strongly urges the proposition that notice given by the Robbins estate was not timely. The issue is, however, bypassed if the district court was correct in saying that the actual notice given appellant by Madden, as Administrator of the Madden Estate, on November 11, 1963, satisfied the notice condition of the policy.

The district court's decision that this notice satisfied the actual notice condition is in conformity with a later New Mexico case, State Farm Mutual Automobile Insurance Co. v. Foundation Reserve Insurance Co., 78 N.M. 359, 431 P.2d 737, and is in accordance with established insurance law. See 7 Am.Jur.2d, Automobile Insurance, § 147; 45 C.J.S. Insurance § 1051; 13 Couch on Insurance 2d, § 49:101. Appellant cites three Texas cases as supporting the proposition that notice given by the injured party is not on behalf of the insured and thus does not satisfy the notice requirements under an insurance policy. The fact that Texas courts may take this position does not detract from the trial court's decision in this case to follow the majority rule. It is clear that the trial court did not err in holding that the actual notice was sufficient and that the insurance company should have defended the action below.

Appellant argues further that in any respect it was justified in relying on these Texas cases in deciding that the notice given by the injured party was not sufficient to satisfy the notice requirements of its policy and thus its decision not to defend or settle was not made in bad faith. Upon examination of these Texas cases, however, we find this position difficult to accept. The primary case relied on by appellant is White v. Transit Casualty Co., 402 S.W.2d 212 (1966, Tex.Civ.App.). This case was decided at least three years after the decision by appellant that the notice requirement had not been met. The two other cases cited are distinguishable upon their facts.² Therefore, we question whether any person could reasonably have decided in view of the case law available that the actual notice given in the instant case was not sufficient to satisfy the notice provisions of the insurance policy in question.

The remaining question is whether the trial court may properly award a recovery in excess of the $5,000.00 limitation of the insurance policy. As a general rule of law when an insurance company in good faith mistakenly refuses to defend a claim it is not liable...