Greene v. Hanover Ins. Co.

• Decision Date: 23 May 1997
• Citation: 700 So.2d 1354
• Parties: Johnnie C. GREENE, Jr. v. HANOVER INSURANCE COMPANY and Massachusetts Bay Insurance Company. 1951580.
• Court: Alabama Supreme Court

Page 1354

700 So.2d 1354

Johnnie C. GREENE, Jr. v. HANOVER INSURANCE COMPANY and Massachusetts Bay Insurance Company.

1951580.

Supreme Court of Alabama.

May 23, 1997.

Rehearing Denied Aug. 15, 1997.

James H. Crosby, E. J. Saad, Donald G. Beebe, and Jack B. Hood of Crosby, Saad, Beebe & Crump, P.C., Mobile, for appellant.

Charles J. Potts and Michael D. Strasavich of Janecky, Newell, Potts, Wells & Wilson, P.C., Mobile, for appellees.

SEE, Justice.

Johnnie Greene sustained injuries in an automobile accident. His vehicle was involved in a collision with a vehicle driven by Scott James Vance. Greene filed this action against Scott's employer's insurance carrier, Hanover Insurance Company and Massachusetts Bay Insurance Company (collectively, "Hanover"). The trial court held that Hanover did not provide insurance coverage in this case and entered a summary judgment accordingly. Because we conclude that neither Hanover's primary policy nor its umbrella policy provides coverage in this case, we affirm.

Prior to 1993, Hanover had sold two insurance policies to Vance Electrical Contractors, Inc. ("VEC"). The first policy (the "Primary Policy") provided business automobile liability coverage to VEC. Scott Vance was an employee of VEC. He had a driving record that reflected a driver's license suspension for driving under the influence, several accidents, and at least two speeding tickets. Consequently, Hanover refused to provide automobile liability coverage to VEC with respect to Scott. The Primary Policy contained an exclusion endorsement (the "Primary Endorsement") that specifically excluded Scott from coverage under the Primary Policy.

The second policy Hanover sold to VEC (the "Umbrella Policy") provided commercial liability coverage to VEC. The Umbrella Policy contained an endorsement (the "Umbrella Endorsement") that excluded coverage for personal injury and property damage liability arising from the "use or entrustment" of VEC's vehicles.

On January 9, 1993, Greene's vehicle was involved in a collision with one of VEC's vehicles, which was being driven by Scott. Greene was severely injured and Scott was killed. Greene initially sued Scott's estate, VEC, and First of Georgia Insurance Company ("First Georgia"), which had issued a policy that covered Scott, as a result of the automobile accident. Because Hanover's policy specifically excluded Scott from coverage, Hanover did not defend Scott's estate against Greene's claims.

Greene reached pro tanto settlements with VEC and First Georgia. The case proceeded to a nonjury trial against Scott's estate. After a trial on the merits, Greene received a judgment in his favor in the amount of $3,350,000, less a $500,000 set-off ($400,000 paid on behalf of VEC by Progressive Insurance Company and $100,000 paid by First Georgia) for monies previously paid through the pro tanto settlements, leaving an unpaid judgment of $2,850,000.

Because the balance of the judgment had not been paid by Scott's estate, Greene commenced an action pursuant to Ala.Code 1975, § 27-23-2, ¹ against Hanover and the administrator of Scott's estate. Greene argued that despite the wording of the Primary Endorsement and the Umbrella Endorsement, both the Primary Policy and the Umbrella Policy covered Scott. Specifically, Greene argued that the Primary Endorsement was inapplicable to Scott because that endorsement incorrectly listed Scott's name as "James Scott Vance" instead of "Scott James Vance." Without objection from Greene, the trial court allowed parol evidence to show that the transposition of Scott's first and middle names was a mistake, and that both parties to the insurance contract (i.e., VEC and Hanover) had intended for Scott to be excluded from coverage. Accordingly, the trial court entered a summary judgment for Hanover. ²

On appeal, Greene argues that the summary judgment was improper because, he says: (1) the Primary Endorsement was ineffective to exclude Scott; and (2) the Umbrella Policy provides coverage for Scott. For the summary judgment to be proper, Hanover had to make a prima facie showing that no genuine issue of material fact existed and that it was entitled to a judgment as a matter of law. Rule 56, Ala.R.Civ.P.; Long v. Jefferson County, 623 So.2d 1130, 1132 (Ala.1993). If Hanover made that showing, then the burden shifted to Greene to present evidence creating a genuine issue of material fact, so as to avoid the entry of summary judgment against him. Long, 623 So.2d at 1132. In determining whether there was a genuine issue of material fact, we must view the evidence in the light most favorable to Greene. Id.

I. PRIMARY POLICY

Greene argues that the Primary Endorsement is ineffective to cover Scott, for two main reasons. First, Greene argues that parol evidence is not admissible to clarify to whom the Primary Endorsement refers because that endorsement, which names "James Scott Vance" instead of "Scott James Vance," is unambiguous on its face. This argument ignores the well-settled law that parol evidence is admissible to clarify a latent ambiguity. In Medical Clinic Board v. Smelley, 408 So.2d 1203, 1206 (Ala.1981), we stated:

"The ambiguity may be latent if the writing appears clear and unambiguous on its face, 'but there is some collateral matter which makes the meaning uncertain; and parol or other extrinsic evidence is admissible to explain or clarify a latent ambiguity.' "

(Quoting Ford v. Ward, 272 Ala. 235, 130 So.2d 380 (1961).) In Lamar v. Minter, 13 Ala. 31, 35 (1848), this Court stated that parol evidence was admissible to clarify the latent ambiguity arising from the incorrect listing of Sheppard Spencer Johnson's name in a deed. Specifically, the Court stated that it would not bar parol evidence to show that "Spencer S. Johnson" in the deed was a transposition of the person's first and middle names and was intended to refer to "Sheppard S. Johnson." Id. Likewise, in this case, we will not bar parol evidence to show that the naming of "James Scott Vance" in the Primary Policy is a transposition of the person's first and middle names and was intended to refer to "Scott James Vance."

In support of its motion for summary judgment, Hanover submitted the affidavit of Scott's father, the president of VEC, stating that he and Scott both had understood that Scott was not covered by Hanover. Further, Hanover introduced a deposition of its agent in which the agent said that both Hanover and VEC intended the Primary Endorsement to exclude Scott from coverage. The agent also stated that he had helped VEC obtain coverage from another insurance company, Progressive Insurance Company, solely because Hanover would not cover Scott. Greene failed to produce any evidence to contradict the evidence that the true intent of Hanover and VEC was to exclude Scott from coverage under the Primary Endorsement. ³ Thus, the parol evidence was admissible at the summary judgment stage to reform the insurance contract with respect to the transposition of first and middle names, in order to show the true intent of the parties. See National Life & Accident Ins. Co. v. Saffold, 225 Ala. 664, 665-66, 144 So. 816 (1932) (allowing parol evidence clarifying a woman's name to reform an insurance contract).

Greene argues that even if the parol evidence was admissible, the trial court could not use it to reform the name "James Scott Vance" to "Scott James Vance" because such a reformation would operate to prejudice Greene's right as a third-party beneficiary of the Primary Policy. Greene cites Ala.Code 1975, § 8-1-2, which states:

"When, through fraud, a mutual mistake of the parties or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised by a court on the application of the party aggrieved so as to express that intention, so far as it can be done without prejudice to the rights acquired by third persons in good faith and for value."

(Emphasis added.) Section 8-1-2 codified the equitable remedy of reformation of contracts. American Liberty Ins. Co. v. Leonard, 270 Ala. 17, 21, 115 So.2d 470, 473 (1959). This remedy will not operate to prejudice third parties, such as bona fide purchasers, who acquire rights for value that would be affected by the reformation. Irvin v. Griffin Corp., 808 F.2d 802, 806 (11th Cir.1987) (interpreting Ala.Code 1975, § 8-1-2). The no-prejudice bar will not, however, prevent reformation that will affect the rights of third parties, such as judgment creditors, where those rights were acquired without paying value. See Beasley v. Mellon Fin. Servs. Corp., 569 So.2d 389, 394 (Ala.1990) ("Reformation will be allowed ... against ... judgment creditors"); 66 Am.Jur.2d Reformation of Instruments § 69 (1973) ("reformation of an instrument may be had in equity as against judgment creditors, since they are not regarded as bona fide purchasers for value"); see also 2 Couch on Insurance 3d § 27:82 (1975) ("insurance policies may be reformed or modified to limit or exclude coverage if such was the intention of the parties, even where the rights of third-party claimants who are not parties to [the] insurance contract are adversely affected"). The trial court properly reformed the Primary Endorsement to reflect the undisputed intention of VEC and Hanover to exclude Scott from coverage. Greene cannot recover under the Primary Policy.

II. UMBRELLA POLICY

Next, Greene argues that even if the Primary Policy does not cover Scott, Hanover's Umbrella Policy does. Specifically, Greene contends that the general language of the "Excess Insurance" section of the Umbrella Policy provides excess coverage (i.e., coverage in excess of the underlying policy limits) with respect to VEC's employees, including Scott, if the underlying insurance (i.e., Hanover's Primary Policy) is inapplicable. ⁴ Thus, Greene argues that...