Hitt v. Cox, s. 83-1225

• Decision Date: 21 June 1984
• Docket Number: 83-1230,Nos. 83-1225,s. 83-1225
• Citation: 737 F.2d 421
• Parties: Vivian M. HITT, Plaintiff, v. Luther COX, individually and as Sheriff of Fauquier County, Va.; George West, individually and as Deputy Sheriff/Chief Jailer of Fauquier County, Va.; Terrell Don Hutto, individually and as Director of the Virginia Department of Corrections and Virginia Department of Corrections, Defendants, and The BOARD OF SUPERVISORS OF FAUQUIER COUNTY, VA., Appellee, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY, Appellant. Vivian M. HITT, Plaintiff, v. Luther COX, individually and as Sheriff of Fauquier County, Va.; George West, individually and as Deputy Sheriff/Chief Jailer of Fauquier County, Va.; Terrell Don Hutto, individually and as Director of the Virginia Department of Corrections and Virginia Department of Corrections, Defendants, and The BOARD OF SUPERVISORS OF FAUQUIER COUNTY, VA., Appellant, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 421

737 F.2d 421

Vivian M. HITT, Plaintiff, v. Luther COX, individually and as Sheriff of Fauquier County,

Va.; George West, individually and as Deputy Sheriff/Chief

Jailer of Fauquier County, Va.; Terrell Don Hutto,

individually and as Director of the Virginia Department of

Corrections and Virginia Department of Corrections, Defendants, and The BOARD OF SUPERVISORS OF FAUQUIER COUNTY, VA., Appellee, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY, Appellant.

Vivian M. HITT, Plaintiff, v. Luther COX, individually and as Sheriff of Fauquier County,

Va.; George West, individually and as Deputy Sheriff/Chief

Jailer of Fauquier County, Va.; Terrell Don Hutto,

individually and as Director of the Virginia Department of

Corrections and Virginia Department of Corrections, Defendants, and The BOARD OF SUPERVISORS OF FAUQUIER COUNTY, VA., Appellant, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY, Appellee.

Nos. 83-1225, 83-1230.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 7, 1984.

Decided June 21, 1984.

David P. Durbin, Washington, D.C. (John O. Easton, Carr, Jordan, Coyne & Savits, Washington, D.C., Carl Anthony Maio, Harleysville, Pa., on brief), for appellant/cross-appellee.

James P. Downey, County Atty., Warrenton, Va., for Fauquier County (J. Sloan Kuykendall, Kuykendall, Wetsel & Kuykendall, P.C., Winchester, Va., on brief), for appellee/cross-appellant.

Before ERVIN and CHAPMAN, Circuit Judges, and PECK ^*, Senior Circuit Judge.

ERVIN, Circuit Judge:

Fauquier County sought indemnification from the Harleysville Mutual Insurance Company for attorney's fees and a $500,000 settlement it incurred as a result of a suit brought by a former inmate severely burned in a county jail fire. Harleysville had refused to defend the County in the original suit and denied liability in the subsequent action for indemnification. The district court denied Harleysville's motion for summary judgment and after trial, awarded the County indemnification for $350,000 of the settlement as well as attorney's fees, expenses and costs. Harleysville appeals from the denial of its motion for summary judgment and from the final judgment. Fauquier County cross appeals on the issue of damages. We affirm.

I.

In 1975 Harleysville became the general liability insurance carrier for the Fauquier County Board of Supervisors (the Board). The Board's general liability policy provided "premises-operations" coverage on various county buildings including the county jail. The policy provided the Board with $500,000 of coverage for each bodily injury for which the Board may be liable as a result of an unexpected or unforeseen accident. The Board renewed this policy on June 16, 1979, and extended coverage until June 16, 1980.

In late 1979, a Harleysville underwriter contacted Richard Bowen, whose company, Carr and Hyde, Inc., had arranged Harleysville's insurance coverage of the Board. The underwriter asked Bowen to check whether the Board had double coverage for the county jail. Bowen discovered that the Board had police professional liability coverage through a policy issued by the Ideal Mutual Insurance Company. Bowen then telephoned the County Finance Director, Larry D. Czarda, and told him that "he may have found a way to save the county some money" by eliminating the apparent duplicate coverage. Soon after this conversation, Bowen sent a copy of the Ideal policy to Harleysville underwriter Mike Cash and indicated that he thought the Ideal policy duplicated the jail coverage under Harleysville's policy. Agreeing that the Ideal policy duplicated Harleysville's coverage of the jail, Curtis Klause, another underwriter, approved on February 21, 1980 deletion of the county jail from the Harleysville policy. Klause indicated on cross-examination that Harleysville did not intend to leave the Board without insurance coverage of the jail.

Harleysville formalized the deletion by sending a retroactive endorsement dated March 17, 1980 to Czarda. The endorsement deleted coverage of the jail from June 16, 1979, to June 16, 1980. The district court specifically found that Czarda did not object to the deletion because Bowen had assured him "that the Ideal policy contained the same coverage for the jail as the Harleysville policy." (J.A. 21) The district court also found that the Board had reasonably relied on Bowen to determine whether there was double coverage.

Two weeks before Klause approved deletion of the county jail from the Harleysville policy, the incidents giving rise to this case occurred. In the early morning hours of February 3, 1980, Vivian Hitt was jailed for drunk driving. After she was left unattended with a package of cigarettes and matches, the mattress on the bed in her cell caught fire, and she was severely burned. Hitt incurred medical bills in excess of $200,000, and in February 1982 brought suit against the Board, the Sheriff, and the Deputy Sheriff under 42 U.S.C. Sec. 1983 and Virginia tort law.

Before filing a claim with Ideal, the county attorney examined the policy and discovered that the Ideal policy did not cover the jail. After filing an answer and making further investigation of the circumstances surrounding the deletion of jail coverage from the Harleysville policy, the county attorney wrote to Harleysville on May 13, 1982, and demanded that Harleysville defend the Board in the Hitt action and pay any judgment or settlement resulting from the suit. Although the Harleysville policy required that written notice of any potential claim be given "as soon as practicable," the district court found that it was the practice of Harleysville not to require written notice, and that within one week of the fire, Czarda had informed Bowen of the incident. After receiving the written demand to defend, Harleysville formally denied responsibility for coverage.

In response to Hitt's complaint, the Board moved for summary judgment and raised the defenses of good faith and official immunity. The district court denied the Board's motion but granted Hitt's motion to strike the Board's defenses. Following these rulings, the Board, on July 5, 1982, settled with Hitt. The terms of the settlement were highly irregular. The Board agreed to pay Hitt $350,000 in cash on July 15 and agreed to assign an additional $150,000 to Hitt if it succeeded in an action for indemnification against Harleysville. The Board agreed to seek recovery of $500,000 (the limit for personal injury liability in its insurance policy) from Harleysville. However, the Board also agreed to pay the additional amount to Hitt even if it only recovered $350,000 from the insurance company.

The district court concluded that Harleysville was estopped from denying coverage in this case. It found the $350,000 settlement reasonable, but refused to award the additional $150,000 because the Board had only paid $350,000.

II.

Harleysville argues that the retroactive cancellation of coverage relieves it of any liability in this case. ¹ The district court concluded that Harleysville was estopped from asserting the validity of the retroactive cancellation. We agree with Harleysville that the doctrine of estoppel does not apply. In Virginia ², estoppel requires that:

(1) There must have been a false representation or concealment of material facts; (2) the representation must have been made with knowledge of the facts; (3) the party to whom it was made must have been ignorant of the truth of the matter; (4) it must have been made with the intention that the other party should act upon it; and (5) the other party must have been induced to act upon it.

Trayer v. Bristol Parking Inc., 198 Va. 595, 604-05, 95 S.E.2d 224, 231 (1956) (quoting Taylor v. Cussen, 90 Va. 40, 43, 17 S.E. 721 (1893)). Although Harleysville through Bowen made a false representation of fact which induced the reliance of an unknowing Board, no evidence indicated that it made its representation with knowledge of the true facts. Indeed, the district court specifically found that the parties did not intend to leave the Board without coverage for the jail.

Nonetheless, we conclude the retroactive cancellation is voidable under the doctrine of mutual mistake. ³ It is well established that "a mutual mistake as to the existence of facts which go to the essence of a contract will render a contract voidable where it later appears that such facts did not exist." United States v. Garland, 122 F.2d 118, 121 (4th Cir.), cert. denied, 314 U.S. 685, 62 S.Ct. 189, 86 L.Ed. 548 (1941). Accord Virginia Iron Coal & Coke Co. v. Graham, 124 Va. 692, 98 S.E. 659 (1919). In this case, both parties assumed that the jail was covered under the Ideal policy, and the assumed existence of this fact led to the retroactive cancellation contract.

Harleysville contends that a mistake cannot be attributed to it because Bowen was not its agent. The district court found to the contrary, and its finding is supported by the evidence. Carr and Hyde, Inc., for which Bowen worked and which he partly owned, solicited insurance for Harleysville. Under Va.Code Sec. 38.1-327.2, this solicitation conclusively establishes agency. The question of agency aside, Curtis Klause, a Harleysville underwriter and the man who approved the deletion of jail coverage, established mistake of fact on Harleysville's part. Klause testified that in deleting the Harleysville policy, the company did not intend to take away from the Board's total coverage.

As an alternative defense, Harleysville notes that a party seeking relief under the mutual mistake doctrine must have exercised reasonable diligence, Solenberger v. Strickler, 110 Va. 273, 65 S.E. 566 (1909), and argues that the Board's reliance on Bowen was unreasonable. The district court, however, concluded that it was reasonable for the Board to "place themselves in the hands of the man who handled their insurance for Harleysville [and] who was knowledgeable in that area where they were not." (J.A. 240) We believe this ruling...