Home Indem. Co. v. Reed Equipment Co., Inc.

• Decision Date: 07 March 1980
• Citation: 381 So.2d 45
• Parties: The HOME INDEMNITY COMPANY v. REED EQUIPMENT COMPANY, INC., Joel Earl, and Leo M. Reed. 79-235.
• Court: Alabama Supreme Court

Page 45

381 So.2d 45

The HOME INDEMNITY COMPANY v. REED EQUIPMENT COMPANY, INC., Joel Earl, and Leo M. Reed.

79-235.

Supreme Court of Alabama.

March 7, 1980.

John D. Richardson and Elias J. Saad of Brown, Hudgens, Richardson, Whitfield & Gillion, Mobile, for appellant.

Irvin J. Langford of Howell, Johnston, Langford, Finkbohner & Lawler, Mobile, for appellees.

JONES, Justice.

This is an appeal from a suit by The Home Indemnity Company, Inc., for declaratory judgment to determine its liability under a policy issued to Reed Equipment Company. ¹ This coverage dispute arises out of the following facts: On February 7, 1977, two Reed Equipment employees, Allen Dean Bradwell and Joel Earl, were operating separate vehicles Earl in a six-wheel truck and trailer followed by Bradwell in a one and one-half-ton truck when the Bradwell truck was involved in a collision with an oncoming vehicle driven by Cecil David Turner. Earl viewed the accident in his rearview mirror and returned to give aid. Both Turner and Bradwell were seriously injured and a passenger riding in the Turner vehicle was killed.

Although the manner and time of its discovery are disputed, it was subsequently learned that a wheel came off the trailer being driven by Earl, thereby leading to speculation that the wheel collided with the Turner truck, causing the truck to collide with the Ford truck being driven by Bradwell. The missing wheel was recovered near the accident site a couple of days later and placed under lock and key on the premises of Reed Equipment Company. According to the testimony given by the company's president, Leo Reed, he first thought that the wheel may have been involved in the accident but later changed his opinion and only kept the wheel upon the advice of his brother who is an attorney.

In any case, though the accident itself was reported immediately to Reed Equipment Company's insurer, the existence of the missing wheel was not reported to either of the insurance companies involved Home Indemnity, acting for Reed Equipment and its employees, or State Farm on behalf of Turner, until some eleven months after the accident. In the absence of this information, it appeared to the investigators of both companies that fault lay with the Turner vehicle which had left its proper lane of traffic and collided with the Bradwell truck. Claims were made by both Reed Equipment Company and Bradwell against Turner's insurer, State Farm Mutual Insurance Company.

Approximately eleven months after the accident sometime in December, 1977 Bradwell telephoned State Farm's representative and related what he knew regarding the missing wheel and its possible involvement in the collision. This information was passed on by State Farm to Home Indemnity, which contacted Leo Reed and requested that he sign a "non-waiver agreement" whereby Home Indemnity would undertake to defend any suits brought against its insureds without thereby waiving any defenses it might have to liability (i. e., coverage) under the provisions of the policy. Reed refused.

In January, 1978, Turner and Bradwell commenced separate actions against Appellees seeking damages as a result of the February 7, 1977, accident. On January 30, 1978, Home Indemnity wrote Leo Reed and declined coverage as to the suit filed by Bradwell, citing the employee exclusion provision of the policy. The following day, Home Indemnity again sought a nonwaiver agreement from Reed apparently with respect to the action brought by Turner. Reed again refused and retained independent legal counsel. Home Indemnity then brought this action for declaratory judgment.

The trial Court, hearing the case ore tenus, decreed that Home Indemnity was liable to provide both defense and indemnification to Reed Equipment Company, Leo Reed, and Joel Earl concerning any suits brought against them arising out of the February 7, 1977, accident. The Court further decreed that Reed Equipment Company, Leo Reed, and Joel Earl were entitled to be reimbursed by Home Indemnity Company for all attorneys' fees and costs incurred in defending the pending actions brought by Bradwell and Turner. Home Indemnity Company appeals, challenging the sufficiency of the evidence to support the trial Court's final decree and alleging the trial Court's misapplication of the law to the facts.

The first issue raised on this appeal concerns the interpretation of the following two provisions of the policy issued by Home Indemnity:

"7. Assistance and Cooperation of the Insured: The insured shall cooperate with the company and, upon the company's request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits or proceedings . . . .

". . .

"10. Action Against Company Coverage B: 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, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company."

The trial Court's findings and conclusions with respect to the above were, substantially, that neither Reed Equipment Company, Leo Reed, nor Joel Earl knowingly failed to cooperate with Home Indemnity Company and that, in any event, Home Indemnity Company was not prejudiced by the delay in learning of the missing wheel.

We agree with Appellant that the ore tenus presumption of correctness applies only to the resolution of conflicts in the evidentiary facts. The presumption of correctness accorded the trial court, hearing a case ore tenus, has no application where the facts are undisputed; and, under such circumstances, it is solely for the appellate court to determine whether the trial court misapplied the law to the undisputed facts.

Furthermore, we agree with Appellant that much of the evidence before the trial Court in this case was without dispute and, in large measure, the Court's findings are a mixture of law and fact, or they constitute factual premises for conclusions of law.

We must reject, however, the notion that the ore tenus rule has no field of operation in the instant case. There are, indeed, substantial areas of evidence in sharp conflict. For example, Bradwell states that Earl told him of the missing tire at the time of the accident. Earl denies this and points to earlier statements of Bradwell in direct contradiction to his later account of the tire incident. Bradwell contends he and Reed held a private conversation in the hospital concerning the tire. This is denied by Reed who counters with the contention that Bradwell's latest account is self-serving and coincides with his filing of suit for personal injuries against Reed Equipment Company, Leo Reed, and Joel Earl.

Because of the pendency of third-party litigation involving these parties, we follow the more prudent course of not detailing all of the evidence. Suffice it to say, those findings of the trial Court essential to the validity of its final order are sufficiently supported by the evidence of record and the inferences which may be reasonably drawn therefrom. The trial Court, as the trier of fact, was in the best position to judge the credibility of the witnesses testifying before it and to resolve conflicts in the testimony. We cannot say, therefore, that the trial Court was palpably wrong in its finding with respect to Appellees' knowledge concerning the role of the missing wheel in the accident.

Moreover, irrespective of the presumption of correctness accorded the trial Court's findings with respect to the disputed facts, Appellant cannot avoid its obligations on this ground because an insured's failure to cooperate is inconsequential unless it is both material and substantial. General Accident Fire & Life Assurance Corp. v. Rinnert, 170 F.2d 440 (5th Cir. 1948); Auto-Owners Insurance Co., Inc. v. Rodgers, 360 So.2d 716 (Ala.1978); Stonewall Insurance Company v. Perkins, 285 Ala. 699, 235 So.2d 838 (1970); Alabama Farm Bureau Mutual Casualty Insurance Co. v. Cofield, 274 Ala. 299, 148 So.2d 226 (1962); George v. Employers' Liability Assurance Corporation, 219 Ala. 307, 122 So. 175 (1929).

The rule is elaborated upon in 44 Am.Jur.2d, Insurance, § 1561, as follows:

"As a general proposition the insured must comply with all the requirements of the co-operation clause, but to constitute a breach of a co-operation clause by the insured which will justify the insurer in withdrawing from the defense of the action brought against the insured and in canceling the protection to him there must be a lack of co-operation in some substantial and material respect; a technical or inconsequential lack of co-operation or misstatement to the insurer is immaterial." At p. 445, citing George v. Employers' Liability Assur. Corp., supra, at note 18.

We note, initially, that none of the above-cited Alabama cases expressly states the test for determining what is material and substantial with respect to an insured's alleged failure to cooperate. Implicit in a number of these cases, however, is the requirement of prejudice to the insurer.

In Auto-Owners Insurance Company, Inc. v. Rodgers, supra, the insurer claimed that it had been prejudiced in its investigation of its insured's accident because of the latter's failure to meet with the company's investigators after repeated requests by telephone and by mail that he do so. Specifically, the insurer argued that, as a result of the insured's conduct, it was practically impossible to locate witnesses. The Court noted that the insurance company had access to the police report, and, also, could have taken the deposition of the accident witnesses; thus, concluded the Court, the insured's conduct "did not amount to a lack of cooperation in any substantial or material respect."...