Johnson v. Central Nat. Ins. Co. of Omaha, Neb.

• Decision Date: 04 April 1962
• Citation: 14 McCanless 24,356 S.W.2d 277,210 Tenn. 24
• Parties: , 210 Tenn. 24 John M. JOHNSON and Charles Edward Sherron, Plaintiffs-in-Error, v. The CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, NEBRASKA, Defendant-in-Error.
• Court: Tennessee Supreme Court

Page 277

356 S.W.2d 277

14 McCanless 24, 210 Tenn. 24

John M. JOHNSON and Charles Edward Sherron, Plaintiffs-in-Error, v. The CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, NEBRASKA Defendant-in-Error.

Supreme Court of Tennessee.

April 4, 1962.

Robert L. White, Memphis, for plaintiffs in error.

Olen C. Batchelor, Jr., Memphis, for defendant in error.

WHITE, Justice.

The parties will be referred to as in the Trial Court. The action of the Trial Court, sitting without the intervention of a jury, in dismissing this case was affirmed by the Court of Appeals. We have granted certiorari.

The record discloses that John M. Johnson and Charles Edward Sherron sued The Central National Insurance Company of Omaha, Nebraska for a breach of contract and for cause of action stated:

That on September 30, 1959, the Insurance Company issued a policy of automobile liability insurance to the plaintiff, John M. Johnson, insuring him and 'any resident of his household against liability or loss for which the said John M. Johnson or any member of his household shall be legally obligated to pay as damages on account of bodily injury or property damage inflicted on any person or property as a result of the use of an automobile described in such policy and owned by plaintiff John M. Johnson.' The term of the policy was for one year, and the full premium was paid by the plaintiff.

On the 5th day of February, 1960, Charles Edward Sherron, stepson of John M. Johnson and a member of his household, was driving the Lincoln sedan automobile described in said policy of insurance with the consent of John M. Johnson, and while said stepson was so driving said automobile he had an accident in Shelby County, Tennessee, which resulted in suits being filed against him and his stepfather. Upon the trials thereof judgment were rendered against the plaintiffs in the total amount of $2,082.00 including the Court costs, the recovery for which the plaintiffs sue the defendant, Insurance Company, together with damages in the amount of $500.00 paid by said plaintiffs for attorneys' fees in the proper defense of the claims for damages brought against them as aforesaid.

The defendant filed an answer admitting the issuance of the policy for the term alleged, upon the conditions alleged, and that the premium therefor had been paid in full. For special plea the defendant alleged that the policy of insurance was written as a 1-B classification, such classification prevailing when there are no drivers under the age of twenty-five years in a household. It was alleged that on November 11, 1959 it came to the attention of the defendant that plaintiff, Charles Edward Sherron, was a resident of the household of plaintiff, John M. Johnson, and that he was under the age of twenty-five years and that a representative of the defendant called upon the said plaintiff, John M. Johnson, explained to him the position of the defendant and then obtained his signature to an endorsement which was made a part of the policy as follows:

'EXCLUSION OF NAMED DRIVER ENDORSEMENT

'In consideration of the premium charged it is understood and agreed that there shall be no coverage under this policy while the automobile insured is driven by

Charles Sherron

'The terms and conditions of this endorsement are hereby accepted and agreed to by the named insured whose signature has been affixed hereto this 11 day of November 1959.

'John M. Johnson (signed)

'Named Insured.

'Nothing herein contained shall vary, alter, waive, or extend any of the terms, representations, conditions, or agreements of the policy other than as above stated.

'To be attached to and form a part of policy No. FC 7543 issued to John M. Johnson by The Central Insurance Company of Omaha.

'J. Earl Thompson (signed)

'President

'This endorsement effective

September 30, 1959.

'W. C. Raff (signed), Agent

A.A.C. Insurance Agency

CN-2318'.

Upon the trial of the case in the Circuit Court it was stipulated and agreed between the parties that the judgments referred to in the declaration had been rendered against the plaintiffs and in addition thereto they had insurred liability to the extent of $500.00 for attorneys' fees in defending the suits resulting in said judgments. It was further stipulated:

'The only point in issue was a question of law and that being whether or not there was good and valid legally binding consideration to support the exclusion endorsement which restricted Charles Sherron from being covered under the insurance policy while driving the Lincoln automobile. It was further stipulated that the defendant forbore exercising its right of cancellation of the policy as a result of Johnson signing the exclusion endorsement and that had Johnson not signed the endorsement the right of cancellation on the part of the defendant would have been exercised.'

The plaintiffs contend that the endorsement agreed to by John M. Johnson on November 11, 1959 is without consideration and, therefore, ineffectual and not binding on them. They also contend that the policy of insurance was a contract extending for a period of one year from September 30, 1959 for which the entire premium had been paid in advance and that the terms thereof could not be altered or changed except through another contract executed for a valuable consideration. They contend that the words of the endorsement 'In consideration of the premium charged' show that no consideration passed from the Insurance Company to the insured for his agreement to limit the coverage under the policy and, therefore, such agreement was unilateral and of benefit to the Insurance Company only. Or stated another way, it is contended that the defendant was obligated to carry out the terms of its contract of September 30, 1959, which had been freely entered into between the parties for a valuable consideration paid by the plaintiff, Johnson, and that no consideration or benefit passed to Johnson for the reduction or the limiting of the coverage as provided for in the endorsement.

It is the contention of the defendant that it had the right on ten days notice to the insured to cancel the policy and that it intended to cancel the policy and of course return the unearned premium unless the insured agreed to the endorsement being placed on the policy. In other words, the defendant says that its forbearance or its refraining from canceling the policy, as it had the right to do upon ten days' notice, was sufficient consideration passing to Johnson to support his act of signing the endorsement and, therefore, is a valid and enforceable agreement of modification of the policy. The accident out of which this suit grows did not occur until February 5, 1960, which was, of course, not within the period of time of ten days notice which the defendant could have given on November 11, 1959 of its intention to cancel the policy provided the endorsement was not agreed to by the plaintiff Johnson.

In considering this case we are cognizant of the daily practice of Insurance Companies operating in this State of issuing various endorsements to insurance policies already in existence which change the terms and conditions of the policy as originally written so as to limit or restrict their liability as to person, firm or corporation or as to amount.

Counsel have been unable to find statutory or decisional law of this State to aid the Court in making its decision on the exact point in question. However, they have cited a number of decisions from other jurisdictions, some of which hold that an endorsement, such as the one involved in this case, is invalid for lack of consideration and others hold that such a modification freely entered into and consented to by both parties is a binding obligation and, therefore, valid.

There is a general statement in 44 C.J.S., at page 1120 under the general subject of 'Insurance' to the effect that:

'A policy or contract of insurance may be changed or modified by a new and distinct agreement subsequently entered into by the parties or their authorized agents.

* * *

* * *

'Whether the parties have actually altered or modified a particular policy or contract of insurance is a question of fact. In order that there may be a modification, there must be an agreement therefor, supported by a consideration, and neither party has a right to modify the contract without the consent of the other party.'

There are reported decisions in Alabama, California, Georgia, Michigan, Texas and West Virginia holding that under facts similar to those in the case under consideration that modification was effective and valid. There are other cases in Alabama, California and Texas holding that the particular facts in the cases there under consideration were insufficient to constitute modification of existing policies of insurance.

Some of the decisions on this question are referred to in the annotation in 52 A.L.R.2d at pages 826, 827, in which it is said:

'The small number of cases touching upon this issue are agreed on the first aspect of the question: it is uniformly held, at least in the absence of facts showing an estoppel, that consideration is necessary for the valid modification of the coverage provisions of an insurance policy, whether the effect of the modification is to extend or limit the risks against which the insurance affords protection.'

In the case of Federal Life & Casualty Company v. Robinson, 28 Ala.App. 1, 178 So. 549, the insured had been issued a policy of health insurance, the coverage of which included hernia. The policy gave the insurer the right to cancel at any time by giving written notice together with a return of the unearned premium. The insured suffered a hernia and was paid the amount due under the policy. Thereupon the Insurance Company not willing to continue to carry the risk for hernia made known its purpose to...