Krebs By and Through Krebs v. Strange

• Decision Date: 01 September 1982
• Docket Number: No. 53396,53396
• Parties: Gary KREBS, A Minor, By and Through His Father and Next Friend, Joseph V. KREBS, Jr. and United States Fidelity and Guaranty Insurance Company v. Elise G. STRANGE; W. E. Strange, II, A Minor, By and Through His Mother and Next Friend Elise G. Strange; Carol Strange Durham; and Deddy Strange Burkhead.
• Court: Mississippi Supreme Court

Page 178

419 So.2d 178

Gary KREBS, A Minor, By and Through His Father and Next Friend, Joseph V. KREBS, Jr. and United States Fidelity and Guaranty Insurance Company v. Elise G. STRANGE; W. E. Strange, II, A Minor, By and Through His Mother and Next Friend Elise G Strange; Carol Strange Durham; and Deddy Strange Burkhead.

No. 53396.

Supreme Court of Mississippi.

Sept. 1, 1982.

Rehearing Denied Sept. 22, 1982.

Megehee, Brown, Williams & Mestayer, Raymond L. Brown, Pascagoula, for appellants.

Cumbest, Cumbest & Hunter, John L. Hunter, David O. McCormick, Pascagoula, for appellees.

Before WALKER, P. J., and BROOM and ROY NOBLE LEE, JJ.

BROOM, Justice, for the Court:

Certified to this Court by the United States Court of Appeals for the Fifth Circuit, 658 F.2d 268, are questions which arise out of a garnishment proceeding brought in the United States District Court for the Southern District of Mississippi, (being Federal Cause Numbered 80-3594), by the appellees, Elise G. Strange, et al., against United States Fidelity and Guaranty Company (USF&G), and Gary Krebs. Disclaiming coverage of appellant Krebs by virtue of an exclusionary endorsement in the policy covering the automobile, USF&G appealed from an adverse judgment of the United States District Court to the Fifth Circuit Court of Appeals. The United States Court of Appeals for the Fifth Circuit perceived this diversity action as centering around issues of contract and insurance law which were deemed unsettled in Mississippi jurisprudence. Therefore, the Fifth Circuit Court availed itself of the certification procedures to the Supreme Court of Mississippi set out in Mississippi Supreme Court Rule No. 46.

The following questions were certified to the Supreme Court of Mississippi by the United States Court of Appeals for the Fifth Circuit:

1. Does forbearance to cancel an insurance policy on renewal date constitute a valid consideration for an endorsement to the policy?

2. Was there valid consideration for the student exclusion (student risk) endorsement to the McLeod automobile liability insurance policy?

3. Was the endorsement contrary to the Mississippi Motor Vehicle Safety Responsibility Act or public policy, or ambiguous or contrary to the Omnibus Clause of the policy?

It should be noted that if the first and second questions are answered in the negative, the third question becomes moot.

On September 29, 1973, an accident occurred on Highway 6, between Batesville and Oxford, Mississippi, about 15 miles west of Oxford, in college football traffic. A 1972 Chevrolet Monte Carlo automobile, owned by W. F. McLeod and driven by Gary Krebs, with McLeod's daughter, Dorothy Lou, as a passenger, struck the rear of an automobile driven by William Ernest Strange, age 66. Later, at the game, Strange was stricken and taken to the Oxford Hospital, where he died of cardiac arrythmia.

McLeod owned an automobile insurance policy on the Monte Carlo, with such policy period running from September 7, 1973, to September 7, 1974. This policy included a "student exclusion" endorsement which had been added to the policy on December 4, 1972, during the preceding policy period. When this endorsement was added, in December of 1972, there was no rate change or adjustment of premium related to the endorsement.

The addition of the "student exclusion" endorsement was occasioned by Mr. McLeod's purchase of the 1972 Monte Carlo for use by his daughter at the University of Southern Mississippi. Near Christmas of 1972, in accordance with the requirements of the insurance policy, Mr. McLeod notified his insurance agent of the purchase of the automobile, and was informed of the corresponding additional premium for addition of the vehicle. When the agent was informed as to the intended purpose of the automobile, he advised Mr. McLeod that he would be required to sign the student exclusion endorsement or else the insurance policy would be terminated upon its next anniversary date. Verbatim language of the stipulation is:

McLeod was familiar with "student exclusion" endorsements, having had one on his policy when his older daughter was in school, and, also, he was informed by the agent in December, 1972, and McLeod understood, that his coverage would be terminated or not renewed on its anniversary date (September 7, 1973) if he failed to sign and accept the "student exclusion" endorsement.

Most significantly, absent from the stipulation of the litigants is any commitment on the part of USF&G or its agent that the policy would not be terminated, or that it would be renewed. ¹ Mr. McLeod signed the endorsement.

The "student exclusion" endorsement provided that USF&G would not provide automobile insurance liability coverage to any automobile owned by Mr. McLeod which was being operated by "any student enrolled in any school, college or university," with the exception of Mr. McLeod's daughter, Dorothy Lou. At the time of the accident on September 29, 1973, Gary Krebs was operating the automobile in question. At that time, he was enrolled as a student in the University of Southern Mississippi. He and Dorothy Lou McLeod, the insured's daughter, were en route from Hattiesburg to the Ole Miss--Southern ball game in Oxford, Mississippi.

In August of 1974, a suit was filed against Gary Krebs, his insurance carrier, Allstate Insurance Company, and USF&G. USF&G declined to furnish a defense and declined coverage for Krebs under McLeod's policy on the grounds of the "student exclusion" endorsement. Krebs was defended by Allstate, which settled the case for Krebs for $5,000 of its $10,000 coverage. A covenant not to prosecute the claim against Krebs was executed and a default judgment was entered against Krebs for $100,000. The garnishment proceeding instituted in the United States District Court for the Southern District of Mississippi is based upon the $100,000 default judgment entered against Gary Krebs in cause # 9195 in Jackson County Circuit Court. Jurisdiction in the garnishment proceeding was based upon diversity pursuant to 28 U.S.C. Sec. 1332 (1976), and was submitted to the District Court by agreement of the parties on a stipulation of testimony and evidence and memorandum briefs.

The District Court held for Mrs. Strange, et al., holding that the addition of the "student exclusion" endorsement was not supported by consideration, and hence never became a part of the policy of insurance.

The first issue we must decide is whether the "student exclusion" signed by Mr. McLeod was in force at the time of the accident between Gary Krebs and William Strange. The exclusion could have become a part of the insurance policy issued to Mr. McLeod at one of two times: (1) at the time of Mr. McLeod's agreement to sign the endorsement (pursuant to the modification procedures expressed in the terms of the contract), or (2) on September 7, 1973, when the contract itself was renewed.

We begin with the proposition which requires no citation of authority that insurance policies are matters of contract and the interpretation of insurance contracts is according to the same rules which govern other contracts. In order to have an enforceable insurance contract, the essential elements are an offer and an acceptance, supported by consideration. When the insurance company's offer to issue the insurance is accepted by the insured and premium payment is made, the contract is formed and the rights and obligations of the respective parties "lock in". The rights under the policy may be altered only through a modification to the insurance policy, and such a modification constitutes a new agreement which must likewise be supported by a consideration. United States Fidelity and Guaranty Company v. Mathis, 236 So.2d 730, 732 (Miss.1970).

In the instant case, Mr. McLeod purchased a new car in December, 1972, and pursuant to the terms of his policy, he notified his agent of the purchase so as to include the new car under the policy's coverage. In accordance with the original terms of the policy, USF&G was entitled to an additional premium for the newly purchased car, which they...