MFA Mutual Insurance Company v. Lovins

• Decision Date: 15 December 1965
• Docket Number: No. J-64-C-63.,J-64-C-63.
• Citation: 248 F. Supp. 108
• Parties: MFA MUTUAL INSURANCE COMPANY, Plaintiff, v. Agbird LOVINS, Administrator of the Estate of E. C. McKelvey and Lorene McKelvey, Deceased, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

248 F. Supp. 108

MFA MUTUAL INSURANCE COMPANY, Plaintiff, v. Agbird LOVINS, Administrator of the Estate of E. C. McKelvey and Lorene McKelvey, Deceased, Defendant.

No. J-64-C-63.

United States District Court E. D. Arkansas, Jonesboro Division.

December 15, 1965.

G. D. Walker, Frierson, Walker & Snellgrove, Jonesboro, Ark., for plaintiff.

Gus R. Camp, Piggott, Ark., Peter A. Martin, Olathe, Kan., for defendant.

GORDON E. YOUNG, District Judge.

This is an action by the plaintiff insurance company against the Administrator of the Estate of E. C. and Lorene McKelvey, seeking a declaratory judgment that on account of alleged breaches of the policy terms and provisions of a certain insurance contract plaintiff is not indebted to the defendant. Defendant has filed a cross complaint seeking judgment against the plaintiff in the sum of $20,000 plus penalty and attorneys' fees. This court has jurisdiction by reason of diversity of citizenship and the requisite amount in controversy.

The facts are not in dispute.

On September 24, 1963, plaintiff issued its automobile liability insurance policy covering a certain truck to Mr. McKelvey. Among other coverage in the policy was "uninsured motorist insurance" under which the insuring agreement provided as follows:

"1. Coverage E — Uninsured Motorist Coverage — The Company will pay all sums which the insured or his legal representative shall be legally entitled to recover as damages from the owner or operator of an insured automobile because of bodily injury, sustained by the insured, caused by accident and arising out of the ownership, maintenance or use of such uninsured automobile; provided, that determination as to whether the insured or his legal representative is legally entitled to recover such damages, and if so, the amount thereof, shall be made by agreement between the insured or his legal representative and the company or, if they fail to agree, by arbitration."

By the terms of the policy the limits of liability under the uninsured motorist coverage were $10,000 for one person or a total of $20,000 for a single accident.

On March 13, 1964, while the policy was in effect, the McKelveys were passengers in the insured vehicle and were involved in a collision with another vehicle operated by one W. D. Hames, who had no liability insurance and was an uninsured motorist within the meaning of the policy. Both of the McKelveys, being passengers in the vehicle, were entitled to the protection of the uninsured motorist coverage. As a result of the collision, both of the McKelveys were instantly killed, and Hames died shortly thereafter.

Plaintiff and the defendant Lovins, as the Administrator of the Estates of the McKelveys, were unable to agree upon the amount of damages sustained by the respective estates on account of the death of the McKelveys, and the Administrator refused to submit the matter to arbitration as provided by the policy. It is conceded by the plaintiff that under Arkansas law the arbitration provision is unenforceable.

The uninsured motorist insurance provision of the policy also contained the following provision:

"4. Exclusions — Coverage E. does not apply: * * *

(b) to bodily injury to an insured with respect to which such insured or his legal representative shall, without the written consent of the Company, make any settlement with, or prosecute to judgment any action against any person or organization who may be legally liable therefor;"

On August 31, 1964, defendant as such administrator filed suit in the Circuit Court of Clay County, Arkansas, against the Administrator of the Estate of Hames (the uninsured motorist) for damages on account of the death of the McKelveys. Counsel for the defendant Lovins gave notice to plaintiff of the filing of that action. The Administrator of Hames' Estate filed an answer and cross complaint against defendant, and notice of the filing of such cross complaint was also given to plaintiff.

Because of its liability coverage under the policy plaintiff accepted the defense of the cross complaint.

After plaintiff received notice that defendant had filed suit against the Hames estate, the claims manager of plaintiff wrote defendant's counsel calling attention to the exclusionary clause in the policy which said that there was no coverage under the uninsured motorist clause if the insured or his legal representatives should, without the written consent of plaintiff, prosecute to judgment any action against any person who might be legally liable for damages to the insured. The letter went on to say:

"You are hereby notified if you prosecute this claim to a conclusion without this Company's permission, you are waiving any rights of recovery under the terms of the policy and we want to go on record definitely reserving all rights of the Company under the policy and we must insist upon a very strict compliance with the terms of the contract.

"If the lawsuit in the Circuit Court for the Eastern District of Clay County, Arkansas, is prosecuted to a judgment, this Company feels there will be no coverage under this policy as herein set out."

Subsequently, a motion for summary judgment was sustained as to the Hames cross complaint and it was dismissed by the court. At that time plaintiff withdrew from further participation in the action and the case proceeded to trial on the complaint of the Administrator of the McKelveys against the Administrator of Hames. As stated in plaintiff's brief, prior to the commencement of the trial the plaintiff, by its counsel in open court, warned defendant through his counsel that the prosecution of the action against the Hames Estate would be considered to be a violation of the policy terms, but, notwithstanding, defendant did proceed to trial which resulted in a judgment in favor of Lovins against the Hames Estate in the total sum of $23,206.

Counsel for the Administrator of the Hames Estate did not appear for the trial — and, as provided by Arkansas law, a jury was empanelled and testimony was offered, resulting in the jury verdict described above. No parties or counsel adverse to defendant participated in that proceeding.

Plaintiff then filed this action, alleging that demand would shortly be made upon it for the payment of $20,000 under the policy, and asking for declaratory judgment holding that it was under no obligation to the defendant. Defendant's cross complaint followed.

Several issues are presented for the Court's decision. None of them have been considered by the Supreme Court of Arkansas.

I. Can the company forbid its insured to sue the tort-feasor upon penalty of being deprived of his contract insurance coverage?

At the outset it may be observed that the law on the subject of uninsured motorist coverage generally is in an unsatisfactory and undeveloped state. This clause, now included almost as a matter of course in automobile liability insurance policies, is relatively new and the court decisions dealing with the problems in this area are few. Some if not most of the major problems stem from the fact that where the insured and his insurance company cannot agree, a basic conflict of interests arises between the insured and his carrier. Thus under the contract of liability insurance the company may be obligated to defend the insured against allegations of negligence against him and at the same time in the protection of its own interests assert that its insured was negligent if the insured makes a claim under the uninsured motorist clause of his policy. These problems are made particularly difficult in states where, like Arkansas, the arbitration clause found in these policies is unenforceable.

The closest case to the one at bar the Court has been able to find is Boughton v. Farmers Ins. Exchange, 354 P.2d 1085, 79 A.L.R.2d 1245 (Okl.1960).

There, under a policy apparently identical with the one here, the insured motorist instituted action and obtained judgment against the uninsured motorist, and then after demanding payment from her insurance company under its uninsured motorist clause, brought this action against her insurance company. In her complaint, plaintiff, after alleging the policy, the accident, and the judgment against the uninsured motorist, alleged that she had notified her company of the accident and her injuries, and attached to such letter a copy of the complaint to be filed against the uninsured motorist; that the insurance company was afforded an opportunity to participate in the prosecution or defense or trial of said action but it failed or refused to do so. As here, the insurance company advised its assured that if she settled or reduced to judgment her action against the uninsured motorist she would be violating the terms of the policy and that it, the company, would refuse to pay any money either by settlement or arbitration if she pursued that action to judgment.

The trial court sustained the defendant insurance company's demurrer to the complaint. It found that the arbitration agreement was void but held that the judgment obtained by her against the uninsured motorist was not binding upon the insurance company for the reason it was not a party to that action; and that the insurance company was not estopped to retry or relitigate the question of liability of the uninsured motorist or plaintiff's damages.

Upon appeal the Supreme Court of Oklahoma reversed. After holding that the arbitration provision was unenforceable in Oklahoma it considered the question of what was the effect, if any, of the policy provision forbidding the assured to recover judgment against the tort-feasor without the insurance company's consent. The court said, "In as much as the insurer agreed to pay all sums insured shall be legally entitled to recover from an uninsured motorist and the `no action' provision would restrict insured from enforcing these rights, we hold such provision to be void."

The case of Levy v. American Automobile Insurance Co. (1961), 31...