National Sec. Fire and Cas. Co. v. Coshatt

• Decision Date: 30 August 1996
• Citation: 690 So.2d 391
• Parties: NATIONAL SECURITY FIRE AND CASUALTY COMPANY, a Corporation v. Tommy R. COSHATT and Terri D. Coshatt. Tommy R. COSHATT and Terri D. Coshatt v. NATIONAL SECURITY FIRE AND CASUALTY COMPANY, a Corporation. 2941068, 2941069.
• Court: Alabama Court of Civil Appeals

Page 391

690 So.2d 391

NATIONAL SECURITY FIRE AND CASUALTY COMPANY, a Corporation v. Tommy R. COSHATT and Terri D. Coshatt.

Tommy R. COSHATT and Terri D. Coshatt v. NATIONAL SECURITY FIRE AND CASUALTY COMPANY, a Corporation.

2941068, 2941069.

Court of Civil Appeals of Alabama.

Aug. 30, 1996.

Rehearing Denied Oct. 25, 1996.

Certiorari Denied Feb. 21, 1997

Alabama Supreme Court 1960205.

Charles P. Gaines and Mark A. Rasco of Gaines, Gaines, & Rasco, P.C., Talladega, for appellant/cross appellee.

Erskine R. Funderburg of Trussell & Funderburg, P.C., Pell City, for appellees/cross appellants.

ROBERTSON, Presiding Judge.

National Security Fire and Casualty Company ("National Security") appeals from a judgment based on a jury verdict for Tommy R. Coshatt and his wife, Terri D. Coshatt. The Coshatts sued National Security on claims of breach of contract and bad faith refusal to pay. At trial, the court granted the Coshatts' motion for a directed verdict as to the breach of contract claim, and submitted the case to the jury for determination of the amount of contract damages and a determination of the bad faith claim. The jury returned a verdict for the Coshatts and awarded $1,600 as damages for the breach of contract and $30,000 as punitive damages on the bad faith claim.

National Security appeals, raising two issues: (1) whether the trial court erred in direct a directed verdict for the Coshatts on the breach of contract claim and (2) whether the trial court erred in not granting its motions for a directed verdict, a judgment notwithstanding the verdict, and a new trial on the Coshatts' bad faith claim. The Coshatts cross-appeal, arguing that the trial court erred in excluding evidence they proffered to show a pattern and practice of bad faith denials of coverage.

The Coshatts purchased a homeowner's insurance policy from National Security in February 1993. A snowstorm damaged the Coshatts' home on March 12, 1993, and they made a claim under their policy. The Coshatts contacted their National Security agent, Jack Barber, within two days of the storm. Barber advised the Coshatts to make any necessary repairs. Barber had repeated conversations with the Coshatts, both before and after the repairs were made. He testified at trial that he routinely authorized repairs in similar circumstances where the damage was plainly covered and not too expensive. When the Coshatts contacted Barber, he was a senior National Security agent who trained other agents regarding the kind of coverage afforded by the policy held by the Coshatts.

The Coshatts had the damage repaired on March 18 and 19, 1993. Barber visited the Coshatts' home shortly after the repairs were made and assured them that they had done the proper thing under the circumstances. Barber testified at trial that he had discussed the Coshatts' claim with his supervisors at National Security and had told them that the claim was due to be paid and that if it was not paid he would quit the company.

James Keat, an independent adjuster hired by National Security, adjusted the claim in May 1993, inspected the repairs, and recommended payment of the Coshatts' claim. National Security denied the Coshatts' claim on June 22, 1993, on the ground that the Coshatts did not allow National Security to investigate the cause and extent of the loss.

I. The Directed Verdict on the Breach of Contract Claim

"The standard of review applicable to a motion for directed verdict is the 'substantial evidence rule.' See, § 12-21-12(a), Ala.Code 1975; Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 228 (Ala.1990). To withstand a motion for a directed verdict, a party must have presented 'substantial evidence' supporting each element of his cause of action or defense. Id. 'Substantial evidence' has been defined as 'evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989); see Ala.Code 1975, § 12-21-12. Also, we note that in reviewing a ruling on a motion for a directed verdict, we must view all the evidence in a light most favorable to the nonmovant and must entertain such reasonable inferences from the evidence as the jury would have been free to draw. Williams v. Allstate Insurance Co., 591 So.2d 38 (Ala.1991); Bailey v. Avera, 560 So.2d 1038 (Ala.1990)."

Hosea O. Weaver & Sons v. Towner, 663 So.2d 892, 894 (Ala.1995).

National Security argues that the trial court's directed verdict on the breach of contract claim is wrong because, it says, there are questions of fact (1) as to whether the Coshatts permitted National Security to view the damage before making repairs and (2) as to whether the Coshatts presented National Security with false statements about the repairs.

The gist of National Security's first argument is that the Coshatts did not give National Security proper notice so as to allow National Security to inspect the property before the damage was repaired. This argument fails to recognize the undisputed evidence establishing that Barber, the National Security agent, was notified of the damage at least four days before the Coshatts began repairs. Notice to the company's agent is notice to the company.

"As against a principal, both principal and agent are deemed to have notice of whatever either has notice of and ought in good faith and the exercise of ordinary care and diligence to communicate to the other."

Ala.Code 1975, § 8-2-8.

The testimony of other National Security employees indicating that Barber did not communicate the notice to them does not create a question of fact as to whether the company received notice. By statute, National Security received notice when its agent received notice. § 8-2-8. Moreover, National Security presented no rebuttal to its agent's testimony that he was timely notified and that he had authorized the repairs. National Security argues only that its agent did not specifically authorize complete repairs. Although Barber testified that the policy contemplated immediate temporary repairs to prevent further damage, he also testified that all the repairs he saw were covered under the policy.

Finally, National Security did not present any evidence that the Coshatts ever impeded National Security's effort to examine the property. Both Barber and National Security's adjuster, Keat, were permitted complete access to the property. In summary, National Security failed to produce substantial evidence supporting its contention that the Coshatts denied National Security access to the property.

National Security's second argument, that the directed verdict against it on breach of contract was erroneous, is that National Security properly denied coverage because, it says, the Coshatts submitted a false claim. Under the policy, National Security has the right to refuse coverage in the event of fraud. National Security argues that the Coshatts submitted a false claim, based on evidence that the Coshatts presented an inaccurate repair bill. Taken most favorably to National Security, the evidence showed that the Coshatts had the damage repaired and submitted the repair bill directly to National Security. The repair bill was prepared from an estimate that reflected costs for touch-up painting that had not been completed at the time of submission.

The first problem with this argument is that it was developed after the Coshatts filed this lawsuit, after National Security had already denied coverage. The adjuster informed National Security of inconsistencies in the bill in his report of June 4, 1993, but National Security denied coverage only on the basis of lack of opportunity to inspect, on June 22, 1993. A forfeiture provision such as National Security seeks to rely on here is subject to waiver, both by the insurer's failure to assert it and by its agent's approval of the repairs after they were made. Henson v. Celtic Life Ins. Co., 621 So.2d 1268 (Ala.1993); Industrial Machinery, Inc. v. Creative Displays, Inc., 344 So.2d 743 (Ala.1977).

The second, and more basic, problem is that National Security's false-claim argument arises under the "fraud and misrepresentation" forfeiture provision of the policy. The language of such a provision must be construed against the drafter, here National Security. Akins v. Randolph County Bd. of Educ., 643 So.2d 995 (Ala.Civ.App.1994); Gray v. Reynolds, 553 So.2d 79 (Ala.1989).

No reasonable construction of the fraud forfeiture provision of the policy supports National Security's argument that it was entitled to deny coverage because of an unintentional inaccuracy in a repair bill. That is, the trial court and this Court must construe any ambiguity in the fraud forfeiture language in the policy in favor of coverage for the insured. Turner v. State Farm Fire & Cas. Co., 614 So.2d 1029 (Ala.1993); Guaranty National Ins. Co. v. Marshall County Bd. of Educ., 540 So.2d 745 (Ala.1989). The correct construction would allow National Security to deny coverage only in the event it shows that the Coshatts intentionally misrepresented a material fact in their claim.

At most, the evidence as to the "false claim" shows the submission of an inaccurate repair bill that was not prepared by the Coshatts. There was also testimony by the repairman that all such work was eventually performed. This evidence indicates a dispute as to the amount of damages on the breach of contract claim; that issue was presented to the jury.

There is no substantial evidence that the Coshatts intentionally misrepresented their claim. There is no substantial evidence that the Coshatts prevented National Security from inspecting the damage, and the undisputed evidence is that National Security's agent authorized repairs before making inspection. National Security's argument that disputed facts exist because of the wording of its contract are unsupported, especially...