Rogers v. Aetna Cas. and Sur. Co.

• Decision Date: 30 August 1979
• Docket Number: No. 77-1420,77-1420
• Citation: 601 F.2d 840
• Parties: Ben ROGERS, Plaintiff-Appellee, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant-Third Party Plaintiff, Appellant, v. Milton BELL and Mansard Homes Co., Inc., Third Party Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 840

601 F.2d 840

Ben ROGERS, Plaintiff-Appellee, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant-Third Party Plaintiff, Appellant, v. Milton BELL and Mansard Homes Co., Inc., Third Party

Defendants-Appellees.

No. 77-1420.

United States Court of Appeals, Fifth Circuit.

Aug. 30, 1979.

Osborne J. Dykes, III, Russell H. McManis, Fulbright & Jaworski, Houston, Tex., for defendant-third party plaintiff, appellant.

Robert Q. Keith, Beaumont, Tex., for Rogers.

James L. Weber, Gilbert I. Low, Beaumont, Tex., for Mansard Homes Co., Inc.

Brack Jones, Jr., Beaumont, Tex., for Bell.

Appeal from the United States District Court for the Eastern District of Texas.

Before COLEMAN, GODBOLD and INGRAHAM, Circuit Judges.

INGRAHAM, Circuit Judge:

This appeal arises out of a dispute over the language in the dwelling extension clause of a Texas standard homeowners policy. ¹ The jury, upon special interrogatories, found against the insurer Aetna Casualty & Surety Company (Aetna) on all points, whereupon the trial court entered judgment on the verdict in favor of the insured Ben Rogers, plaintiff. From the denial of its motion for directed verdict and judgment notwithstanding the verdict, the insurer perfected its appeal to this court. For the reasons set out below, we affirm the judgment of the district court with modifications.

In 1973 the insured, Ben Rogers, contracted with third-party defendant Mansard Homes, Inc. (Mansard) to construct a poolhouse adjacent to the swimming pool in his back yard. At the time of construction of the poolhouse there was a gas-fired pool heater in place on a concrete slab near the pool. The plans for the poolhouse had been obtained from third-party defendant Milton Bell and provided for the poolhouse to be built around and without modification to the existing heater. Construction of the poolhouse took place during 1973 and the structure was virtually completed before the end of that year. Then, on December 11, 1973, a fire broke out in the poolhouse and nearly destroyed it.

After the smoke had cleared, Rogers promptly notified Aetna of the loss ² and subsequently filed a claim with Aetna for the damages under his Texas standard homeowners policy. Rogers contended that a portion of the loss was covered under the dwelling extension clause of the policy and Aetna, therefore, was liable for $20,000. ³

Aetna refused to pay the claim, asserting that the poolhouse was not within the dwelling extension clause coverage. The parties were unable to resolve their differences. The present action was therefore instituted by Rogers against Aetna for the amounts that Rogers claimed were due on the policy. Aetna answered, denying liability, and thereafter filed a third-party action against the architect Milton Bell and the contractor Mansard based on negligence and breach of a contractor's warranty of workmanlike performance, alleging that it was subrogated to any rights the plaintiff Ben Rogers may have had against the third-party defendants.

Rogers subsequently amended his claim against Aetna to include $2,500 for some unscheduled personal property also destroyed in the fire. Trial was had to a jury and the case was submitted upon special interrogatories. The jury found for the plaintiff Ben Rogers in his claim against Aetna and against Aetna on its third-party claims against Mansard and Bell. The damage to Rogers' poolhouse having been found by the jury to be $52,784.51, the trial court entered judgment in favor of Rogers and against Aetna for $22,500 plus interest, representing the full amount claimed by Rogers. The trial court also entered judgment in favor of both third-party defendants against Aetna on Aetna's third-party claim. Aetna urges reversal based on the trial court's failure to grant its motion for directed verdict and judgment notwithstanding the verdict. Aetna makes numerous assignments of error, and each one will be dealt with below.

Federal jurisdiction in the original action exists by virtue of diversity of citizenship of the parties and the sufficiency of the amount in controversy. 28 U.S.C. § 1332. Although Aetna has raised some question relating to the trial court's assertion of subject matter jurisdiction over the third-party action, its claim is groundless. Fawvor v. Texaco, Inc., 546 F.2d 636 (5th Cir. 1977), is inapposite ⁴ and the issue merits no further discussion.

Jurisdiction having been properly established, we note that since no federal question is presented, we are bound under Erie principles to apply state substantive law. The parties agree that Texas law controls in this action.

Aetna's principal contention on appeal is that the poolhouse was not covered under the dwelling extension clause because it was not in use at the time of the fire as required under the policy. In support of its contention, Aetna relies on Fisher v. Indiana Lumbermen's Mutual Ins. Co., 456 F.2d 1396 (5th Cir. 1972). In that case, the insured sought recovery under a fire policy similar to the one at issue here. The fire had damaged the insured's Principal dwelling at a time when he was living elsewhere. The court, applying Texas law, denied recovery since insured "was not occupying the house 'principally for dwelling purposes.' " Id. at 1398. Moreover, the dwelling extension clause was not in issue. ⁵ That, we believe, is the critical difference.

In the present case, neither party has contended that the poolhouse was not the type of structure intended to be covered by the dwelling extension clause. The issue then is whether the structure had reached a sufficient stage of completion so as to be included within the coverage of that provision. It is difficult to lay down a hard and fast rule of law as to when that coverage commences on a newly constructed improvement. However, we hold that the test for commencement of coverage under the dwelling extension clause is when the structure has reached a sufficient stage of completion so as to be capable of use for the purposes for which it was constructed.

There was undisputed evidence that the poolhouse was ninety-nine per cent finished. Swimming gear was stored therein, appliances were connected, and the pool heater was in operation. The finishing touches, such as a few plumbing hook-ups and installation of some larger pieces of furniture, were all that remained. Accordingly, under the facts of this case, we find that the poolhouse had reached the stage of completion necessary to satisfy the foregoing test for commencement of coverage. Thus, the loss on the poolhouse occasioned by the fire was within the policy coverage.

Aetna next contends that Rogers did not comply with the policy provision requiring the filing of proof of loss. It is undisputed that compliance therewith is a condition precedent to coverage under the policy. See, e. g., Hanover Ins. Co. v. Hagler, 532 S.W.2d 136, 137 (Tex.Civ.App. Dallas, 1975, writ ref'd n. r. e.). Texas law clearly states that substantial compliance with policy provisions requiring proof of loss is all that the insurer may require. Texas Farm Bureau Underwriters v. Hasting, 449 S.W.2d 283, 285 (Tex.Civ.App. El Paso, 1969, no writ); Austin Bldg. Co. v. National Union Fire Ins. Co., 403 S.W.2d 499, 506 (Tex.Civ.App. Dallas, 1966, writ ref'd n. r. e.). See Anchor Casualty Co. v. Bowers, 385 S.W.2d 568, 569 (Tex.Civ.App. Houston, 1964), Rev'd on other grounds, 393 S.W.2d 168 (Tex.1965).

It is Aetna's contention that there was insufficient evidence to sustain the finding of compliance by plaintiff. In reviewing the sufficiency of the evidence we are obligated to consider the evidence with all reasonable inferences in the light most favorable to the non-moving party. Pearce v. Wichita Cty., City of Wichita Falls, Etc., 590 F.2d 128, 132-33 (5th Cir. 1979). A verdict may be directed or a jury verdict overturned only " '(i)f the facts and inferences point so strongly and overwhelmingly in favor of one party that . . . reasonable men could not arrive at a contrary verdict.' " Id. at 133 (quoting Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969)). There was sufficient evidence to sustain the jury's finding. The loss was reported the day after the fire. Aetna's agent investigated the scene of the fire on at least two different occasions. Within a two-month period after the fire Aetna received five letters from Rogers detailing all information about the claim as it became available. Aetna's contention regarding the sufficiency of the evidence is without merit. Moreover, Aetna did not object to the proof of loss at any time during its negotiations with Rogers. "The rule is that, when defective proofs of loss are furnished the company, it must, within a reasonable time, object to the proofs, and point out the defects, so that the assured may, if he so desires, amend the same, and cure the defects." Anchor Casualty Co. v. Bowers, supra, at 569-70.

Aetna submits that the evidence established negligence as a matter of law on the part of the third-party defendant Mansard and, therefore, the trial court erred in failing to direct a verdict or enter judgment notwithstanding the verdict in the third-party action against Mansard Homes. The standard of review in this court is as enunciated in Boeing Co. v. Shipman, supra. In this case, there was conflicting testimony given on virtually all aspects of the construction of the poolhouse, especially as to the distance between an interior wall and the pool heater itself. The credibility of the witnesses was for the jury to decide and we cannot say that the facts and inferences overwhelmingly favored Aetna such that "reasonable men could not arrive at a contrary verdict." Id. at 374.

Aetna's next point of error is that the trial court should not have entered judgment for an amount greater than that shown on the proof of loss. Aetna's reliance on Commercial Union Assurance Co. v. Preston, 115 Tex. 351, 282 S.W. 563 (1926), is misplaced, as the issue there was...