Royal Indemnity Company v. Clingan, 16538.

• Decision Date: 16 September 1966
• Docket Number: No. 16538.,16538.
• Citation: 364 F.2d 154
• Parties: ROYAL INDEMNITY COMPANY, Plaintiff-Appellant, v. Henry CLINGAN and Linda Clingan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

364 F.2d 154 (1966)

ROYAL INDEMNITY COMPANY, Plaintiff-Appellant, v. Henry CLINGAN and Linda Clingan, Defendants-Appellees.

No. 16538.

United States Court of Appeals Sixth Circuit.

August 8, 1966.

As Amended September 16, 1966.

Ray H. Moseley, Chattanooga, Tenn., for appellant, Noone, Moseley & Bell, Chattanooga, Tenn., on the brief.

Carter Schoolfield, Chattanooga, Tenn., for appellees, Schoolfield & Taylor, Chattanooga, Tenn., on the brief.

Before PHILLIPS and EDWARDS, Circuit Judges, and McALLISTER, Senior Circuit Judge.

PHILLIPS, Circuit Judge.

The district court held that plaintiff-appellant, Royal Indemnity Company ("Royal"), is liable under an automobile accident insurance policy, and Royal has appealed. This action was filed by Royal for declaratory judgment and was tried before the district judge sitting without a jury.

Jurisdiction is based on diversity of citizenship. The law of Tennessee controls.

In its opinion, which is published in 238 F.Supp. 448 (E.D.Tenn.), the district court held that (1) the driver of the automobile at the time of the accident was not an insured under the policy because he was using the vehicle without the express or implied permission of the named insured, but that (2) Royal was estopped to deny coverage by reason of its failure to give affirmative notice of such denial to the Financial Responsibility Division of the Tennessee Department of Safety under the State Financial Responsibility Law, T.C.A. §§ 59-1201 to 59-1238. Both of these issues are presented on this appeal. We agree with the holding of the district court on the first issue and reverse on the latter.

1) Coverage Under Terms of Insurance Policy

Royal issued a standard form automobile insurance policy designating Mrs. Mabel R. McGee as named insured¹ and describing a 1955 Chevrolet as one of the two insured vehicles under the policy. This car had been purchased by Mrs. McGee and the certificate of title was issued in her name as owner, but the car was purchased for the benefit of her unmarried minor son, Gene, who was living away from home. The minor son was making the deferred payments and it was contemplated that the legal title ultimately would be transferred to him.

The policy was issued upon the representation that Mrs. McGee was the owner and that the car would be driven by the son. Under the provisions of the policy, Mrs. McGee was the named insured.

While this policy was in effect, the son permitted one Robert Bluford to use the car to make a service call for Bluford's employer. While he was driving the car, Bluford was involved in an accident with a vehicle driven by appellee Henry Clingan, who was accompanied by his daughter, appellee Linda Clingan, both of whom received injuries. Judgment was rendered against Bluford in a State court for $5,185 in favor of Clingan and $10,000 in favor of Clingan's daughter.

A significant part of the factual determination made by the district court is the following:

"The facts in this regard were that Mrs. McGee purchased the automobile in her name for the use of her son as he was a minor, but that he was making the payments upon the car and would eventually become the owner of the car. Mrs. McGee gave specific instructions to her son that he was not to permit anyone else to drive the automobile.

"* * * At the time of the accident Bluford was driving the insured automobile unaccompanied and without the knowledge or permission of the named insured. He was upon a mission in which neither the named insured nor Gene McGee had any interest. Bluford had obtained permission from Gene McGee to use the car, however, representing that he was going on a service call for his employer, an automobile parts dealer, such permission being given by Gene McGee contrary to the express instructions of his mother, the named insured in the policy." 238 F.Supp. 449-450.

These factual findings are not clearly erroneous but to the contrary are supported by substantial evidence and therefore are controlling on this appeal. Rule 52(a), Federal Rules of Civil Procedure. Under the terms of the policy, coverage was limited to (1) Mrs. McGee, the named insured, and (2) persons using the automobile with her permission, either express or implied. Teague v. Tate, 213 Tenn. 269, 375 S.W.2d 840; American Automobile Ins. v. Jones, 163 Tenn. 605, 45 S.W.2d 52; Pollard v. Safeco Ins. Co., 52 Tenn.App. 583, 376 S.W.2d 730; Carr v. American Universal Ins. Co., 341 F.2d 220 (C.A.6). Also see other authorities to the same effect cited in the opinion of the district court, 238 F. Supp. 448, and Annotation 4 A.L.R.3d 10.

Not only was Mrs. McGee the named insured under the provisions of the policy; she also was the owner of the automobile under Tennessee Law, the certificate of title having been issued to her as owner. T.C.A. §§ 59-303, 59-314. Her status as named insured and as owner of the vehicle was not affected under Tennessee law by the fact that the car was purchased for the use of her minor son, who was making the payments, or the fact that it was contemplated that he eventually would become the owner. A transfer of ownership to the son would have required an assignment to him of the certificate of title. T.C.A. § 59-319.

We therefore agree with the holding of the district court that Bluford had neither the express nor the implied permission of the named insured to use the insured car at the time of the accident and that he was not covered as an additional insured under the terms of the policy.

2) The Question of Estoppel

We now turn to the second question raised on this appeal. The district court held that, as to the appellees Henry Clingan and daughter, Royal is estopped to assert its noncoverage of the driver Bluford under the liability insurance policy because of its failure to advise the Director of the Division of Financial Responsibility of the State Department of Safety of its noncoverage.

The opinion of the district court contains the following summary of the facts on this issue:

"Upon December 19, 1963, Bluford filed an accident report and insurance coverage report, being Forms SR-1 and SR-21, with the Department of Safety, State of Tennessee, in compliance with the Financial Responsibility Law of this State. The plaintiff, Royal Indemnity Company, did not in any way participate in the filing of these forms. Thereafter, under date of January 14, 1964, the Director of the Financial Responsibility Division forwarded the SR-21 form to the plaintiff for confirmation of the insurance coverage. The letter of transmittal referred to the case as the `Mabel R. McGee\' case, but the SR-21 form enclosed reflected the fact that Bluford was the operator of the vehicle claimed to be insured. The letter of transmittal advised the plaintiff that `Unless acknowledgement is submitted within ten days from the date of this letter, we will assume no coverage is in effect for any of these subjects.\' However, actually the reverse of this was testified to as being the practice, the Supervisor of the Division of Financial Responsibility testifying that unless the insurance carrier affirmatively notified his office of any denial of coverage, coverage was assumed to be in effect. The plaintiff, by stipulation, acknowledged that it was aware that this `negative approach\' was followed. That such important business would be transacted by an official of the State and acceded to by insurance carriers in the manner testified to would be unbelievable were it not stipulated in the record. The plaintiff made no response to the Financial Responsibility Division, at least not until November of 1964 when it forwarded a copy of its letter to Bluford denying him coverage. The original of this letter had gone out to Bluford under date of January 27, 1964." 238 F.Supp. at 450.

In holding that Royal was estopped to assert its defense of noncoverage of Bluford because of its failure to advise State authorities of such noncoverage, the district court relied upon Behringer v. State Farm Mutual Auto. Ins. Co., 275 Wis. 586, 82 N.W.2d 915, and other Wisconsin cases (cited in 238 F.Supp. at 452); and certain language in an earlier district court opinion, Erwin v. State Farm Mutual Auto. Ins, Co., 232 F.Supp. 530 (E.D. Tenn.).

In passing upon the estoppel question, we are required to apply the law of Tennessee, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. Unfortunately we are cited to no reported decision of an appellate court of Tennessee adjudicating this precise issue, and therefore we must exercise our best judgment as to how the Supreme Court of Tennessee would decide this question.

In its supplemental brief, Royal relies upon an unreported decision of the chancery court of Hamilton County, Tennessee, in the case of Edwin E. Penney et ux. v. National Surety Corp., rendered July 28, 1965, more than five months after the decision of the district court in the present case. In this case the chancery court, which is a State court of original equity jurisdiction, rejected the theory of estoppel under facts strikingly similar to those involved in the present case and expressly declined to follow the decision of the district court here under review. This opinion of the chancery court is attached hereto as Appendix A. It was stated during oral argument that no appeal was perfected from this decision and that the opinion of the chancery court is now final.

Although we are not bound in a diversity case by an unreported decision of a State court of original jurisdiction, King v. Order of United Commercial Travelers of America, 333 U.S. 153, 68 S.Ct. 488, 92 L.Ed. 608, we may give weight to this decision of the chancery court in determining what is the controlling law of Tennessee in the present case. Ibid., p. 160, 68 S.Ct. 488.

The Tennessee law of estoppel is summarized in Gibson's Suits in Chancery, § 77 (5th Ed. 1955) as follows:

"Sec. 77. Estoppels, and Their Effects. — Whenever A, by

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