Royal Ins. Co. v. Alliance Ins. Co.

• Decision Date: 14 March 1985
• Parties: ROYAL INSURANCE COMPANY, Plaintiff/Appellant, v. ALLIANCE INSURANCE COMPANY, the Southern General Agency, Inc., and the Tennessee Insurance Agency, Inc., Defendants-Appellees. 690 S.W.2d 541
• Court: Tennessee Court of Appeals

Page 541

690 S.W.2d 541

ROYAL INSURANCE COMPANY, Plaintiff/Appellant, v. ALLIANCE INSURANCE COMPANY, the Southern General Agency Inc., and the Tennessee Insurance Agency, Inc. Defendants-Appellees.

690 S.W.2d 541

Court of Appeals of Tennessee Western Section, at Jackson.

March 14, 1985.

Application for Permission to Appeal

Denied by Supreme

Court

May 6, 1985.

Clinton V. Butler, Jr., of Menzies, Rainey, Kizer & Alderson, Jackson, for plaintiff/appellant.

Edward G. Bryant of Waldrop, Farmer, Breen & Bryant, Jackson, and J. Kimbrough Johnson of Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams, Memphis, for defendants/appellees.

BROOKS McLEMORE, Retired Chancellor, Special Judge.

This lawsuit results from a dispute between two insurance companies as to which company must ultimately pay on a homeowner loss as a result of binders issued by the Tennessee Insurance Agency, Inc., agent of both insurance companies.

On August 18, 1982, Jerry King owner, with his wife, of a home in McNairy County mortgaged to FHA, went to the Tennessee Insurance Agency, Inc. to obtain homeowner coverage. The Agency, through its employee Lynn Smith, bound coverage for him but did not tell him the name of the company. The Agency then submitted a binder application to Royal Insurance Company on that same date. The application provided as follows:

In consideration of the premium to be paid, such coverage as is applied for herein is bound effective from the time and date shown above. The insurance afforded by this binder is subject to all the terms and conditions of the policy and forms applied for. This binder shall terminate upon the effective date of a formal policy issued in replacement hereof or upon 10 days notice of cancellation to the Insured and Mortgagee, if any, designated herein. Notwithstanding anything to the foregoing this insurance shall terminate not later than the time shown above standard time at the location of the property involved, on the 30th day following the effective date.

The Agency's authority to act for Royal was in writing and said writing stated in part:

2. AUTHORITY OF AGENT:

a. To issue binders and policies ...

b. To effect cancellation of binders and policies unless prohibited by their terms ...

Because of heavy business in the office Royal did not act upon the application until September 21, 1982, at which time Royal sent a letter to the Agency declining coverage. The material portion stated:

We have received the above application and the overall exposure is more than we desire to provide. This is a low value dwelling located more than seven miles from a volunteer fire department and the insured has a wood burning stove. Please accept this as a declination or let us have your advice. As we are out of the thirty day binder it will be necessary to mail direct notice from our office.

Royal sent what it meant to be a ten day notice of cancellation dated September 22, 1982 to the Agency and to King but none to the mortgagee. The typist inadvertently left out the date of cancellation. This notice contained the following statement:

You are hereby notified that the Policy or Bond designated herein unless sooner terminated, is cancelled as stated above in accordance with the terms and conditions of this Policy or Bond. Any return premium due under this Policy or Bond if not tendered herewith will be refunded upon demand.

In the space provided for "Policy or Bond issued" the word "application" is written.

King did not receive this notice for several days. Lynn Smith, of the Tennessee Insurance Agency, Inc., received the declination letter on September 22, 1982, and immediately called Royal and told them that another company would be placed on the risk. Smith requested that the picture of the house be sent back to him and it was, he having received it September 23, 1982.

Smith testified that he bound coverage with Alliance Insurance Company ¹, a company that specializes in substandard risks, and prepared a binder application and mailed same to Alliance on September 23, 1982. Mr. and Mrs. King had no knowledge of this action.

The insured property was totally destroyed by fire between the hours of 2:00 A.M. and 5:00 A.M. on September 24, 1982.

It is contended by Royal that Royal would have remained on the risk until October 2, 1982, unless the agent and the insured obtained coverage elsewhere. The contention of Royal is that when the Tennessee Insurance Agency bound the insurance with Alliance it terminated the coverage with Royal under the provision "unless sooner terminated" contained in the cancellation notice.

Proof of loss was filed with both companies. Neither company accepted coverage. The Tennessee Insurance Agency, Inc., being agent for both Royal and Alliance, took the position that Alliance had the coverage. Alliance denied coverage because it contended that the application to it was back dated and mailed after the fire and that there were certain misrepresentations in the applications.

On March 18, 1983, Royal Insurance Company filed this suit for a Declaratory Judgment in McNairy County, naming as defendants Jerry Bryant King, Farmers Home Administration, The Tennessee Insurance Agency, Inc., the Southern General Agency, Inc. and Alliance Insurance Company. Later Mrs. Brenda Louise King, wife of Jerry Bryant King was added as a defendant. On May 28, 1984, the Southern General Agency, Inc. and Alliance Insurance Company were allowed to amend their answer by adding a cross-claim against Tennessee Insurance Agency, Inc. Alliance and Royal subsequently settled the claim in full with the Kings and the Farmers Home Administration, each of the companies paying one-half in a total settlement of $34,500.00.

After hearing all the evidence the Chancellor found that the Tennessee Insurance Agency, Inc. had the authority to bind coverage for both Royal and Alliance; "and while it had authority to bind and terminate coverage, the Court finds that the agency did not have the authority to transfer coverage from Royal to Alliance without the consent, waiver, acquiescence or ratification of Mr. and Mrs. King," and he found that there was no such consent, waiver, acquiescence or ratification and therefore the Royal Insurance Company should stand the loss.

As to the fact question of time of mailing to Alliance, the Chancellor found that the application was mailed to Alliance before the fire and if effective at all it was effective at the time of the loss.

Royal has appealed.

The correctness of the Chancellor's rulings are the issues presented.

As to the issue as to the time of mailing the application to Alliance, the evidence is conflicting. The Chancellor chose to believe the evidence presented that the application was mailed on September 23, 1982. In a non-jury case, such as this, review of findings of fact by the trial court shall be de novo on the record, accompanied by a presumption of the correctness of the findings unless the preponderance of the evidence is otherwise. T.R.A.P. 13(d). Where the issue for decision depends on the determination of the credibility of witnesses, the trial court is the best judge of the credibility and its findings of credibility are entitled to great weight. This is true because the trial court alone has the opportunity to observe the appearance and the...