Smoot v. State Farm Mutual Automobile Insurance Co., 18815.

• Decision Date: 25 January 1962
• Docket Number: No. 18815.,18815.
• Citation: 299 F.2d 525
• Parties: Harvey Thomas SMOOT, Jr., Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

299 F.2d 525 (1962)

Harvey Thomas SMOOT, Jr., Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 18815.

United States Court of Appeals Fifth Circuit.

January 25, 1962.

COPYRIGHT MATERIAL OMITTED

Alton D. Kitchings, Savannah, Ga., for appellant.

Alex A. Lawrence, Luhr G. C. Beckmann, Jr., Kirk McAlpin, Bouhan, Lawrence, Williams, Levy & McAlpin, Joseph Young, Jr., Hitch, Miller & Beckmann, Savannah, Ga., for appellee, State Farm Mutual Automobile Ins. Co.

Before BROWN, GEWIN and BELL, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This appeal tests the correctness of the dismissal of the complaint brought by an Assured to recover from his automobile Insurer the excess of the damage suit judgment over the face amount of the policy. Concededly this was done in the face of formal allegations which satisfied, at least, the Georgia good faith test. No trial in the usual sense has yet been had, and the Insurer advanced no affidavits demonstrating that there was no genuine issue of fact. All was done on the basis of the complaint, expanded as it was by annexed exhibits which ran the full gauntlet of the alphabet (and more) and covered practically all of the state damage suit trial record of pleadings and evidence plus copies of medical reports received by the Insurer in advance of trial.¹

All the trial Court had before it was the complaint and the Insurer's motion to dismiss for failure to state a claim. That is what was heard, considered and acted upon. The judgment was one of dismissal for failure to state a claim. So far as we can understand, no thought or mention was made of summary judgment. Since it was candidly recognized on oral argument before us that, at the time of the submission to the trial Court, it was not the intention or purpose of either or both of the parties that the case be tried on its merits by the Judge without a jury, it is now acknowledged that the judgment flowing from this somewhat curious procedure can be justified only so far as it meets the requirements of a summary judgment under F.R.Civ.P. 56 and 12(b) and (c), 28 U.S. C.A.²

The Insurer, properly undertaking as appellee to preserve its victory, is quite correct in asserting³ that affidavits, as such, proffered normally by the moving party are not indispensably required where exhibits annexed to a plaintiff's complaint (and hence incorporated within it, F.R.Civ.P. 10(c)) demonstrate that the contention of the party is something distinctly different from the barebones formal allegations which are to be both brief and succinct, F.R.Civ.P. 8(e) and tested by the broad, liberal concept articulated recently in Conley v. Gibson.⁴ There is thus occasionally a tactical, if not strategic, risk in a party's voluntarily abandoning the notice pleading concept of the Federal Rules. But it is essential to bear in mind that no less than in the traditional motion for summary judgment with supporting affidavits⁵ proffered by the moving party, the pleadings as thus expanded by annexed materials must demonstrate that there is no genuine controversy on a material fact.⁶

It is here that the trial Court erred. And analyzing it from this vantage eliminates considerably any detailed discussion of the "facts" so cumbersomely alleged but which, despite their prolixity, were determined to be "deficient."

Undercutting all other errors was the basic approach that, since the action is essentially one in tort and not on the insurance contract itself, the Assured, as a legal proposition, had sustained no damage despite the assumed breach of duty by the Insurer because the complaint did not allege that he had paid the excess damage or any part of it.⁷ The Insurer successfully urged these Georgia cases in its support. Williams and Templeton v. Brewer, 1955, 93 Ga.App. 603, 92 S.E.2d 586; Davis v. Johnson, 1955, 92 Ga.App. 858, 90 S.E.2d 426; Jones v. Wright, 1917, 19 Ga.App. 242, 91 S.E. 265. It was this conclusion which, so the trial Court expressly declared, made the count — otherwise sufficiently setting out the Georgia good faith concept — insufficient as a matter of law. But oddly enough the Assured's allegations⁸ on this phase stood unchallenged save by the Insurer's formal denial in its answer. None of the bundle of multitudinous annexed papers remotely touched this. Consequently, at this stage at least, the Assured had the full benefit of Conley v. Gibson, note 4, supra. Therefore, the only way this holding which is so basic to the final judgment of dismissal with prejudice may be justified is for us to determine that under Georgia law actual payment of the excess is necessary. Conversely, we must hold that it is not enough that the Assured has property, real and personal, subject to execution and that his credit, personal or business, is jeopardized by the ubiquitous judgment liens.

Of course we are bound by Georgia law such as we can, with sometimes dim Erie light, National Surety Corp. v. Wells, 5 Cir., 1961, 287 F.2d 102 at 106-107, make out. And where, as is true here, there are no Georgia cases to be found, we must, as a Georgia court, fashion the rules knowing full well, of course, that what we say is the Georgia law may soon be renounced when and as the first Erie-indicating Georgia court speaks.⁹ Here that means choosing between two different camps.¹⁰

To the reasons advanced by earlier cases we would add these and reemphasize others in support of the rule that actual payment is not essential. The nature and purpose of the particular insurance contract is itself significantly relevant. Unlike many earlier forms in automobile insurance, as well as contemporary policies as to some other risks, this policy was not one for "indemnity." It expressly bound the Insurer "To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * *" bodily injury, death and injury to property. Casting the insurance in this form was undoubtedly a response to the practical needs of individuals or business firms. Jewelers Mutual Ins. v. Balogh, 5 Cir., 1959, 272 F.2d 889, 892. Few will have resources to pay initially large judgments or amounts required to compromise risky claims. Even the Insurer's stated obligation to reimburse (i. e., indemnify) would not eliminate the frequent likelihood of crippling jeopardy to one's business or personal financial stability. Since the present suit rests on the assertion that the Insurer failed to use due care, or was guilty of bad faith, in the execution of these contract provisions, it seems certainly relevant that this intrinsic nature of the insurance contract be kept in mind in determining damages. What is foreseeable is traditionally important. For a tortious nonperformance of a contract whose terms take into account the practical inability or difficulty in raising funds to discharge large damage claims, it is surely within the realm of reasonable anticipation that damage of this very kind will occur. And, of course, this is no theoretical matter. So long as this judgment remains outstanding as a lien on the Assured's property he is thwarted in a disposition of it. If proper procedural steps are taken, new property likewise comes under the pervasive weight of the lien. And all the while, of course, credit resources are imperiled — a result even more inescapable if, as the Insurer now suggests, the victim of its assumed neglect must take bankruptcy.¹¹

Finally, this ignores, as is so frequent the fact that where there is no default decree, the judgment to be awarded in the Assured's suit is not to be measured by the formal prayers for relief. The scope and nature of the relief depends on the facts established, F.R.Civ. P. 54(c). Consequently, as a minimum, the Assured is entitled to a declaratory judgment or some other suitable, even though perhaps conditional, relief. Travelers Ins. Co. v. Busy Electric Co., 5 Cir., 1961, 294 F.2d 139 at 145; Sax v. Sax, 5 Cir., 1961, 294 F.2d 133, 139; Dotschay, etc. v. National Mutual Ins. Co., supra, 246 F.2d 221 at 223.

Another basic contention of the Insurer should likewise be put to rest. In spite of the outright promise to "defend any suit against the insured alleging such injury * * * even if such suit is groundless, false or fraudulent * *," the Insurer now insists that it has no responsibility for damage sustained by the Assured even if it should be caused by legally culpable neglect or bad faith on the part of the attorney supplied by it to maintain the defense. In other words, the Insurer asserts that its duty is fulfilled by selecting competent counsel whose acts thereafter are that of one akin to an independent contractor. The cases urged by the Insurer do not support any such view. The duty to defend is an important and frequently distinguishable part of the insurance contract. American Fidelity & Casualty Co. v. Pennsylvania Threshermen, 5 Cir., 1960, 280 F.2d 453. Those whom the Insurer selects to execute its promises, whether attorneys, physicians, no less than company-employed adjusters, are its agents for whom it has the customary legal liability.¹²

So far then, as Count two is concerned — this stated the claim in terms of the good faith doctrine¹³ — affirmance comes down to the proposition that the bundle of annexed pages demonstrated as a matter of law that the Insurer had exercised good faith in the defense even though the event (the judgment in the damage suit) turns out to be worse than anticipated. The allegations were quite sufficient to charge want of good faith in rejecting settlement offers within the policy limits and generally in the handling of the defense. Were such allegations reduced in their sufficiency by the annexed exhibits? The trial Court implied the contrary and we say expressly they were not.

With all of this bulk, the annexed papers simply did not cover some aspects. Included were a few medical reports which the Insurer had received at various times...