State Farm Mut. Auto. Ins. Co. v. Porter

• Decision Date: 01 February 1951
• Docket Number: No. 12,531.,12
• Citation: 186 F.2d 834
• Parties: STATE FARM MUT. AUTO. INS. CO. v. PORTER.
• Court: U.S. Court of Appeals — Ninth Circuit

186 F.2d 834 (1950)

STATE FARM MUT. AUTO. INS. CO. v. PORTER.

No. 12,531.

United States Court of Appeals Ninth Circuit.

December 21, 1950.

Rehearing Denied February 1, 1951.

Leighton M. Bledsoe, Dana Bledsoe & Smith, all of San Francisco, Cal., for appellant.

Augustus Castro and Cooley, Crowley & Gaither, all of San Francisco, Cal., for appellee.

Before DENMAN, Chief Judge and HEALY and POPE, Circuit Judges.

POPE, Circuit Judge.

On October 31, 1947 Charles E. Porter a pedestrian, was struck by an automobile then being driven by one Claggett at Richmond, California. Porter died the next day from the injuries. Thereafter Mrs. Porter, as Administratrix, appellee here, recovered a judgment against Claggett in the Superior Court of Contra Costa County, California, on account of such injuries and death. The automobile which Claggett was driving was described in a liability policy which the appellant, State Farm Mutual Automobile Insurance Company, had issued to one Wilbur Mehlin. Claiming that such Insurance Company was obligated, within its policy limits, to pay her judgment against Claggett, the appellee sued the appellant company, and recovered a judgment from which this appeal was taken. Jurisdiction in the court below was by reason of diversity of citizenship between appellee, a citizen of California, and appellant, an Illinois corporation.

By what it called "Coverage A" in its policy, the Insurance Company agreed "to pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages, because of bodily injuries * * * and death at any time resulting therefrom, sustained by any person * * * caused by accident and arising out of the ownership, operation, maintenance or use of * * * such automobile."

The term "Insured" was defined as follows: "The unqualified word `insured' wherever used in Coverage A and in other parts of this policy when applicable to Coverage A includes the named insured and, except where specifically stated to the contrary, also includes (a) the spouse of the named insured residing in the same household as the named insured, (b) any other person but only while using the described automobile and any person or organization legally responsible for the use thereof provided the actual use of the described automobile is with the permission of the named insured."

Mehlin, the named insured, resided at Lincoln, Nebraska, where he was when the accident occurred. Claggett had been given permission to use the car by Mrs. Mehlin, who had driven it from Lincoln, Nebraska, to California. In proceeding against the Insurance Company, the appellee, plaintiff below, asserted (1) that Claggett was driving with the permission of the named insured, and (2) that after notification of the accident the Insurance Company did certain things, hereafter described, in the way of undertaking to adjust the plaintiff's claim, negotiate a settlement and in assuming defense of the action against Claggett, in consequence of which the Insurance Company waived the right to rely upon the condition of the policy requiring use of the automobile to be with Mehlin's consent, and is now estopped to deny that such consent was given.

Verdict was returned against the Insurance Company, and after judgment thereon, its motion for judgment notwithstanding the verdict was denied. The only question for us is whether the evidence is sufficient, as a matter of law, to sustain the verdict.

The evidence showed that a few days after the accident Mrs. Mehlin, in California, reported it to the Insurance Company. Attorneys for appellee also wrote the Company offering to discuss settlement without suit. A representative of the Company first replied that they could find no record of a policy, but two weeks later appellee's attorneys were advised by a telephone call from one of the Company's adjusters that there was insurance on the automobile, and their previous report was in error.

As soon as she thus learned of the insurance coverage appellee commenced the action against Claggett mentioned above, in the Superior Court of Contra Costa County. Mr. and Mrs. Mehlin were also joined as defendants because of the allegation that Claggett was driving with their permission.¹ Summons was served upon Claggett who delivered the copy of the summons and complaint to the Insurance Company. It was testified that on December 31, 1947, one Gripenstraw, a claims adjuster for the Insurance Company, called on one of appellee's attorneys, discussed the claim, and offered $7500 in settlement. (The policy limits were $10,000.) The attorney testified that on that occasion the following conversation occurred: "So then I said it looks to me like a case where you should pay the policy limits. As far as I can see there is no question but what the man was liable for striking Mr. Porter and we would like to see you pay the policy limits here and if you save anything on the policy limits you will be doing well. He says, `Well, the company won't do that.' I said, `Why not?' He said, `We may have a defense to the case.' `Well, what is the defense? The only issues that are involved in the case are negligence and permission to use the automobile.' I said, `We know the negligence is clear; any question about the permission?' He said, `No, there isn't.' He says, `We are satisfied that Mrs. Mehlin had the permission to bring the automobile out here and that Mr. Claggett had her permission to use it.'"

A month later, an Assistant Claims Superintendent of the Insurance Company again interviewed the same attorney for appellee, where the same offer of settlement was renewed but was rejected on behalf of appellee. At that time the Company representative indicated that it might pay as much as $8500 to settle. Since offers to arrange a settlement had thus failed, the Insurance Company thereupon turned the matter over to its San Francisco attorneys for defense of the action, and obtained from the appellee an extension of time within which to plead.

An answer on behalf of Claggett was filed by the attorneys on February 17, 1948,² verified by one of the attorneys. The complaint alleged that Claggett was driving the automobile with the consent and permission of Wilbur Mehlin. The answer thus verified and filed recited: "Answering the allegations of paragraph 3 defendant admits * * * that the defendant, Wilbur M. Mehlin, was the owner of the therein described Ford automobile and that this answering defendant was driving said automobile with his consent and permission * * *."

On March 12, 1948, the action was by agreement of the parties set for trial on July 7, 1948. Claggett was kept informed of the date of trial. A few days before that date arrived the Insurance Company's attorneys requested opposing counsel to consent to a continuance, stating that they had been unable to locate Claggett in California, that he was in Minnesota, and that they could not produce him in time. The requested stipulation was refused, and so the defending attorneys moved for a continuance, which was granted to July 14, 1948. At the time the continuance was obtained, appellee's attorneys were informed that no reservation of rights agreement had been secured from Claggett, although one would be obtained when he arrived for the trial. The Insurance Company's attorneys were granted leave to amend Claggett's answer and thereupon they filed an amended answer which denied that Claggett had been driving the automobile with Mehlin's permission. The case was tried July 14, 1948, and appellee recovered a judgment against Claggett in the sum of $30,000.

Upon the trial of the instant action Mehlin testified that he was a resident of Lincoln, Nebraska; that at the time of the accident he was the owner of the automobile in question, which was registered in his name. He testified that when he came home from work on October 14, 1947, he found that his wife had left him, taking with her her personal belongings, their child, and the insured automobile; that she left without his prior knowledge or consent; that she had no permission thus to take the automobile out of the state nor to allow Claggett to drive it. The automobile had been mortgaged to a Lincoln bank. On October 23d Mehlin swore out a complaint for his wife's arrest upon a charge of removing the mortgaged automobile from the State without the consent of the mortgagee.

Mrs. Mehlin confirmed her husband's testimony. She also testified that she had left without her husband's consent or knowledge. When she reached California she stayed with members of Claggett's family, and on the occasion in question had permitted Claggett to take the automobile. She testified that when she left Nebraska she intended to stay in California permanently, and not to return. She testified that she used the automobile when at home in Nebraska, "any time I wanted the car", but said she had never driven it out of the city limits; that her husband had told her not to let any one else drive it.

At the time he denied the motion for judgment notwithstanding the verdict, the trial judge filed an opinion in which he expressed the view that the evidence failed to support a finding that the named insured expressly or impliedly permitted Claggett to use the automobile at the time of the accident, but that the evidence was sufficient to permit the jury to find that the defendant was estopped to deny coverage.³

Appellant asserts that the evidence was insufficient to warrant any conclusion that it was bound by either waiver or estoppel. It says that under the express terms of the policy such acts as it performed in the defense of the suit against Claggett and in negotiating for settlement could not constitute waiver or estoppel. It calls attention to the fact that the suit was brought against Mehlin as well as against Claggett and this circumstance necessitated the Company's intervention. It points to the policy...