Transamerica Ins. Group v. Beem, s. 79-1370
| Decision Date | 01 July 1981 |
| Docket Number | 79-1371,Nos. 79-1370,s. 79-1370 |
| Citation | 652 F.2d 663 |
| Parties | TRANSAMERICA INSURANCE GROUP, Plaintiff-Appellee, v. Stephen George BEEM and wife, Joan Beem, Defendants-Appellants. TRANSAMERICA INSURANCE GROUP, Plaintiff-Appellee, v. William Douglas BOOTH, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Dunlap Cannon, Jr., Kimbrough Gregory, Memphis, Tenn., for defendants-appellants in No. 79-1370.
Stephen G. Beem, Memphis, Tenn., for defendant-appellant in No. 79-1371.
Robert F. Uhlman, Memphis, Tenn., for plaintiff-appellee.
Before ENGEL and JONES, Circuit Judges, and BERTELSMAN, District Judge. *
This is a declaratory judgment action by an insurance company, which seeks to avoid its obligation under a homeowner's policy to defend a serious personal injury action against its insured, because of the failure of the insured to give timely notice of the potential claim, as required by the policy.
The trial court granted summary judgment for the plaintiff insurance company. Although few facts are disputed, this court is of the opinion that the granting of the summary judgment must be reversed because the insurance company, as a matter of law, is estopped from disclaiming liability under the policy, in that it undertook to defend the action on behalf of its insured without securing a sufficiently comprehensive nonwaiver agreement.
On November 13, 1976, appellant Stephen G. Beem was involved in a hunting accident, in which the appellant William Douglas Booth sustained extremely serious injuries, which included the loss of sight in one eye and partial loss of sight in the other. In fact, Booth claims to have been rendered legally blind by the injuries sustained in the accident.
Beem, a young lawyer, had purchased a homeowner's policy, issued by the appellee Transamerica Insurance Group. The policy was on Beem's home, and his testimony is that he obtained it primarily for purposes of fire protection. There is no doubt that it also provided liability coverage for accidents of this kind, even though they occurred off of Beem's premises. Beem claims he was not aware of this latter coverage. Beem's homeowner's policy required that the insured give notice to the company, "as soon as practicable" of any event which might give rise to a covered liability claim against the insured.
Beem did not give notice to the insurance company of the hunting accident, until almost a year after the accident, although he was in constant communication with Booth and knew the extent of his injuries. On November 9, 1977, Booth's lawyer informed Beem of his intention to sue him. That same day, Beem had a discussion with one of the other lawyers in his firm from whom he found out for the first time that there might be coverage under the policy. Promptly thereafter, Beem did notify his insurance agent of the accident and potential claim, and the agent verified that there was coverage.
On November 11, 1977, suit was instituted by Booth against Beem for damages arising out of the hunting accident. The personal injury action was filed in the circuit court of Shelby County, Tennessee, and in it Booth sought damages against Beem in the amount of $150,000. Beem duly forwarded the suit papers to the insurance agent.
On November 18, 1977, an adjuster met with Beem, took a statement from him, and at the same time obtained his signature on a printed form of non-waiver agreement. The terms of this agreement are critical to the outcome of this action, and we, therefore, quote it in full:
"WITNESS our hands in duplicate this 18th day of November, 1977." 1
Thereafter, the insurance company conducted such an investigation of the accident as it thought proper and retained a law firm, which filed an answer in the state court case on December 8, 1977.
That law firm and the insurance company also took other measures to defend Beem in the state court action, including entering into serious settlement negotiations with Booth. According to Beem's testimony at the summary judgment hearing, he heard nothing further with regard to any reservation of rights or disclaimer under the policy by the insurance company, until it filed this declaratory judgment action in the United States District Court for the Western District of Tennessee on August 15, 1978. It is admitted that the insurance company did not make any other reservation of rights than that contained in the non-waiver agreement or give either Booth or Beem any indication it was still relying on the defense of untimely notice until the filing of the federal declaratory judgment action.
The federal declaratory judgment action was set for trial on May 2, 1979. A motion for summary judgment was filed by the insurance company, which was set for hearing by the trial judge on the same day as the trial. At the hearing, the trial judge stated his opinion that the law of Tennessee was harsh in its requirement that an insured live up to his obligations to give notice as soon as practicable under his policy and that failure to read the policy and be familiar with its terms could, as a matter of law, not be accepted as an excuse. 2
The plaintiff argued that, because he was so upset about the injury to his friend, he should be relieved of the obligation to inform himself of the contents of the insurance policy, until the state court action was filed against him. The trial court rejected this excuse, as a matter of law. Although the result is harsh and the rule applied seems to us unduly inflexible, we cannot say the trial court erred in holding that it reflects the law of Tennessee. But there is another issue, on the basis of which reversal is clearly required. 3
After the trial court had stated its intention to grant the motion for summary judgment, counsel for Beem requested the court to hear testimony, as part of the summary judgment hearing, on the issue that the insurance company by defending Beem and negotiating with Booth for a period of some nine months, had exceeded its reservation of rights under the nonwaiver agreement, and thus had estopped itself to disclaim under the policy by the time it filed the federal declaratory judgment action. The trial judge heard such testimony, but granted the summary judgment motion in spite of it. In fairness, it must be pointed out that this issue was raised at the last moment and was not briefed to the trial court. Nevertheless, this court holds that the trial court committed an error of law in this last ruling. If the testimony at the trial confirms that of the summary judgment hearing, the insurance company must be held to have exceeded the terms of its non-waiver agreement, which was limited purely to investigation, by actively defending the state court action for a period of several months.
Counsel for all parties stated at the oral argument, and the court's own research confirms, that there are no Tennessee cases with regard to an insurance company's estopping itself from relying on a non-waiver agreement by exceeding its terms. Nevertheless, there is ample authority on the subject from other jurisdictions, and this court is of the opinion that the Tennessee courts would follow the majority and better reasoned precedents on the subject, which we find to be as follows.
The general rule may be said to be that, although an insured may have violated a term or condition of the policy, such as by failing to give timely notice, if the insurer nevertheless assumes the defense, it will have waived the breach of the condition. 4
If the insurer gives proper notice that it is reserving its rights, in spite of investigating the claim or defending any action which may arise from it, such investigation or defense will not waive its right to rely on the breach of condition. This notice is usually accomplished by a reservation of rights letter or a non-waiver agreement. However, the reservation of rights or non-waiver notice given by the insurance company "will be held sufficient only if it fairly informs the insured of the insurer's position." 5 Also, it is the law of Tennessee, as elsewhere, that documents prepared by the insurance company, which is in a better position than the insured to understand these matters, will be strictly construed against the company. 6
With this background, it may be seen that the insurance company in this case gave its insured, Beem, notice only that it was reserving its rights during an investigation of the accident. This is all that the non-waiver agreement refers to. But the company went beyond investigation. It retained an attorney who filed an answer on behalf of the insured, and it...
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McLinn, Matter of
...710. C.A.Tenn. 1981. District judge's rulings on a matter of state law are entitled to respect by the Court of Appeals.--Transamerica Ins. Group v. Beem, 652 F.2d 663. C.A.Tex. 1981. In reviewing a diversity action, Court of Appeals is reluctant to substitute its views of the state law for ......
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