Transport Ins. Co., Inc. v. Post Exp. Co., Inc.
| Decision Date | 14 April 1998 |
| Docket Number | Nos. 96-3376,96-3481,s. 96-3376 |
| Citation | 138 F.3d 1189 |
| Parties | TRANSPORT INSURANCE COMPANY, INC., Plaintiff-Appellant, Cross-Appellee, v. POST EXPRESS COMPANY, INC., Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Thomas H. Neuckranz, Patrick F. Klunder, James K. Horstman (argued), Alton C. Haynes, Edward R. Moor, Williams & Montgomery, Chicago, IL, for Plaintiff-Appellee.
Weston W. Marsh, Kenneth A. Peterson (argued), Todd J. Ohlms, Freeborn & Peters, Chicago, IL, Anthony G. Scariano, Daniel M. Boyle, Scariano, Kula, Ellch & Himes, Chicago Heights, IL, for Defendant-Appellant.
Jane W. Grover, Stamos & Trucco, Chicago, IL, for Norfolk & Western Railway Co.
Gregory M. Tobin, Pratt, Bradford, Tobin & Alexander, East Alton, IL, Stephen E. Garcia, Hopkins & Sutter, Chicago, IL, for Alfonzo T. Frazier, Jr.
Before COFFEY, EASTERBROOK, and DIANE P. WOOD, Circuit Judges.
Alfonzo Frazier was injured while unloading cargo from a flatbed tractor-trailer owned by Post Express Company and operated by its employee Thomas Fuller. The cargo (four railroad wheel and axle assemblies called bogies) was heavy and the unlading process complex. Frazier had to attach cables to one bogie at a time. A crane operator would lift the bogie a few inches, after which Frazier would get off the trailer, Fuller would drive the trailer out from under the dangling bogie, and the crane operator would move the bogie to the ground and release the cables. Three bogies were unloaded without incident. After Frazier attached the cables to the last bogie, Fuller pulled forward before Frazier left the trailer. To avoid colliding with the suspended bogie, Frazier rolled off the flatbed, fell five feet, and landed on his back.
Frazier sued his employer, Norfolk & Western Railway, under the Federal Employers' Liability Act. The railroad filed a third-party action against Post Express, which tendered the defense to its liability carrier, Transport Insurance Company. Transport assumed the defense under protest, observing that Post Express had not notified it until two years after the accident, when Frazier filed suit, despite a clause in the contract providing:
You must promptly notify us or our agent of any accident or loss. You must tell us how, when, and where the accident or loss happened. You must assist in obtaining the names and addresses of any injured persons and witnesses.
The jury in Frazier's FELA suit concluded that both Post Express and the railroad had been negligent. It set damages at $2.3 million, of which Post Express's share is 90%, or $2,070,000. Transport Insurance's policy limit is $1 million, leaving Post Express responsible for the remainder. In this diversity suit, Transport Insurance seeks a declaratory judgment that Post Express must bear the full loss, while by counterclaim Post Express demands that the insurer cover the whole verdict. After the judge concluded (following a bench trial) that Post Express had satisfied the notice requirement in the policy, a second jury trial began. This jury concluded that Transport Insurance had acted in bad faith when defending Post Express against Frazier's claim and therefore must satisfy the entire judgment. But on post-trial motions the judge ruled that an insurer with a "fairly debatable" defense to coverage cannot be responsible for bad-faith conduct of the defense in the underlying litigation. Both sides have appealed; we begin with the question whether the two-year delay in notice lets the insurer off the hook.
Fuller notified Greg Postma, Post Express's president, of the accident the day it happened. Fuller told Postma that he thought Frazier had the wind knocked out of him but was otherwise uninjured. Armed with this knowledge, Postma did--nothing. Fuller was no physician, a five-foot fall onto a concrete surface can do serious injury (Frazier is not a movie stunt man, and the fall had not been rehearsed), and a prudent manager would have inquired to see whether Frazier sought medical or legal aid (as it happens, Frazier did both). Insurers need swift notice so that they can preserve evidence, interview witnesses (Frazier, Fuller, and the crane operator) while memories are fresh, and monitor the victim's medical care and recovery. Deprived of the ability to do these things, Transport Insurance could have argued that Postma's failure to give notice on the date of the accident is dispositive. Postma testified that he deemed the accident trivial (and the district judge believed him), but notice enables insurers to check for themselves. An uncontrolled five-foot fall cannot be assimilated to a scratched finger or a similarly petty event that is unlikely to yield a claim. Nonetheless, Transport Insurance accepts the district judge's conclusion that Post Express was not required to notify it when the accident occurred. What Transport Insurance does contend is that it should have received notice four months later, after an investigator working for Frazier's lawyer interviewed Fuller. Willingness to accept this delay is surprising; the lapse not only complicated the investigation and foreclosed any opportunity to make an early settlement offer, but also meant that Fuller was interviewed without the benefit of legal advice, and therefore was more likely to make unguarded statements. By treating the investigator's interview with Fuller as the event triggering the notice obligation, Transport Insurance set itself up for the response that the notice obligation falls on managers rather than truck drivers. Fuller never told Postma about the interview, so Postma was not in a position to tell Transport Insurance. (The investigator assured Fuller that the interview "did not involve Fuller or Post Express"; Fuller naively believed him.)
The district court wrote that a truck driver's knowledge of an accident is not imputed to management, and that only management's knowledge activated the contractual notice obligation. Transport Insurance denies that Illinois recognizes such a "truck driver rule" and submits that courts should use ordinary principles of agency, which allow firms to decide for themselves who has what duties. Evidence shows that Post Express required its drivers to report accidents promptly and this, Transport Insurance shows, means that reporting was within Fuller's normal duties. Arguments pro and con about a "truck driver rule" versus "normal agency principles" seem to us beside the point--and not only because the "truck driver rule" articulated in cases such as Citizens Casualty Co. v. L.C. Jones Trucking Co., 238 F.2d 369, 372 (10th Cir.1956), says that the truck driver needn't notify the insurer, as opposed to the firm for which he works. These cases do not discuss the circumstances under which a driver's knowledge of an accident is imputed to management, let alone the question whether knowledge a driver gains off duty is imputed. (The interview took place at Fuller's home on a weekend.) Nor need we discuss that question, because Fuller promptly notified Postma about Frazier's fall.
Whatever accident-reporting obligations drivers normally possess were discharged. Postma had actual rather than imputed knowledge of the accident. He was then in a position to investigate, to require Fuller to report (or rebuff) any contacts by third parties, or to do both, though in the event Postma did neither. Although the visit by an investigator might have alerted Fuller that the accident had been more serious than he thought, Fuller had every reason to suppose that Postma already had taken whatever steps were in order. A notice clause may be good at inducing the insured to be candid; it is no cure for truck drivers' credulousness during a post-accident investigation.
Another reason why the to-and-fro about a "truck driver rule" strikes us as peculiar is that by emphasizing "normal agency principles" Transport Insurance implies that its clients are...
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