UNITED STATES FIRE INSURANCE COMPANY v. Watts

• Decision Date: 28 December 1966
• Docket Number: No. 22942.,22942.
• Citation: 370 F.2d 405
• Parties: UNITED STATES FIRE INSURANCE COMPANY, Appellant, v. Daisy WATTS and Travis Cooper, Jointly and Severally, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

370 F.2d 405 (1966)

UNITED STATES FIRE INSURANCE COMPANY, Appellant, v. Daisy WATTS and Travis Cooper, Jointly and Severally, Appellees.

No. 22942.

United States Court of Appeals Fifth Circuit.

December 28, 1966.

Paul W. Brock, Mobile, Ala., Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, Ala., of counsel, for appellant.

Samuel L. Stockman, Benjamin H. Kilborn, Kilborn, Darby & Kilborn, Mobile, Ala., for appellees.

Before RIVES, GEWIN and GODBOLD, Circuit Judges.

RIVES, Circuit Judge:

Daisy Watts brought in an Alabama court an action against Travis Cooper for damages arising out of an automobile accident. After a three-day trial, Mrs. Watts recovered a $30,000 judgment, which has been affirmed by the Supreme Court of Alabama.¹

The instant appeal before this Court involves a suit, under the Declaratory Judgment Act,² by the United States Fire Insurance Company (hereinafter Insurance Company) asking for a declaration that the Insurance Company is not obligated to pay the $30,000 judgment rendered against Cooper,³ and that it is not obligated to proceed further with Cooper's defense in the state proceedings on the ground that Cooper had materially breached the assistance and cooperation clause of the policy issued by the Insurance Company. The district court found against the Insurance Company and awarded judgment to Daisy Watts for $30,000, holding inter alia that misrepresentations of the insured, Travis Cooper, as to his whereabouts and conduct prior to the accident did not constitute a material breach of the cooperation clause of the insurance policy and, furthermore, that the Insurance Company was not prejudiced by any of Cooper's misrepresentations. The Insurance Company brought this appeal contending that the trial court erred in failing to hold that

a) the Insurance Company was not liable because compliance by Cooper with the cooperation clause was an expressed condition precedent to any action or obligation on the part of the Insurance Company;

b) the misrepresentation by Cooper breached the cooperation clause;

c) there need be no showing that the misrepresentation by Cooper prejudiced the Insurance Company; and

d) the Insurance Company was, in fact, prejudiced by Cooper\'s misrepresentations.

Preparatory to discussing these contentions, we set forth the pertinent events that transpired prior to this declaratory action.

After finishing a business transaction with Daisy Watts at her home,⁴ Cooper offered to take her to her place of employment. On the way, they stopped at a tavern known as the Tarpon Lounge. Both Cooper and Mrs. Watts drank beer, and according to eyewitnesses Cooper became inebriated. Leaving the tavern, Cooper, accompanied by Mrs. Watts, proceeded a short distance down the highway where his truck hit a bridge abutment, resulting in serious injuries to Mrs. Watts.

Two days after the accident,⁵ the Insurance Company's adjuster, A. N. Beville, visited Cooper in order to obtain a statement. At that time and on several occasions thereafter, Cooper asserted that he had nothing to drink "prior to the accident." During the course of his investigation, Beville learned from James Ready and Tony Carlisle,⁶ both of whom were at the scene of the accident shortly after it occurred, that Cooper had the odor of alcohol on him. Confronted with this evidence, Cooper reiterated his earlier position that he had nothing to drink. Several months after the accident, Daisy Watts testified on deposition that she and Cooper had gone to the Tarpon Lounge just before the accident and that Travis Cooper had four or five beers.⁷ Cooper in his own deposition⁸ claimed that he did not stop at the tavern or drink any beer. The Insurance Company made several attempts to find persons who may have seen Cooper at the Tarpon Lounge, but was unsuccessful.⁹

On the day prior to the trial date, Cooper confessed to the Insurance Company's attorney that he had, in fact, been at the tavern where he had two beers. The attorney advised Cooper that his misstatements during the eighteen-month period could be grounds for canceling his coverage under the policy. The Insurance Company offered, however, to defend against the tort action if Cooper executed a nonwaiver agreement and Cooper signed such an agreement.

Daisy Watts' case went to trial¹⁰ with her attorney strongly emphasizing to the jury in his opening statement that Cooper had lied under oath when making his deposition.¹¹

Cooper's testimony at trial maintained "that the accident occurred while he was driving a pick-up truck at approximately thirty-five miles per hour, was blinded by lights of oncoming traffic, which caused him to pull to the right, hit a defective shoulder, lose control of the truck and strike a concrete abutment."¹²

During cross-examination of Cooper, Daisy Watts' attorney confronted Cooper with his false swearing:

"Q. And you remember * * *, do you not, sir, being sworn to tell the truth, the whole truth and nothing but the truth, so help you God, before you answered any questions on that deposition?

"A. Well, I do, but it wasn\'t in court.

"Q. The same oath you took today before this case started?

* * * * * *

"A. Yes.

* * * * * *

"Q. Do you remember here on page 17 my question: `And you didn\'t stop at any time after you got on Moffat Road until the time that you hit the bridge?\'; what was your answer to that?

"A. `No, sir.\'

"Q. Do you remember that?

"A. Yes, sir.

* * * * * *

"Q. Do you remember me asking you back then, specifically: `Did you stop at any taverns on the way?\'?

"A. Yes, sir.

"Q. And what did you say?

"A. `No, sir.\'

* * * * * *

"Q. Do you remember denying that you even knew where it was?

"A. Really, I never stopped until that night and Daisy showed me where to stop, she said she had stopped there several times, and I told her she would have to show me where to stop.

"Q. And you remember me asking you again, telling you the Tarpon Lounge was just west of the bridge you hit? `You didn\'t stop there?\', and what did you say to that?

"A. `No, sir.\'

"Q. You denied stopping there again. Remember me asking you, page 18, `Are you positive of that?\', do you remember me asking you that, if you were positive that you didn\'t stop there?

"A. Yes, sir.

"Q. You remember me asking you again, `You didn\'t go in the Tarpon Lounge and have any beer?\', what did you answer to that?

"A. `No, sir.\'

"Q. Then do you remember me asking you further, `Did you stop for beer or any beverages any places?\' on that occasion, do you remember that, sir?

"A. Yes, sir.

"Q. What did you answer to that?

"A. `No, sir.\'

"Q. And do you remember me asking you if you had anything at all to drink that night?

"A. (Silence)."

Cooper, when confessing the truth to the Insurance Company's attorney, said "it worried my conscience. I knew court was coming up and I just decided it was best to tell the truth." His excuse for lying was: "I said what I said because I was afraid my wife would find out I was going around with this lady, I was afraid my bosses would be on me for using the truck for my own business when I wasn't supposed to."

The fact that perjury was committed was driven home to the jury when Daisy Watts' attorney closed his argument, saying:

"And I submit to you who has lied like this man has; acted like he with that woman laying out there in that condition. I submit, gentlemen, that we are entitled not only to what our damages are but I ask you for the entire amount sued for, $100,000.00."

After the jury returned a verdict for $30,000 for Daisy Watts, the Insurance Company notified Cooper that it was filing a declaratory judgment action, but would still file an appeal in the tort suit if another nonwaiver agreement was signed.¹³ The agreement was signed by Cooper, thereby reserving for the Insurance Company any rights it might have.

This being a diversity case,¹⁴ we turn to the law of Alabama to test the Insurance Company's contentions.¹⁵ The Insurance Company asserts that under Alabama law Cooper's failure to comply with the cooperation clause ipso facto denies him coverage. The insurance policy specifically provided that compliance with all terms of the policy was a condition precedent to any action against the company:

"No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy * * *."

The cooperation clause read in part as follows:

"The insured shall cooperate with the company and, upon the company\'s request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits."

The Insurance Company alleges that the effect of these two clauses is to absolve it of any liability, whether or not it was prejudiced by Cooper's false statements. Alabama cases indicate that where cooperation is a condition precedent to an action against the insurance company, there need be no showing of prejudice.¹⁶ In Alabama Farm Bureau Mutual Cas. Ins. Co. v. Mills, supra note 16, the Supreme Court of Alabama distinguishes between policies, such as the one before us, in which compliance with the terms of the policy is expressly made a condition precedent to any action against the company, and policies containing no such provision, by quoting from Tankersley, supra note 16, 116 So. 2d at 582:

"`The rule established by the great weight of authority is that where, as in the policy involved in this case, notice of the accident and forwarding of any demand, notice, summons or other process are specifically made a condition precedent to any action against the insurer, the failure to give a reasonably timely notice of the accident or of the receipt of any demand, notice, summons or other process will release the insurer from the obligations imposed by the contract, although no prejudice may have resulted * * *.\'" (Emphasis added.) 123 So.2d at 142.

The Mills court went on...