Western Hills Bowling Center, Inc. v. Hartford Fire Ins. Co.

• Decision Date: 12 June 1969
• Docket Number: No. 26408.,26408.
• Citation: 412 F.2d 563
• Parties: WESTERN HILLS BOWLING CENTER, INC. and J. L. Cage, Jr., Plaintiffs-Appellants, v. HARTFORD FIRE INSURANCE COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

412 F.2d 563 (1969)

WESTERN HILLS BOWLING CENTER, INC. and J. L. Cage, Jr., Plaintiffs-Appellants, v. HARTFORD FIRE INSURANCE COMPANY et al., Defendants-Appellees.

No. 26408.

United States Court of Appeals Fifth Circuit.

June 12, 1969.

Jack Banner, Banner & McIntosh, Wichita Falls, Tex., for appellants.

Ray Farabee, Fillmore, Robinson, Lambert & Farabee, Wichita Falls, Tex., for appellees.

Before THORNBERRY and SIMPSON, Circuit Judges, and CASSIBRY, District Judge.

THORNBERRY, Circuit Judge:

This is an appeal from a decision of the district court setting aside a jury verdict in favor of plaintiffs-appellants and entering a judgment n.o.v. in favor of defendants-appellees. The present action arises out of events following a fire that partially destroyed Western Hills Bowling Center in Wichita Falls, Texas on October 22, 1966 while the premises were insured by defendants.¹ A second fire, which totally destroyed the building and its contents, occurred on January 19, 1967 when the General Adjustment Bureau, at the direction of the defendants, was investigating the first loss and after all policies of insurance had been cancelled.

Appellants alleged that the defendant insurers, acting through their appointed agent, the General Adjustment Bureau, were responsible for the loss caused by the second fire. In answer to special interrogatories, the jury found that defendants were negligent in failing to move with diligence in completing their investigation within a reasonable time and that the negligent delay was the proximate cause of the second fire on January 19, 1967, entitling plaintiffs to an award of $33,000. The district court set aside these findings and entered a judgment n.o.v. for defendants.² We have concluded that there was sufficient evidence to raise jury questions on negligence and proximate cause and therefore reverse.

J. L. Gage, the owner of Western Hills, testified that he notified the defendant insurers of his loss immediately after the first fire in October. The insurers appointed the General Adjustment Bureau as their agent to adjust this loss and specifically instructed Gage to follow the directions of the Bureau. When Gage requested permission to clean up and alter the damaged premises and to remove salvageable items, the Bureau instructed him that he was not to begin such operations until it had completed its investigation. Gage testified that in November, 1966, shortly after the first fire, vandals began to break into the bowling center, causing damage to the contents. Gage notified the Bureau of the frequent vandalism and the resulting damage in November and December, 1966. Nonetheless, the Bureau persisted in its instructions that Gage was not to begin clean-up or salvage operations until the investigation was complete and did nothing during December, 1966 or January, 1967 to complete its investigation.

In addition, a neighboring farmer testified that on January 19, 1967, just before the second fire occurred, a carload of teen-aged boys pulled up in front of the center. Some of the boys got out of the car "close to the bowling alley." Immediately after they left, "five or ten minutes" later, the farmer saw smoke coming out of the center, and shortly thereafter, the property was totally destroyed by fire. Although some of the testimony adduced in favor of the plaintiffs was disputed, the jury was free to credit it.

The defendant insurers argue that as a matter of law their failure to move with diligence in completing their investigation could afford no basis for a finding of negligence because they had no duty to investigate the premises after the first fire. They argue that they had a right under the contract of insurance to make an investigation, but no duty to do so, and hence cannot be held negligent for their lack of diligence. We think this argument is untenable. Assuming that the defendants had no duty to investigate, once they undertook an investigation, they were bound under the applicable Texas substantive law to exercise reasonable care and diligence in its execution and are liable for any loss or injury caused by their failure to do so. Fox v. Dallas Hotel Co., 1922, 111 Tex. 461, 240 S.W. 517, 521; Missouri-Kansas-Texas Ry. Co. of Texas v. Wood, 1902, 95 Tex. 223, 66 S.W. 449, 451, 56 L.R.A. 592; Rick Furniture Co. v. Smith, Tex.Civ.App.1918, 202 S.W. 99. The jury had before it evidence that defendants instructed Gage to follow the Bureau's instructions and that notwithstanding repeated efforts by Gage to obtain permission to clean up debris left from the first fire, to salvage valuable items, and to alter the premises to guard against vandalism, the Bureau refused to grant permission during the extended investigation lasting from October, 1966 until the building was totally destroyed in January, 1967. Having exercised their right under the contract of insurance to undertake an investigation, the insurers cannot interpose the absence of a prior duty as a defense against a claimant injured as a result of their failure to exercise due care. Accord, Ivey v. Phillips Petroleum Co., S.D.Tex. 1941, 36 F.Supp. 811, 817; see Fox v. Dallas Hotel Co., supra.

The real issue in this case is whether the negligent failure of the defendants' agent to complete the investigation within a reasonable time was the proximate cause of the second fire and appellants' resultant loss. "The concept of proximate cause as fashioned by Texas jurisprudence has two basic elements: cause in fact and foreseeability. Cause in fact requires evidence that the negligent act was a substantial factor in bringing about the injury and that but for the negligent act no harm would have been incurred." Leckbee v. Continental Airlines, Inc., 5th Cir. 1969, 410 F.2d 1191, pp. 1193, 1194.

Defendants argue that the delay in investigation could not have ignited the fire and therefore that the evidence does not establish cause in fact. This argument is wide of the mark, inasmuch as plaintiffs argue that the delay in investigating the loss from the first fire resulted in the property remaining in an exposed and dangerous condition, not...