U.S. Fidelity & Guar. Co. v. Wigginton ( 1992 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________________
No. 91-7045
____________________________
United States Fidelity &
Guaranty Company
Plaintiff-Counter-Defendant-
Appellee,
versus
A. Buford Wigginton,
d/b/a
Pickens Pharmacy,
Defendant-Counter-Plaintiff-Appellant.
__________________________________________________________
Appeal from the United States District Court
for the Southern District of Mississippi
__________________________________________________________
(July 1, 1992)
Before KING, SMITH, and WIENER, Circuit Judges:
WIENER, Circuit Judge:
In this Mississippi diversity case arising out of a fire and
a subsequent insurance claim, Defendant-Appellant A. Buford
Wigginton appeals the district court's grant of summary judgment of
no liability in favor of Wigginton's insurer, Plaintiff-Appellee
United States Fidelity & Guaranty Company (USF&G). Finding no
reversible error, we affirm.
I.
FACTS AND PROCEEDINGS
There is no genuine dispute about the facts of this case.
USF&G issued a policy of insurance to Wigginton covering, inter
alia, fire damage to property on which Wigginton conducted his
business, Pickens Pharmacy. In November of 1990, a fire destroyed
the property and its contents. Wigginton was arrested and charged
with second degree arson.
After filing a proof of loss with USF&G in January of 1991,
the company requested that Wigginton submit to an examination under
oath and produce certain documents and records. Wigginton's
counsel informed USF&G, however, that Wigginton would not testify
under oath until he could make a decision whether to waive his
Fifth Amendment right against self-incrimination in the criminal
proceeding. In March, Wigginton appeared at the scheduled
deposition but declined to answer questions or to produce the
requested records, asserting the Fifth Amendment. Two weeks later
the company denied Wigginton's claim.
In May, the company filed this declaratory judgment action.
Wigginton counterclaimed for bad faith denial of coverage and bad
faith in the handling of Wigginton's claim. Wigginton also filed
a motion to dismiss, or in the alternative, a motion to stay the
proceeding until the criminal arson trial was completed. USF&G in
turn filed a motion for summary judgment.
In June, eleven days after USF&G filed its motion for summary
judgment, Wigginton filed with the court a "Notice of Availability
for Deposition." USF&G immediately declined Wigginton's offer to
2
submit to examination. Four days thereafter, Wigginton responded
to USF&G motion for summary judgment, and filed an affidavit with
the court in which he averred:
After discussing the matter with my attorneys, it has been
determined that I should make myself available for examination
under oath to answer questions concerning the fire and the
losses which resulted, and to produce documents as requested
by USF&G. My offer to do so, however, is contingent upon
USF&G's agreement, or Order of the Court to the effect that
same will constitute a compliance on my part with the
pertinent terms and provisions of my policy of insurance.
The district court granted summary judgment to USF&G and
denied Wigginton's bad faith counterclaim. The court concluded
that Wigginton's delay in submitting to examination under oath and
his subsequent conditional offer were unreasonable, thereby voiding
coverage under USF&G's fire policy. Wigginton timely appealed.
II.
STANDARD OF REVIEW
This court reviews the grant of summary judgment motion de
novo, using the same criteria used by the district court in the
first instance.1 We "review the evidence and inferences to be
drawn therefrom in the light most favorable to the non-moving
party."2 Summary judgment is proper "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
1
Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.
1988).
2
Baton Rouge Bldg. & Constr. Trades Council v. Jacobs
Constructors, Inc., 804 F.2d 879, 881 (5th Cir. 1986) (per
curiam) (citing Southmark Properties v. Charles House Corp., 742
F.2d 862, 873 (5th Cir. 1984)).
3
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." 3 Fed.R.Civ.P. 56(e) requires
that when a proper motion for summary judgment is made, the non-
moving party must set forth specific facts showing that there is a
genuine issue for trial.4 The mere existence of an alleged factual
dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment. A dispute about a material
fact is genuine "if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party."5 "Material facts"
are "facts that might affect the outcome of the suit under the
governing law."6
III.
ANALYSIS
A. Failure to Submit to Examination under Oath
In its argument that Wigginton's failure to submit to
examination under oath rendered Wigginton's policy void, USF&G
relies on the following provisions contained in the policy:
A. Loss Conditions
...
3. Duties In The Event of Loss Or Damage.
You must see that the following are done in the
event of loss of or damage to Covered Property:
...
3
Fed.R.Civ.P. 56(c).
4
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.
Ct. 2505, 2510 (1986).
5
Id. at 248.
6
Id.
4
g. [The Examination of Oath Clause:] If
requested, permit us to question you under
oath at such times as may be reasonably
required about any matter relating to this
insurance or your claim, including your books
and records. In such event, your answers must
be signed.
...
i. [The Cooperation Clause:] Cooperate with us
in the investigation or settlement of the
claim.
4. [The Legal Action Clause:] Legal Action Against Us.
No one may bring a legal action against us under
this insurance unless:
a. There has been full compliance with all of the
terms of this insurance; ...
B. General Conditions.
1. [The Concealment Clause:] Concealment,
Misrepresentation Or Fraud.
This Coverage Part is void in any case of fraud by
you at any time as it relates to this Coverage
Part. It is also void if you or any other
insurance, at any time, intentionally conceal or
misrepresent a material fact concerning:
a. This Coverage Part;
b. The Covered Property;
c. Your interest in the Covered Property, or
d. A claim under this Coverage Part.
"Mississippi law is clear that a policy is rendered void where an
insured either fails to submit to an examination under oath or
refuses to answer material questions during an examination under
oath."7
The [policy's examination, concealment, and legal action
clauses] are common to insurance policies, and have been dealt
7
Saucier v. U.S. Fidelity and Guaranty Co., 765 F. Supp. 334
(S.D. Miss 1991). See also Taylor v. Fireman's Fund Ins. Co.,
306 So. 2d 638 (Miss. 1974); Southern Guaranty Ins. Co. v. Dean,
252 Miss. 69, 172 So. 2d 553 (1965); Standard Ins. Co. v.
Anderson, 227 Miss. 397, 86 So. 2d 298 (1956); U.S. Fidelity and
Guaranty Co. v. Conaway, 674 F. Supp. 1270 (N.D. Miss. 1987),
aff'd 849 F.2d 1469 (5th Cir. 1988).
5
with by this court on many occasions. In all of these cases
the clauses authorizing insurers to conduct investigations
under oath were found to be reasonable and valid. This Court
also found that failure to submit to such an examination,
under circumstances such as those present in the case at bar,
would preclude coverage under the policies as a matter of
law.8
Therefore, because the failure to submit to examination voids the
policy as a matter of law, the policy need not explicitly state
that the examination clause is a condition precedent to recovery.
Wigginton contends, however, that the policy is not void
unless USF&G proves that it was prejudiced by Wigginton's breach.
We do not agree. The law of Mississippi is well-settled that an
insured's breach of a condition precedent or to a provision that
renders the policy void relieves the insurer of any obligation to
show prejudice. A substantial line of cases supports the rule that
an insurer need not show prejudice when the insured breaches a
condition precedent or a condition that voids the policy.9
Although Mississippi courts do not speak of examinations as
conditions precedent, they have never required a showing of
prejudice when breach of the examination clause renders a policy
8
See Allison v. State Farm Fire & Cas. Co. 543 So. 2d 661,
663 (Miss. 1989).
9
See Hall v. State Farm Fire & Cas. Co., 937 F.2d 210 (5th
Cir. 1991)(no showing of prejudice necessary when breach of
concealment clause voided coverage); Bolivar County Bd. of
Supervisors v. Forum Ins. Co., 779 F.2d 1081 (5th Cir. 1986)(no
showing of prejudice necessary when provision is condition
precedent); Reliance Ins. Co. v. County Line Place, Inc., 692
F.supp. 694 (S.D.Miss. 1988)(no showing of prejudice necessary
when notice provision is condition precedent); West v. Bankers
and Shippers Ins. Co., 643 F. Supp. 992 (N.D. Miss. 1986)(no
showing of prejudice necessary when notice provision is condition
precedent), aff'd 814 F.2d 657 (5th Cir. 1987).
6
void.10 Clearly, then, Wigginton's breach of the examination
clause, precluding coverage as a matter of law, obviates any
obligation of USF&G to demonstrate prejudice.
Wigginton also insists that his subsequent offer to submit to
examination cured any breach because the delay was reasonable. In
Standard Ins. Co. of New York v. Anderson,11 the Mississippi Supreme
Court concluded that a willful failure to submit to an examination
can violate a policy's concealment clause, but the court also
recognized that a reasonable delay in submitting to an examination
may be excused. The court reiterated this position in Home Ins.
Co. v. Olmstead12, stating that "if an insured, for a valid reason,
is unable to attend an examination under oath, it is incumbent upon
the insured, as soon as possible, to offer to submit to an
examination at a later date."13 We agree with the district court
in the instant case that Wigginton's delay was unreasonable as a
matter of law.
Wigginton premised his refusal to submit to the examination on
the ground that he needed time to decide whether to waive his right
against self-incrimination in his criminal matter, cognizant of the
10
See, e.g., Taylor v. Fireman's Fund Ins. Co., 306 So. 2d
638 (Miss. 1974); Southern Guaranty Ins. Co. v. Dean, 252 Miss.
69, 172 So. 2d 553 (1965); Standard Ins. Co. v. Anderson, 227
Miss. 397, 86 So. 2d 298 (1956); See also U.S. Fidelity and
Guaranty Co. v. Conaway, 674 F. Supp. 1270 (N.D. Miss. 1987),
aff'd 849 F.2d 1469 (5th Cir. 1988).
11
227 Miss. 397, 86 So. 2d 298 (1956).
12
355 So. 2d 310 (Miss. 1978).
13
Id. at 313.
7
fact that answering any questions in his examination would
effectively waive these rights. Wigginton cannot, however, rely
upon his Fifth Amendment right against self-incrimination as a
valid excuse to avoid examination in this civil case. We see no
principled difference between invoking one's Fifth Amendment rights
and delaying the examination in order to decide whether to do so.
In Saucier v. U. S. Fidelity and Guaranty Co.14 the court reasoned:
The compulsion secured against by the constitution is a
compulsion exercised by the state in its sovereign capacity in
some matter known to the law. Constitutional immunity has no
application to a private examination arising out of a
contractual relationship. The examination to which appellants
demanded respondent should submit was an extrajudicial
proceeding, not authorized by any constitutional or statutory
provision, but purely by virtue of a contract between the
parties. To bring a case within the constitutional immunity,
it must appear that compulsion was sought under public process
of some kind. This being so, respondent's refusal to undergo
examination and produce his books and papers acquires no
sanctity because he urged his constitutional right not to be
compelled to be a witness against himself. The demand was
made upon him by virtue of the stipulation in the contract,
and by the stipulation alone must his refusal be judged. The
stipulation constituted a promissory warranty under which
appellants had the right to demand compliance by respondent
"as often as required," and the performance of such
stipulation was a condition precedent to any right of action.15
It is not just the number of months that elapsed between the
demand for examination and Wigginton's consent to submit that makes
his delay unreasonable. The facts that he waited until after USF&G
filed suit and after its motion for summary judgment was filed to
consent exacerbated the unreasonableness of Wigginton's delay.
14
765 F. Supp. 334 (S.D. Miss. 1991).
15
Id. at 336 (quoting Hickman v. London Assurance Corp., 184
Cal. 524, 195 P. 45, 49 (1920).
8
More significantly, Wigginton did not redeem himself when he
offered to submit some three months later. His offer was
unreasonably conditioned on the company's agreeing to waive its
rights with respect to voiding the policy. Even if we were to
agree that Wigginton's delay of three months was reasonable
temporally, we would be forced to conclude that the contingency
attached to his offer made it ineffectual and thus unreasonable.
The district court was correct when it concluded that
In effect, compliance with Wigginton's demand requires USF&G
to relinquish the defense that it was justified in denying
Wigginton's claim because he failed to timely comply with the
terms of the policy, even before Wigginton appears and is
questioned. USF&G is not required by its policy or by law to
accept such an offer. Accordingly, the court concludes that
Wigginton has not made an offer to comply with the terms of
the policy which would defeat the plaintiff's motion for
summary judgment....
B. Wigginton's Counterclaim for Bad Faith
The district court denied Wigginton's counterclaim against
USF&G for breach of contract in denying his claim for coverage.
Wigginton argues that the conduct of USF&G constituted a breach of
contract so willful, intentional, malicious and in reckless
disregard of his rights as to amount to the independent tort of bad
faith calling for actual and punitive damages. Specifically,
Wigginton complains of USF&G's insistence on the examination under
oath, the denial of the claim, and the filing of suit.
The law is well settled that the insured has the burden of
establishing a claim for bad faith denial of an insurance claim.16
16
Dunn v. State Farm Fire and Casualty Co., 711 F.Supp 1362,
1364 (N.D. Miss. 1988), aff'd, 927 F.2d 869 (5th Cir. 1991).
9
The insured must show that the insurer denied the claim (1) without
an arguable or legitimate basis, either in fact or law, and (2)
with malice or gross negligence in disregard of the insured's
rights.17 The insurer need only show that it had reasonable
justifications, either in fact or in law, to deny payment.18
Moreover, whether an insurer had an arguable reason to deny an
insured's claim is an issue of law for the court.19
In deciding whether an insurer had an arguable basis to deny
insurance liability, Mississippi courts apply the directed verdict
test:20 Unless the insured would be entitled to a directed verdict
on the underlying insurance claim, an arguable reason to deny an
insurance claim exists in most cases.21
We have already determined that Wigginton's failure to submit
to the requested examination and his subsequent impermissibly
conditional offer to submit were unreasonable as a matter of law.22
Under these circumstances, there is no doubt that Wigginton's
breach provided USF&G substantially more than an arguable reason to
deny his claim.
17
Id., 927 F.2d at 872.
18
Id. at 873.
19
Id.
20
Id.
21
Id.
22
Because we find that Wigginton's conduct was a breach as a
matter of law, his argument that the district court erred in
granting summary judgment before discovery was undertaken is
meritless.
10
IV.
CONCLUSION
Wigginton's failure to submit to examination voided the policy
as a matter of Mississippi law, without the necessity for USF&G to
show that it was prejudiced by that failure. We do not need to
reach the question whether the period of Wigginton's delay was
unreasonable because his subsequent offer to submit did not cure
the breach; it was unacceptably conditional and, thus without
effect. The district court, therefore, did not err in granting
USF&G summary judgment, or in denying Wigginton's counterclaim for
bad faith.
For the foregoing reasons, the judgment of the district court
is
AFFIRMED.
11