The Greyhound Corporation v. Excess Insurance Company of America , 233 F.2d 630 ( 1956 )

JONES, Circuit Judge.

Here is another phase of the litigation from which arose American Fidelity & Casualty Co., Inc., v. Greyhound Corporation, 5 Cir., 232 F.2d 89. Our preliminary statement, with only minor change, is taken from the opinion in that case. The appellee here, Excess Insurance Company, originated the proceedings by bringing an action against Greyhound, alleging that it had entered into a contract of insurance with Greyhound insuring Greyhound against loss from liability in excess of certain stated amounts; that Greyhound had contended that Excess was liable for damages arising out of a personal injury action against Greyhound, reported in Florida Greyhound Lines v. Jones, Fla., 60 So.2d 396; and that there is no liability on its part for the loss thus suffered by Greyhound because Greyhound failed to give timely notice to Excess of the Joneses’ claims of liability, as is required by the policy. The complaint sought declaratory relief that Excess was not liable to Greyhound for any amount based upon the judgments in the Jones case, and injunctive relief against Greyhound’s instituting any action to recover such sums.

Greyhound answered, denying that it had been guilty of any breach of duty in the premises, and alleging that all conditions entitling it to recover against Excess had been performed. It also alleged that Excess had been in no manner harmed or prejudiced by Greyhound’s acts or failures to act. In addition, it brought a third-party action against the Markel Service, Inc. and American Fidelity and Casualty Company, Inc. Its complaint in the third-party action alleged that, upon being served with process in the Jones case, it gave proper notice of the suit to Markel and American Fidelity and Casualty, its primary carriers; that the defense of the action thereupon passed into the hands of the third-party defendants; that although the ad damnum clauses in the Jones case were raised (thereby increasing the possibility of a recovery in excess of the amount covered by the primary policy), the third-party defendants failed to notify either Greyhound or Excess of this amendment, although it knew of the existence of excess coverage under the contract of insurance entered into between these two last-named parties; that Greyhound was guilty of no breach of duty in the premises; and that, if Excess’ liability was discharged by its not receiving notice of the amendment of the ad damnum clauses in the Jones case, then the third-party defendants breached a duty owed to Greyhound to settle the Jones case, because although there was no defense to it, the third-party defendants refused to settle, but proceeded to trial, incurring liability on Greyhound’s part to the Joneses for damages which they recovered in excess of the limits of the primary policy, which Excess refuses to pay. Later Greyhound amended its third-party .complaint to allege, inter alia, that .the third-party defendants were guilty of bad faith and .negligence in conducting the settlement negotiations in the Jones case.

Subsequently the trial court granted motions for summary judgment made by Excess and Markel, and from the first of these judgments Greyhound has appealed. For our determination is the. question whether such issue of fact was presented as would make disposition by summary judgment improper.

American Fidelity and Casualty Company had insured Greyhound against liability to the extent of $40,000 for any one person injured or killed in the operation of motor vehicles by Greyhound, and to the extent of $100,000 for personal injuries received in any one accident. Against liability over and above the amounts so specified in American’s primary policy, coverage was provided by a policy issued to Greyhound by Excess. This latter policy contained, among other terms, the following:

“Upon the occurrence of any accident which may involve liability on the part of the company, the assured shall give immediate written notice thereof with the fullest information obtainable at the time to the company at 99 John Street, New York, New York. The assured shall give like notice with particulars of any claim made on account of such accident. If any suit is brought against the assured to enforce such claim, the assured shall immediately forward to the company copies of every summons or other process that may be served upon the assured. The company shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the assured, but the company shall have the right and shall be given the opportunity to associate with the assured in the defense and control of any claim or suit or proceeding relative to an accident which claim or suit involves, or may involve, this contract, in which case the assured and the company shall cooperate in all things in the defense of such claim or suit or proceeding. Should there be any conflict between the company and the primary carrier respecting a claim covered under this contract, the assured agrees to follow the written instructions of the company regarding the claim so in dispute, and the company agrees to indemnify the assured for any loss or expense the assured may sustain by reason of the assured’s having followed such instructions. Such indemnity, however, shall not increase the maximum liability otherwise assumed by the company under this contract.

“No notice to any agent, or knowledge possessed by any agent or by any other person shall be held to effect a waiver or change in any part of this contract nor estop the Company from asserting any right under the terms of this contract; nor shall the terms of this contract be waived or changed, except by endorsement issued to form a part hereof, duly executed by an officer of the Company”.

On August 11, 1947, the accident occurred out of which arose the suit of Anna Jones and T. R. Jones, her husband, against Greyhound. The driver’s report to his employer, Greyhound, said .nothing with respect to bodily injuries. Nearly a year and a half later suit was filed by Mrs. Jones and her husband against Greyhound. On December 11, .1948, a summons was issued. This process was served on Greyhound two •days later, December 13, 1948. The following day Greyhound sent the summons to American which forwarded it to its attorneys to “protect the interest of all concerned.” The summons was not accompanied by any declaration or other pleading. It showed that damages in the amount of $75,000 were claimed. An appearance was filed in the cause on behalf of Greyhound by the attorneys selected by American. To these attorneys counsel for Jones delivered a copy of the declaration showing that damage was claimed by Anna Jones in the amount of $65,000 for bodily injuries, with derivative damage only claimed by the husband, T. R. Jones, in the amount of $10,-bOO. Of this declaration no notice was given to Greyhound by American or by the attorneys employed by it to represent 'Greyhound. No advice was given to Excess.

On December 12, 1949, American’s claim department wrote a letter to Greyhound where, among other things, it was .said:

“For some unknown reason the pleadings are resting on demurrer to the plaintiff’s declaration with no action taken since the demurrer was filed on the March Rules in 1949.

“In general the plaintiff and her husband have indicated by their actions that they are deliberately attempting to build up their claim”.

In October of 1950, new counsel noted their appearance for Mrs. Jones and her husband. Soon thereafter an amended declaration was filed alleging damages on behalf of Mrs. Jones in the amount of $175,000 and for her husband in the amount of $75,000, a total of $250,000. Of this amended declaration no notice was given to Greyhound by American or by the attorneys employed by it to represent Greyhound. No advice was given to Excess.

The case of Jones v. Greyhound was set for trial during the week of November 5, 1951. On October 15, 1951, in response to an inquiry, American’s claim agency wrote Greyhound a letter in which appeared the following:

“I understand that you requested this office to advise you if there was a possibility this claim would involve excess. We cannot tell whether or not it will go into excess because we cannot foretell the future. All I can say is that in our judgment, we do not believe that excess will be involved.

“However, Mrs. Jones is suing for $75,000 which is, of course, in excess of your limits with the American Fidelity and Casualty Company. We are, therefore, taking this opportunity to invite you or your excess carrier to associate counsel in the trial of this case, with our trial attorneys.”

Greyhound sent a copy of the foregoing letter to Excess, which acknowledged receipt of it on October 18, 1951, and on October 31, 1951, Excess wrote Greyhound denying liability because of the delay in giving notice. The case of Jones v. Greyhound was tried. On November 13, 1951, a verdict for Mrs. Jones in the amount of $50,000 and for Mr. Jones in the amount of $17,500 was returned. On this verdict judgment was entered, and on appeal the judgment was affirmed. 60 So.2d 396.

Greyhound contends that it could not have anticipated at the time of the accident nor when the suit was filed that the primary coverage might become inadequate, and that when it was informed of the possible insufficiency of its primary coverage it notified Excess. Greyhound contends that there were genuine issues of material fact presented and hence the entry of a summary judgment was error. Rule 56(c) Fed.Rules Civ.Proc., 28 U.S.C.A. ^ It- urges that two factual issues were posed; first, whether the notice given by Greyhound to Excess was adequate; and second, whether Excess had waived or was estopped to assert the absence of the notice which may have been required by the policy of insurance which it had issued to Greyhound.

In its discussion of the first of these questions, that is, the adequacy of the notice, the appellant points out that the same provisions as to notice are neither needed nor required in excess insurance as are generally found in a policy of primary coverage. In the April, 1954, issue of Insurance Counsel Journal, Herbert C. Brook discusses the question. From his article we quote:

“It is readily apparent that in the field of third party liability insurances, the division of responsibility inherent in the use of deductibles and excess insurances is more apt to give rise to controversy. For instance, in the matter of giving notice of accident, the situation is not as straightforward as in the case of primary insurances. In primary liability insurances the insurer uniformly undertakes to investigate and defend any claim covered by the policy. Consequently such policies regularly require that the assured give to the company immediate notice of any accident or claim involving the insurance. However, in excess liability insurances (as well as in most liability insurances written over a substantial deductible) the excess insurer does not undertake to defend the assured. Consequently, the excess insurer is not interested in every accident, but only in those that may be serious enough to involve it. Excess policies, therefore, usually require an assured to give notice of claims ‘that appear likely to involve the excess.'1 The excess carrier can then take such steps as it sees fit by way of additional investigation, etc., to protect its own interests. Under the notice provision of the excess wording the exercise of some judgment on the part of the assured in evaluating the case is contemplated. The provision is, however, a condition precedent to liability and if held to be breached, the insurance company would be exonerated from liability, even though there was no showing that it was in fact prejudiced by the failure to receive timely notice.” 21 Ins. Counsel J. 131.

Notice is required by the Excess policy upon the occurrence of any accident which “may” involve liability under the policy. The word “may”, when used as an auxiliary verb, is susceptible of several meanings. It comprehends mere possibility, but includes also the thought of probability, and in its scope is the idea of an expectancy of reasonable certainty. The meaning in a particular contractual provision is to be determined by a reference to the context. Reynolds v. St. Louis Transit Co., 189 Mo. 408, 88 S.W. 50, 109 Am.St.Rep. 360; State ex rel. English v. Ruback, 135 Neb. 335, 281 N.W. 607. The policy provisions gave the insurance company certain rights as well as imposing obligations. It had the right to associate with the assured in the defense of the suit, and in the event of any conflict between it and the primary insurance carrier it had the right to require the assured to follow its instructions. A rule of construction which is here applicable has been thus stated:

“It is true that conditions are inserted in insurance policies by the insurer for its protection and should be construed, where such construction is permissible, against the insurer. Hoffman v. Illinois National Casualty Co., 7 Cir., 159 F.2d 564, 565. It is equally true, however, that the insurance policy is the contract between the parties and that the provisions of that contract, which are clear and unambiguous and which are neither illegal by statute nor by reason of their being against public policy, should be enforced by the courts. The courts may not rewrite for the parties insurance contracts which are clear and unambiguous.” Hawkeye-Security Ins. Co. v. Myers, 7 Cir., 1954, 210 F.2d 890, 893.

We think the word “may” as it was used in the policy issued by Excess, was intended to refer to those types of accidents which frequently and regularly are or become claims within the coverage of the policy in which the word is used. If the happening was such that the assured should have anticipated that it might develop in a claim of an amount involving liability, then the policy provision imposed the duty of giving notice.

The contract, evidenced by the policy, stipulated that when there was an accident which may involve liability the assured should give “immediate” written notice. It is generally held that a provision for immediate notice is of the essence of the contract and a failure to comply with the provision will defeat recovery where the policy is issued, as here, subject to specified conditions including the requirement for immediate notice. 29 Am.Jur. 829, Insurance § 1105. But the requirement of “immediate” notice is usually held to mean that the notice must be given within a reasonable time. 29 Am.Jur. 827, et seq. Insurance § 1104; Standard Accident Ins. Co. v. Alexander, 5 Cir., 1939, 103 F.2d 500; Le Sage v. Utilities Ins. Co., 5 Cir., 1942, 131 F.2d 536. It has been said that “immediate”, in provisions in casualty insurance policies for notice of an accident, is to be given the same meaning as the clause “as soon as practicable.” Zanderer v. Continental Casualty Co., 2 Cir., 1944, 140 F.2d 211. In discussing the latter phrase this court has said:

“The time words in the clause, ‘as soon as practicable’ are not words of precise and definite import. They áre roomy words. They provide for more or less free play. They are in their nature ambulatory and subject under the guiding rule, to the impact of particular facts on particular cases. They do not in terms require immediate notice or notice within a particular number of days. They may not be so construed. They do not even provide for notice ‘as soon as possible.’ In terms, they require notice ‘as soon as practicable’ and they must be construed as requiring the notice within a reasonable time under all the circumstances, to effectuate the objects and purposes of the notice clause. Thus, in applying the clause, we think that if it is made to appear that the notice was given reasonably quickly after the occurrence of the accident, it will not be open to the company to prove, that a more immediate notice would have been more effective, in preparing their defense, for the time provisions of the clause would have been in effect literally complied with. On the other hand, if it appears that the giving of the notice has been delayed longer than was reasonably required physically to give the notice, then the material question would be whether that delay has caused prejudice.” Young v. Travelers Ins. Co., 5 Cir., 1941, 119 F.2d 877, 880.

Greyhound excuses its failure to give earlier notice because it had no reason to suppose that the injuries were more than trivial and that as soon as it learned otherwise the notice to Excess was given. The rule, as stated by this Court, is:

“It was the duty of insured here to report the accident as soon as practicable. This does not mean that every trivial accident that occurred should be reported. An accident that an ordinarily prudent individual acting reasonably would consider, under all the circumstances, as inconsequential, and which would not afford the basis of any claim, the insured was not bound to report.” Maryland Casualty Co. v. Sammons, 5 Cir., 1938, 99 F.2d 323, 324, certiorari denied 306 U.S. 633, 59 S.Ct. 463, 83 L.Ed. 1035.

The decision last above cited was followed and the above quoted language was approved in a case having its origin in Florida. Phoenix Indemnity Co. v. Anderson’s Groves, 5 Cir., 1949, 176 F.2d 246.

The question as to whether the notice was given in proper time and the question as to whether Excess was prejudiced by the delay are generally questions of fact. However, where the facts as asserted by the assured are such that, if established, there could be no recovery; or where the undisputed facts are such that would preclude the assured’s recovery, then the question becomes one of law for determination of the court and a proper matter for disposition by summary judgment. Such, we think, is the situation here. The summons, served on Greyhound, showing that $75,000 was claimed, should have suggested that perhaps one of the joint plaintiffs was asserting injuries exceeding the policy limits of the primary coverage. The declaration disclosed that this was true. The advice that plaintiffs were attempting to build up their claim should have indicated that the plaintiffs were planning to attempt recovery for a serious and substantial injury rather than a trivial one. The filing of an amended declaration increasing. the ad damnum from $75,000 to $250,000 should have served as confirmation, if any were required, that there was a. genuine claim made for a substantial sum in excess of the primary policy limits. We are not impressed by the argument of Greyhound that the control of the litigation was in the hands of the primary insurer and that Greyhound itself had no knowledge of the facts which would have supplied information as to the seriousness of the claim. The assured must use due diligence and follow such procedures as would inform it as to the accident and the nature and amount of the claim asserted by reason thereof. 29 Am.Jur. 835, Insurance § 1112. To be relieved of the harshness of a literal construction of “immediate notice”, by the application of a rule of “reasonable time”, the insured must follow a course of . reasonable diligence. This Greyhound failed to do. It cannot be heard to say it did not know when it did not inquire. The attorneys who conducted the defense-of the claim were its agents in the conduct of the suit and their knowledge will' be imputed to Greyhound. This is- so. notwithstanding the fact that the attorneys were employed and paid by the primary insurer.

We hold that the reasonable man of prudence would have, somewhere along the line, and not later than the filing of the amended declaration, perhaps much sooner, have given notice to Excess. This Court has, in a case where there was an analogous factual situation, applied the rule, saying:

“That personal injuries, too, actually were sustained is evidenced by the judgments against which indemnity is sought. Notice communieated more than two years after this accident was so flagrantly violative of the provisions of the policy that the court was warranted in holding, as a matter of law, that the contract was breached by the insured.” Le Sage v. Utilities Ins. Co., supra [131 F.2d 537].

It has been said that where there had! been a delay of six weeks in giving notice of an accident under a policy stipulating for notice “as soon as practicable”, the insured was not required to show prejudice in order to- defeat liability because of non-compliance with the provision for notice. Preferred Acc. Ins. Co. v. Castellano, 2 Cir., 1945, 148 F.2d 761. We are committed to a different rule under Young v. Travelers Ins. Co., supra. The period of three weeks between the time notice to Excess was given and! the time of the trial was wholly inadequate to permit Excess to investigate and] exercise, if it so elected, the rights reserved to it under the policy. Such being the case, Excess was prejudiced by the delay. See Dunn v. Travelers Ind. Co., 5 Cir., 1941, 123 F.2d 710. It was within its rights in denying liability unless it had waived or is estopped to assert the right to require notice pursuant to the policy provisions.

The appellant, Greyhound, insists that its allegation of a custom of Excess, known to and relied upon by Greyhound, of accepting notice when Greyhound became of the opinion that Excess might be involved, presented an issue of waiver or estoppel which should have been submitted to a jury. Supporting this position Greyhound shows that reports to Excess were made of other accidents at times ranging from ten days to more than a year after the accident. The nature of the doctrine relied upon has thus been asserted by the Supreme Court of the United States:

“The doctrine of waiver, as asserted against insurance companies to avoid the strict enforcement of conditions contained in their policies, is only another name for the doctrine of estoppel. It can only be invoked where the conduct of the companies has been such as to induce action in reliance upon it, and where it would operate as a fraud upon the assured if they were afterwards allowed to disavow their conduct and enforce the conditions. To a just application of this doctrine it is essential that the company sought to be estopped from denying the waiver claimed should be apprised of all the facts; of those which create the forfeiture, and of those which will necessarily influence its judgment in consenting to waive it.” Insurance Co. v. Wolff, 95 U.S. 326, 24 L.Ed. 387.

“Strictly speaking, the inability of a party to an action to assert as a defense a right given by a contract does not spring from a waiver thereof, but from estoppel resulting from a waiver”. Alexander v. Standard Accident Ins. Co., 10 Cir, 1941, 122 F.2d 995, 997. The effort of Greyhound to bring itself within the waiver and estoppel doctrine is based primarily upon Dickinson v. General Accident Fire & Life Assur. Corp, 9 Cir, 1945, 147 F.2d 396. There an oral notice was given within three to seven days of an accident at first believed trivial, and no objection made to the form of the notice. There was evidence-of a custom, known to and relied upon by the assured, of accepting oral notices. Here we have a different situation. If it be conceded or established that Excess; is estopped to require notice except when-Greyhound became of the opinion that Excess might be involved (which Excess does not admit and which we need not hold), such a doctrine could not prevail' here. There could have been no opinion, reasonably reached, at or perhaps prior to the increase of the demand of the injured claimants, that Excess might not have been involved. That Greyhound did not know what was transpiring does not excuse it when it should have known. It cannot be supposed that Excess intended that it should be denied notice-of a claim, originally for $15,000 over the primary coverage and subsequently for $210,000 excess, for four years after the accident, ten months after the increase of the demand, and only three weeks before trial. The doctrine of waiver and estoppel cannot prevail.

We have not failed to consider the differences between primary casualty insurance and excess coverage. We are-mindful of the rule of law that requires us to construe a policy of insurance most-favorable to the assured.

Finding, as we do, that the judgment, appealed is correct, it is

Affirmed.