Steve A. Ziman v. The Employers Fire Insurance Company

LUMBARD, Circuit Judge:

The Employers Fire Insurance Co. [“Employers”] appeals from a judgment in the sum of $78,277 awarded the ap-pellee, Steve A. Ziman, for personal injuries sustained in an accident on July 30, 1967, caused by the negligence of Employers’ insured, David Hodgdon. We reverse.

On July 30, 1967, a bulldozer negligently maintained by David Hodgdon struck the appellee, leaving his lower left leg crushed and mangled. Ziman shortly thereafter filed suit in the United States District Court for Vermont¹ and when the defendant, Hodgdon,² failed to appear or defend,³ obtained a default judgment against him. The ap-pellee then brought a diversity suit in the same district court against Employers, Hodgdon’s insurer under a policy of comprehensive general liability, to enforce the unpaid default judgment. Employers answered that it was under no legal obligation to compensate Ziman for the injuries sustained, since Hodgdon, its insured, had failed to supply it as soon as was practicable with information regarding time, place and circumstances of the accident on July 30, and the names and addresses of available witnesses, contrary to condition 4(a) of Hodgdon’s policy.⁴ Employers also claimed that the insured had failed to “cooperate” with Employers in its continuing investigation concerning the accident, in breach of condition 4(c), which provided that the insured was required to cooperate with the company and assist it in the making of settlements as well as in the conduct of any suit.⁵

The trial commenced on October 3, 1972, and on October 6, 1972, after all the evidence had been presented, the trial judge charged the jury that

Since the plaintiff relies on the policy issued to Hodgdon, the burden is assigned to him to prove that Hodgdon complied generally with the terms of his policy, and now the defendant, after that, has raised and by way of defense the claim that Hodgdon failed to supply the information as to time, place and circumstances of the occurrence, and the names and addresses of available witnesses as soon as practicable. The defendant also claims by way of defense, as I have indicated that Hodgdon failed to cooperate with the defendant and its representatives within the terms and provisions of the policy.

The burden of proof on these issues, the matters of defense, rests with the defendant, and if the defendant sustains its burden on these points, it has the further burden of proving the failure to supply the information and the lack of cooperation on the part of Hodgdon was material and prejudicial to the defendant in the performance of its duties under the contract.

The defendant took timely exception to this charge on the ground that it placed “the burden of proof with reference to information and cooperation upon [it],” even though the burden should have been on the plaintiff since the policy made compliance with these requirements “conditions precedent to any action under the policy.” Employers took further exception to the charge for the reason that it placed upon the defendant the burden of establishing that it had sustained “material and substantial harm” or “prejudice” as a result of Hodgdon’s failure to comply with the conditions of the policy.

The jury retired at 11:40 a. m. to deliberate. At 2:50 p. m. the court received a note from the foreman asking:

Does the defendant have to show material damage and prejudice. Could we have some examples of what they would be if the answer is “yes” ? The jurors are unclear as to prejudice and material damage as they apply to this case, as there is little or no testimony in this regard. .

At 3:00 p. m., the trial judge, over the exception of defense counsel, instructed the jury that:

[Bjefore there can be a breach of duty to cooperate, the failure on the part of the insured must be material and substantial, and the presence or absence of harm and prejudice is normally determinative of whether there has been a substantial shortage in the insured’s duty to his insurance carrier.

The burden of proof is on the defendant to show that he has been harmed by the insured’s failure to cooperate.

The jury retired again at 3:02 p. m. and just eleven minutes later returned with a general verdict in favor of the plaintiff, who was awarded a judgment in the sum of $78,277.⁶

Appealing from this judgment, Employers argues that Chief Judge Holden’s initial charge to the jury with regard to burden of proof and the necessity of material harm or prejudice to the insurer was so erroneous and prejudicial as to make it impossible for the defendant to obtain a fair verdict. We agree. As the Supreme Court of Vermont in Houran v. Preferred Acc. Ins. Co. of N. Y., 109 Vt. 258, 272, 195 A. 253, 259 (1937), stated:

[W]here, by the terms of the insurance contract, a specified notice of accident, given by or on behalf of the insured to the insurer, is made a condition precedent to liability on the part of the latter, the failure to do so will release the insurer from the obligations imposed by the contract, although no prejudice may have resulted.

Here, clause 4(a) by the unambiguous terms of the contract was clearly made a condition precedent. As such, the burden of proof under Vermont law was on the insured, and here on the plaintiff, Ziman, who stood in the place of the insured, to establish compliance with the notice of accident provision. Houran v. Preferred Acc. Ins. Co. of N. Y., supra, 109 Vt. at 371, 195 A. at 259, Hersey v. Northern Assurance Co., 75 Vt. 441, 444, 56 A. 95, 96 (1907). As the Houran decision also establishes, no showing whatsoever of material harm or prejudice to the insurer was required. 109 Vt. at 272, 195 A. 259.

Since the jury returned a general verdict, it is uncertain on what basis it reached its decision. Quite possibly, it relied on the court’s erroneous charge and incorrectly concluded that Employers had failed to establish that it had been materially harmed or prejudiced. The jury may even have reached its verdict on the basis that the defendant had not sustained its burden of proof on the issue of Hodgdon’s compliance or noncompliance with clause 4(a) of the insurance policy, the notice of accident provision, although under Vermont law that burden actually rested on the plaintiff, Ziman.

In his brief, Ziman concedes that “the law of Vermont is clear that a notice provision such as the one involved here is a condition precedent and that when the insured has breached such a condition material harm or prejudice is immaterial.” Nevertheless, he argues that the cases supporting this proposition have all involved the question whether the insurer was given timely notice that an accident had occurred and not whether the further information regarding time, place, and circumstances-of the accident and witnesses thereto called for in clause 4(a) was also adequately reported. Moreover, he maintains that this additional information was at least partially provided by the insured in the present case, so that the gist of Employers’ argument is not so much that Hodgdon breached clause 4(a) but rather that he did not make available as detailed information as was desired by Employers. According to the appellee, this argument is in essence a claim of noncooperation, in breach of clause 4(c). Under Vermont law, a cooperation clause is considered a condition subsequent and, unlike a notice of accident provision, it places the burden of proof on the insurer to establish noneompliance.⁷

The appellee is correct in stating that the issue of compliance with a notice of accident clause has generally arisen in the context of whether notice has been timely given. Neverthless, the Vermont Supreme Court has not limited its decisions exclusively to this portion of standard notice clauses such as the one here.⁸ Rather, the language of these decisions indicates that the burden is on the party seeking relief, here Ziman, to demonstrate compliance with the entire clause. The purposes served by a prompt notification of accident, the facilitation of an early investigation of the occurrence and the avoidance of fraudulent claims, Houran v. Preferred Acc. Ins. Co., 109 Vt. at 271, 195 A. at 259, are no less advanced by information regarding the time, place, and circumstances of the mishap as well as the names and addresses of any available witnesses.⁹ Moreover, Hodgdon conceded that, in sending notice of Ziman’s accident to Employers, he was not providing all this information.¹⁰ Although Ziman attempts to characterize this apparent failure to provide all the information required as a possible lack of cooperation, we believe it raises the question, whether Hodgdon fully complied with the notice of accident clause. This question was one for the jury and one regarding which the burden of proof should have been placed on the plaintiff, Ziman.

The appellee also argues that the supplemental charge to the jury was not erroneous since the trial judge stated only that the burden was on the insurer to show material harm or prejudice with regard to the cooperation clause.¹¹ No mention was made by the judge of the notice of accident provision. Although this is technically true, it fails to take account of the fact that on two occasions during his original charge to the jury, the trial judge did indicate that a showing of material harm or prejudice was likewise necessary with regard to the notice of accident clause. How much weight the jury gave these earlier instructions is uncertain. At any rate, nothing in the supplemental charge suggested that they were to be disregarded.

Because the jury may have relied upon the erroneous instructions of the trial judge in reaching its verdict, we reverse and remand for a new trial.

1 . Jurisdiction was grounded on diversity of citizenship, 28 U.S.C. § 1332, Ziman being a citizen of New Hampshire.

2 . Also named as defendants in the action were Alonzo Hodgdon, co-owner of the bulldozer, and the Hodgdons’ company, H & W Contractors. Subsequently, the plaintiff voluntarily dismissed the complaint against Alonzo Hodgdon.

3 . Hodgdon’s insurer, Employers, had refused to defend.

4 . Clause 4(a) of the policy provided that

In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. The named insured shall promptly take at his expense all reasonable steps to prevent other bodily injury or property damage from arising out of the same or similar conditions, but such expense shall not be recoverable under this policy.

5 . Clause 4(c) of the policy provided that

The insured shall cooperate with the company and, upon the company’s request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the insured because of bodily injury or property damage with respect to which insurance is afforded under this policy; and the insured shall attend hearings and trials and assist in securing and giving evidence and obtaining the attendance of witnesses. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation of (sic) incur any expense other than for first aid to others at the time of accident.

6 . The $78,277 judgment consisted of the default judgment of $65,000 against David Hodgden, and interest thereon.

7 . See Houran v. Preferred Acc. Ins. Co., 100 Vt. at 271, 195 A. at 258; Francis v. London Guar. & Acc. Co., 100 Vt. 425, 429, 138 A. 780, 781 (1927).

8 . Clause 4(a) closely resembled the notice of accident clause in Ilouran, which provided that

In the event of accident written notice shall be given by or on behalf of the Assured to the Company or any of its authorized agents as soon as is reasonably possible thereafter. Such notice should contain information respecting the time, place and circumstance of the accident, with the name and address of the injured and any available witnesses. If such information is not reasonably obtainable, particulars sufficient to identify the Assured shall constitute notice. The Assured shall keep the Company advised respecting further developments in the nature of claims and suits when and as they come to his knowledge.

9 . In Houran, tlie court took care to note that the notice clause was not unreasonable, and that, having agreed to it, the insured and any party standing in his place would be bound by its provisions. 109 Vt. at 273-274, 195 A. at 260.

10 . Our dissenting brother relies heavily on Hodgdon’s testimony for the proposition that there were no questions of fact concerning compliance with clause 4(a). We do not, however, find the record conclusive on this point. Hodgdon’s testimony, as quoted in the dissent, left totally unresolved the question whether he had supplied sufficient information regarding the time, j)lace, and circumstances of the accident and the availability of witnesses.

11 . With regard to a cooperation clause, the burden does, in fact, rest on the insurer to show material harm or prejudice. Francis v. London Guar. & Acc. Co., 100 Vt. 425, 429, 138 A. 780, 781 (1927) ; Houran v. Preferred Acc. Ins. Co., 109 Vt. at 270, 195 A. at 258.