Henderson v. Rochester American Insurance Co.

118 S.E.2d 885 (1961) 254 N.C. 329

Adell Q. HENDERSON
v.
ROCHESTER AMERICAN INSURANCE COMPANY.

No. 165.

Supreme Court of North Carolina.

March 29, 1961.

Beasley & Stevens, Kenansville, for plaintiff appellee.

Rivers D. Johnson, Jr., Warsaw, C. D. Houge, Jr., and W. J. P. Earnhardt, Jr., Wilmington, for defendant appellant.

RODMAN, Justice.

The provisions of liability insurance policies imposing as conditions to liability the duty of insured to give notice of accidents and cooperation in the defense of actions which might result in a judgment against insured are, except where otherwise provided by statute, binding on the parties. Properly interpreted, they will be enforced. Muncie v. Travelers Insurance Co., 253 N. C. 74, 116 S.E.2d 474; Peeler v. United States Casualty Co., 197 N.C. 286, 148 S.E. 261.

The provisions are to be given a reasonable interpretation to accomplish the purpose intended, that is, to put insurer on notice and afford it an opportunity to make such investigation as it may deem necessary to properly defend or settle claims which may be asserted, and to cooperate fairly and honestly with insurer in the defense of any action which may be brought against insured, and upon compliance with these provisions to protect and indemnify within the policy limits the insured from the result of his negligent acts. An insurer will not be relieved of its obligation because of an immaterial or mere technical failure to comply with the policy provisions. The failure must be material and prejudicial. Ball v. Employers' Liability Assur. Corp., 206 N.C. 90, 172 S.E. 878; Mewborn v. Employers' Liability Assurance Corporation, 198 N.C. 156, 150 S.E. 887; Hunt v. Fidelity & Casualty Co., 174 N.C. 397, 93 S.E. 900; MacClure v. Accident & Casualty Ins. Co., 229 N.C. 305, 49 S.E.2d 742, 748, where it is said: "While there is some contrary authority, the better reasoned cases hold that the failure to co-operate in any instance alleged must be attended by prejudice to the insurer in conducting the defense. Blashfield, Automobile Law, Vol. 6, sec. 4059, p. 78."

The criticism of MacClure v. Accident & Casualty Ins. Co., supra, in Muncie v. Travelers Insurance Co., supra, was not directed to the question now under consideration but to the question of who carried the burden of proving reasonable notice given to insurer of the accident and potential liability under its policy.

Circuit Judge Parker said, in State Automobile Mut. Ins. Co. of Columbus, Ohio v. York, 4 Cir., 104 F.2d 730, 733: "It is well settled that, to relieve the insurer of liability on the ground of lack of cooperation, discrepancies in statements by the insured must be made in bad faith and must be material in nature and prejudicial in effect. Medico v. Employers' Liability Assur. Corp., 132 Me. 422, 172 A. 1; Ocean Accident & Guarantee Corp. v. Lucas, 6 Cir., 74 F.2d 115, 98 A.L.R. 1461."

In Griffin v. Fidelity & Casualty Company of New York, 5 Cir., 273 F.2d 45, the insured notified the insurer that he was operating the car at the time of the collision which occurred in July 1957. Insured pleaded guilty to a charge of aggravated assault caused by the collision. In December 1957 action for damages was instituted. Not until 28 February 1958 did the insured give the insurer a correct statement of the facts. His position was that he was seeking to protect his nephew, who was actually driving, from criminal charges. The court disposed of the insurer's contention that the policy had been breached by lack of cooperation by the false statement. It said: "* * * (U)nder the overwhelming weight of authority, including that of the courts of Texas, it is the law that it is essential to proof of breach of the cooperation clause, that actual, not merely suppositious or theoretical prejudice to the insurer therefrom be shown * * *"

These statements of the law find support in Norwich Union Indemnity Co. v. Haas, 7 Cir., 179 F.2d 827; Juvland v. Plaisance, 255 Minn. 262, 96 N.W.2d 537; General Acc. Fire & Life Assur. Corp. v. Rinnert, 5 Cir., 170 F.2d 440; Rowoldt, for Use of Flanagan v. Cook County Farmers Mut. Ins. Co., 305 Ill.App. 93, 26 N.E.2d 903; Bernadich v. Bernadich, 287 Mich. 137, 283 N.W. 5; Cowell v. Employers' Indemnity Corporation, 326 Mo. 1103, 34 S.W.2d 705; 5A Am.Jur. 138-9.

What conduct suffices to relieve the insurer from liability for breach of the cooperation clause in policies similar to the one under consideration is the basis for annotations appearing in 34 A.L.R. 2d 266; 139 A.L.R. 780; 98 A.L.R. 1469, and 72 A.L.R. 1455.

As might be expected, courts have been called upon to decide cases based on many differing factual situations. Where there has been evidence tending to show collusion between the injured and the insured, courts have been careful to protect the insurer. Courts usually hold that misstatements persisted in until the trial or subsequent to the filing of pleadings by insured requiring a shifting of ground and a new and different defense suffice as a matter of law to establish a failure to cooperate. Except for these classes of cases, courts generally hold the question of materiality and prejudice is a question for the jury. This case falls in the latter category. There is nothing to suggest collusion. Judge Paul inquired of the parties if there was any evidence in addition to the stipulation on the question of insured's noncooperation or on the effect of prejudice because of misstatements made prior to the institution of the civil action. He was informed no further evidence would be offered.

We are of the opinion and hold that the question of compliance with the cooperation clause was a question of fact to be determined by the court, acting by agreement of the parties as a jury.

Affirmed.

PARKER, Justice (dissenting).

Judge Paul found as facts in substance that defendant, as insurer, was not materially prejudiced, and suffered no detriment or injury by the false statements of plaintiff, the insured. Defendant assigns this as error, for the reason there is no evidence to support such findings of fact. I think the assignment of error No. 1 is good, and should be sustained.

In my opinion, the judge's conclusions of law and judgment, which are assigned as errors by defendant, are erroneous.

The policy provides: "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 * * *." Emphasis mine. One of the terms of the policy is the co-operation clause set forth in the majority opinion. This provision as to co-operation is material, and the deliberate breach thereof by plaintiff here releases the insurer from the obligations imposed by the contract of insurance, although no prejudice may have resulted. This principle of law is supported by the overwhelming weight of authority. Peeler v. Casualty Co., 197 N.C. 286, 148 S.E. 261; Muncie v. Insurance Co., 253 N.C. 74, 116 S.E.2d 474; Houran v. Preferred Acc. Ins. Co. of New York, 109 Vt. 258, 195 A. 253, where an abundance of authority is cited in support of the rule; State Farm Mut. Auto. Ins. Co. v. Cassinelli, 67 Nev. 227, 216 P.2d 606, 18 A.L.R. 2d 431; 98 A.L.R. 1467; 18 A.L.R.2d p. 452—Annotation, § 5, where compliance is expressly made a condition precedent. These cases and the annotations are concerned with the insured's failure to give timely notice, but the principle of law is the same as the principle of law applicable to the facts and the policy provisions here.

Plaintiff has no allegation in his complaint that the insurer has by waiver or estoppel lost its right to defeat a recovery under the provisions of its policy in this case.

The greater weight of current authority and the sounder reason, I think, support the views expressed by Chief Judge Cardozo in Coleman v. New Amsterdam Casualty Co., 247 N.Y. 271, 160 N.E. 367, 369, 72 A.L.R. 1443, where he said speaking for a unanimous Court: "The plaintiff makes the point that the default should be condoned, since there is no evidence that co-operation, however willing, would have defeated the claim for damages or diminished its extent. For all that appears, the insurer would be no better off if the assured had kept its covenant, and made disclosure full and free. The argument misconceives the effect of a refusal. Co-operation with the insurer is one of the conditions of the policy. When the condition was broken, the policy was at an end, if the insurer so elected. The case is not one of the breach of a mere covenant, where the consequences may vary with fluctuations of the damage. There has been a failure to fulfill a condition upon which obligation is dependent."

In Buckner v. Buckner, 207 Wis. 303, 241 N.W. 342, 344, it is said that "co-operation" was defined almost universally as in the Coleman case, supra. It was further held: "It is quite apparent that, if the insurer is to prepare an adequate defense in cases of contested liability, or make a just settlement, it must have from the insured a complete and truthful statement of the facts made in a spirit of co-operation and helpfulness by the insured who is, in many cases at least, the only source of information available to the insurer. This is not to say that any slight error in the statement of facts or failure to disclose some collateral fact will necessarily be held to amount to a breach of the contract, but the withholding of information, the making of untruthful statements, and the concealing of necessarily relevant and material facts can have but one purpose, and that is to help the claimant rather than the insurer."

In United States Fidelity & Guaranty Co. v. Wyer, 60 F.2d 856, it was held: Non-co-operation of insured held established as matter of law in action against insurer by person injured, where insured admittedly misrepresented to insurer facts respecting accident.

In Brogdon v. American Automobile Ins. Co., 290 Mich. 130, 287 N.W. 406, it was held: Where automobile liability insurance policy required insured to furnish truthful account of circumstances leading up to and attending accident in which automobile might be involved, and insured claimed that he was not driving the automobile when it struck pedestrian and did not disclose that he was driving the automobile at such time until one-half day of trial of pedestrian's action against insured and insurer had elapsed, and insurer was diligent in its investigation of the facts and insured's false statement prevented earlier knowledge of liability, insured's conduct voided policy and absolved insurer from liability to pedestrian.

My views here have been well expressed by the statements and the reasoning of the Supreme Court of Appeals of Virginia in State Farm Mut. Automobile Ins. Co. v. Arghyris, 189 Va. 913, 55 S.E.2d 16, a case with somewhat similar facts, where it is said: "It seems perfectly apparent that the conduct of Bohler was a clear violation of the conditions of the policy. The evidence discloses a wilful and deliberate breach by him of a material and essential clause, whereby he repeatedly misled the insurance company over a period of many months. He not only failed to claim the protection of the policy; but denied the liability of the company to him or to any one claiming through him, and this handicapped the insurer in the consideration of its liability. The insurer was, by the acts of Bohler, deprived of an opportunity to determine for itself, through an immediate investigation, aided by a true statement from its insured, whether it was liable and, if liable, whether it was advisable to make a settlement with the insured person without suit. There was a withholding of information, the making of untruthful statements, and the concealment of necessary, relevant, and material facts, actions not calculated to aid the insurer. There is no question of a minor variance in his testimony of unintentional or inadvertent statements, or of mere failure to disclose some collateral fact. Bohler failed to give to the company written notice of the accident of May 7th `as soon as practicable.' He never gave any notice, except indirectly, until the day of the trial of the proceedings against him, that is, on December 5, 1947. His credibility was destroyed by reason of his contradictory testimony and affidavits, and whether or not he had any defense to the charge of negligence in operating the automobile, the conclusion is inescapable, that it could have made little difference had the company been required to rely upon his testimony. He did not merely neglect the performance of the cooperation condition, he wilfully and deliberately failed to comply with it. Nothing is more mischievous or dangerous in litigation than a client who deliberately falsifies the facts in the preparation of his case." The Virginia case cites voluminous authority to support its position.

In my opinion, the deliberate and wilful conduct of plaintiff, the insured, was such a refusal to co-operate as to violate the policy. If the express conditions precedent to liability could be disregarded, insurers would be helpless to defend themselves against the chicanery and covin of their insured, and would be at their mercy. The law cannot make for plaintiff here a better contract than he chose to make for himself. Whittle v. Associated Indemnity Corp., 130 N.J.L. 576, 33 A.2d 866. By the majority opinion plaintiff here is allowed to profit by his own deliberate and false statements, which false statements are admitted by plaintiff. I vote to reverse, and to remand the case for a judgment of nonsuit.