Case Title: Old Guard Insurance Co. v. Jimmy's Grille, Inc.

Citation: 

Docket Number: 542, 2003

State: delaware

Court: Delaware Supreme Court

Date: 2004-09-21T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
OLD GUARD INSURANCE 
§ 
COMPANY, 
 
§ 
 
 
§ 
No. 542, 2003     
 
Plaintiff Below, 
§ 
 
Appellant, 
§ 
Court Below:  Superior Court of 
 
 
§ 
the State of Delaware in and for 
              v. 
 
§ 
New Castle County 
 
 
§ 
JIMMY'S GRILLE, INC., JIMMY 
§ 
C. A. No. 01C-06-110 
TENEFOSS, EVELYN CUMMINGS,§ 
HARRY CUMMINGS, 
§ 
 
 
 
§ 
 
 
Defendants Below, § 
 
Appellees. 
§ 
 
 
 
Submitted:  July 21, 2004 
 
 
Decided:     September 21, 2004 
 
Before STEELE, Chief Justice, BERGER  and JACOBS, Justices. 
 
O R D E R 
 
This 21st day of September, 2004, upon consideration of the briefs of the 
parties and their presentations at oral argument, it appears to the Court that: 
1.  Old Guard appeals from an adverse Superior Court judgment based upon 
an unfavorable jury verdict.  At issue are three pretrial rulings.  To understand how 
those issues arose in this procedurally convoluted insurance coverage matter, some 
background is required. 
 
2
The Underlying Personal Injury Lawsuit   
 
2.  In July 1997, Evelyn Cummings sustained injuries from a fall while she 
was a customer at Jimmy’s Grille, a restaurant in Bridgeville, Delaware.  In July 
1999, Mr. and Mrs. Cummings filed a personal injury action in the Superior Court 
against Jimmy’s Grille and its alleged owner, Jimmy Tenefoss.  Tenefoss claimed 
that after receiving the summons and complaint, he forwarded them to Calloway, 
which was the agent for the restaurant's liability insurance carrier, First Delaware 
Insurance (the predecessor in interest of Old Guard).  It appears that Calloway, the 
agent, did not forward the Cummings' suit papers to the insurer.  As a consequence, 
a default judgment was entered against Jimmy’s Grille and Tenefoss in November 
1999. 
3.  The landlord of Jimmy's Grille, who was a co-defendant, did enter an 
appearance.  Thereafter, the matter was referred to arbitration.  After the arbitration 
hearing, $100,000 in damages was awarded against Jimmy’s Grille and Tenefoss 
but the landlord was found to be not liable. 
4.  The Cummings next filed a proceeding in the Superior Court to convert 
the arbitrator’s award into a judgment.  At that point, Old Guard, which had 
received notice of the judgment previously entered against its insureds, appeared 
and moved to vacate the default judgment against Jimmy’s Grille and Tenefoss. 
The Superior Court denied Old Guard's motion on July 7, 2000.  The Superior 
 
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Court also informed the parties that to fix the amount of the damages award against 
Jimmy's Grill and Tenefoss an inquisition hearing was required.  An inquisition 
hearing took place on December 4, 2000, at which neither Jimmy’s Grille nor 
Tenefoss appeared.  A damages award was ultimately entered, but the amount of 
that judgment does not appear of record. 
The Instant Declaratory Judgment Action 
 
5.  Old Guard then commenced, in the Superior Court, an action for a 
declaratory judgment against Jimmy’s Grille, Tenefoss, and the Cummings.  Old 
Guard sought a determination that it (Old Guard) was not liable under its liability 
policy either to indemnify any of its insureds against, or to pay to the Cummings, 
the amount of the judgment(s) in the underlying action.  The basis for Old Guard's 
no-coverage claim was that Jimmy’s Grille and Tenefoss had failed to provide 
timely notice to the carrier (Old Guard) as the insurance contract required.   
6.  The Cummings opposed Old Guard's claim for declaratory relief, and 
counterclaimed for a declaration that the Old Guard insurance policy covered the 
underlying judgment(s) and claims at issue.  Jimmy’s Grille and Tenefoss did not 
respond to the Old Guard complaint, and  default judgment(s) were (again) entered 
against them in Old Guard's declaratory action on September 27, 2001.   
7.  On June 26, 2002, Old Guard moved for summary judgment on its "no-
coverage" declaratory claim.  At the hearing on that motion, the Cummings’ 
 
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attorney attempted to advance, on behalf of Jimmy’s Grille and Tenefoss, the same 
position as he was asserting on behalf of the Cummings.  The Superior Court 
precluded Cummings from asserting that position, because the Cummings had not 
received an assignment of rights from Jimmy's Grille or Tenefoss.  The Court did, 
however, temporarily stay all proceedings on Old Guard's summary judgment 
motion, to afford the Cummings an opportunity to supplement the record by 
obtaining and filing an assignment of rights.  The record was so supplemented in 
August 2002.  
8.  Thereafter, the Cummings’ attorney entered his appearance on behalf of 
Jimmy’s Grille and Tenefoss, and on behalf of those defendants, he filed a motion 
to vacate the default judgments.  The Superior Court granted the motion to vacate 
on October 31, 2002, over Old Guard's objection.  Old Guard's first claim of error 
on appeal is that the default judgments were improperly vacated. 
 
9.  Thereafter, Old Guard renewed its motion for summary judgment on its 
claim that there was no policy coverage by reason of the insureds' failure to give 
timely notice of the Cummings' claim.  The Superior Court denied that motion on 
December 20, 2002.  The Court held that if, in fact, Jimmy's Grille and Tenefoss 
did give to Old Guard's agent (Calloway) timely notice of the Cummings' claim 
against the restaurant and Tenefoss, such notice to the agent would also legally 
constitute notice of the claim to Old Guard.  The reasons were that (i) the agent 
 
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was required by its contract with Old Guard to notify Old Guard of any notice of 
claims that the agent received, and (ii) Old Guard was bound by the notice to its 
agent under the doctrine of apparent agency.  Despite that legal ruling, the trial 
court denied Old Guard's summary judgment motion, because whether or not 
Tenefoss had given notice of the Cummings' claim to Old Guard's agent 
(Calloway), was a disputed fact issue.  The trial court’s denial of summary 
judgment to Old Guard, and its legal determination that notice to the agent would 
operate as notice to the insurer, are Old Guard's remaining claims of error in this 
appeal. 
 
10.  The coverage issue was then tried to a jury on the narrow factual 
question of whether Tenefoss had notified Old Guard's insurance agent of the 
Cummings' lawsuit.  The jury found that Tenefoss had given the agent such notice.  
As a result, the Old Guard policy was determined to cover the Cummings' personal 
injury judgment.  This appeal followed.   
The Claims on Appeal 
11.  Old Guard first claims that the trial court erroneously vacated the 
default judgment(s) against Jimmy's Grille and Tenefoss.  A motion to vacate a 
default judgment is left to the sound discretion of the trial court.1  Where an order 
                                          
 
1 A Child's Dream, Inc. v. Mills, 765 A.2d 950 (Del. 2000). 
 
 
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vacating a default judgment results from an orderly and logical deductive process, 
it will not be found to constitute an abuse of discretion.2   
12.  In determining whether the trial court abused its discretion by granting a 
motion to vacate a Rule 60(b) default judgment, this Court applies a two-part test. 
First, the Court must be persuaded that the defaulting party has demonstrated that 
if relief is granted, the outcome of the action might be different from the result that 
would obtain if the default judgment is permitted to stand.3  This test has been 
expressed as a requirement that the defaulting party demonstrate a meritorious 
defense to the claim.    
13.  Second, the Court must be satisfied that no substantial prejudice will 
result to the non-defaulting party if the motion is granted.4  In its application, Rule 
60(b) has been accorded a liberal construction because of the underlying public 
policy that favors a trial on the merits, as distinguished from a judgment based on a 
default.  Given the force of that public policy, any reasonable doubt is resolved in 
favor of the party seeking relief from the default judgment.5  
                                          
 
2 Gomez v. Morning, 795 A.2d 667 (Del. 2002). 
 
3 Battaglia v. Wilmington Sav. Fund Soc., 379 A.2d 1132, 1135 (Del. 1977), citing Wright & 
Miller, Federal Practice and Procedure: Civil § 2697. 
 
4 Id. 
 
5 Model Finance Co. v. Barton, 188 A.2d 233 (Del. Super. Ct. 1963), citing Tozer v. Charles A. 
Krause Milling Co., 189 F. 2d 242, 245 (3d Cir. 1951). 
 
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14.  Applying that two-part test to the facts at bar, it is clear that the outcome 
might have been—indeed was—different from the result that would have obtained 
had the default judgment been allowed to stand.  Here, the position advanced by 
the parties seeking relief from the default judgment was found to constitute a 
meritorious defense, both as a legal matter by the trial court on the Rule 60(b) 
motion, and later as a factual matter by the jury at the conclusion of trial.  
Moreover, no prejudice to Old Guard was shown, other than the fact that Old 
Guard would be required to answer the motion and then defend on its merits, 
despite its belief the case had already been resolved.  Because that did not 
constitute substantial prejudice to Old Guard, the trial court did not abuse its 
discretion by vacating the default judgment. 
 
15.  Old Guard next contends that the trial court erroneously denied its 
motion for summary judgment.  The court erred, Old Guard claims, because 
Tenefoss and Jimmy's Grille did not give timely notice of the Cummings' claim 
against them.  In fact, Old Guard urges, it never received any notice of that claim 
until the Cummings' attorney first contacted Old Guard's claims processor by a 
letter written in June 2000.  In addition, Old Guard contends, the Superior Court 
erred as a matter of law in ruling that notice to its agent would constitute notice to 
Old Guard.  Old Guard 's contentions lack merit. 
 
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16.  The Old Guard insurance policy required the insured to notify “the 
company providing the insurance” of any “occurrence” or “claim.”  As the 
appellees argue, Tenefoss did precisely that, first by timely contacting the agent, 
Calloway, and then forwarding the Cummings' complaint and summons to 
Calloway’s office.  Once Calloway received those papers, it, in turn, was legally 
obligated to notify the insurance carrier.6  
 
17.  Moreover, the prior course of dealing between the insureds and the 
agent gave the insureds a valid reason to believe that giving prompt notice of the 
claim to the agent would satisfy the policy requirement that the insured give notice 
to the insurance carrier.  On a previous occasion, Jimmy’s Grille was sued on a 
claim that was covered by the insurance policy at issue.  Jimmy's Grille then 
notified the agent, Calloway, of the claim.  Thereafter, the insurer processed that 
claim without difficulty or default.  Here, the Superior Court held that, if timely 
notice to the agent was in fact given, then as a legal matter, such notice to the 
insurer's agent would operate as sufficient notice of the claim to Old Guard, the 
insurer.  That ruling was correct, because Calloway was legally obligated to notify 
                                          
 
6 The contract between Calloway and Old Guard provided that: 
You [Calloway] will notify us [Old Guard] immediately if you receive notice of 
any claims, suits or losses under our policies.  You will cooperate with us in the 
investigation and adjustment, settlement, and payment of these claims.  You will 
also assist us in the collection of deductibles from insurers. 
 
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Old Guard of claims of which it received notice, and Calloway was at least the 
apparent, if not the actual, agent of Old Guard.  “Apparent authority may be 
defined as that authority which, though not actually granted, the principal 
knowingly or negligently permits the 'agent' to exercise or which he holds him out 
as possessing.”7  If a third party relies on the agent's apparent authority in good 
faith and is justified in doing so by the surrounding circumstances, the principal is 
bound to the same extent as if actual authority had existed.8 
18.  In addition to the prior dealings between the insureds and the agent, 
Calloway never gave Jimmy's Grille or Tenefoss reason not to believe that 
(Calloway) was Old Guard's agent, duly authorized to accept (and process) their 
notice of the Cummings' lawsuit.  Indeed, as the trial court noted, Old Guard 
anticipated that its clients would give notice of claims to its agents, which is 
consistent with Old Guard having included a notification obligation in its contracts 
with its agents.   
19.  For these reasons the trial court properly ruled that Tenefoss reasonably 
believed that giving notice of the Cummings' lawsuit to Calloway was sufficient to 
satisfy the requirement that notice be given to the insurer.  As the apparent (if not 
                                          
 
7 Finnegan Constr. Co. v. Robino-Ladd Co., 354 A.2d 142 (Del. Super. Ct. 1976), citing Petition 
of Mulco Products, 123 A.2d 95, 106 (Del. Super. Ct. 1956). 
 
8 Id. 
 
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actual) agent of Old Guard, Calloway had the power to bind Old Guard by 
accepting notice of the claim.  Whether or not Tenefoss actually gave timely notice 
to Calloway was a disputed issue of fact to be resolved at a trial.  The jury 
ultimately resolve that issue against Old Guard. 
20.  This Court reviews the Superior Court’s denial of summary judgment de 
novo.9  Summary judgment will be granted only when there is no genuine issue as 
to any material fact and the moving party is entitled to judgment as a matter of 
law.10  Because whether or not Tenefoss notified Calloway in timely fashion was a 
disputed material factual issue, the Superior Court correctly denied Old Guard's 
motion for summary judgment.  The trial court did not abuse its discretion or 
commit any error of law in its disposition of the three motions that are the subject 
of this appeal. 
NOW, THEREFORE, IT IS ORDERED that the judgment of the Superior 
Court is AFFIRMED. 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
/s/ Jack B. Jacobs 
 
 
 
 
 
 
           Justice 
                                          
 
9 Kaufman v. C.L. McCabe & Sons, Inc., 603 A. 2d 831, 833 (Del. 1992). 
 
10 Super. Ct. Civ. R. 56(c); Burkhart v. Davies, 602 A. 2d 56, 59 (Del. 1991).