Case Title: Overstreet v. Safeway Ins. Co. of Alabama

Citation: 740 So. 2d 1053

Docket Number: 1972291

State: alabama

Court: Alabama Supreme Court

Date: 1999-06-04T00:00:00Z

Document:
740 So. 2d 1053 (1999)
Dan OVERSTREET and Sally Overstreet
v.
SAFEWAY INSURANCE COMPANY OF ALABAMA.
1972291.

Supreme Court of Alabama.
June 4, 1999.
Rehearing Denied August 20, 1999.
J. Danny Hackney of Gaiser & Associates, P.C., Birmingham, for appellants.
Jack M. Bains, Jr., of McDaniel, Bains & Norris, P.C., Birmingham, for appellee.
HOUSTON, Justice.
Dan Overstreet and Sally Overstreet, husband and wife, appeal from a summary judgment for Safeway Insurance Company of Alabama ("Safeway"), in their action seeking damages for breach of a contract for uninsured/underinsured-motorist coverage and for bad-faith refusal to investigate an insurance claim. We affirm.
On January 8, 1995, Dan Overstreet, an employee of Allied Systems, Inc., was involved in a serious motor-vehicle accident wherein the tractor-trailer truck he was driving (a truck owned by Allied) collided *1054 with a motor home driven by Dale Warmann. The collision killed Warmann and left Mr. Overstreet with permanent injuries that reduced his earning capacity. Mr. Overstreet sought to recover for his injuries; in January 1996, through his attorney, Timothy Hughes, he agreed to a settlement with Allied's workers' compensation carrier. Hughes then pursued a claim against Farmers Group of Insurance Companies ("Farmers"), Warmann's automobile-liability-insurance carrier.
On May 29, 1996, Hughes sent a letter to Safeway, the Overstreets' insurer, stating, in full:
(Emphasis added.)
Hughes followed up this letter with a June 6, 1996, telephone conversation with Alison Duke, one of Safeway's claims adjusters. During the conversation, Hughes informed Ms. Duke of the workers' compensation settlement and of the Overstreets' pending claims against Farmers.
On August 13, 1996, Hughes sent Ms. Duke another letter, which read in full:
Even though the letter of August 13 did not revoke the statement "[w]e will ... keep you apprised of the policy limit demand," appearing in the letter of May 29, Ms. Duke, on September 6, 1996, as requested in the August 13 letter, telephoned Hughes's office, and, upon learning that Hughes was not available, left a message asking for Hughes to call her back during the week of September 16. Hughes claims that he called her back on September 16, but that she was not in and that he received no response or return call.
On September 11, 1996, the Overstreets, upon advice of Hughes, accepted a settlement with Farmers for $50,000, an amount that represented the limits of the Farmers liability policy. On September 17, Mr. Overstreet executed a full and final release with respect to Farmers and Warmann's estate. Safeway was not notified of the settlement until November 7, 1996.
The policy issued by Safeway to the Overstreets provided, in pertinent part:
Safeway denied coverage under the Overstreets' underinsured-motorist policy because Mr. Overstreet had settled with Farmers and Warmann's estate without Safeway's consent. The Overstreets filed this action in the Jefferson County Circuit Court against Safeway and others, alleging breach of contract and bad-faith failure to investigate a claim. The trial court granted Safeway's summary-judgment motion, and this appeal followed.
Under our standard of review applicable to summary judgments, we must determine whether there was a genuine issue of material fact and, if not, whether the movant was entitled to a judgment as a matter of law. Rule 56, Ala. R. Civ. P. In doing so, we must review the record in the light most favorable to the nonmovant. McClendon v. Mountain Top Indoor Flea Mkt., Inc., 601 So. 2d 957, 958 (Ala.1992).
In Lambert v. State Farm Mut. Auto. Ins. Co., 576 So. 2d 160 (Ala.1991), this Court listed certain guidelines that are to be followed by the parties involved in uninsured/underinsured-motorist claims such as the one before us. With regard to the procedure of giving "notice" to an underinsured-motorist carrier, we stated:
576 So. 2d  at 167. (Emphasis added.) This Court made it clear that these guidelines were tailored to protect the interests of the underinsured-motorist carrier:
Id.
It is true, as the appellants point out, that the Lambert guidelines must "take into consideration the facts and circumstances of each individual case." Id. However, the facts of this case are quite similar to those in Allstate Ins. Co. v. Beavers, 611 So. 2d 348 (Ala.1992). In that case, Beavers, who had an insurance policy with Allstate Insurance Company, was injured in an automobile accident involving two individuals who were insured by Alfa Insurance Company. Beavers, 611 So. 2d  at 349. The events subsequent to the accident were as follows:
611 So. 2d  at 349-50. In reversing the order of the trial court denying Allstate's motion for a summary judgment on Beavers's claims, we rejected the argument that general communications about a claim without a specific notice of the existence of a settlement was sufficient under Lambert:
611 So. 2d  at 352-53. (Emphasis added.)
This case is like Beavers, in that it seems clear from the record in this case that although there was correspondence between Safeway and Mr. Hughes concerning the existence of a claim; concerning the fact that the Overstreets were pursuing a claim against Warmann's insurance carrier; and concerning the fact that a demand was being made on Safeway, there was no correspondence of any kind that communicated the specifics of the Overstreets' proposed settlement or the fact that a settlement had even been reached, even though Hughes had promised to keep Safeway "apprised of the policy limit demand." Even viewing the evidence in the light most favorable to the Overstreets, we must conclude that the notice required under Lambert was not present.
Because notice of the settlement was not given to Safeway, the summary judgment was proper with respect to the Overstreets' claim alleging a bad-faith failure to investigate. As we said in Beavers:
Beavers, 611 So. 2d  at 352. (Emphasis added.)
Citing Thompson v. American States Ins. Co., 687 F. Supp. 559 (M.D.Ala. 1988), and cases from states other than Alabama, the Overstreets contend that Safeway had to show that it was prejudiced by the settlement before it could be entitled to a summary judgment on the contract claim. This court, in State Farm Mut. Auto. Ins. Co. v. Burgess, 474 So. 2d 634, 637 (Ala.1985), addressed whether prejudice to the insured should be a consideration in uninsured-motorist cases:
See, also, Midwest Employers Cas. Co. v. East Alabama Health Care, 695 So. 2d 1169 (Ala.1997).
The record contains no reasonable explanation for the Overstreets' failure to properly notify Safeway of the settlement. Furthermore, Robert P. Wise, vice president of claims for Safeway, testified by affidavit:
*1060 Clearly, this is evidence that Safeway was prejudiced.
The Overstreets argue that Safeway was not prejudiced, for the following two reasons: First, the Overstreets argue, Warmann was a resident of Missouri and any claim against his estate would be barred by Missouri Code, Title XXXI, Chapter 473.360 ("Limitations on filing claims when claims barred"). The Overstreets maintain that the six months allowed by this statute of nonclaims had expired before the Overstreets settled with Farmers. However, the statute provides that claims must be filed "within six months after the date of the first published notice of letters testamentary or of administration." Mo. Ann. Stat. § 473.360. No evidence in the record before us indicates that any notice of letters testamentary or of administration has been published. In Hughes's affidavit, he states: "I even went so far as to inquire into the Probate Court in the county of St. Louis, Missouri where Mr. Warman [sic] lived to determine if any estate had been probated...." Hughes does not state whether Mr. Warmann's estate had been probated. Only Warmann, not his executor, administrator, or estate, was named in the release signed by Mr. Overstreet on September 17, 1996.
Second, the Overstreets argue that there is no prejudice to Safeway because, they say, Warmann's estate was insolvent. Hughes states in his affidavit: "I even went so far as to inquire into the Probate Court in the county of St. Louis, Missouri where Mr. Warman [sic] lived to determine... if there were any other assets to be obtained other than the $50,000.00 insurance policy." Hughes does not state that there were no other assets. Mr. Overstreet testified that at the time of the accident Warmann was driving a "big motor home," "a Winnebago-type motor home," which the Overstreets alleged Warmann owned. This is not evidence that Warmann was insolvent.
Based on our examination of the record, we conclude that there is no evidence tending to show that the Overstreets' failure to obtain Safeway's consent to the settlement and the release was reasonable under the circumstances. Likewise, there is no evidence tending to refute Wise's testimony that Safeway was prejudiced by the Overstreets' failure to notify Safeway before they settled with Farmers. Therefore, the trial court properly entered the summary judgment for Safeway.
AFFIRMED.
HOOPER, C.J., and MADDOX and COOK, JJ., concur.
SEE and BROWN, JJ., concur in the result.
LYONS, J., concurs in the rationale in part, dissents from the rationale in part, and concurs in the result.
KENNEDY and JOHNSTONE, JJ., dissent.
LYONS, Justice (concurring in the rationale in part, dissenting from the rationale in part, and concurring in the result).
I concur in the result of the main opinion, but I write specially to address several issues. First, I see a noteworthy difference between this case and Lambert v. State Farm Mut. Auto. Ins. Co., 576 So. 2d 160 (Ala.1991). In Lambert, this Court addressed the problem of releasing "the insured from the `twilight zone' that he is placed in when the underinsured [or uninsured] motorist insurance carrier does not want to give its consent to settle, or wants to protect its subrogation rights." 576 So. 2d  at 165. That statement of the problem assumes the existence of an adversarial relationship between the insured and the uninsured motorist carrier after the insured has unsuccessfully attempted to secure the required consent to the settlement called for in the policy language. No such relationship is present here, because the insured never gave the underinsured-motorist *1061 carrier the opportunity to grant or to withhold its consent.
Second, I concur with the main opinion's holding that the guidelines established in Lambert and Allstate Ins. Co. v. Beavers, 611 So. 2d 348 (Ala.1992), require us to find that the Overstreets did not provide Safeway with adequate notice of the proposed settlement. I realize that, as the Overstreets argue, this case is different from Beavers. In Beavers, the insured's attorney informed the insurer only that a claim might be made for underinsured-motorist benefits. 611 So. 2d  at 349, 353. In the present case, however, the Overstreets' attorney demanded uninsured-motorist benefits under the policy. The Overstreets' expert testified that, in his opinion, this demand was "sufficient to place Safeway on notice that a settlement with the tort-feasor's insurance carrier was pending." (C.R.446-47.)
I find this to be a distinction without a difference. Under Lambert and Beavers, the insured is required to give the insurer notice of the proposed settlement and the terms of the proposed release. Lambert, 576 So. 2d  at 167; Beavers, 611 So. 2d  at 353. It is this notice that allows the insurer to protect its subrogation rights. Id. The demand made by the Overstreets' attorney for uninsured-motorist benefits did not give notice of a proposed settlement, much less notice of the terms of a proposed release. Without the required notice, Safeway could not adequately protect its subrogation rights, and the main opinion correctly concludes that the Overstreets did not provide Safeway with adequate notice.
As the main opinion correctly recognizes, however, our analysis does not end with a finding of inadequate notice. Under State Farm Mut. Auto. Ins. Co. v. Burgess, 474 So. 2d 634, 637 (Ala.1985), an insured's failure to give adequate notice may be excused. In Burgess, 474 So. 2d  at 637, this Court established guidelines by which an insured could qualify for such an excuse:
I agree with the main opinion that the Overstreets did not meet their initial burden of presenting evidence showing why they did not comply with Safeway's notice requirement. In Burgess, the insured presented evidence indicating that he did not give notice to his insurer because he did not know that the tortfeasor was uninsured. 474 So. 2d  at 636-37. This Court accepted that explanation. Id. Here, however, the Overstreets gave no explanation for their failure to give notice to Safeway. The record shows that the Overstreets presented expert testimony indicating that the demand for underinsured-motorist benefits provided sufficient notice of a settlement; however, as noted above, that evidence is insufficient under Lambert and Burgess.
Third, under Burgess, our analysis should end with a finding of a lack of an explanation, as such a finding would bar the Overstreets from recovering under their policy. See Burgess, 474 So. 2d  at 637. The main opinion, however, unnecessarily addresses the issue of prejudice; to the extent it does so, I dissent from its rationale.
The main opinion concludes that Safeway has shown that it was prejudiced, but all the insurer has shown is that it was deprived of the opportunity to make an investigation. That circumstance will occur in every case where the insurer has *1062 the burden of showing prejudice. Unless the insurer can show that a timely investigation would have revealed that the tort-feasor had assets that were placed beyond reach by reason of the settlement and release, I would hold that the insurer has not carried its burden of showing prejudice.
The main opinion's statement that "there is no evidence tending to refute [the testimony of Robert P. Wise, vice president of claims for Safeway] that Safeway was prejudiced by the Overstreets' failure to notify Safeway before they settled with [the tort-feasor's insurance carrier]," 740 So. 2d  at 1060, is not supported by Burgess. Under Burgess, supra, the insured has no burden of refuting evidence of prejudice offered by the insurer when the reasonableness of the insured's failure to give notice is at issue. If the insurer's conduct justified the insured's failure to give notice, then the insurer would profit from its own wrongdoing if it could thereafter defeat the insured's recovery by making a showing of prejudice. When the insured provides a reasonable explanation for not complying with the insurer's notice provision, any showing of prejudice by the insurer creates a question of fact as to the reasonableness of the insured's failure to give notice. Burgess, 474 So. 2d  at 637. The main opinion's statement implies that the insurer's showing of prejudice, at a level below what I consider sufficient to sustain its burden, coupled with a lack of evidence from the insured that refutes the insurer's showing, requires the trial court to enter a judgment as a matter of law in favor of the insurer even when the insured has shown a reasonable excuse for not giving notice.
Nonetheless, I concur in the result because the Overstreets did not carry their initial burden of presenting evidence to establish a reasonable explanation for their failure to comply with Safeway's notice provision.
JOHNSTONE, Justice (dissenting).
I respectfully dissent from the affirmance of the summary judgment granted by the trial court in favor of defendant Safeway and against the plaintiff, who is suing for underinsured-motorist benefits. The plaintiff timely notified his insurer, Safeway, of the motor vehicle collision, of his claim against the adverse driver, and of the plaintiffs underinsured-motorist claim against Safeway itself. While the plaintiff did conclude a settlement with the adverse driver and release him without notice to or agreement with Safeway, Safeway has failed to prove by substantial evidence that the settlement or lack of notice prejudiced Safeway. Specifically, it has not proved that, but for the settlement or lack of notice, Safeway could have recovered one penny more from the adverse driver than did the plaintiff and thus that Safeway could have reduced its liability to the plaintiff by more than did the settlement.
Proof of such prejudice is necessary for Safeway to avoid its liability to its own insured on the underinsured-motorist coverage of the policy. Thompson v. American States Ins. Co., 687 F. Supp. 559 (M.D.Ala.1988). While the main opinion cites State Farm Mutual Auto. Ins. Co. v. Burgess, 474 So. 2d 634 (Ala.1985), for the proposition that the insured must prove a reasonable explanation for the lack of notice before the insurer is put to its proof of prejudice, Burgess addresses only the ramifications of an insured's failing to give timely notice of the accident itself. In the case now on appeal, the insurer received timely notice of the accident and the underinsured-motorist claim and had over three months in which to investigate before the settlement occurred.
The only material in the record purporting to constitute evidence of prejudice does not. First, the affidavit of Safeway vice president Robert P. Wise states, in pertinent part, only:
This testimony does not in any way show that Safeway could have improved on the sum obtained by the plaintiff in the settlement. Second, the evidence that the adverse driver was driving a "big motor home," "a Winnebago-type motor home," does not prove that he owned any equity in it or that he owned any assets at all.
For aught that appears in the record, the plaintiff obtained in settlement all the deceased adverse driver could possibly supply, the policy limits paid by his liability carrier, and Safeway could have obtained no more. Thus Safeway is not entitled to the summary judgment granted by the trial court or the affirmance issued by the majority here.
[1]  "`Uninsured motor vehicle' means a land motor vehicle or trailer of any type:

"1. To which no bodily injury liability bond or policy applies at the time of the accident.
"2. To which a bodily injury liability bond or policy applies at the time of the accident but the sum of the limits of the liability coverage under all policies is less than the damages which the injured person is legally entitled to recover."
(Emphasis added.)