Court Opinion

ID: 1079768
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:35:09.37972+00
Date Added: 2024-06-11T11:51:41.919601
License: Public Domain

C O U R T   O F      A P P E A L S             O F       T E N N E S S E E

                                                            A T         K N O X V I L L E                             FILED
                                                                                                                       February 27, 1998

                                                                                                                      Cecil Crowson, Jr.
                                                                                                                       Appellate C ourt Clerk
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B R I A N     H .   T R A M M E L L     O F   K N O X V I L L E            F O R       A P P E L L A N T

L I N D A J . H A M I L T O N M O W L E S             O F         K N O X V I L L E              F O R   A P P E L L E E     A U T O     O W N E R S
I N S U R A N C E C O M P A N Y , I N C .

                                                      O      P      I      N       I   O     N

                                                                                                                     G o d d a r d ,     P . J .

                      Allstate Insurance Company (“Allstate”) appeals the

dismissal of its suit against Auto Owners Insurance Company

(“Auto Owners”) and Ronald K. Mink by Chancellor McDonald, Knox

County Chancery Court.                              The suit was the result of Auto Owners’

denial of coverage to Mr. Mink, which forced Allstate to pay to

its insured, Susan E. Smith, the sum of $17,289.33, based on the

judgment she received in the Circuit Court action.                                                                               Allstate
sought recovery for this amount plus payment made to Mrs. Smith

under the medical coverage of $1712.60 and payment under the

property damage coverage of $2009.54.

                          On July 13, 1992, Mr. Mink was driving easterly along a

downtown Knoxville I-40 overpass.                                                             At that same time, Mrs. Smith

was driving westerly along the I-40 Business Loop ramp which

passes underneath the overpass being traveled by Mr. Mink.                                                                                                  Mr.

Mink’s vehicle struck the outside concrete guardrail, causing a

piece of concrete to fall through the windshield of Mrs. Smith’s

v e h i c l e       a s     s h e       p r o c e e d e d         w e s t       b e l o w       t h e     o v e r p a s s .           M r s .     S m i t h

s u s t a i n e d         p e r s o n a l         i n j u r i e s         i n     t h e       a c c i d e n t .

                          I n     h i s     d e p o s i t i o n           M r .     M i n k       t e s t i f i e d         t h a t     a     p h a n t o m

v e h i c l e       h a d       s w e r v e d       i n t o       h i s     l a n e       a n d     f o r c e d       h i s     v e h i c l e       i n t o       t h e

o v e r p a s s       g u a r d r a i l .             T h e       p o l i c e       r e p o r t         l i s t s     t w o     w i t n e s s e s         w h o

w e r e     t r a v e l i n g           b e h i n d       M r .     M i n k       a n d       n e i t h e r       w i t n e s s       c o u l d     c o n f i r m

n o r     d e n y     t h e       e x i s t e n c e         o f     t h e       a l l e g e d       p h a n t o m       v e h i c l e .

                          A t     t h e     t i m e       o f     t h e     a c c i d e n t         t h e       v e h i c l e       M r .     M i n k     w a s

d r i v i n g       w a s       i n s u r e d       b y     A u t o       O w n e r s .           O n     O c t o b e r       1 4 ,     1 9 9 2 ,       M r s .

S m i t h     a n d       h e r     h u s b a n d         i n s t i t u t e d           a n     a c t i o n       a g a i n s t       M r .     M i n k     i n

t h e     K n o x     C o u n t y         C i r c u i t         C o u r t       f o r     t h e     i n j u r i e s         a n d     d a m a g e s       s h e

s u s t a i n e d .             A l l s t a t e       w a s       s e r v e d       w i t h       p r o c e s s       a s     t h e     u n d e r i n s u r e d

c a r r i e r       f o r       M r .     a n d     M r s .       S m i t h .

                          A u t o       O w n e r s       r e t a i n e d         A t t o r n e y         R o b e r t       C r a w f o r d       t o     d e f e n d

M r .     M i n k     i n       t h e     C i r c u i t         C o u r t       a c t i o n .           M r .     M i n k     d i d     c o o p e r a t e         i n

                                                                                    2
t h e     i n v e s t i g a t i o n             o f      t h e     c l a i m ,           i n c l u d i n g          g i v i n g         h i s      s t a t e m e n t

a n d     a s s i s t i n g         i n       t h e      p r e p a r a t i o n              o f     i n t e r r o g a t o r y              r e s p o n s e s .             H e

a p p e a r e d      a n d        g a v e       h i s      d e p o s i t i o n              o n     J u l y     7 ,     1 9 9 3 .

                        T h e       C i r c u i t          C o u r t        a c t i o n           w a s     s e t     f o r      t r i a l         a n d

r e s c h e d u l e d           s e v e r a l          t i m e s     b e f o r e            f i n a l l y       b e i n g        s e t         a n d     t r i e d       o n

S e p t e m b e r       1 1       a n d       1 2 ,      1 9 9 5 .          A t t o r n e y           C r a w f o r d         a t t e m p t e d            t o      n o t i f y

M r .     M i n k    b y        c e r t i f i e d          m a i l        o f       o n e     o f     t h e     t r i a l        s e t t i n g s .               T h e

l e t t e r     w a s      r e t u r n e d             u n c l a i m e d .               A t t o r n e y        C r a w f o r d            w a s       u n a b l e       t o

l o c a t e     M r .      M i n k          a n d      d i s c u s s e d            w i t h       A u t o     O w n e r s        t h e         n e e d     t o      r e t a i n

a    p r i v a t e      i n v e s t i g a t o r .                  O n      A p r i l         2 5 ,       1 9 9 5 ,     t h e         i n v e s t i g a t o r

r e p o r t e d      t h a t        M r .       M i n k      h a d        b e e n        l o c a t e d        i n     t h e      K n o x         C o u n t y

D e t e n t i o n       C e n t e r .

                        A t t o r n e y             C r a w f o r d         m e t        w i t h      M r .     M i n k       o n       M a y      1 2 ,     1 9 9 5       i n
                                                                                                                                                   1
a    h o l d i n g      r o o m       a t       t h e      K n o x v i l l e             C i t y - C o u n t y          B u i l d i n g .                  In that

meeting, Attorney Crawford advised Mr. Mink of the September 11,

1995, trial date, and Mr. Mink stated that he would be present

for the trial.                              Mr. Mink also told Attorney Crawford that he

could be contacted by mail in care of his mother, Virgie Mink, or

at work with the Painter’s Local Union #437.                                                                                  After the meeting,

Attorney Crawford telephoned Virgie Mink and obtained her mailing

address.                Attorney Crawford’s meeting with Mr. Mink on May 12,

1995, was the last confirmed communication between Attorney

Crawford and his client.

            1
                        M r .     M i n k      w a s    a w a i t i n g         a   p r e l i m i n a r y     h e a r i n g     o n      a n    u n r e l a t e d
m a t t e r .

                                                                                        3
           Between May 12, 1995, and September 7, 1995, Attorney

Crawford sent three letters to Mr. Mink at Virgie Mink's address

as Mr. Mink directed.   None of these letters was sent by

certified mail and none was returned to Attorney Crawford before

the trial, which would indicate that they were not received.    The

second letter, dated August 8, 1995, reconfirmed the trial date

and requested that Mr. Mink contact Attorney Crawford in order to

prepare for trial.   Mr. Mink never contacted Attorney Crawford.

           The third and final letter from Attorney Crawford to

Mr. Mink was forwarded on September 7, 1995, four days before

trial.   In that letter, Attorney Crawford explained the

importance of Mr. Mink’s cooperation in preparing for trial, and

that if he failed to cooperate in defending his case, Auto Owners

may not be required to provide coverage for him.   The letter

again requested that Mr. Mink contact Attorney Crawford in order

to prepare for trial.   This letter was returned to Attorney

Crawford’s office but not until after the Circuit Court action.

           During these final days before trial, Attorney Crawford

attempted but was unable to contact Mr. Mink by phone.     Attorney

Crawford and his staff spoke with Mr. Mink’s mother, ex-wife,

brother, and former employer in an attempt to contact the

insured.   Auto Owners and Attorney Crawford again retained a

private investigator to locate Mr. Mink but the search for Mr.

Mink this time was unsuccessful.

           Jeff Tank was the Auto Owners adjuster in charge of Mr.

Mink’s claim.   On September 7, 1995, Mr. Tank and Attorney

Crawford, considering the possibility that Mr. Mink would not

                                4
appear for the trial, discussed Tennessee case law relative to an

insurer’s ability to deny coverage based on the insured’s failure

to cooperate in the defense of his case.   Those discussions

culminated with Attorney Crawford forwarding two cases to Mr.

Tank on September 8, 1995, that supported the proposition of an

insurer’s right to deny coverage for lack of cooperation by the

insured.

           The following Monday, September 11, 1995, Mr. Mink did

not appear for the trial.   Attorney Crawford moved for a

continuance, which motion was joined by Allstate, but the motion

was denied.   Attorney Crawford defended Mr. Mink, in his absence,

by use of deposition testimony previously provided by Mr. Mink.

The jury returned a verdict of $18,500 against Mr. Mink and found

no liability on the part of the phantom driver.

           Prior to the trial, Auto Owners did not notify Mr.

Mink, either verbally or in writing, that Auto Owners was

reserving its rights under the policy of insurance covering Mr.

Mink.   By letter of October 3, 1995, Auto Owners advised Mr. Mink

for the first time that it was denying coverage based on Mr.

Mink’s unexplained absence at the trial.

           Auto Owners did not pay the judgment entered against

Mr. Mink, and Allstate paid to its insured, Mrs. Smith, the sum

of $21,011.47, based on the judgment she received in the Circuit

Court action, and based on her property damage and medical

expense claims.   Allstate sought recovery of these payments, plus

all applicable interests and costs, by action in Knox County

Chancery Court.   Following trial based on a stipulation of facts

                                5
presented to the Court January 28, 1997, Allstate’s suit was

dismissed by order of April 30, 1997, based on acceptance of Auto

Owners’ policy coverage exclusion defense of non-cooperation of

the insured.   Thereupon, Allstate timely filed its notice of

appeal to this Court on April 30, 1997.

            The following issues, which we restate, are presented

by Allstate:

       I.   Whether Auto Owners’ unconditional defense of Ron Mink

constituted a waiver of its right under the policy to deny

coverage for lack of cooperation.

      II.   Whether Auto Owners exercised good faith and due

diligence to obtain the cooperation of Ron Mink.

     III.   Whether Auto Owners proved that Ron Mink’s failure to

appear at trial seriously interfered with Auto Owners defense of

the action.

            Allstate first asserts that the Chancery Court erred in

dismissing its claim because Auto Owners’ unconditional defense

of Mr. Mink waived any right Auto Owners had to deny coverage for

lack of cooperation.

            Our courts have universally upheld insurance provisions

that require the insured to cooperate in the preparation and

defense of the insured’s claim.       In Linehan v. Allstate Ins. Co.,

an unreported opinion of this Court, filed in Nashville on May 4,

1994, we said:    “Tennessee courts view these clauses as

conditions precedent and, in the absence of waiver or estoppel,

hold that a breach of the clause substantially affecting the

                                  6
insurer’s interests constitutes a complete defense to liability

under the policy.”   Linehan, (citing Pennsylvania, etc., Inc. Co.

v. Horner, 198 Tenn. 445, 450-51, 281 S.W.2d 44, 46 (1955);

Hartford Accident & Indemnity Co. v. Partridge, 183 Tenn. 310,

314-15, 192 S.W.2d 701, 702-03 [1946]).   However, it is also the

rule that an insurance company cannot deny coverage under such

clauses, after it has conducted a defense for its insured,

without first reserving its rights through some form of notice.

See American Home Assur. Co. v. Ozburn-Hessey Storage Co., 817
S.W.2d 672 (Tenn.1991), which quotes from Maryland Casualty Co.

v. Gordon, which in turn quotes from American Jurisprudence 2d:

     "The general rule supported by the great weight of
     authority is that if a liability insuror, with
     knowledge of a ground of forfeiture or noncoverage
     under the policy, assumes and conducts the defense of
     an action brought against the insured, without
     disclaiming liability and giving notice of its
     reservation of rights, it is thereafter precluded in an
     action upon the policy from setting up such ground of
     forfeiture or noncoverage. In other words, the
     insuror’s unconditional defense of an action brought
     against its insured, constitutes a waiver of the terms
     of the policy and an estoppel of the insured to assert
     such grounds."

American, at 675.

          Allstate asserts that because Auto Owners did not

reserve its rights before it conducted Mr. Mink’s defense, in the

Circuit Court action, it is estopped from relying on the policy’s

non-cooperation provision.   However, the general rule as

expressed above assumes that the insurer had knowledge of non-

cooperation and time thereafter to reserve its rights.   The facts

in this case do not support that Auto Owners was aware of Mr.

Mink’s non-cooperation with sufficient time to give notice of its

reservation of rights.

                                7
          As stated earlier, Mr. Mink cooperated in the trial

preparations and told Attorney Crawford, when they met in May

1995, that he would attend the trial.   Although the troubles

Attorney Crawford had in the past locating Mr. Mink may have

provided some forewarning that Mr. Mink would not appear at

trial, it was not until a few days before the trial that Auto

Owners had knowledge that Mr. Mink’s appearance at trial was in

real doubt.   At this point Attorney Crawford and Auto Owners

tried to contact Mr. Mink themselves and even attempted to locate

him with an investigator, but were unsuccessful.   Auto Owners and

Attorney Crawford were not even sure on the day of the trial

whether Mr. Mink would show or not.   Thus, the Chancery Court was

correct in basing its decision on the

          . . . more logical rule that the insurer need not
     withdraw in order to preserve its defense of non-
     cooperation where the insured does not appear at trial.
     Any other rule would require the insurer to elect at
     its peril whether to proceed or withdraw, allowing it
     no recourse should it elect to withdraw and at a later
     determination be made that there was no lack of
     cooperation.

Firemen’s Ins. Co. v. Cadillac Ins. Co., 679 S.W.2d 821, 823

(Ark.Ct.App.1984).

          Auto Owners did not have knowledge of Mr. Mink’s non-

cooperation until the day of the trial precluding the giving of

any notice reserving rights.   Therefore, we concur in the

Chancery Court’s holding that Auto Owners’ unconditional defense

of Mr. Mink did not constitute a waiver of its right under the

policy to deny coverage for lack of cooperation.

                                8
            Allstate’s second assertion is that Auto Owners did not

exercise good faith and due diligence to obtain the appearance of

Mr. Mink at his trial.    Just four months prior to the trial date,

Attorney Crawford obtained an in-person promise from Mr. Mink

that he would attend the trial.       Three letters, in those four

months, reminding Mr. Mink of the trial date were sent by

Attorney Crawford’s office to the mailing address where Mr. Mink

said he could be contacted.    Several days before the trial date

Attorney Crawford’s office attempted to contact Mr. Mink by phone

at several different locations and even hired an investigator to

track him down.    We find that Auto Owners acted in good faith and

with due diligence in attempting to obtain the cooperation of its

insured.

            Allstate’s final contention is that Auto Owners is

precluded from relying on the non-cooperation provision because

Auto Owners has not proven that Mr. Mink’s failure to appear at

trial seriously interfered with Auto Owners defense of the

action.    This issue was not addressed by the Chancery Court’s

memorandum opinion.

            In order for an insurer to use a non-cooperation

defense “the insured’s lack of cooperation must be substantial

and material to result in a breach of a policy condition.”

Thaxton v. Allstate Ins. Co., an unpublished opinion of this

Court, filed in Nashville on March 18, 1988.       Thaxton involved

the question of whether an insured’s failure to provide his

income tax returns to his insurer after a fire loss constituted a

breach of the cooperation clause of the insurance policy.      Auto

Owners argues that because Thaxton does not involve an insured’s

                                  9
attendance at trial it does not control the case at hand.       We

find no logical reason that prejudice need not be shown when an

insured does not attend trial but must be shown if the non-

cooperation occurs before trial.

          Regardless of when the non-cooperation occurs “placing

the burden on the insurer to show substantial prejudice is the

best rule to adopt.”     Thaxton.    This rule does not place an undue

burden on the insurer.    “It is simply necessary for the insurer

to show that the noncooperation would more likely than not

seriously interfere with the insurer’s investigation of the claim

or defense of the action.”     Thaxton.    Allowing an insurer to deny

coverage for non-cooperation when the non-cooperation does not

interfere with the defense of the action allows the insurer to

have its cake and eat it too.       Just as forcing the insurer to

withdraw in order to preserve its defense of non-cooperation

where the insured does not appear at trial is illogical, so is

allowing the insurer to deny coverage where it cannot show any

prejudice in defending its action.

          The question we face with the case at hand is whether

an insured’s absence at trial is prejudicial to his defense.

Logic and common sense normally dictate that an insured’s absence

would be prejudicial.    See Firemen’s.     In Firemen’s the Court

looked at evidence such as the amount of the award and the

attorney’s testimony regarding his difficulty trying the case and

the effect the absence had on the jury to establish substantial

prejudice.   See Firemen’s.

                                    1 0
           In reviewing the evidence in the present case we find

no showing of substantial prejudice.   First, the jury awarded

$18,500 against Mr. Mink in the Circuit Court action which was

substantially less than the $25,000 settlement authority given to

Attorney Crawford by Auto Owners and only slightly higher than

the $15,000 Auto Owners offered to settle before the trial.

           Second, no evidence appears in the record suggesting

any substantial difficulty in defending the case or negative

effect on the jury.   In fact, prior to trial, Jeff Tank, Auto

Owners’ adjuster, felt that Mr. Mink’s absence would be a

benefit.   On September 7, 1995, in his adjuster’s log, Mr. Tank

wrote:

     Insured has skipped town again . . . offered $15,000 to
     settle and close. Even if we located the insured, he
     would be a detriment to our case. We still need to
     show good faith and try to locate our insured again
     before trial.”

Mr. Tank also testified that he believed Mr. Mink would not make

a credible witness.   On September 8, 1995, Mr. Tank and Attorney

Crawford even had a conversation regarding using the insured's

absence as a way of not paying a judgment.   Therefore, in a sense

it could be said that Mr. Mink actually cooperated with Auto

Owners by not attending the trial.    Attorney Crawford was allowed

to use Mr. Mink’s deposition testimony without the use of a

witness which the insurer itself believed would hurt its case.

           It would appear that Auto Owners is engaging in

duplicity.   We say this because before trial its representatives

felt that Mr. Mink’s appearance would be detrimental to Auto

                                1 1
Owners' defense, but after trial denied coverage claiming Mr.

Mink’s absence prejudiced its defense.                                          In light of pre-trial

comments by Auto Owners' representatives, as well as the amount

of the judgment in relation to the settlement authority, we find

that Mr. Mink’s absence did not prejudice the defense of the

action.

                    For the reasons stated above, the judgment of the

Chancery Court is reversed and the cause remanded for entry of an

appropriate judgment in favor of Allstate and collection of costs

below, which are, as are costs of appeal, adjudged against Auto

Owners.

                                                            _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
                                                            H o u s t o n M . G o d d a r d , P . J .

C O N C U R :

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
H e r s c h e l P . F r a n k s , J .

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
W i l l i a m H . I n m a n , S r . J .

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