United States Court of Appeals,
Eleventh Circuit.
Nos. 95-9542, 96-8215.
EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff-
Appellant,
v.
STONEWALL SURPLUS LINES INSURANCE COMPANY, an Alabama
Corporation; Schneider National Carriers, Inc., a Nevada
Corporation; Stonewall Insurance and Truck Insurance Exchange,
Defendants-Appellees.
EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff-
Appellee,
v.
STONEWALL SURPLUS LINES INSURANCE COMPANY, an Alabama
Corporation; Stonewall Insurance; Truck Insurance Exchange,
Defendants-Appellees,
Schneider National Carriers, Inc., a Nevada Corporation,
Defendant-Appellant.
May 6, 1997.
Appeals from the United States District Court for the Northern
District of Georgia. (No. 1:94-CV-101-CAM), Charles A. Moye, Jr.,
Judge.
Before BIRCH, Circuit Judge, and HILL and FARRIS*, Senior Circuit
Judges.
HILL, Senior Circuit Judge:
A tractor trailer and private automobile collision resulted in
one death and one serious and permanent injury. After the claims
for these losses were settled, an excess carrier, Evanston
Insurance Co., sued the insured, Schneider National Carriers, Inc.,
the primary carrier, Truck Insurance Exchange, and two other excess
carriers, Stonewall Insurance Co. and Stonewall Surplus Lines
*
Honorable Jerome Farris, Senior U.S. Circuit Judge for the
Ninth Circuit, sitting by designation.
Insurance Co., over coverage. The insured sought but was denied
permission to cross-claim against Stonewall Insurance Co..
Cross-motions for summary judgment were filed. The district court
granted summary judgment for the insurer-defendants against
Evanston Insurance Co., and denied the insured's motion for summary
judgment against Evanston Insurance Co. Evanston Insurance Co.
appeals the grant of summary judgment against it. The district
court entered an order under 28 U.S.C. § 1292(b) granting Schneider
National Carriers, Inc. permission to file an interlocutory appeal.
The cases were heard together. For the following reasons, we
affirm the grant of summary judgment to Truck Insurance Exchange,
Stonewall Insurance Co. and Stonewall Surplus Lines Insurance Co.,
but reverse the district court and direct that summary judgment be
granted in favor of Schneider National Carriers, Inc..
I. BACKGROUND
This case arises out of an accident which took place on a
two-lane road in Fulton County, Georgia at approximately 6:00 a.m.
on January 24, 1986. A semi-trailer truck, operated by Schneider
National Carriers, Inc., (Schneider) a national trucking company
based in Green Bay, Wisconsin, was involved in a collision with a
vehicle driven by Laverne Zachery in which her two daughters
Allyson Zachery (age five) and Kayla Zachery (age four) were
passengers.
The driver of the truck, Albert Blow, was attempting to
negotiate a lefthand U turn in the middle of the road when the left
dolly leg of the trailer got hung up on the pavement. At that
1
point, the trailer was perpendicular to the road. As Blow was
attempting to get the dolly leg free, Laverne Zachery struck the
trailer, just in front of the rear wheels, killing her instantly
and causing permanent head and eye injury to Allyson Zachery.
On the day of the accident, Schneider gave notice to its
insurers, Truck Insurance Exchange (Truck) ($300,000 coverage),
Stonewall Surplus Lines Insurance Company (Stonewall Surplus)
(excess liability in the amount of $700,000) and Stonewall
Insurance Company (Stonewall) ($4 million excess coverage). No
notice was given to Schneider's other excess carriers, Evanston
Insurance Company (Evanston) ($2.5 million excess), or
Weaver/London Market Insurers, National Union Fire Insurance
Company and Fireman's Fund (totalling approximately $100 million of
further excess liability coverage). There were no written
agreements between or among Truck, Stonewall, Evanston and the
other excess insurance companies. Marsh, McLennan & Company served
as broker for Schneider in securing the insurance policies with
Truck, Stonewall and Evanston.
Truck was obligated to provide a defense, including counsel.
Schneider advised Truck that it wanted its defense to be handled by
attorney Robert Corry of Dennis, Corry, Porter & Thornton (Dennis
& Corry) and Truck agreed. R. Clay Porter worked with Robert
Corry. Thereafter, Corry and Porter were Schneider's attorneys.
They reported directly to Schneider, as well as to Truck. They
1
Blow was charged with making an illegal U turn and with
vehicular homicide. After giving a statement following the
accident, Blow disappeared. Both before and during the first
trial, Blow was not available to explain what happened that
morning, or to testify.
were in regular, direct communication with Schneider. They owed no
divided or other allegiance to Stonewall. It is undisputed that
they fulfilled their professional obligation to Schneider. Also,
pursuant to Schneider's direct employment, an investigation into
the accident and the Zachery claims was undertaken by Custard
Insurance Adjusters (Custard). Custard reported the results of its
investigation to Corry and Porter, Schneider's attorneys, as well
as Truck and Stonewall.
Shortly after the accident, Roderick Zachery, husband of
Laverne Zachery and father of Allyson Zachery, retained attorney
Carl Reynolds to represent him in his claims against Schneider
arising out of the accident.
On or about March 25, 1986, Truck set a reserve at its policy
limit of $300,000, and, thereafter, although it received
information regarding the Zachery litigation, it assumed no role in
the assessment of the case.
On October 17, 1986, E.A. Anderson who handled the Zachery
claims for Stonewall wrote to Truck requesting, among other things,
information regarding Corry and Porter's evaluation of liability,
available damages information, and the amount Truck had reserved.
On November 13, 1986, Corry reported to Truck his initial
evaluation of the case, which put defense chances in the 10-25%
range and reported a recent $800,000 verdict in similar case tried
in Fulton County. Anderson, as evaluator of the claims for
Stonewall, increased the reserve for the Zachery claims by
Stonewall Surplus' $700,000 excess, over the $300,000 underlying
Truck limit, for a total of $1 million. None of Stonewall
Insurance's $4 million excess was set aside at this point.
In August of 1987, Stonewall engaged the services of attorney
J. Robert Persons of Lord, Bissell & Brook to advise Stonewall
regarding the Zachery claims and monitor the anticipated Zachery
litigation. Persons had previously worked with Anderson of
Stonewall on other cases. In addition, Persons had previously
handled several matters with Evanston. In fact, Persons' firm is
listed as the agent for service of process upon Evanston on
Evanston's policy with Schneider. Persons received from Porter a
package of materials comprising reports and other investigative
materials generated by Custard and by Dennis & Corry regarding the
Zachery claims.
On August 20, 1987, Roderick Zachery sued Schneider in Fulton
Superior Court for injuries to Allyson Zachery. The suit was
removed to the United States District Court for the Northern
District of Georgia.
On August 24, 1987, Stonewall requested Truck make available
its $300,000 policy limit for use in settlement negotiations, and
Truck did so. Stonewall also set a reserve for the Zachery claims
on its policy of $1 million over the existing $1 million provided
by the Truck and Stonewall Surplus policies, for a total of $2
million reserved.
In September of 1987, Corry valued the Zachery wrongful death
claim at $150,000 to $550,000. Persons agreed with this estimate.
In November of 1987, plaintiffs served Schneider with a set of
interrogatories in the Zachery personal injury suit. Answers were
drafted by Corry and Porter based upon information in their files
and sent to Schneider to be amended or corrected, if necessary, and
executed. Truck and Stonewall were listed as insurers, but not
Evanston or any higher level insurers. Schneider, for some reason
not apparent on the record, did not amend or correct this item, but
executed the answers and they were served. From this point on,
Corry and Porter were required to assume that Schneider itself
would be liable for any judgment over $5,000,000.
On January 3, 1988, Roderick Zachery filed suit for the
alleged wrongful death of Laverne Zachery. The suit was filed in
Fulton Superior Court, but removed to the same district court as
the personal injury suit and consolidated with it. Both suits
named Blow, Schneider and Truck as defendants.2
On March 23, 1989, Persons reported to Stonewall that he
evaluated the death case at $500,000-$600,000, and that Allyson
Zachery's personal injury case had a value "in excess of
$1,000,000." Corry and Porter concurred.
On April 14, 1989, Corry sent a structured settlement proposal
to plaintiffs on behalf of Schneider with the authorization of
Truck and Stonewall. The proposal had a present cash value of
approximately $1,265,111, and projected total benefits of $7.3
million for Allyson Zachery and $1.1 million for Roderick Zachery
on the wrongful death claim. No response nor demand was made by
plaintiff's counsel until September 1990, nearly one and a half
years later, despite numerous requests from defendants.
2
Truck was a named defendant in these cases pursuant to
O.C.G.A. § 46-7-12 which allows injured persons to maintain a
direct action against the indemnity insurance carrier for a motor
common carrier for claims up to the policy limit of the coverage.
In January of 1990, plaintiffs filed an amendment to their
pretrial submission specifying $7 to $11 million as compensatory
and $3 million as punitive damages. Stonewall still evaluated the
case at between $1 and $2 million.
In March of 1990, plaintiffs furnished defendants a report
from their economic expert that indicated an economic value on
Laverne Zachery's life in the range of $514,00 to $699,000, and
past and future damages to Allyson Zachery in the range of $1.626
to $2.661 million.
In May of 1990, Stonewall was evaluating the pending cases in
the area of a total of $2 million. In September, one week prior to
the scheduled trial of the combined Zachery claims, plaintiffs made
their first settlement demand: $2.25 million for the wrongful
death claim, and $6 million for Allyson Zachery's personal injury
claims, for a total of $8,250,000. Persons responded for Stonewall
that the demand did not "demonstrate a reasonable or realistic
interest in settlement" and that it does "not appear intended to
suggest a reasonable alternative to trial."
On September 21, 1990, Porter sent a facsimile to Schneider
stating, "I presume that all excess insurers have been notified.
If not, please notify them." In a subsequent telephone
conversation, plaintiffs' attorney requested that Porter
double-check on excess coverage. Porter called Stonewall and was
told that the coverage "goes up into the $100 million range."
Porter asked if the excess carriers had been notified and was told
that Marsh, the broker, would have done so. After the call,
Stonewall called Marsh to confirm that notice had been given to the
excess carriers. There is no dispute that Evanston had not yet
received notice of the claims.
On September 24, 1990, the first day of trial, Persons
requested from Stonewall and was given authority to offer $1.5
million in a structured settlement. The trial of the Zachery cases
began. The next day, Persons wrote directly to Schneider that
"[e]xcess layers above Stonewall Insurance should have notice of
this claim already. If they do not have such notice, they should
be advised immediately that the case is proceeding to trial." The
same day, Marsh, on behalf on Schneider, sent written notice of the
Zachery claims to Evanston by facsimile. The notice communicated
the $8.25 million demand. The faxed notice was immediately
followed by telephone calls from Marsh to the various excess
insurers.
On September 27, 1990, Persons reported to Stonewall that
Corry believed both cases might have a combined value in excess of
$3 million, although Persons believed the value was closer to $2
million. Stonewall executives looked to Anderson for evaluation
and negotiation. After reviewing the case, they gave Anderson full
authority to use any or all of the $5 million coverage limits, and,
simultaneously set the reserve for the litigation at that amount.
Upon submission of the case to the jury, Corry and Porter, the
lawyers who had conducted the defense throughout, both evaluated
the cases at less than $3.5 million.
After the jury charge, plaintiffs' lawyer indicated to
Persons, Corry and Porter his willingness to discuss settlement in
the range of a $6 million total settlement. In response, Persons
increased defendants' offer to $2.5 million, with projected total
benefits exceeding $12 million. Later, Reynolds told Persons that
he would recommend settling both cases for $5 million.
On the morning of October 2, 1990, the jury returned a verdict
totaling $23.2 million, including awards of $10 million in the
death case, $8.2 million in their personal injury case and $5
million in punitive damages.
After the verdict, Evanston took the position that it did not
owe Schneider coverage for the Zachery claims and suits because
Schneider had not given it timely notice. On May 10, 1991,
Evanston filed a declaratory judgment action against Schneider,
claiming that Evanston's policy did not cover the Zachery cases. 3
Evanston had not disputed its coverage prior to the verdict.
On July 9, 1991, the district court, in a written order, found
that the wrongful death award was "plainly excessive, shocking, and
well outside the range within which a reasonable jury could
properly operate;" and that "the award in Allyson Zachery's case
shocks the conscience and is outside the range within which a
3
Faced with the prospect of maintaining that Stonewall and
Schneider should have recognized the vast potential of the
Zachery claims and given earlier notice to it, while
simultaneously negotiating settlement with plaintiff which
required some downplaying of those claims, Evanston agreed to
dismiss its declaratory judgment action against Schneider without
prejudice and the parties' agreed to reserve their rights with
respect to each other.
The parties disagree on the effect this agreement had
on Evanston's subsequent tender of its policy limits to
Schneider in the settlement negotiations after the first
verdict. We do not decide the validity or scope of the
reservation of rights because we hold that Schneider did not
breach the policy requirement for timely notice and
Evanston, therefore, owed Schneider the coverage.
reasonable jury could properly operate." The court set aside both
verdicts as to damages, and granted a new trial as to damages on
the wrongful death, personal injury, and punitive damages claims.4
On April 3, 1992, some nine months after the verdicts had been
set aside, the insurers presented Zachery with a structured
settlement offer worth $3.5 million. On June 10, 1992, Stonewall
tendered to Evanston the Stonewall policy limits of $5 million to
be used in further settlement negotiations.
On October 21, 1992, the second trial began. On October 21 or
22, Evanston tendered its policy limits of $2.5 million to
Schneider for use in ongoing settlement negotiations. On October
22, 1992, Reynolds agreed on behalf of plaintiffs to accept $7.5
million in settlement, and the cases were settled.
In January of 1994, Evanston filed suit against Schneider,
Truck and Stonewall. The thrust of Evanston's complaint is that
each defendant had a duty to provide notice to Evanston of the
Zachery claims, but failed to do so. In addition, Evanston claims
that Stonewall negligently, and/or in bad faith, failed to settle
the Zachery claims within Stonewall's policy limits. Evanston
seeks to recover the $2.5 million that it paid to Zachery.
Schneider moved for permission to file a cross-claim against
Stonewall for indemnity should Schneider be found liable.
All the parties filed motions for summary judgment. The
district court denied Schneider's motion for summary judgment
4
The district court also admitted error in the jury
instruction on the measure of damages for the wrongful death
claim; that a new trial on punitive damages was warranted due to
the newly discovered evidence, and that a new trial as to damages
was warranted due to improper argument of plaintiffs' counsel.
against Evanston, and granted summary judgments in favor of Truck,
Stonewall and Stonewall Surplus. Schneider's motion for permission
to file a cross-claim against Stonewall was also denied. Pursuant
to Fed.R.Civ.P. 54(b), the district court found there was no just
reason for delay and directed the clerk to enter final judgments
for Truck, Stonewall Insurance and Stonewall Surplus against
Evanston. Evanston appeals these judgments. Schneider moved for
and received permission to take an interlocutory appeal from the
denial of its motion for summary judgment. We review the grant, or
denial, of summary judgment de novo. TRM, Inc. v. United States,
52 F.3d 941 (11th Cir.1995); Fitzpatrick v. City of Atlanta, 2
F.3d 1112, 1117 (11th Cir.1993).
II. DISCUSSION
A. Truck's and Stonewall's Summary Judgment Motions
1. Evanston's Rights Against Truck and Stonewall
Truck and Stonewall moved for summary judgment on the grounds
that they neither owed nor breached any duty to Evanston. There is
no dispute that Truck and Stonewall have no direct contractual
relationship with Evanston. Truck's and Stonewall's contracts are
with their insured, Schneider. Therefore, Truck and Stonewall
contend that Evanston's rights, if any, against them are derived
from their contracts with Schneider; any duties they owe Evanston
are a function of its position as subrogee of Schneider.
Furthermore, Truck and Stonewall claim the right under the
principles of equitable subrogation to assert against Evanston all
the defenses they could assert against Schneider.
In a diversity case, we apply state law as we would expect
that state's highest appellate court to apply it. Flintkote Co. v.
Dravo Corp., 678 F.2d 942, 945 (11th Cir.1982). Although some
state courts have suggested there may be a direct duty of care from
one excess insurer to a higher level excess insurer, see e.g.,
Hartford Accident & Indemnity Co. v. Michigan Mutual Ins. Co., 93
A.D.2d 337, 462 N.Y.S.2d 175, 178-79 (1983), aff'd, 61 N.Y.2d 569,
475 N.Y.S.2d 267, 463 N.E.2d 608 (1984); Estate of Penn v.
Amalgamated General Agencies, 148 N.J.Super. 419, 372 A.2d 1124,
1127 (1977), the law of Georgia (the place of the accident) and
Wisconsin (Schneider's domicile and, perhaps, the place of
contracting) is to the contrary.5
Under both Georgia and Wisconsin law, any duties Truck and
Stonewall owed Evanston were derivative of their contractual
relationship with Schneider. Home Ins. Co. v. North River Ins.
Co., 192 Ga.App. 551, 385 S.E.2d 736 (1989); Kranzush v. Badger
State Mut. Cas. Co., 103 Wis.2d 56, 307 N.W.2d 256 (1981). See
also Great American Ins. Co. v. International Ins. Co., 753 F.Supp.
357 (M.D.Ga.1990).6 In Home Ins., the Court of Appeals of Georgia
affirmed an excess insurer's right to bring suit against a primary
insurer when based upon the doctrine of equitable subrogation. The
court adopted the reasoning of the trial court which:
5
We need not decide which state's law is applicable since
they are the same.
6
We reject Evanston's contention that Great American is to
the contrary. The district court in that case misquoted an
earlier Georgia opinion to suggest there might be direct duties
between excess carriers, and then went on to adopt the holding of
Home Insurance that rights as between excess insurers are based
upon their relationship to the insured and the doctrine of
equitable subrogation.
concluded that when an insurance company defends its insured
pursuant to a policy of liability insurance against a claim
which seeks damages in excess of the policy's limits and a
judgment is returned in excess of those limits an insurance
company which issued a policy of excess or umbrella coverage
to that insured is equitably subrogated to any rights the
insured might have against its primary carrier for negligent
failure to settle. Thus, the trial court found plaintiff to
be subrogated to the rights of its insured....
Id. 385 S.E.2d at 739-40.
The Supreme Court of Wisconsin in Kranzush stated:
[O]ur cases indicate that the insurer's duties of diligent
investigation, notice of excess liability potential, and
communication of settlement offers run to the insured, and the
cause of action upon their breach belongs to the insured. In
every one of our excess liability bad faith cases the
plaintiff is either the insured or the assignee of the
insured's claim.
307 N.W.2d at 260-61. See also Teigen v. Jelco, Inc., 124 Wis.2d
1, 367 N.W.2d 806, 811 (1985) ("[W]e refuse[ ] to extend the
obligation of good faith beyond the relationship between the
insurer and its insured.")
The Seventh Circuit Court of Appeals in addressing this issue
has observed:
There are hints (no more) of such a duty in a handful of cases
from New York and New Jersey, but the overwhelming majority of
American cases describe the duty that a primary insurer owes
an excess insurer as one derivative from the primary insurer's
duty to the insured. The principal contemporary support for
the idea of a direct duty comes from decisions from district
judges in the Northern District of Illinois in diversity cases
such as this. We are not clear why these judges expect that
the Supreme Court of Illinois would buck the national trend.
Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175,
1178 (7th Cir.1994).
The Seventh Circuit went on to conclude:
Should courts strain to create novel tort duties on
behalf of insurance companies? Do insurance companies need
the protection of tort law against their own insureds and
other insurance companies? We need not answer these
questions. It is enough that the arguments in favor of the
direct duty are not so compelling....
Id. at 1180-81 (citations omitted). We find no support in the law
of Georgia or Wisconsin for a contrary result.
In the absence of any direct contractual or privity
relationship between these excess insurers, or any Georgia or
Wisconsin law holding otherwise, we hold that Evanston's rights in
the present suit against Truck and Stonewall are derived through
the duties owed by Truck and Stonewall to their own insured
Schneider, and Evanston's position as subrogee of Schneider.
2. Evanston's Claims Against Stonewall and Truck
Evanston claims that Stonewall and Truck breached their
duties to it by failing to give timely notice of Evanston's
liability exposure as required by the terms of Evanston's excess
liability policy which it issued to Schneider. Evanston also
claims that Stonewall negligently or in bad faith refused to settle
the Zachery claims within Stonewall's policy limits. As subrogee
of Schneider, however, Evanston stands in its shoes, subject to all
defenses available to Stonewall and Truck against Schneider.
Through counsel, Corry and Porter,7 Schneider was present at
and knew as much about the Zachery cases as did Stonewall and
Truck. Stonewall and Truck derived their knowledge of the cases,
in large part, from Schneider's lawyers, Corry and Porter. Even
Corry and Porter did not know of Evanston's existence as excess
carrier until shortly before trial.
7
Although paid by Stonewall, Schneider selected Corry and
Porter. No party has argued that they did not act in accordance
with this obligation.
The record reveals that Corry and Porter were fully aware of
and never complained of Persons' handling of the settlement
negotiations prior to the first verdict. It is clear that at that
time they did not believe the cases were worth the $5 million
coverage afforded by Stonewall and Truck. Schneider's own risk
manager evaluated the case at no greater than $2.5 million.
On October 1, 1990, Porter informed Schneider that plaintiffs'
counsel was willing to recommend a settlement for $5 million.
There is nothing in the record to indicate, assuming the offer to
8
settle for $5 million was bona fide, that Stonewall's failure
immediately to accept the offer arose from failure to give
Schneider's interest and the interests of its subrogee the same
consideration given Stonewall's own. Nor is there any suggestion
that Schneider urged Persons to secure authority from Stonewall to
extend a $5 million dollar settlement offer, even though the record
shows that Schneider knew of Stonewall's $5 million reserve. On
the contrary, the record is clear that Schneider, Persons, Corry,
and Porter all agreed that the verdict would not reach or exceed $5
million. No one urged a positive response to the $5 million
settlement suggestion.
Based upon these undisputed facts, Schneider itself could not
successfully assert claims of lack of notice or failure to settle
against Stonewall or Truck. Evanston, whose rights in this suit
are derivative of Schneider's, stands in its shoes as against
Stonewall and Truck. Therefore, the district court properly
8
There is some question whether this was a settlement offer
or only an invitation to the defense to make an offer of $5
million.
granted Stonewall's and Truck's motions for summary judgment
against Evanston.
B. Schneider's Summary Judgment Motion
Evanston's claim against Schneider is that Schneider failed
to give it timely and adequate notification of the accident, the
Zachery claims, and of the suits. The liability policy issued to
Schneider by Evanston provides, among other things:
[Schneider] shall immediately give to [Evanston] written
notice directed to Shand, Morahan & Company, Inc., 1 American
Plaza, Evanston, Illinois 60201 of an occurrence, claim or
suit which is reasonably likely to involve [Evanston] under
this policy. (emphasis added)
Schneider claims that it fully complied with this provision.
In fact, Schneider contends that, when it gave notice on or about
September 26, 1990, it did so as a courtesy; it was not required
to do so at that time because both its own attorneys, Stonewall's
attorney Persons, and Stonewall's evaluator, Anderson, all
appraised the Zachery cases at less than $5 million, the point at
which Evanston's coverage would become "involved."
The district court held that material facts remain in dispute
regarding this issue. The court ruled that it could not say, as a
matter of law, that it was not "reasonably likely" that an amount
in excess of $5 million was "involved" before September 25, 1990,
such that Schneider should have given notice to Evanston prior to
that time.
We disagree. Whether notice is timely is ordinarily a
question of fact for the jury to determine. Maryland Cas. Co. v.
Sammons, 99 F.2d 323 (5th Cir.1938). However, where the facts as
asserted by the insured are such that, if established, there could
be no recovery, or where the undisputed facts are such that would
preclude the insured's recovery, then the question becomes one of
law for determination of the court and a proper matter for
disposition by summary judgment. State Farm Mut. Auto. Ins. Co. v.
Coleman, 441 F.2d 329, 332 (5th Cir.1971); Cotton States Mut. Ins.
Co. v. International Surplus Lines Ins. Co., 652 F.Supp. 851, 853
(N.D.Ga.1986). Such is the case here.
The parties have spent considerable time debating whether
"reasonably" is an objective or subjective measure of "likely." We
hold that under either standard, prior to the first verdict,
Schneider was never required to conclude that it was "reasonably
likely" that Evanston's coverage would become "involved" in the
Zachery claims against Schneider.
Under this policy, when notice is required is, necessarily,
a question of judgment. It could not be otherwise. Notice is
required whenever excess coverage involvement is "reasonably
likely." This phrase, although susceptible of different meanings,
clearly contemplates that the insured is not required to give
notice every time there is a claim against it. Nor does the policy
require notice upon the mere possibility that the excess will be
involved. If this were intended, the policy would simply require
notice of all claims against the insured. In interpreting an
excess policy which required notice whenever "an occurrence is
likely to involve indemnity," the Court of Appeals of Georgia held
that the word "likely" means "probable" not merely possible.
Lumbermens Mut. Cas. Co. v. Plantation Pipeline Co., 214 Ga.App.
23, 447 S.E.2d 89, 91 (1994).
Notice is required only when it is "reasonably likely" that
the claim will be found to have a value in excess of the primary
insurance limits. "Reasonable" to whom? The insured's appraisal
will have to control unless, as a matter of law, it is
unreasonable.
The fact is that excess carriers are not interested in
receiving notice of every claim against their insureds. The excess
insurer does not undertake to defend the insured. Consequently,
the excess insurer is not interested in every accident, but only in
those serious enough to involve it. Excess policies, therefore,
usually require an assured to give notice of claims that appear
"likely to involve" the excess.
Under the notice provision of the excess policy "the exercise
of some judgment on the part of the assured in evaluating the case
is contemplated." Herbert C. Brook, 21Ins. Counsel J. 131 (April,
1954). This standard requires the insured to base its judgment
regarding the amount of the claim against it upon sound reasons.
Mere guesswork will not be enough; ignorance is no defense. An
insured cannot be heard to say it did not know when it did not
inquire. The insured must use due diligence and take appropriate
steps to make an informed judgment regarding the nature and amount
of the claim. See Bituminous Cas. Corp. v. J.B. Forrest & Sons,
Inc., 132 Ga.App. 714, 209 S.E.2d 6 (1974) (requirement for notice
met so long as notice is given "with reasonable diligence and
within a reasonable length of time in view of attending
circumstances of each particular case").
Nevertheless, it is equally clear that, as judgment is
involved, reporting perfection will not be attained. Nor does the
policy language protect Evanston against a judgment that was not
"reasonably likely" but which, nonetheless, materializes. As the
drafter of the contract, Evanston must shoulder this risk.
Liverpool & London & Globe Ins. Co. v. Kearney, 180 U.S. 132, 21
S.Ct. 326, 45 L.Ed. 460 (1901) ("The general rule ... is ... that
where a policy of insurance is so framed as to leave room for two
constructions, the words used should be interpreted most strongly
against the insurer.")
In this case, Schneider reported the accident to its primary
insurer on the day of the accident. Schneider also employed
Custard Insurance Adjusters to develop the facts of the accident.
Custard reported its results to Schneider. Schneider had competent
counsel who, by all accounts, performed competently. Stonewall had
competent counsel who, by all accounts, performed competently. No
one involved with the Zachery claims valued them at more than $5
million prior to the first verdict—not Corry and Porter, not
Persons or Anderson, not even plaintiff's own expert. After over
two and one-half years of litigation, and six months prior to the
first trial, plaintiffs furnished Schneider with a report from
their economic expert that indicated a maximum economic value for
both cases of $3.4 million.9 At the close of the first trial, both
9
It is true that plaintiffs' counsel filed an amendment to
his pre-trial order, in the nature of an ad damnum, praying for
damages of approximately $7 to $11 million, compensatory damages,
and $3 million, punitive. This demand, however, was not
consistent with the evaluations of those associated with the case
at that time. An insured is not required to conclude that a
claim is "reasonably likely" to produce a loss equal to
plaintiff's demand. Requiring notice whenever the demand exceeds
primary coverages could be, but was not, made a part of the
Corry and Persons, the lawyers in the best position to evaluate the
cases, valued the cases at less than $3.5 million.
On October 2, 1990, the jury returned combined verdicts
totaling $23.2 million. Although it had been notified of the
claims on September 25, 1990, it was only after this verdict that
Evanston sought to repudiate its coverage under the excess policy
for failure of timely notice.
Evanston urges the testimony of several experts who,
after-the-fact, offer their opinions that the Zachery cases were
"clearly" worth more than the $5 million trigger for its excess
coverage. Furthermore, one of Evanston's experts testified that
"good insurance practices" would have dictated that Schneider
notify Evanston long before it did.10
The issue of breach of contract, vel non, however, does not
concern good insurance practices. It does not even concern
whether, in fact, the Zachery cases were evaluated incorrectly by
everyone, since the jury ultimately rendered a verdict far in
excess of that amount.
To borrow a phrase, this issue concerns "what Schneider knew,
contract.
10
The only other evidence cited by Evanston in support of
its view that Schneider should have valued the cases at more than
$5 million are (1) a letter written by Porter stating that a
"jury verdict in the second trial could easily exceed ten million
dollars," and (2) Stonewall's setting its reserves at $5 million
shortly before the first verdict. Porter's letter, however, was
written after the first verdict, and after actual notice had been
given to Evanston. The undisputed testimony regarding
Stonewall's $5 million reserve was that it was a matter of trial
management strategy and that use of the authorized settlement
funds would depend on the evaluations of the case by Persons and
Anderson which continued to be substantially less than $5
million.
and when it knew it." Schneider's actions can be properly
evaluated only in this context. We do not ask whether Schneider's
evaluation of the case was "correct" or "mistaken" but whether, at
the time, it was based upon reason. We do not even ask whether it
would have been reasonable to give notice, as Evanston's experts
now suggest. Rather we must determine whether it was reasonable
for Schneider not to notify Evanston.
Under the circumstances prior to the first verdict, did
Schneider exercise due diligence in gathering information regarding
the claims, make an informed judgment and come to a reasonable
evaluation of less that $5 million? If so, then it fulfilled its
contractual duty to Evanston. Whether it turned out later that
Schneider's evaluation was incorrect is irrelevant under the
contract. The contract only requires that Schneider exercise good
judgment, and notify Evanston of all claims "reasonably likely" to
involve its coverage. The contract does not, indeed could not,
require that Schneider be right 100% of the time.
Furthermore, even if "good insurance practices" would have
dictated that Schneider notify Evanston earlier, the contract did
not. If, under a contract the doing of either one of two or more
acts would be reasonable, the doing of either will discharge the
contractual duty.
Under Evanston's contract, both the giving of notice and the
failure to give earlier notice may have been authorized in this
case. Presumably the giving of notice could never breach the
contract, even though it may not be good insurance practice to give
it in every case. Nevertheless, with no reason to believe, prior
to the first verdict, that its liability would reach, much less
exceed, $5 million, Schneider's failure to give earlier notice to
Evanston did not breach the contract either.
The Court of Appeals of Georgia has held no notice reasonable
as a matter of law in a similar case. Lumbermens Cas. Co., 447
S.E.2d at 91. In that case, the insured sought to recover the
costs of an oil spill clean-up under an excess policy which
provided coverage only after liability exceeded $3 million. The
excess carrier denied coverage based upon the insured's failure to
timely notify it of the claim.
The court noted that in an excess policy "the notice
obligation is triggered by the insured's assessment of the
likelihood of the monetary amount of the property damage for which
it may be liable exceeding the "ceiling' of the primary policy."
Since the insured's costs of clean-up totalled less than $25,000
after nine years of recovery operations, the court concluded that
"[g]iven these facts, and considering that [the excess carrier] has
pointed to no other facts showing that [the insured] should have
known that its liability would exceed $3,000,000 and that the
limits of the [primary] policy would even be reached, much less
exceeded, no basis existed for finding that the [excess carrier's]
policy would become "involved.' " Id. The insured's evaluation of
the claim as not requiring notice was reasonable as a matter of
law. Id.
In this case, the insured's evaluation of the claim was based
upon advice from competent attorneys representing both itself and
other excess insurers. No one suggested that the Zachery claims
would exceed $5,000,000. Therefore, Schneider's failure to give
earlier notice to Evanston was reasonable as a matter of law. The
trial court incorrectly denied summary judgment to Schneider on
this issue.
III. CONCLUSION
The district court correctly determined the legal rights and
duties as between Evanston and the other insurers. Accordingly, we
affirm the grant of summary judgment to Truck, Stonewall Surplus
and Stonewall Insurance. The district court erred in denying
summary judgment to Schneider and we reverse that denial and grant
summary judgment to Schneider against Evanston. Accordingly, the
judgments as to Truck, Stonewall Surplus and Stonewall Insurance
are AFFIRMED, and the denial of summary judgment to Schneider is
REVERSED and the case is REMANDED for the entry of summary judgment
for Schneider.
Evanston Insurance v. Stonewall Surplus Lines Insurance
Court: Court of Appeals for the Eleventh Circuit
Date filed: 1997-05-06
Citations: 111 F.3d 852
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