Osborne v. National Union Fire Insurance

Present: Carrico, C.J., Compton, Stephenson, Lacy, Hassell and
Keenan, JJ., and Whiting, Senior Justice

GIRARD ENOCH OSBORNE
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 951117 January 12, 1996

NATIONAL UNION FIRE INSURANCE
COMPANY, ETC., ET AL.

UPON A QUESTION OF LAW CERTIFIED BY THE UNITED STATES
COURT OF APPEALS FOR THE FOURTH CIRCUIT

Acting pursuant to the provisions of our Rule 5:42, the

United States Court of Appeals for the Fourth Circuit certified

to this Court in June 1995 a question of Virginia law, which we

accepted by order entered in July 1995. The question deals with

a motor vehicle insurance coverage issue arising from an

exclusion contained in an uninsured motorist endorsement to an

insurance policy.
The following facts are set forth in the Fourth Circuit's

order of certification. In August 1988 in Henry County, Girard

Enoch Osborne, pursuant to his employment, was operating a truck

owned by his employer, MW Manufacturers, Incorporated, a party to

the federal litigation. Osborne was injured when the truck was

forced from the road and into a tree as the result of the

negligent operation of another vehicle by an unknown, and hence

uninsured, motorist.

National Union Fire Insurance Company of Pittsburgh,

Pennsylvania, the main party in the federal action, had issued to

Osborne's employer a policy of motor vehicle liability insurance

containing uninsured motorist (UM) coverage. This policy had

been purchased by the employer's parent company, Hanson
Industries, also a party to the federal suit. The uninsured

motorist coverage of that policy was limited to $25,000.

State Farm Fire and Casualty Company issued a similar policy

with like coverage to Osborne personally. That policy contained

a $100,000 limit for uninsured motorist coverage. Osborne was

covered by both policies, with National Union being the primary

insurer for the accident in question and State Farm being the

secondary insurer.
In December 1991, Osborne obtained a judgment against the

unknown motorist as "John Doe" in the Circuit Court of Henry

County for $299,750. According to applicable law, Code § 38.2-

2206(E), both insurers had responded for "John Doe."

Subsequently, Osborne sought payment under the uninsured

motorist provisions of both policies. He settled with State Farm

for $65,000 without National Union's consent. Thereafter,

National Union refused to pay Osborne any sum. The insurer

relied on an exclusion contained in its uninsured motorist

endorsement as follows: "This insurance does not apply to . . .

[a]ny claim settled without our consent."

Next, Osborne filed the present action in the Circuit Court

of Henry County seeking recovery under National Union's policy.

The defendants removed the proceeding to the United States

District Court for the Western District of Virginia.

The district court granted the insurer's motion for summary

judgment, deciding that the foregoing policy exclusion permitted

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denial of coverage because Osborne had settled the claim with

State Farm without National Union's consent. There was no proof

that National Union was prejudiced by Osborne's settlement.

Osborne appealed to the Fourth Circuit, contending that the

consent-to-settlement clause cannot, consistent with Virginia

law, bar recovery when no prejudice to the insurer has been

shown.

The question certified to this Court is: "Whether National

Union may deny UM coverage to Osborne on the grounds that Osborne

settled with State Farm without National Union's consent, when

National Union's UM contract contained a consent-to-settlement

clause but National Union was not prejudiced by the settlement."

We answer that question in the affirmative.
When the terms of an insurance policy are clear and

unambiguous, we give the words their ordinary meaning and enforce

the policy as written. Atlas Underwriters, Ltd. v. Meredith-

Burda, Inc., 231 Va. 255, 259, 343 S.E.2d 65, 68 (1986). In the

present case, the language of the consent-to-settlement provision

meets the test of clarity; plainly, the insurance does not apply

to any claim settled without National Union's consent.

Osborne implicitly contends that the exclusion should not

apply unless the insurer demonstrates that its subrogation rights

actually were harmed. Such a contention runs afoul of consistent

interpretations that we have made of similar policy provisions --

provisions, like the present exclusion, that are conditions of

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coverage rather than restrictions on coverage in violation of

statute.

For example, when an insured fails to comply with a policy

provision requiring timely notice of an accident, we have said

that "the insurance company need not show that it was prejudiced

by such a violation." State Farm Fire and Casualty Co. v.

Walton, 244 Va. 498, 504, 423 S.E.2d 188, 192 (1992). Accord

State Farm Fire and Casualty Co. v. Scott, 236 Va. 116, 120, 372

S.E.2d 383, 385 (1988); Lord v. State Farm Mut. Auto. Ins. Co.,
224 Va. 283, 284, 295 S.E.2d 796, 797 (1982).

Moreover, there was no requirement prior to 1966 that an

insurer demonstrate prejudice to successfully deny coverage on

account of breach of a cooperation clause. See State Farm Mut.

Auto. Ins. Co. v. Davies, 226 Va. 310, 314-15, 310 S.E.2d 167,

169 (1983). But, by a statutory amendment, the 1966 General

Assembly required prejudice to be established for the insurer to

rely on such breach. See Code § 38.2-2204(C). Likewise, the

General Assembly has required prejudice to be shown under certain

circumstances for violation of policy provisions requiring prompt

delivery of suit papers to the insurer. Id. See State Farm Mut.

Auto. Ins. Co. v. Porter, 221 Va. 592, 598, 272 S.E.2d 196, 199

(1980). However, the General Assembly, obviously aware of the

prejudice issue in connection with insurance policy conditions,

has not taken such action with reference to consent-to-settlement

clauses. And, we will not engage in judicial legislation on the

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subject by requiring a showing of prejudice here.

In conclusion, we note Osborne contends that the exclusion

in issue applies only to a settlement with the uninsured motorist

and not to the settlement with his own insurer, State Farm. He

also contends that the exclusion is invalid and void as against

public policy because it conflicts with certain provisions of our

uninsured motorist statute, Code § 38.2-2206. These contentions

are beyond the scope of the certified question. Hence, we do not

address them.
Accordingly, as we have said, the certified question is

answered affirmatively.

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