Bolin v. Tennessee Farmer's Mutual Insurance Co.

OPINION HARBISON, Chief Judge. This case arises under the uninsured motorist statute, T.C.A. §§ 56-7-1201 to -1206, but it arises in somewhat unusual circumstances. Appellants were plaintiffs in a tort action in which a liability insurance carrier conducted the defense of the alleged tort-fea-sor. Not until after trial and final judgment did the plaintiffs learn that the defendant’s insurance carrier had defended the action under a reservation of rights and that it thereafter denied coverage to him. Appellants then, for the first time, invoked [567] their own uninsured motorist coverage. They were met with the defense that they had failed to comply with the provisions of T.C.A. § 56-7-1206, requiring service of process upon an insurance carrier as though it were a party defendant to the tort action. The uninsured motorist carrier, however, also had liability insurance coverage upon the plaintiff Bruce Bolin. It had been notified of and had participated in the tort litigation because the defendants therein had made counter-claims against Bolin. Under these circumstances the trial judge held that the plaintiffs were entitled to the benefit of the uninsured motorist coverage. In a split decision, the Court of Appeals reversed, holding that the provisions of T.C.A. § 56-7-1206 were mandatory and that they provided the exclusive method of proceeding against an uninsured motorist insurance carrier. This Court granted permission to appeal in order to give further consideration to the issues. Appellant Bruce Bolin was the named insured in an automobile liability insurance policy issued by appellee. This policy also afforded uninsured motorist coverage to appellant and to the occupants of his vehicle. On July 21, 1976, Bolin, accompanied by the other two appellants as passengers, was involved in a collision with a truck driven by Robert Mike Cameron and owned by Glenn Quarles. All of the appellants were injured and filed actions against both Cameron and Quarles. They also sued a road contractor for alleged failure to warn of dangerous road conditions. Subsequently appellants dismissed their action against Quarles upon learning that there was no basis for holding him responsible under a theory of respondeat superior. Cameron filed a separate action against Bolin and the construction company. The latter then filed a third-party complaint against Bolin, seeking contribution or indemnity. Bolin notified appellee of the claims asserted against him, and appellee conducted the defense of Bolin in the litigation. It was represented by counsel of its selection in that regard. It had been notified of the accident immediately after it occurred and had conducted an investigation thereof. Until action was brought against Bolin, however, it had “stood by and monitored the litigation” in which Bolin and the other appellants were plaintiffs, according to its brief in this Court. Cameron had a policy of liability insurance with State Automobile Mutual Insurance Company and sought the coverage and protection of that policy in the suits filed against him by appellants. That company extended a defense to Cameron, but under a reservation of rights because of a question as to whether he had permission of Quarles, the owner, to use the Quarles vehicle at the time of the accident. This insurance carrier selected competent counsel to defend against the claims of appellants. At no time did he or anyone else advise appellants that State Automobile Mutual Insurance Company was defending Cameron under a reservation of rights or that any question existed as to his being protected by liability insurance. During the course of the litigation counsel for State Automobile Mutual made a settlement offer to appellants which was deemed inadequate and was rejected. All actions were tried together. They resulted in a jury verdict for appellants against Cameron and dismissal of all other claims in the proceedings. Only after these judgments had been awarded were appellants advised that State Automobile Mutual had been defending Cameron under a reservation of rights and that it had finally denied coverage to him, rendering him, in effect, an uninsured motorist. Appellants then made demand upon appel-lee for payment under the uninsured motorist provisions of Bolin’s policy. When this demand was rejected, appellants brought the present suit against both appellee and State Automobile Mutual Insurance Company- Both the trial court and the Court of Appeals held that there was no liability upon State Automobile Mutual Insurance Company by reason of estoppel or otherwise. They found that the insurance carrier had properly conducted the defense of Cameron under a reservation of rights and [568] that it had not been guilty of misleading any party in the tort litigation. At least by implication it was also found to have been correct in denying coverage to Cameron on the facts. That aspect of the case is not involved in the present appeal. Despite its knowledge of and participation in the earlier litigation in which appellants obtained judgment, appellee insists that appellants may not invoke Bolin’s uninsured motorist coverage because of noncompliance with T.C.A. § 56-7-1206. In addition appellee insists that it was prejudiced by not having been given notice of an uninsured motorist claim earlier so that it could have had an opportunity to participate in the defense of Cameron and to exonerate him or minimize the judgments against him. Although there is logic in this argument, nevertheless it must be recalled that appellee was fully advised of all facets of the earlier litigation and that, through counsel, it participated in the defense of claims made against Bolin. That same counsel could not possibly have represented appellee in the defense of claims against Cameron. Such counsel would have been placed in a position of irreconcilable conflict. Accordingly, appellee would have had to employ separate counsel to defend Cameron, had it been defending in its capacity of uninsured motorist carrier. In actuality, Cameron was ably defended by competent counsel retained by State Automobile Mutual Insurance Company. In the present record there is no evidence that Cameron was not fully defended or that other counsel representing him could have brought about smaller jury awards against him. Therefore, under the circumstances of this case, we are of the opinion that the uninsured motorist carrier has not in fact been prejudiced by the failure of appellants to comply with the statutory procedures for giving notice of an uninsured motorist claim. The question remains as to whether those statutory procedures are necessarily mandatory and exclusive in all cases. Ap-pellee relies upon the holding of this Court in the case of Glover v. Tennessee Farmers Mutual Insurance Co., 225 Tenn. 306, 468 S.W.2d 727 (1971), to the effect that a claimant must follow the statutory provisions and may not ordinarily file a separate action against his uninsured motorist carrier after obtaining judgment against a motorist in an independent tort action. We adhere to the holding in the Glover case as a general rule, but we do not think that it has application here. It is obvious that under some circumstances an insurance carrier becomes subject to a claim under these statutes at a fairly late stage, or even after the conclusion, of litigation against the tort-feasor. For example, T.C.A. § 56-7-1202 expressly provides that the term “uninsured motor vehicle" shall be deemed to include an otherwise insured motor vehicle “ ... where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limit specified therein because of insolvency.” It seems rather clear that this statute embraces a situation not unlike that presented here, where a tort claimant proceeds against a person apparently insured, only to discover at some point that the liability insurance carrier cannot respond to the claim. Under those circumstances the tort claimant is not deprived of the benefit of his own uninsured motorist protection. It is highly unlikely that such a claimant would utilize the provisions of T.C.A. § 56-7-1206 to implead his uninsured motorist carrier unless he happened to be aware, at the inception of the tort litigation, of the unsound financial condition of the liability insurer of the alleged tort-feasor.1 [569] The rule laid down by the Court of Appeals in the present case would be a harsh one and would require every plaintiff, suing an apparently insured defendant, also to implead his own uninsured motorist carrier or otherwise lose the benefit of his coverage in the event the tort-feasor should prove to be uninsured for some reason unknown to the plaintiff. While we adhere to the Glover decision, supra, as a general rule, we find that application of that rule under the unusual facts of this case would be unduly harsh and would deprive appellants of valid insurance which they had purchased, without fault on their part and without the insurer’s having been prejudiced.2 The judgment of the Court of Appeals is reversed and that of the trial court is reinstated. The cause is remanded to the trial court for enforcement of the judgment and for entry of any further orders which may be necessary. Costs of the cause are taxed to appellee. FONES, BROCK and DROWOTA, JJ., concur. WM. I. DAVIS, Jr., Special Justice, dissents. Footnotes [1] Where a liability insurer denied coverage to an additional insured after its named insured was non-suited, it was held that the plaintiffs uninsured motorist endorsement “became operative” only after plaintiff first ascertained that the remaining defendant had become an uninsured motorist. Allstate Insurance Co. v. Wilson, 259 S.C. 586, 193 S.E.2d 527, 531 (1972); cf. McDaniel v. State Farm Mutual Automobile Ins. Co., 205 Va. 815, 139 S.E.2d 806 (1965) (uninsured motorist carrier notified after liabili [569] ty insurer defending under reservation of right formally denied coverage). [2] Although unusual, the fact situation presented here is not without precedent. Under similar circumstances the holder of a tort judgment was permitted to proceed in a separate suit against an uninsured motorist carrier where, after judgment, the liability carrier which had defended the tort defendant became insolvent. Gunnels v. American Liberty Ins. Co., 251 S.C. 242, 161 S.E.2d 822 (1968); cf. Rampy v. State Farm Mutual Automobile Ins. Co., 278 So.2d 428 (Miss.1973) (separate action against uninsured motorist carrier allowed where policyholder had obtained judgment in another state against tort-feasor and had no reason to know that the latter was uninsured at that time).