U.S. Fidelity & Guar. Co. v. Wigginton

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

____________________________

No. 91-7045

____________________________

United States Fidelity &

Guaranty Company

Plaintiff-Counter-Defendant-

Appellee,

versus

A. Buford Wigginton,

d/b/a

Pickens Pharmacy,

Defendant-Counter-Plaintiff-Appellant.

__________________________________________________________

Appeal from the United States District Court

for the Southern District of Mississippi

__________________________________________________________

(July 1, 1992)

Before KING, SMITH, and WIENER, Circuit Judges:

WIENER, Circuit Judge:

In this Mississippi diversity case arising out of a fire and

a subsequent insurance claim, Defendant-Appellant A. Buford

Wigginton appeals the district court's grant of summary judgment of

no liability in favor of Wigginton's insurer, Plaintiff-Appellee

United States Fidelity & Guaranty Company (USF&G). Finding no

reversible error, we affirm.

I.

FACTS AND PROCEEDINGS

There is no genuine dispute about the facts of this case.

USF&G issued a policy of insurance to Wigginton covering, inter

alia, fire damage to property on which Wigginton conducted his

business, Pickens Pharmacy. In November of 1990, a fire destroyed

the property and its contents. Wigginton was arrested and charged

with second degree arson.

After filing a proof of loss with USF&G in January of 1991,

the company requested that Wigginton submit to an examination under

oath and produce certain documents and records. Wigginton's

counsel informed USF&G, however, that Wigginton would not testify

under oath until he could make a decision whether to waive his

Fifth Amendment right against self-incrimination in the criminal

proceeding. In March, Wigginton appeared at the scheduled

deposition but declined to answer questions or to produce the

requested records, asserting the Fifth Amendment. Two weeks later

the company denied Wigginton's claim.

In May, the company filed this declaratory judgment action.

Wigginton counterclaimed for bad faith denial of coverage and bad

faith in the handling of Wigginton's claim. Wigginton also filed

a motion to dismiss, or in the alternative, a motion to stay the

proceeding until the criminal arson trial was completed. USF&G in

turn filed a motion for summary judgment.

In June, eleven days after USF&G filed its motion for summary

judgment, Wigginton filed with the court a "Notice of Availability

for Deposition." USF&G immediately declined Wigginton's offer to

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submit to examination. Four days thereafter, Wigginton responded

to USF&G motion for summary judgment, and filed an affidavit with

the court in which he averred:

After discussing the matter with my attorneys, it has been

determined that I should make myself available for examination

under oath to answer questions concerning the fire and the

losses which resulted, and to produce documents as requested

by USF&G. My offer to do so, however, is contingent upon

USF&G's agreement, or Order of the Court to the effect that

same will constitute a compliance on my part with the

pertinent terms and provisions of my policy of insurance.

The district court granted summary judgment to USF&G and

denied Wigginton's bad faith counterclaim. The court concluded

that Wigginton's delay in submitting to examination under oath and

his subsequent conditional offer were unreasonable, thereby voiding

coverage under USF&G's fire policy. Wigginton timely appealed.

II.

STANDARD OF REVIEW

This court reviews the grant of summary judgment motion de

novo, using the same criteria used by the district court in the

first instance.1 We "review the evidence and inferences to be

drawn therefrom in the light most favorable to the non-moving

party."2 Summary judgment is proper "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

1

Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.

1988).

2

Baton Rouge Bldg. & Constr. Trades Council v. Jacobs

Constructors, Inc., 804 F.2d 879, 881 (5th Cir. 1986) (per

curiam) (citing Southmark Properties v. Charles House Corp., 742

F.2d 862, 873 (5th Cir. 1984)).

3

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law." 3 Fed.R.Civ.P. 56(e) requires

that when a proper motion for summary judgment is made, the non-

moving party must set forth specific facts showing that there is a

genuine issue for trial.4 The mere existence of an alleged factual

dispute between the parties will not defeat an otherwise properly

supported motion for summary judgment. A dispute about a material

fact is genuine "if the evidence is such that a reasonable jury

could return a verdict for the nonmoving party."5 "Material facts"

are "facts that might affect the outcome of the suit under the

governing law."6

III.

ANALYSIS

A. Failure to Submit to Examination under Oath

In its argument that Wigginton's failure to submit to

examination under oath rendered Wigginton's policy void, USF&G

relies on the following provisions contained in the policy:

A. Loss Conditions

...

3. Duties In The Event of Loss Or Damage.

You must see that the following are done in the

event of loss of or damage to Covered Property:

...

3

Fed.R.Civ.P. 56(c).

4

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.

Ct. 2505, 2510 (1986).

5

Id. at 248.

6

Id.

4

g. [The Examination of Oath Clause:] If

requested, permit us to question you under

oath at such times as may be reasonably

required about any matter relating to this

insurance or your claim, including your books

and records. In such event, your answers must

be signed.

...

i. [The Cooperation Clause:] Cooperate with us

in the investigation or settlement of the

claim.

4. [The Legal Action Clause:] Legal Action Against Us.

No one may bring a legal action against us under

this insurance unless:

a. There has been full compliance with all of the

terms of this insurance; ...

B. General Conditions.

1. [The Concealment Clause:] Concealment,

Misrepresentation Or Fraud.

This Coverage Part is void in any case of fraud by

you at any time as it relates to this Coverage

Part. It is also void if you or any other

insurance, at any time, intentionally conceal or

misrepresent a material fact concerning:

a. This Coverage Part;

b. The Covered Property;

c. Your interest in the Covered Property, or

d. A claim under this Coverage Part.

"Mississippi law is clear that a policy is rendered void where an

insured either fails to submit to an examination under oath or

refuses to answer material questions during an examination under

oath."7

The [policy's examination, concealment, and legal action

clauses] are common to insurance policies, and have been dealt

7

Saucier v. U.S. Fidelity and Guaranty Co., 765 F.Supp. 334

(S.D. Miss 1991). See also Taylor v. Fireman's Fund Ins. Co.,

306 So.2d 638 (Miss. 1974); Southern Guaranty Ins. Co. v. Dean,

252 Miss. 69, 172 So.2d 553 (1965); Standard Ins. Co. v.

Anderson, 227 Miss. 397, 86 So.2d 298 (1956); U.S. Fidelity and

Guaranty Co. v. Conaway, 674 F.Supp. 1270 (N.D. Miss. 1987),

aff'd 849 F.2d 1469 (5th Cir. 1988).

5

with by this court on many occasions. In all of these cases

the clauses authorizing insurers to conduct investigations

under oath were found to be reasonable and valid. This Court

also found that failure to submit to such an examination,

under circumstances such as those present in the case at bar,

would preclude coverage under the policies as a matter of

law.8

Therefore, because the failure to submit to examination voids the

policy as a matter of law, the policy need not explicitly state

that the examination clause is a condition precedent to recovery.

Wigginton contends, however, that the policy is not void

unless USF&G proves that it was prejudiced by Wigginton's breach.

We do not agree. The law of Mississippi is well-settled that an

insured's breach of a condition precedent or to a provision that

renders the policy void relieves the insurer of any obligation to

show prejudice. A substantial line of cases supports the rule that

an insurer need not show prejudice when the insured breaches a

condition precedent or a condition that voids the policy.9

Although Mississippi courts do not speak of examinations as

conditions precedent, they have never required a showing of

prejudice when breach of the examination clause renders a policy

8

See Allison v. State Farm Fire & Cas. Co. 543 So.2d 661,

663 (Miss. 1989).

9

See Hall v. State Farm Fire & Cas. Co., 937 F.2d 210 (5th

Cir. 1991)(no showing of prejudice necessary when breach of

concealment clause voided coverage); Bolivar County Bd. of

Supervisors v. Forum Ins. Co., 779 F.2d 1081 (5th Cir. 1986)(no

showing of prejudice necessary when provision is condition

precedent); Reliance Ins. Co. v. County Line Place, Inc., 692

F.supp. 694 (S.D.Miss. 1988)(no showing of prejudice necessary

when notice provision is condition precedent); West v. Bankers

and Shippers Ins. Co., 643 F.Supp. 992 (N.D. Miss. 1986)(no

showing of prejudice necessary when notice provision is condition

precedent), aff'd 814 F.2d 657 (5th Cir. 1987).

6

void.10 Clearly, then, Wigginton's breach of the examination

clause, precluding coverage as a matter of law, obviates any

obligation of USF&G to demonstrate prejudice.

Wigginton also insists that his subsequent offer to submit to

examination cured any breach because the delay was reasonable. In

Standard Ins. Co. of New York v. Anderson,11 the Mississippi Supreme

Court concluded that a willful failure to submit to an examination

can violate a policy's concealment clause, but the court also

recognized that a reasonable delay in submitting to an examination

may be excused. The court reiterated this position in Home Ins.

Co. v. Olmstead12, stating that "if an insured, for a valid reason,

is unable to attend an examination under oath, it is incumbent upon

the insured, as soon as possible, to offer to submit to an

examination at a later date."13 We agree with the district court

in the instant case that Wigginton's delay was unreasonable as a

matter of law.

Wigginton premised his refusal to submit to the examination on

the ground that he needed time to decide whether to waive his right

against self-incrimination in his criminal matter, cognizant of the

10

See, e.g., Taylor v. Fireman's Fund Ins. Co., 306 So.2d

638 (Miss. 1974); Southern Guaranty Ins. Co. v. Dean, 252 Miss.

69, 172 So.2d 553 (1965); Standard Ins. Co. v. Anderson, 227

Miss. 397, 86 So.2d 298 (1956); See also U.S. Fidelity and

Guaranty Co. v. Conaway, 674 F.Supp. 1270 (N.D. Miss. 1987),

aff'd 849 F.2d 1469 (5th Cir. 1988).

11

227 Miss. 397, 86 So.2d 298 (1956).

12

355 So.2d 310 (Miss. 1978).

13

Id. at 313.

7

fact that answering any questions in his examination would

effectively waive these rights. Wigginton cannot, however, rely

upon his Fifth Amendment right against self-incrimination as a

valid excuse to avoid examination in this civil case. We see no

principled difference between invoking one's Fifth Amendment rights

and delaying the examination in order to decide whether to do so.

In Saucier v. U. S. Fidelity and Guaranty Co.14 the court reasoned:

The compulsion secured against by the constitution is a

compulsion exercised by the state in its sovereign capacity in

some matter known to the law. Constitutional immunity has no

application to a private examination arising out of a

contractual relationship. The examination to which appellants

demanded respondent should submit was an extrajudicial

proceeding, not authorized by any constitutional or statutory

provision, but purely by virtue of a contract between the

parties. To bring a case within the constitutional immunity,

it must appear that compulsion was sought under public process

of some kind. This being so, respondent's refusal to undergo

examination and produce his books and papers acquires no

sanctity because he urged his constitutional right not to be

compelled to be a witness against himself. The demand was

made upon him by virtue of the stipulation in the contract,

and by the stipulation alone must his refusal be judged. The

stipulation constituted a promissory warranty under which

appellants had the right to demand compliance by respondent

"as often as required," and the performance of such

stipulation was a condition precedent to any right of action.15

It is not just the number of months that elapsed between the

demand for examination and Wigginton's consent to submit that makes

his delay unreasonable. The facts that he waited until after USF&G

filed suit and after its motion for summary judgment was filed to

consent exacerbated the unreasonableness of Wigginton's delay.

14

765 F.Supp. 334 (S.D. Miss. 1991).

15

Id. at 336 (quoting Hickman v. London Assurance Corp., 184

Cal. 524, 195 P. 45, 49 (1920).

8

More significantly, Wigginton did not redeem himself when he

offered to submit some three months later. His offer was

unreasonably conditioned on the company's agreeing to waive its

rights with respect to voiding the policy. Even if we were to

agree that Wigginton's delay of three months was reasonable

temporally, we would be forced to conclude that the contingency

attached to his offer made it ineffectual and thus unreasonable.

The district court was correct when it concluded that

In effect, compliance with Wigginton's demand requires USF&G

to relinquish the defense that it was justified in denying

Wigginton's claim because he failed to timely comply with the

terms of the policy, even before Wigginton appears and is

questioned. USF&G is not required by its policy or by law to

accept such an offer. Accordingly, the court concludes that

Wigginton has not made an offer to comply with the terms of

the policy which would defeat the plaintiff's motion for

summary judgment....

B. Wigginton's Counterclaim for Bad Faith

The district court denied Wigginton's counterclaim against

USF&G for breach of contract in denying his claim for coverage.

Wigginton argues that the conduct of USF&G constituted a breach of

contract so willful, intentional, malicious and in reckless

disregard of his rights as to amount to the independent tort of bad

faith calling for actual and punitive damages. Specifically,

Wigginton complains of USF&G's insistence on the examination under

oath, the denial of the claim, and the filing of suit.

The law is well settled that the insured has the burden of

establishing a claim for bad faith denial of an insurance claim.16

16

Dunn v. State Farm Fire and Casualty Co., 711 F.Supp 1362,

1364 (N.D. Miss. 1988), aff'd, 927 F.2d 869 (5th Cir. 1991).

9

The insured must show that the insurer denied the claim (1) without

an arguable or legitimate basis, either in fact or law, and (2)

with malice or gross negligence in disregard of the insured's

rights.17 The insurer need only show that it had reasonable

justifications, either in fact or in law, to deny payment.18

Moreover, whether an insurer had an arguable reason to deny an

insured's claim is an issue of law for the court.19

In deciding whether an insurer had an arguable basis to deny

insurance liability, Mississippi courts apply the directed verdict

test:20 Unless the insured would be entitled to a directed verdict

on the underlying insurance claim, an arguable reason to deny an

insurance claim exists in most cases.21

We have already determined that Wigginton's failure to submit

to the requested examination and his subsequent impermissibly

conditional offer to submit were unreasonable as a matter of law.22

Under these circumstances, there is no doubt that Wigginton's

breach provided USF&G substantially more than an arguable reason to

deny his claim.

17

Id., 927 F.2d at 872.

18

Id. at 873.

19

Id.

20

Id.

21

Id.

22

Because we find that Wigginton's conduct was a breach as a

matter of law, his argument that the district court erred in

granting summary judgment before discovery was undertaken is

meritless.

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IV.

CONCLUSION

Wigginton's failure to submit to examination voided the policy

as a matter of Mississippi law, without the necessity for USF&G to

show that it was prejudiced by that failure. We do not need to

reach the question whether the period of Wigginton's delay was

unreasonable because his subsequent offer to submit did not cure

the breach; it was unacceptably conditional and, thus without

effect. The district court, therefore, did not err in granting

USF&G summary judgment, or in denying Wigginton's counterclaim for

bad faith.

For the foregoing reasons, the judgment of the district court

is

AFFIRMED.

11