Siano, Vincent A

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Insurance—Cooperation Clause—Waiver of Breach Extending to All Claims.— Mayflower Ins. Co. v. Osborne

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Boston College Law ReviewVolume 5 | Issue 2 Article 271-1-1964Insurance—Cooperation Clause—Waiver ofBreach Extending to All Claims.— Mayflower Ins.Co. v. OsborneVincent A. SianoFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Insurance Law CommonsThis Casenotes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been acceptedfor inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For more information,please contact nick.szydlowski@bc.edu.Recommended CitationVincent A. Siano, Insurance—Cooperation Clause—Waiver of Breach Extending to All Claims.—Mayflower Ins. Co. v. Osborne, 5 B.C.L. Rev. 438 (1964), http://lawdigitalcommons.bc.edu/bclr/vol5/iss2/27BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWsurety a complete defense when the creditor acts in such a way as to createan undue risk that the principal will not perform, whereas under the partialfailure interpretation, the defense being pro tanto, the surety in many caseswill still have to respond to the creditor when, perhaps in good sense, thisshould not be required.STUART L. POTTERInsurance—Cooperation Clause—Waiver of Breach Extending to AllClaims.—Mayflower Ins. Co. v. Osborne.'—This is an action for de-claratory judgment by the insurer to determine its liability under an auto-mobile insurance policy in relation to three Tennessee state court judgmentsrendered against it. The policy in question was issued, under the laws ofVirginia, to Alice Roe Osborne as the named insured and owner of theautomobile. The insured and her daughter were injured in a collision inKentucky while passengers in the car which was being driven by the namedinsured's husband with her consent. The driver of the other car was also in-jured. By a pre-arranged agreement with attorneys representing Alice RoeOsborne and the daughter, the husband submitted himself to the jurisdictionof the courts of Tennessee. Since the accident occurred in Kentucky, andthe Osbornes resided in Virginia, this was the only way jurisdiction couldhave been obtained in Tennessee. Immediately upon learning of this collusiveservice, the insurer brought the present action alleging that the submission toservice of process was a breach of the policy's cooperation clause. 2 Subse-quently, the insurer requested and secured the Osbornes' full cooperation indefending suits brought by the other driver in Kentucky. The insurer stillclaims the breach as a defense to the Tennessee judgments. HELD: The co-operation of the insured was a condition precedent to any liability on thepart of the insurer, and a failure of the condition completely voided theinsurance contract. However, by seeking and receiving the cooperation in thedefense of the suit brought in Kentucky, the insurer waived its rights toassert the breach as a defense in any action resulting from the accident.Provisions for the cooperation of the insured with the insurer in settlingor litigating claims arising under the policy have universally been heldeffective and enforceable, and are generally considered a material part of theinsurance contract.3 The purpose of such a clause is to prevent collusionbetween the insured and the injured party to the detriment of the insurer'1 216 F. Supp. 127 (W.D. Va. 1963).2 The policy contained a standard cooperation clause:The insured shall cooperate with the company and, upon the company's request,attend hearings and trials and assist in making settlements, securing and givingevidence, obtaining the attendance of witnesses and in the conduct of any legalproceeding in connection with the subject matter of this insurance.Supra note 1, at 129, n.l.3 Potomac Ins. Co. v. Stanley, 281 F.2d 775 (7th Cir. 1960); Tillman v. Great Am.Indem. Co., 207 F.2d 588 (7th Cir. 1953); Horton v. Employers' Liab. Assur. Corp., 179Tenn. 526, 164 S.W.2d 1016 (1942).4 E.g., American Auto. Ins. v. Fidelity & Cas. Co., 159 Md. 631, 152 Atl. 523 (1930).438CASE NOTESThe material lack of cooperation on the part of the insured is often Con-sidered a breath of a condition precedent eliminating liability on the partof the insurer. In such instances, the insurer need not show prejudice from thebreach.5 Other courts have held that the non-occurrence of the conditionacts as a condition subsequent terminating the insurer's liability on claimswhich have already arisen.°Some courts, dissatisfied with the application of classical contract theoryto the field of insurance, have required a showing of substantial prejudiceto the insurer from the insured's lack of cooperation? Other courts seem tofavor a middle ground, namely, a showing of a material and substantial lackof cooperation which is considered inherently prejudicial . 8 Whatever the viewof the particular jurisdiction, it is generally held that the cooperation clauseimposes reciprocal obligations, i.e., both the insured and the insurer mustexercise diligence and good faith in giving and securing cooperation respec-tively.° Following a breach of a cooperation clause the insurer may elect tocancel the policy, 10 to set up the breach in an action brought against it," orto continue to act pursuant to the policy with a full reservation of its rights."The hardship of denying recovery to an injured person, because of lackof cooperation on his part, is greatly lessened by a liberal application of thedoctrines of waiver and estoppel 13 Included within the ambit of those actswhich have been held to amount to a waiver of such a breach, or to anestoppel from asserting it, are the defending or the continuing defense of anaction brought against the insured."The principles applied in deciding the Mayflower case are those whichhave been established by Virginia case law. 15 These authorities regard thecooperation of the insured as a condition precedent to the liability of theinsurer. The company need show only a material and substantial lack ofcooperation, and it is immaterial whether the insurer has been prejudicedby the breach. The district court, under the doctrine of Erie R.R. v. Tomp-kins," was bound to apply these principles to the present case, althoughimplicitly expressing disapproval in its so doing." The court might well5 New Jersey Fid. & Plate Glass Ins. Co. v. Love, 43 F.2d 82 (4th Cir. 1930); Politov. Galluzzo, 337 Mass. 360, 149 N.E.2d 375 (1958).6 Bean v. State Farm Mut. Auto. Ins. Co., 269 F.2d 151 (6th Cir. 1959); Houran v.Preferred Acc. Ins. Co., 109 Vt. 258, 195 Atl. 253 (1937).7 E.g., Cameron v. Berger, 336 Pa. 229, 7 A.2d 293 (1938).8 Fischer v. Western & Southern Indem. Co., 106 S.W.2d 490 (Mo. App. 1937).9 Royal Indem. Co. v. Rexford, 197 F.2d 83 (5th Cir. 1952); Imperiali v. Pica,338 Mass. 494, 156 N.E.2d 44 (1959).10 Quisenberry v. Kartsonis, 297 S.W.2d 450 (Mo. 1956).11 Glade v. General Mut. Ins. Ass'n, 216 Iowa 622, 246 N.W. 794 (1933).12 Travelers' Indem. Co. v. Hollinian, 174 Miss. 220, 164 So. 36 (1935).13 E.g., Indemnity Ins. Co. of .North America v. Forrest, 44 F.2d 465 (9th Cir.1930); Goergen v. Manufacturers Cas. Ins. Co., 117 Conn. 89, 166 Atl. 757 (1933).14 E.g., Hebert v. Illinois Cas. Co., 116 F.2d 685 (7th Cir. 1941); Ziegler v. Ryan,66 S.D. 491, 285 N.W. 875 (1935).15 State Farm Ins. Co. v. Arghyris, 189 Va. 913, 55 S.E.2d 16 (1949).16 304 U.S. 64 (1938).17 "Regardless of how this court may feel about the propriety of applying classiccontract principles to modern insurance contracts . . : the language of the Virginiacourt is clear and unequivocal." Supra note 1, at 131.439BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWhave recognized that the factual situation in Mayflower differs from thosecases to which the principles had previously been applied.The courts have many times considered the cooperation clause in aliability insurance policy as a protection for the insurer from collusion be-tween the insured and the injured party; 18 yet the doctrines of waiver andestoppel will be liberally applied to further the public policy of compensatingthe injured. 13 Even though the insured has cooperated in the defense of oneclaim arising out of an accident, it is difficult to see how this operates as awaiver as to another claim where there has been a collusive submission tojurisdiction. With regard to these latter claims, the protection of the co-operation clause is still quite relevant. In the cases establishing the legaleffect of a breach and subsequent waiver, the courts were dealing withsituations in which the lack of cooperation extended to all claims coveredunder the insurance contract. Therefore, any waiver extended as far as thebreach itself did—to all the claims. It is apparent that in factual situationssuch as the one presented in the instant case, multiple claims and severalinjured parties being present, the insurer can still be protected from collusionbetween the insured and any one injured party, and at the same time anotherinjured person may recover when his own situation entitles him to compen-sation.VINCENT A. SIANOLabor Law—Agency Shop Agreements—Valid under NLRA—Subjectto State Law.—NLRB v. General Motors Corp.; 1 Retail Clerks Int'lAss'n, Local 1625 v. Schermerhorn. 2—The Supreme Court recentlyhanded down two decisions dealing with the agency shop. 3 The first caseoriginated shortly after Indiana ruled that an agency shop agreement didnot violate its right-to-work law. 4 The United Auto Workers Union (UAW)asked General Motors to negotiate for an agency shop provision to cover theCompany's plant in Indiana. 5 The Company refused, claiming that an agency18 Supra note 4.19 Supra note 13.1 373 U.S. 734 (1963).2 373 U.S. 746 (1963). Preemption issue decided on reargument, 84 Sup. Ct. 219(1963).3 As used in this note the term agency shop refers to a union-security arrange-ment under which all employees, as a condition of employment, are required to payunion dues and initiation fees but need not join the union.4 Meade Elec. Co. v. Hagberg, 129 Ind. App. 631, 159 N.E.2d 408 (1959). TheIndiana right to work law renders unenforceable any agreement conditioning employ-ment upon union membership.• 5 A 1958 nationwide agreement between the UAW and General Motors provided fora union shop arrangement. However, these provisions were not operative in states likeIndiana where state law prohibited making union membership a condition of employ-ment. After the Meade decision, the UAW proposed that General Motors amend theagreement so as to condition employment in the Indiana plant on the payment byemployees to the union of sums equal to the initiation fees and periodic dues paid byunion members. Union membership was left to the option of the employees.440

Insurance—Cooperation Clause—Waiver of Breach Extending to All Claims.— Mayflower Ins. Co. v. Osborne

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