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06/30/65 Marie Alma James Et Al., v. Pennsylvania General

June 30, 1965

MARIE ALMA JAMES ET AL., APPELLANTS

v.

PENNSYLVANIA GENERAL INSURANCE COMPANY, APPELLEE 1965.CDC.139 DATE DECIDED: JUNE 30, 1965



UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

APPELLATE PANEL:

Bazelon, Chief Judge, and Washington and Danaher, Circuit Judges. Danaher, Circuit Judge (dissenting).

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE BAZELON

Appellee Pennsylvania General Insurance Company sought a declaratory judgment that it was not liable to appellants under an automobile liability insurance policy. The policy's stated expiration date was July 14, 1960. Although the Company indicated that a 21-day grace period would be allowed for renewal, it received nothing from the insured until August 28 or 29, 1960, when it received by mail a renewal application together with a premium check dated July 16, 1960. The Company's employees then deleted the "lapsed" notation that had been placed on the insured's policy and cashed his check.

After expiration of the grace period but prior to appellee's receipt of the insured's renewal application, the insured's automobile was involved in an accident in which serious personal injuries were sustained. The Company initially undertook defense of the lawsuit arising out of the accident, but only after first notifying the insured that it was acting without prejudice to a later denial of coverage. Approximately a year before the lawsuit came to trial, the Company withdrew and instituted this suit. Despite appellants' timely demand for a jury trial, the court heard this case without a jury and held for the Company. The court found that the insured had pre-dated his premium check for the purpose of deceiving appellee into treating the renewal application as if it had been mailed during the grace period, when in fact it had not.

On this appeal we reject appellants' contentions that they proved a valid renewal of the insured's policy as a matter of law, and alternatively that the Company waived any right to object to the renewal's validity. *fn1 Nor can we accept their contention that by originally undertaking defense of the lawsuit arising out of the accident, the Company estopped itself from later denying coverage. In the absence of a showing of prejudice by appellants, the Company's prompt notification to the insured that it was defending the lawsuit without prejudice to a later denial of coverage was sufficient to prevent estoppel. See Fisher v. Firemen's Fund Indemnity Co., 244 F.2d 194, 196 (10th Cir. 1957).

But there is possible merit in appellants' claim that they were erroneously deprived of a jury trial. In providing for declaratory judgments, Congress left unaffected the right to jury trial. Rule 57, FED.R.CIV.P.; American Lumberman's Mut. Casualty Co. of Illinois v. Timms & Howard, Inc., 108 F.2d 497 (2d Cir. 1939). The right to jury trial in a declaratory judgment action depends, therefore, on whether the action is simply the counterpart of a suit in equity -- that is, whether an action in equity could be maintained if declaratory judgment were unavailable -- or whether the action is merely an inverted lawsuit. See Pacific Indemnity Co. v. McDonald, 107 F.2d 446 (9th Cir. 1939); James, Right to a Jury Trial in Civil Actions, 72 YALE L.J. 655, 685-86 (1963); BORCHARD, DECLARATORY JUDGMENTS 400 n. 63 (1941).

The issue tendered by appellee's complaint was fraud in the procurement of the insured's renewed policy. *fn2 At common law an action to rescind a contract for fraud in the procurement could be maintained in equity only if the matters giving rise to the right of recision could not be adequately presented in defending against a legal action on the contract, thus affording no adequate remedy at law. For example, if delay in presenting the defense of fraud would be prejudicial, the party asserting the defense was permitted to bring an action in equity rather than awaiting a legal action on the contract.*fn3 But no such prejudice was deemed to occur where an insurance claim had already arisen and a suit on the policy was pending or threatened. Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S. Ct. 310, 79 L. Ed. 440 (1935); DiGiovanni v. Camden Fire Ins. Ass'n, 296 U.S. 64, 56 S. Ct. 1, 80 L. Ed. 47 (1935).

When the Company initiated this suit, the loss under the policy had not been established, but an action was then pending in which the loss was subsequently established. The adequacy of the Company's legal remedy depends upon the nature of its proof of fraud. For example, it has been held that an insurer in these circumstances could maintain an equitable action for recision where its claim of fraud rested on the testimony of witnesses not generally available to it and who might have disappeared before a legal action on the policy could or would be instituted. Massachusetts Bonding & Ins. Co. v. Anderegg (supra). *fn4 Here, however, the alleged fraud is in large part based on documentary proof, such as the insured's premium check. The Company's employees would seem to be generally available to it to show that the check date induced them to delete the "lapsed" notation on the policy. Moreover, the Company could preserve the testimony of its employees by deposition pursuant to Rule 27, FED.R.CIV.P. Finally, this suit was instituted when it was known that the pending lawsuit to establish a loss would likely come to trial in about a year. *fn5

Although the foregoing factors suggest that the Company's legal remedy was adequate, and consequently that appellants' demand for a jury trial should have been honored, the parties have never had an opportunity to address themselves to the adequacy of appellee's legal remedy, since the trial judge denied a jury trial without inquiring into that issue. We think that such an opportunity should be afforded now. Factors not presently appearing in the record may exist which demonstrate that delay in adjudicating the fraud issue likely would have prejudiced appellee's case seriously. *fn6 Accordingly we remand with directions to hold a hearing to determine whether appellee's legal remedy was adequate at the time this suit was filed, with the contingency of a new trial before a jury to abide the result.

So ordered.

MINORITY OPINION

DANAHER, Circuit Judge (dissenting):

The appellee had issued to Donald E. Reeves an automobile liability policy for a period of six months from January 14, 1960 to July 14, 1960. On August 18, 1960, one Marie Alma James, while driving the Reeves car, was involved in an accident in which one Mary Dona was injured. The latter sued Reeves and James alleging negligence. Appellant on October 17, 1961 instituted an action seeking a declaratory judgment which, after full trial before a District Judge sitting without a jury, resulted in an order that the appellee "is not liable to the Defendant Reeves on account of the claims of the Defendants James and Dona based upon an accident which occurred on August 18, 1960"; and ...


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