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Geer v. Eby

Supreme Court of Kansas

January 18, 2019

Claudia Geer, Appellee,
v.
Edward Eby, Defendant, and Key Insurance Company, Appellant.

         SYLLABUS

         1. In a garnishment action against an insurance company, a garnishee-insurer seeking to avoid liability under a policy because of its insured's breach of his or her duty to provide notice of a lawsuit must demonstrate prejudice from the breach.

         2. In this case, the insurance company demonstrated prejudice as a matter of law, when the undisputed facts and its policy provisions show that the insured's breach of the duty to provide notice of a lawsuit deprived the insurance company of an opportunity to contest its insured's liability or settle, without exposing the insurance company to potential liability in excess of its policy limit.

         Review of the judgment of the Court of Appeals in an unpublished opinion filed May 26, 2017.

          Appeal from Cowley District Court; LaDonna L. Lanning, judge.

          J. Franklin Hummer, of Med James Inc., of Shawnee Mission, was on the briefs for appellant.

          James L. Sanders and Casey G. Crawford, of Wallace Saunders, of Overland Park, were on the briefs for appellee.

          OPINION

          BEIER, J.

         In this garnishment action, we enforce an insurance policy's requirement that the insured inform the insurer of a lawsuit arising out of an otherwise covered automobile accident, ruling that the insurer demonstrated prejudice as a matter of law from its lack of notice of suit. We therefore reverse the district court's garnishment order in favor of the judgment creditor and her insurer, and we reverse the Court of Appeals panel's decision affirming that garnishment order.

         FACTUAL AND PROCEDURAL BACKGROUND

         Claudia Geer and Edward Eby were involved in a car wreck on January 3, 2014. Eby had turned left in front of Geer, who was approaching from the opposite direction.

         On the day of the accident, Geer was insured by State Farm Mutual Automobile Insurance Company, and Eby by Key Insurance Company. Eby's property-damage policy limit with Key was $10, 000. Key learned of the accident on the day it happened and took Eby's statement by phone the same day.

         After the accident, State Farm paid a claim for Geer's car and eventually demanded subrogation from Key in the amount of $24, 620.32.

         Key investigated the claim. It offered to pay its policy limit of $10, 000 in exchange for a release of further liability for Eby. State Farm refused the offer.

         The following July, State Farm's attorneys made a second demand on Key and Eby to pay $24, 620.32 to satisfy State Farm's subrogation claim. Key again offered to pay the $10, 000 policy limit if Geer would release Eby. State Farm's attorneys refused the offer on August 11, 2014, and countered with an offer to allow Eby to enter into an installment agreement to satisfy the remaining amount. At the same time, State Farm advised Key that "suit would be filed" as soon as August 21, if Eby did not accept the offer.

         Within two days, Key's adjuster wrote to Eby, informing him of the counteroffer and threatened lawsuit. Key also advised: "'It is also important that you contact (sic) immediately if you receive any correspondence or are contacted by any of the parties involved in this accident, or their attorneys.'" Eby rejected the counteroffer on August 19.

         Geer sued Eby on November 5, 2014. Eby was served by certified mail. Eby did not file an answer, and Geer moved for default judgment.

         In March 2015, Eby appeared in person at a district court hearing on the motion for default judgment. The judge found that Eby had not offered any proof of excusable neglect justifying his failure to file an answer and granted default judgment against him in the amount of $27, 284.04.

         On September 30, 2015, State Farm's attorney sent Key a letter and enclosed the journal entry of default judgment against Eby. The letter provided Key's first notice from any source that Geer had sued Eby. Neither State Farm, State Farm's attorney, nor Eby had provided Key a copy of the petition or the motion for default judgment. In particular, Eby had never notified Key of the petition, motion for default judgment, or entry of default judgment.

         In response to the letter, Key again offered to pay the $10, 000 policy limit in exchange for a release of Eby. State Farm rejected the offer.

         Geer, as judgment creditor, filed a request for garnishment, seeking any money owed by Key to Eby. Key filed an answer as garnishee, stating that it did not owe Eby, the judgment debtor, any money. Geer disputed Key's legal position and persisted in seeking an order of garnishment against Key.

         In January 2016, the parties agreed to a set of stipulated facts. The stipulations established that "Key investigated [the accident], and part of its investigation was taking the statement of its insured, Mr. Eby, on January 3, 2014." The stipulated facts also stated that Key had made several offers of the policy limit of $10, 000 in exchange for a release of Eby, but State Farm had rejected each offer.

         The parties further stipulated that the final communication between Key and State Farm and its attorney before the entry of default judgment was Key's August 2014 letter to State Farm's attorney, which had conveyed Eby's rejection of State Farm's offer. State Farm's attorney had not responded to the letter. Their next communication to Key was the September 2015 letter that enclosed a copy of the Journal Entry of Judgment against Eby-again the first notice to Key that Geer had sued Eby or obtained default judgment against him.

         The stipulations continued:

"15. No one, Mr. Eby or anyone else, ever notified Key about the filing of the suit, about any service of process, about any hearing for a default judgment, or about the entry of any default judgment before September 20, 2015.
"18. At no time after the petition was filed did the [law firm representing State Farm], State Farm or Mr. Eby provide to Key Insurance Company a copy of the petition that had been filed or provide a copy of the motion for default judgment to Key.
"19. Mr. Eby never notified Key of the service of process and the petition, never notified Key of the motion for default judgment, and never notified Key of the entry of default judgment."

         The stipulations also said that, after being informed of the default judgment, Key again offered to pay its policy limit in exchange for a release for Eby, but State Farm refused the offer.

         The stipulations also set out the following portions of Eby's insurance policy:

"REPORTING A CLAIM-DUTIES AFTER AN ACCIDENT OR LOSS
"If YOU or any person seeking any coverage under this policy are involved in an accident or have a loss, WE must be contacted as soon as reasonably possible. If YOU or any person seeking coverage under this policy fail to report an accident or loss to US promptly, or fail to cooperate with US in the investigation and settlement of an accident or loss, or fail to allow US to inspect YOUR car prior to its repair or disposal, WE may not provide any coverage.

"The following is information YOU or any person seeking coverage under this policy must provide US. The information must be truthful and accurate:

"(a) YOUR name, address, and telephone number where YOU can be contacted;

"(b) the hour, date, place and facts of the accident or loss;

"(c) the name of the investigating police department, if any;

"(d) the names and addresses of all persons or witnesses involved;

"(e) the current location of YOUR car and whether it is drivable or not.

"YOUR additional duties:
"When there is an accident or loss YOU or any person seeking coverage under this policy must cooperate with US and assist US in any reasonable manner, which includes but is not limited to the following:

"(a) in making settlements;

"(b) by securing and giving evidence;
"(c) by delivering to US, within 72 hours of receipt, any correspondence or legal papers received relating to a claim or suit;
"(d) by appearing, testifying and getting witnesses to testify at hearings or trials only as WE shall direct;
"(e) by giving the representative(s) WE designate, statements, including statements under oath, as often as WE reasonably request and at a time ...

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