It’s Not Nice to Lie to Your Insurer
An insurance company sought a judgment that an automobile insurance policy issued to a mechanic does not provide coverage for an accident involving the mechanic. After examining the mechanic under oath, the insurance company moved for summary judgment, arguing that the policy contained a business purpose exclusion for accidents occurring while road testing a vehicle, which the mechanic stated he was doing at the time the accident occurred. In Tennessee Farmers Mutual Insurance Co. v. John A. Simmons et al., No. E2020-00791-COA-R3-CV, Court of Appeals of Tennessee, Knoxville (September 14, 2021) the insurer asked that the Court of Appeal reverse based on the cancellation rule.
John Arthur Simmons (“Simmons”) worked as a diesel mechanic specializing in repairing vehicles and farming equipment that run on diesel engines. Jeremy Shipley (“Shipley”) brought his 2005 Ford F-250 diesel pick-up truck to Simmons for repairs after the truck’s oil pressure warning light came on. Three days later, on June 2, 2017, Simmons was involved in an automobile accident while driving Shipley’s truck (“the Accident”).
Celeste Miller and her husband, Robert Miller, sued Simmons, Shipley, and Shipley’s wife, Stephanie Shipley, seeking compensation for personal injuries and property damage, alleging that Simmons negligently rear-ended the vehicle driven by Mrs. Miller while operating the truck for the purpose of “mechanical evaluation” with permission from the Shipleys.
Tennessee Farmers Mutual Insurance Company (“Farmers”) had issued an automobile insurance policy to Simmons that was in effect on the date of the Accident. The policy contained a “business purpose” exclusion, which states: “We do not provide liability coverage . . . for any person or entity while employed or otherwise engaged in the business or occupation of selling, repairing, servicing, storing or parking vehicles designed for use mainly on public highways, including road testing and delivery.”
On March 16, 2018, after receiving notice of the lawsuit filed by the Millers, Farmers conducted an examination under oath (“EUO”) of Simmons as part of its investigation of the facts alleged by the Millers concerning the Accident. At the EUO Simmons and his wife both testified he was test driving the pickup to help in its repair.
Farmers filed a Complaint for Declaratory Judgment in the trial court, seeking a declaration that the policy it had issued to Simmons did not provide coverage for the Accident pursuant to the policy’s business purpose exclusion. Farmers asserted that Simmons’ statements during the EUO indicated that he was operating Shipley’s truck “while engaged in his business and/or occupation of repairing and/or servicing vehicles.” Simmons responded denying that he was road testing the truck at the time of the Accident. He asserted that he was “simply running personal errands” and that he had permission to use Shipley’s truck until “Shipley got back in town and could arrange to pick up his vehicle.”
The case was tried by a jury on March 9, 2020. Farmers called Shipley and Simmons to the witness stand; Simmons did not call any witnesses. Shipley testified he had taken his diesel truck to Simmons’ Diesel at least twice before the Accident because he “trusted him more than [he] would a dealership.” Shipley acknowledged that he would not have had a problem with Simmons driving the truck as part of repairing the vehicle. Simmons testified that Simmons’ Diesel has been a licensed business in Loudon County for over ten years. He testified that Shipley was a repeat customer and that he had Shipley’s truck on the date of the Accident only because Shipley had “brought it to be repaired.” Simmons disputed that Shipley did not give him permission to use the truck for personal errands. He said Shipley told him that the truck “had a full tank of fuel, if I needed to drive it or wanted to drive it, I could.”
Simmons admitted that when he was asked during the EUO if he was “test driving [the truck] or road testing it on June 2nd,” he answered in the affirmative. He also acknowledged that when Shipley said to drive the truck, Shipley was “wanting to see if there’s anything else wrong with it.”
The case was considered by the jury, which found that the policy’s automobile business exclusion did not exclude coverage for the Accident. On March 20, 2020, the trial court entered its judgment on the jury’s verdict and ordered Farmers to provide Simmons with coverage for the Accident.
Farmers moved for judgment in its favor notwithstanding the jury’s verdict because:
- that the trial court erred in failing to apply the cancellation rule and allowing Simmons to contradict his own prior sworn testimony;
- that the weight of the evidence preponderated against the jury’s verdict that the automobile business exclusion did not apply; and
- that the trial court erred in allowing Simmons to introduce evidence of an insurance agent’s potential fault when comparative fault had not been alleged as an affirmative defense.
The trial court denied Farmers’ motion. The trial court found that the weight of the evidence supported the verdict.
Under the cancellation rule, when a witness makes contradictory statements on the same question of fact, the statements cancel each other and, therefore, do not amount to evidence of the fact. The Tennessee Court of Appeal has observed that no sensible decision holds that a witness’s testimony on a fact is automatically discounted simply because the witness contradicted himself or herself on that fact. Rather, the court assesses whether there is an explanation for the inconsistency and whether either version is corroborated by other evidence.
The question is not one of the credibility of a witness or of the weight of evidence; but it is whether there is any evidence at all to prove the fact. If the proof of a fact lies wholly with one witness, and he both affirms and denies it, and there is no explanation, it cannot stand otherwise than unproven. It would be mere caprice in a jury upon such evidence to decide it either way.
Upon a careful review of the record, we find that Simmons’ statements are both contradictory and mutually exclusive. Simmons’ assertions at trial directly contradict his prior sworn statements during the EUO that he was “test driving [the truck] or road testing it to see if there were any other problems that might need to be addressed” because Shipley “wanted to make sure it was fixed.”
Before Farmers filed this declaratory action, Simmons had stated during the EUO that he was test driving the truck because Shipley wanted him to make certain it was fixed, and he never made any mention of running personal errands. At trial, Simmons added that the repair was completed on May 30, 2017, and that he was driving the truck at the time of the Accident to run personal errands. Given the circumstances and statements surrounding Simmons’ contradictory statements, the Court of Appeal concluded that Simmons’ competing accounts of the reason for using Shipley’s truck at the time of the Accident cannot be reconciled.
Therefore, the Court of Appeal concluded that the trial court should have applied the cancellation rule to Simmons’ testimony. When the rule is applied, the only remaining evidence supports but one conclusion: that Simmons was driving the truck for business purposes.
After applying the cancellation rule, the evidence in the record only supports the conclusion that Simmons was test driving the truck. Consequently, the trial court should have directed a verdict declaring that the automobile insurance policy Farmers issued to Simmons provides no coverage for the Accident pursuant to the policy’s business purpose exclusion. As a result the Court of Appeal remanded the case to the trial court for the entry of a verdict in favor of Tennessee Farmers Mutual Insurance Company.
The covenant of good faith and fair dealing requires that neither party do anything to deprive the other of the benefits of the contract. Simmons attempted to deprive Farmers of its right to exclude coverage while he was test driving the vehicle involved in the accident by changing his sworn testimony at trial from the sworn testimony at EUO. Since the two statements were contradictory they fell afoul of the cancellation rule and should have been ignored by the trial court and the jury. They were not and the judgment was reversed in favor of the insurer. What the court did not consider was that one of his sworn statements was false, sufficient grounds to deny the claim and void the policy.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
He is available at http://www.zalma.com and email@example.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4