Fireman's Fund Ins. Co. of San Francisco v. Mcconnell, 198 F.2d 401 (5th Cir. 1952)

The main thrust of this appeal is an attack upon the decision of this court on former appeal, 178 F.2d 76, in the construction and application of the exclusion clause of the policy against loss in case the insured "voluntarily parts with title to or possession of any automobile at risk hereunder, whether or not induced so to do by any fraudulent scheme, trick, device or false pretense or otherwise." The appellant insists that the decision of this court is in line with only one case,¹  and is opposed to the decisions of the other state courts of last resort which have considered the question.² 

We think that the distinguishing feature of the decisions is well pointed out by the Supreme Court of Arkansas in the latest one of the several cases cited, Galloway v. Marathon Insurance Co., supra.

"Construing the clause against the insurer, the courts hold that for the exception to apply the insured must part with possession as distinguished from mere custody. Thus where the insured's salesman entrusted custody of the car to a hotel employee so that it could be driven to the hotel garage, it was held that possession had not been relinquished. Bennett Chevrolet Co. v. Bankers & Shippers Ins. Co., 58 R.I. 16, 190 A. 863, 109 A.L.R. 1077. But when the dealer voluntarily parts with actual possession rather than mere custody, the loss is excluded from the coverage of the contract. Jacobson v. Aetna Casualty & Surety Co., 233 Minn. 383, 46 N.W.2d 868, 872."

We adhere to our decision on former appeal [178 F.2d 78] that under the facts and circumstances of this case the insured "only parted with temporary custody" of the automobile.

A few questions not decided on the former appeal are now presented. The car was stolen from a lot used by the insured for the auction of second-hand automobiles at Lakewood in Atlanta, Georgia. The policy gave the insured's address as 424½ Athens Street, Gainesville, Georgia, and contained a provision in Paragraph 3 of the form of automobile dealers' open policy rider or endorsement on the policy, which we quote in the footnote.³  Item 6 of the part of the policy captioned "Declarations" is quoted in another footnote.⁴  No question was presented in this case as to the storage of the automobile that was stolen, but the theft occurred during the active conduct of an auction of that and other used cars. In our opinion, Paragraph 3 quoted in footnote (3), supra, is without application.

The judgment of the district court includes $600.00 as damages and $500.00 as attorney's fees, for which the defendant insurance company was held liable under Georgia Code Ann., Sec. 56-706 (see also 20-1404) set out in the margin.⁵  Whether the refusal of the insurance company to pay the loss was in bad faith must be determined, we think, as of the situation presented at the time of refusal. If the defendant insurance company thereafter entered into a defense of the suit in good faith, it is entitled to contest it to its ultimate conclusion without reference to the number of trials and without reference to the ultimate outcome of the case, unless in the continuance of the litigation the defendant is acting in bad faith or is stubbornly litigious. We do not think that the insurance company in this case is subject to the charge of bad faith or frivolous defense, or of being stubbornly litigious. The decision of Judge Russell on the first trial of this case dismissing the case on conclusion of the plaintiff's evidence demonstrates that the defenses were at least sufficiently meritorious as to engender honest and reasonable differences of opinion. The judgment for $600 as damages and $500 as attorney's fees is, therefore, reversed and in other respects the judgment of the district court is affirmed. The costs of appeal are taxed against the appellant.

Reversed in part and affirmed in part.