                IN THE COURT OF APPEALS OF TENNESSEE
                           AT KNOXVILLE
                                 March 7, 2011 Session

    EVEREST NATIONAL INSURANCE COMPANY v. RESTAURANT
              MANAGEMENT GROUP, LLC ET AL.

                Appeal from the Circuit Court for Washington County
                         No. 9984    Jean A. Stanley, Judge


              No. E2010-01753-COA-R3-CV - FILED - APRIL 25, 2011


This is a declaratory judgment action filed by an insurance company against its insured and
the insured’s customer who allegedly was injured from a fall after stepping in a hole in the
insured’s parking lot. The insurance company asked for a declaration that it was not
obligated to defend and indemnify the insured against the customer’s personal injury claim.
The insured filed a counterclaim asking for a declaration that the insurer was required to
defend the claim and indemnify the insured against liability to the customer. On dueling
motions for summary judgment, the trial court held that the insurance company was relieved
of its obligation to defend and indemnify the insured because the insured waited five months
before notifying the insurance company of the claim and that, as a consequence of the
insured’s delay, the insurer was prejudiced. During that five months, the insured repaired
cracks in the parking lot where the fall allegedly occurred. The insured appeals. We affirm.

        Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                            Affirmed; Case Remanded

C HARLES D. S USANO, J R., J., delivered the opinion of the Court, in which H ERSCHEL P.
F RANKS, P.J., and D. M ICHAEL S WINEY, J., joined.

Russell W. Adkins, Kingsport, Tennessee, for the appellant, Restaurant Management Group,
LLC.

Parks T. Chastain and Gordon C. Aulgur, Nashville, Tennessee, for the appellee, Everest
National Insurance Company.

                                        OPINION
                                              I.

        On or about September 20, 2007, Francis Evans fell in the parking lot of a Hardee’s
restaurant in Jonesborough. That Hardee’s is one of several restaurants owned and operated
by the defendant Restaurant Management Group, LLC (“RMG”). At the time of the
incident, Mr. Evans was 78 years of age. He was hospitalized. Later that day Mr. Evans’
wife, Reba Evans, called the Hardee’s and reported to an employee of the restaurant that her
husband was injured after stepping in a hole in the parking lot. About a week later, Mrs.
Evans called a second time and spoke to the manager whom she asked, “You all are going
to be responsible for this, right?” The manager completed a “Guest Incident Report” and
promptly forwarded it to RMG. On October 8, 2007, RMG mailed Mr. Evans a form seeking
more information about his fall. A few days later, Mrs. Evans returned the completed form
to RMG. On October 31, 2007, RMG’s president sent a letter to Mr. Evans asking for
witness statements, a detailed description of the spot where the fall occurred or pictures of
the spot, copies of any medical records and bills, and a description of the specific area where
the fall occurred. Mr. Evans did not respond. Instead, he retained an attorney who sent a
letter in January of 2008 informing RMG that he was representing the Evans regarding the
injuries sustained by Mr. Evans’ fall.

        At an earlier time, on or about May 28, 2007, Everest had issued a commercial general
liability policy to RMG. It was in effect when Mr. Evans fell in the Hardee’s parking lot.
RMG did not notify Everest of the claim until February 22, 2008, after it received the
demand letter from Mr. Evans’ attorney.

       As we have indicated, Everest denied coverage and filed this action. Everest’s denial
of coverage was based upon a condition in the policy which states as follows:

              You must see to it that we are notified as soon as practicable of
              an “occurrence” or an offense which may result in a claim. To
              the extent possible, notice should include:

              (1) How, when and where the “occurrence’ or offense took
              place;
              (2) The names and addresses of any injured persons and
              witnesses; and
              (3) The nature and location of any injury or damage arising out
              of the “occurrence” or offense.

The policy defines the term “occurrence” as an “accident.”



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       Between the time of the accident and RMG’s notification of Everest, RMG made
repairs to the parking lot where Mr. Evans fell, which repairs included patching holes and
“spider-web” cracks in the pavement. RMG’s district manager, Todd Winstead, knew there
were “issues” about an elderly gentleman falling in the parking lot when the decision was
made to repair the parking lot. Winstead testified that, prior to the repairs, he inspected the
parking lot and took some pictures; however, he admitted that he had no engineering
expertise and did not have anyone with engineering expertise perform an inspection of the
parking lot before the repairs.

        At the time of Mr. Evans’ fall, RMG owned 61 restaurants. Its deductible per claim
was $5,000. It was RMG’s experience with Everest that the company would always delegate
the investigation of a claim to a company known as FARA, and that FARA, in turn, relies
on RMG to gather the information required for the investigation. Nevertheless, FARA
typically charges Everest something in the range of $3,000 to $4,000 per investigation.
These charges are always passed along to RMG as part of RMG’s $5,000 deductible. Some
of the reports of accidents that RMG receives turn out to be inaccurate, and, ultimately, no
payment is made on such claims. RMG made the determination that it should “mitigate its
expenses by doing the initial legwork [to determine] which . . . reported incidents involved
actual claims.” Because the fall was in the vicinity of the restaurant’s drive-through window
which is constantly manned and because no Hardee’s employee reported seeing the fall,
RMG took the position that the report of Mr. Evans’ fall did not rise to the level of a claim
until RMG received a demand letter from counsel for Mr. Evans. RMG notified Everest of
the claim on or about February 22, 2008. At that time RMG supplied two photographs of the
location of the fall taken by a friend of Mr. Evans on the day of his fall. RMG also supplied
the photographs taken by Winstead.

       On these undisputed facts, the case came before the trial court on RMG’s motion for
summary judgment asking for a determination that, as a matter of law, Everest had a duty to
defend and indemnify RMG, as pleaded in RMG’s counterclaim. Everest filed is own
motion for summary judgment asking the court to determine that, as a matter of law, Everest
was not required to defend and indemnify RMG. The trial court denied RMG’s motion and
granted Everest’s motion. Its specific findings upon which it granted summary judgment are

              1. The notice provided by [RMG] to its insurer . . . was late.

              2. Everest . . . was blatantly prejudiced by [RMG’s] late notice
              because of, but not limited to, the fact that the parking lot where
              the fall occurred was paved prior to Everest . . . receiving notice.




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                                              II.

       RMG filed a timely notice of appeal from the order granting summary judgment. The
only issue RMG raises is

              [w]hether . . . Everest . . . is obligated to defend and indemnify
              its insured, [RMG] against a personal injury claim that arose
              while a [c]ommercial [g]eneral [l]iability policy was in force
              between the parties.

                                             III.

        As can be seen from RMG’s statement of the issue, this is not a case where the parties
are arguing that the facts are in dispute or that the proponent of the motion did not carry the
initial burden of shifting the burden of production to the opponent of the motion. See
Hannan v. Alltel Publishing Co., 270 S.W.3d 1, 5 (Tenn . 2008). Rather, this is a case
where the opponent of Everest’s motion, RMG, is arguing that the facts are undisputed but
required a judgment in its favor. Thus, our review in this case is a simple de novo review of
the trial court’s conclusions of law to determine which of the two parties is entitled to
judgment as a matter of law. See Tenn. R. Civ. P. 56.04; Finister v. Humboldt General
Hosp., 970 S.W.2d 435, 437-38 (Tenn. 1998). See also Standard Fire Ins. Co. v. Chester
O’Donley & Assocs., 972 S.W.2d 1, 5-6 (Tenn. Ct. App. 1998)(interpretation and application
of insurance policy involves question of law “when the relevant facts are not in dispute”).
It is axiomatic that there is no presumption of correctness with respect to the trial court’s
legal conclusions.

                                             IV.

        The outcome in this case turns on whether RMG gave timely notice of the claim, and,
if not, whether Everest was prejudiced by the delay. The first question is answered by the
language of the policy and cases on point. The policy requires that RMG notify Everest “as
soon as practicable of an ‘occurrence’ or an offense which may result in a claim.”
(Emphasis added.) The italicized language has been interpreted to “impos[e] a duty on an
insured to give notice when he becomes, or should become aware of, facts which would
suggest to a reasonably prudent person that the event for which coverage is sought might
reasonably be expected to produce a claim against the insurer.” Lee v. Lee, 732 S.W.2d 275,
276 (Tenn. 1987) (citing cases interpreting various phrases including “as soon as
practicable,” “immediate notice,” and “notified promptly”).




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        RMG argues that until it received the letter from counsel for the Evans, this did not
“rise to the level of a claim.” RMG bases its position on (1) its doubt that anyone could have
fallen and been injured without someone seeing the accident, and (2) the failure of Mrs.
Evans to respond to RMG’s request for details. RMG’s position is contrary to both the
explicit language of the policy and the cases interpreting the contractual duty to give notice.
The policy imposes a duty to give notice of any “occurrence,” which simply means an
“accident,” “which may result in a claim.” (Emphasis added.) The case law, as set forth in
Lee, makes it abundantly clear that the insured cannot wait until it is convinced of the merits
of a potential claim to provide notice; all that is required is knowledge of “facts which would
suggest . . . that the event for which coverage is sought might reasonably be expected to
produce a claim against the insurer.” Lee, 732 S.W.2d at 276. Within ten days of Mr. Evans’
fall, RMG knew that Mr. Evans was claiming RMG was responsible for his injuries sustained
in a fall caused by a hole in the company’s parking lot. We hold that, as a matter of law,
RMG was obligated at that time to notify Everest of the potential claim.

       RMG argues that even if the notification was untimely, the litigious nature of its
customers combined with its doubts in this particular case excuse the untimeliness of the
notice. The only authority offered by RMG in support of its argument is an Alabama case
and the recognition in Spradlin v. Columbia Ins. Co., 232 S.W.2d 605, 609 (Tenn. Ct. App.
1950), that “delay in giving notice . . . within the prescribed time may be excused under
certain circumstances.” Spradlin is distinguishable from the instant case by the fact that the
policyholder in that case did not even know of the existence of the policy, which was
purchased by his finance company, until after the 60-day window specified in the policy for
reporting claims had expired. The Court held that the “manifest impossibility” of reporting
under a policy that the insured did not know existed excused the delay. Id. at 608-09.

        The Alabama case, relied upon by RMG is McDonald v. Royal Globe Insurance Co,
413 S0.2d 1046 (Ala. 1982). McDonald involved a delay by an insured nightclub of
approximately ten months in reporting the underlying claim to its insurance company. The
underlying claim was a customer’s allegation that he was injured by the club’s employee in
a fight that took place when the employee undertook to eject the customer and some of his
friends. The trial court submitted to the jury the question of whether the nightclub offered
a valid excuse for not giving notice to the insurer of the customer’s threat to sue unless the
club dropped criminal charges and paid the customer’s medical bills. The jury found in favor
of the nightclub but the trial court granted a judgment to the insurer notwithstanding the
verdict in favor of the nightclub. The Alabama Supreme Court overturned the trial court’s
judgment notwithstanding the verdict and re-instated the jury’s verdict. There are several
reasons we are not persuaded by McDonald. First, the facts of McDonald distinguish the
result. The customer in McDonald made one contact with the insured after the incident, and,
in that contact, tried to barter away the criminal charges. The nightclub manager testified

                                              -5-
that he often received hollow threats of lawsuits and simply thought this was another hollow
threat. In the present case, there were several exchanges between the Evans and RMG, and
there were no criminal charges being used for barter. Also, in McDonald, ‘the evidence was
in sharp dispute” about the underlying facts. Id. In Tennessee, where, as here, the facts
concerning the exact terms of the policy and the timing of the notice are undisputed, the
question of reasonableness of a delay in notice is a question of law for the court. Gibson
Guitar Corp. v. Travelers Indemnity Co., 947 F.Supp 329, 331 (M.D. Tenn. 1996)(citing
Lee, 732 S.W.2d at 276. The Gibson court’s rejection of the insured’s losing argument in
that case is persuasive. It states:

              The burden of offering an explanation or excuse for failure to
              give notice must rest heavily upon the insured since he seeks
              relief from the plain terms of the contract of insurance coverage.
              Whether the facts establish a reasonable basis for late notice is
              determined by all the surrounding circumstances.

                                          *   *     *

              Given the Tennessee law which holds that an insured must give
              notice when it becomes aware of a potential claim, the Court
              finds that Plaintiff had an obligation to notify Defendants
              promptly when the counterclaims were filed against it. Plaintiff's
              assertion that it had to investigate the claims falls short of a
              reasonable excuse. The very purpose of the notice requirement
              is to give the insurance companies opportunities to investigate.

              In Nationwide v. Shannon, 701 S.W .2d 615
              (Tenn.Ct.App.1985), the plaintiffs argued that they were
              excused from giving notice because they thought there would be
              no liability. In sustaining the position of the insurer, the court
              said:

              “The trouble with the contention of the plaintiffs, as thus given
              the fullest possible effect, is that they assumed to become the
              judges of the prospect for claim and suit, whereas one of the
              purposes of the notice of accident is to afford opportunity to the
              insurer, the responsible party in case the policy is to continue in
              effect, to decide that very question and to act in accordance with
              its own judgment.”



                                              -6-
              Nationwide, 701 S.W.2d at 620 (citations omitted). Similarly
              here, Plaintiff seems to argue that it had a duty to judge the
              viability of the claims before notifying the insurer.

Gibson Guitar Corp., 947 F.Supp. at 332 (emphasis added, some citations omitted). RMG’s
position in this case, though artfully stated to sound otherwise, is the same as the losing
argument in Gibson. We hold that RMG’s excuse fails as a matter of law.

        The final matter for consideration is whether Everest was prejudiced by the delay.
Even if notice of a claim is untimely, the insurer does not automatically escape coverage; if
there is no prejudice from the delay, the contractual obligations of the insurer continue.
Alcazar v. Hayes, 982 S.W.2d 845, 853 (Tenn. 1998). However,

              when an insured has failed to provide timely notice of a claim
              against it in accordance with a liability insurance policy, it is
              presumed that the insurer has been prejudiced by the breach.
              The insured may rebut this presumption by proffering competent
              evidence establishing that the insurer was not prejudiced by the
              insured's delay.

American Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 818 (Tenn. 2000). One
of the factors to be considered in determining prejudice is whether there have been “physical
changes in the location of the accident during the period of the delay.” Alcazar, 982 S.W.2d
at 856. In the present case, it is undisputed that RMG made repairs to the parking lot where
Mr. Evans fell, even though it knew there were “issues” about Mr. Evans’ fall, before it ever
gave Everest notice of the claim. We agree with the trial court that RMG’s alteration of the
site demonstrates prejudice to Everest. The only mitigating evidence is that Everest was
eventually supplied two photographs of the site of the accident taken by a friend of Mr.
Evans and an unspecified number of photographs taken by RMG just prior to making the
repairs. None of those photographs is in the record before us. On the record before this
court, we hold that, as a matter of law, RMG has not rebutted the presumption of prejudice
to Everest from the untimely notice.

                                              V.

       The judgment of the trial court is affirmed. Costs on appeal are taxed to the appellant,
Restaurant Management Group, LLC. This case is remanded, pursuant to applicable law, for
enforcement of the trial court’s judgment and for collection of costs assessed in the trial
court.



                                              -7-
      _______________________________
      CHARLES D. SUSANO, JR., JUDGE




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