Michael Morat, Individually, and Morat's Insurance Agency, Inc., a Tennessee Corporation v. State Farm Mutual Automobile Insurance Company

Citation: Not availableDocket: 02A01-9412-CV-00270

Court: Court of Appeals of Tennessee; January 12, 1997; Tennessee; State Appellate Court

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Michael Miorat and Morat’s Insurance Agency, plaintiffs, appealed a summary judgment granted to State Farm Mutual Automobile Insurance Company, the defendant, in a malicious prosecution case. The dispute originated in 1981 when the plaintiffs submitted a policy change request to insure a 1981 Cadillac for J.W. Witten, indicating the vehicle had not been altered and listing its cost as $25,000.00. However, the vehicle was later found to have been substantially altered, increasing its value to over $40,000.00. After a claim was filed due to the vehicle burning, State Farm settled with the loss payee for more than $24,000.00 and subsequently sued the plaintiffs, arguing that accurate representation of the vehicle's value would have affected their decision to insure it under their assigned risk plan.

At trial, the plaintiffs were initially favored, but their subsequent lawsuit for malicious prosecution was dismissed when the trial judge ruled that State Farm had reasonably relied on legal counsel's advice, establishing probable cause for the original suit against the plaintiffs. On appeal, the plaintiffs contended that there were genuine issues of material fact regarding probable cause, malice, and the reliance on counsel. Despite the extensive record of over 14,000 pages, the appellate court found no genuine issues of material fact as required by Rule 56 of the Rules of Civil Procedure, affirming the trial court's decision. Miorat's deposition testimony indicated he had been informed of the vehicle's higher value, which he communicated to State Farm, but the court determined this did not create a genuine issue regarding the reasonableness of State Farm's actions.

The witness explained that the insurance policy for the vehicle would cover a maximum of $25,000, which is the insurable interest value of a 1981 Cadillac Seville, excluding any custom equipment. The witness was not aware of the cost of the custom modifications at the time of the policy change and only knew the dealership's selling price of $49,900. On August 4, the vehicle's owner, Witten, visited the witness's office to make changes to his auto policy. During this visit, the witness completed a Tennessee Automobile Insurance Plan Change Endorsement form, listing the vehicle and its lienholder details, which Witten signed.

The policy change form included a section for 'cost new,' where the witness entered $25,000, as instructed by the insurance company to protect against potential claims exceeding that amount. The witness marked the 'altered' section of the form as 'no,' indicating that the vehicle was insured as a standard model without acknowledging custom alterations. It was noted that the defendant, after experiencing a loss, sought legal counsel regarding a potential lawsuit against the plaintiffs. The defendant's attorneys found that the plaintiffs failed to disclose a conversation with an underwriter until spring, which hindered verification of the information provided. An investigator later questioned the discrepancy between the stated cost of $25,000 on the application and the actual cost of over $42,000, to which the witness responded that Witten had agreed to report the lower amount on the policy change request.

The Supreme Court in Roberts v. Federal Express Corp. held that the determination of the reasonableness of a defendant's conduct in initiating a legal action should be made by a jury, with probable cause assessed through an objective evaluation of facts and circumstances. Since the facts in the case were undisputed, the key issue was whether reasonable minds could disagree on the existence of probable cause for the action against the plaintiffs. The Court noted that while the standards for civil and criminal proceedings share similarities, civil actions require less justification to establish probable cause. The Court emphasized that a plaintiff in a civil suit faces a substantial burden to prove malice and lack of probable cause. Moreover, the advice of counsel indicating a reasonable chance of recovery can establish probable cause. The Trial Judge found that the defendant acted reasonably in investigating and seeking counsel's advice. The Court concluded that reasonable minds would agree that probable cause existed for the action.

The plaintiffs contended that discovery was improperly withheld by the defendant, State Farm, but the Court found no record of a trial court order compelling compliance with discovery rules. Additionally, the Court highlighted that a party cannot seek relief after failing to take necessary action to prevent an error. Importantly, the Court noted that the underlying controversy stemmed from the plaintiffs’ own misconduct, specifically providing false information on an insurance application. This principle aligns with the legal maxim that no party should benefit from their wrongful actions, a concept recognized in law and equity. Consequently, the Court affirmed the Trial Court's judgment and remanded the case, with costs of the appeal assigned to the appellant.