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04/14/95 SHERRY HASTON AND MICHAEL HASTON v.

April 14, 1995

SHERRY HASTON AND MICHAEL HASTON
v.
TRANSAMERICA INSURANCE SERVICES



Appeal from Calhoun Circuit Court. (CV-89-554). R. Joel Laird, TRIAL JUDGE.

Rehearing Denied June 23, 1995.

Almon, Maddox, Shores, Houston, Kennedy, Ingram, Cook, and Butts, JJ., concur.

The opinion of the court was delivered by: Almon

ALMON, JUSTICE.

Sherry and Michael Haston appeal from a summary judgment in favor of Transamerica Insurance Services on the Hastons' motion to reach and apply insurance proceeds to satisfy a default judgment in favor of the Hastons against Smith Brothers, Inc., of Oxford, Alabama, arising from a slip and fall Mrs. Haston suffered on Smith Brothers' premises. The issue presented is whether the circuit court erred in entering the summary judgment for Transamerica based upon Transamerica's failure to receive notice of Mrs. Haston's fall or of the Hastons' lawsuit, as required by Smith Brothers' liability insurance policy with Transamerica.

On June 1, 1989, Mrs. Haston fell and was injured while on the premises of Smith Brothers. On October 13, 1989, she filed a complaint against Smith Brothers, alleging negligence and wantonness and seeking to recover, as a business invitee, on a theory of premises liability. Mr. Haston joined in the action, asserting a claim for loss of consortium. On October 17, 1989, a sheriff's return of service of the summons and complaint was filed with the circuit court, showing service that day on "Smith Bro's." No officer or agent of Smith Brothers is identified in the return. At some point after Mrs. Haston's fall, Smith Brothers became insolvent and filed a bankruptcy petition.

Smith Brothers did not answer the complaint, and on February 7, 1990, the Hastons applied for an entry of default. On March 13, 1990, default was entered against Smith Brothers, and on September 25, 1990, the circuit court entered a judgment for the Hastons against Smith Brothers in the amount of $260,000, plus costs.

On October 22, 1992, the Hastons filed a Rule 69, Ala. R. Civ. P., motion to reach and apply insurance proceeds pursuant to the terms of §§ 27-23-1 and -2, Ala. Code 1975, directed at K&K Insurance Company. On February 10, 1993, K&K answered, alleging that it is not an insurer but acts as an agent on behalf of insurance companies. K&K's answer identified Transamerica as Smith Brothers' insurer. K&K filed a motion for a summary judgment, and the motion was granted on May 5, 1993.

On April 29, 1993, the Hastons amended their motion to reach and apply insurance proceeds, to join Transamerica as a party. On June 3, 1993, Transamerica answered and moved for a summary judgment. Transamerica's motion alleged that its liability under the contract of insurance with Smith Brothers was preconditioned upon prompt notice from the insured of any accident that might result in a claim and of any claims made or actions brought against the insured. Transamerica's motion further alleged that it received no notice from Smith Brothers concerning Mrs. Haston's fall or concerning the Hastons' claim. The motion was supported by a copy of the insurance policy and by affidavits from each of the three persons authorized to accept service of process on behalf of Smith Brothers in September-October 1989. Each affiant stated:

"I was never served with the summons and complaint filed by plaintiffs ... and, as far as I know, no other employee was served with the summons and complaint of plaintiffs. As I was never served with the summons and complaint of plaintiffs and had no knowledge of this suit, no notice of such suit was given by me to any insurance company with whom Smith Bros. Oxford, Inc. may have had a policy or contract of insurance."

The Hastons' response to Transamerica's motion for summary judgment alleged that Transamerica did not challenge the validity of the default judgment; that the failure of Smith Brothers to give Transamerica notice of the Hastons' claim is excused because Smith Brothers had no notice of their claim; and that §§ 27-23-1 and -2, Ala. Code 1975, establish that Transamerica is liable to satisfy the Hastons' judgment, because its policy was in full force and effect at the time of Mrs. Haston's injury. The Hastons' response was supported by an affidavit from Mrs. Haston stating that the injury occurred, that the defendant was served with a summons and complaint, and that "Mr. Summerford [one of Transamerica's affiants] was apparently the head of Smith Brothers being its president and he appears to have entered an agreement or understanding with the insurance company to cooperate with them in an effort not to pay claim and judgment." On February 11, 1994, the circuit court granted Transamerica's motion for summary judgment.

A claim under §§ 27-23-1 and -2 to apply the proceeds of a contract of insurance to satisfy a judgment has been described by this Court as follows:

"Under Alabama law, the injured party acquires a vested interest (secondary) in the nature of a hypothecation of the ...


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