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Cancellation rule should have applied to defendant’s contradictory testimony.

Where an insured driver stated under oath that he was driving another person’s truck in his capacity as a mechanic to test the vehicle, but then after a declaratory judgment action was filed by his insurance company he testified that he was driving the truck on a personal errand, the trial court should have applied the cancellation rule to his testimony.

In Tennessee Farmers Mutual Insurance Co. v Simmons, No. E2020-00791-COA-R3-CV (Tenn. Ct. App. Sept. 14, 2021), defendant Simmons was a mechanic, and he had been hired by Jeremy Shipley to repair Shipley’s truck. While Simmons was driving Shipley’s truck, Simmons was involved in a car accident. The other driver filed suit against Simmons and Shipley, alleging that Simmons was negligent and caused the accident.

Simmons had an automobile insurance policy with plaintiff insurance company, but that policy contained a “business purpose” exclusion, stating: “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.” In March 2018, before this action was filed, the insurance company interviewed Simmons under oath as part of its investigation. During that interview, Simmons was asked: “[Y]ou were test driving it or road testing it to see if there were any other problems that might need to be addressed before he hauled his trailer the next week, right?” Simmons responded in the affirmative.

Plaintiff insurance company subsequently filed this action seeking a declaratory judgment that the policy did not cover the accident at issue. Plaintiff filed a motion for summary judgment, asserting that the testimony given by Simmons under oath established that this accident fell within the business purpose exclusion. Defendant Simmons responded with his own affidavit, stating that at the time of the accident he was driving the truck “to attend soccer practice because he was granted authority by Mr. Shipley by cell phone call” to do so. Plaintiff argued that the sham affidavit doctrine should apply, but the trial court disagreed and denied the motion for summary judgment.

At trial, Shipley (the owner of the truck) testified that he did not tell Simmons that he could use the truck for personal errands. Defendant Simmons testified as well, disputing this assertion by Shipley. Defendant stated that Shipley had told him he could drive the truck if he “needed to drive it or wanted to drive it,” and that at the time of the accident he was driving it for the personal reason of attending his daughter’s soccer practice. Following the close of plaintiff’s proof, it moved for a directed verdict, which the trial court denied. The jury ultimately returned a verdict for defendant, finding that the policy did not exclude coverage of the accident, and the trial court denied plaintiff’s motion for judgment notwithstanding the verdict and/or for a new trial. This appeal followed.

The first issue raised on appeal by plaintiff was whether the trial court erred in failing to apply the cancellation rule, and this issue was ultimately the only one addressed by the Court of Appeals, as it was conclusive of the case. “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.” (internal citation omitted). The Court explained that application of the cancellation rule 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.” (internal citation and quotation omitted). “[I]f 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.” (internal citation omitted).

After looking at the testimony presented by defendant Simmons before and during this case, the Court of Appeals ruled that the cancellation rule should have been applied here. The Court explained:

[W]e find that Simmons’ statements are both contradictory and mutually exclusive. …To recap, before [plaintiff] filed this declaratory action, Simmons had stated during the [investigation] 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. About ten months later, when [plaintiff] moved for summary judgment, Simmons submitted an affidavit stating that he was ‘100 percent sure…he had entirely repaired Mr. Shipley’s diesel vehicle after replacement of the oil pressure sensor.’ At trial, Simmons added that the repair was completed…, 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, we conclude that Simmons’ competing accounts of the reason for using Shipley’s truck at the time of the Accident cannot be reconciled.

Based on this reasoning, the Court ruled that the cancellation rule should have been applied to Simmons’ testimony. When his testimony was cancelled, the only remaining evidence regarding why Simmons was driving the truck would have been the testimony from Shipley that he and Simmons never discussed the truck being driven for personal reasons. Accordingly, “the trial court should have directed a verdict declaring that the automobile insurance policy [plaintiff] issued to [defendant] provides no coverage for the Accident pursuant to the policy’s business purpose exclusion.” The verdict for defendant insured was thus vacated.

The cancellation rule does not come up often in appellate opinions. Anyone trying to argue for or against application of the cancellation rule should therefore be aware of this case.

NOTE: This opinion was released five months after oral arguments in this case.

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