Allied Property & Casualty Insurance Co. v. Good

938 N.E.2d 227, 2010 Ind. App. LEXIS 2215, 2010 WL 4781522

• Court: Indiana Court of Appeals
• Decided: November 24, 2010
• Docket: 85A04-0905-CV-240
• Status: Published

Opinions

OPINION

MAY, Judge.

Allied Property and Casualty Insurance Company ("Allied") appeals judgments in favor of Linda and Randall Good ("the Goods"). Allied presents five issues and Linda raises one issue on cross-appeal, but we find one dispositive: whether the trial court erred by denying Allied's motion for summary judgment because misrepresentations on the application for insurance made Linda's policy void ab imitio. Because the uncontradicted evidence indicates Linda misrepresented the Goods cancellation history on the application for homeowners insurance and Allied would not have issued the policy if it had known the truth about their history, the trial court erred by denying Allied's motion for summary judgment. We accordingly reverse and remand for entry of judgment for Allied.¹

FACTS AND PROCEDURAL HISTORY

In July 2002, Linda completed an application for homeowners insurance with Allied. The application was signed by Linda only, and the policy was in her name only. The policy was to be in effect for one year, beginning July 2, 2002. On March 16, 2003, a fire destroyed the Goods' home and all its contents. They filed a claim with Allied, which neither paid nor denied the claim due to an ongoing investigation regarding the cause of the fire.

On March 9, 2004, Linda sued Allied for breach of contract based on Allied's non payment. Allied filed a third-party complaint against Linda's husband Randall, alleging he made false statements regarding the fire,² and a counterclaim against Linda for the same. Thereafter, Allied filed a motion for summary judgment, asserting its contract with Linda was void ab initio because Linda had misrepresented her cancellation history on her application for insurance. The trial court denied that motion. A trial commenced on December 12, 2008, and ended in a mistrial. Allied appealed the mistrial and we affirmed. Allied Prop. and Cas. Ins. Co. v. Good, 919 N.E.2d 144 (Ind.App.Ct.2009), trans. denied.³

A second trial began January 12, 2009. It was bifurcated into a phase addressing Linda's breach of contract claim and Allied's third-party claims against Randall, and a phase addressing Allied's counterclaims. After hearing all evidence the court entered directed verdicts for the Goods. The issue of damages was presented to the jury, which awarded Linda $1,052,977.19.

DISCUSSION AND DECISION

Allied was entitled to summary judgment because Linda misrepresented on the insurance application that she had never had an insurance policy cancelled. Our standard for reviewing a summary judgment was set forth by our Indiana Supreme Court in Dugan v. Mittal Steel USA, Inc., 929 N.E.2d 184, 185-86 (Ind.2010):

A party is entitled to summary judgment upon demonstrating the absence of any genuine issue of fact as to a determinative issue unless the non-moving party comes forward with contrary evidence showing an issue of fact for trial. An appellate court reviewing a trial court summary judgment ruling likewise construes all facts and reasonable inferences in favor of the non-moving party and determines whether the moving party has shown from the designated evi-dentiary matter that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. But a de novo standard of review applies where the dispute is one of law rather than fact.

Construction of the terms of a written contract presents a pure question of law; accordingly, our review is de novo. Harrison v. Thomas, 761 N.E.2d 816, 818 (Ind.2002). More specifically, the proper interpretation of an insurance policy generally presents a question of law that is appropriate for summary judgment. Bosecker v. Westfield Ins. Co., 724 N.E.2d 241, 243 (Ind.2000).

Whether Linda misrepresented her cancellation history hinges on the interpretation of the word "ever." Allied's application for insurance asks for the name of the applicant's current insurance company, the number of years with that company, and the expiration date of that policy. On the same line, there is a space to answer the query, "Coverage ever declined, cancelled, or non-renewed." (App. at 7940.) The Goods argue "ever" refers only to the policy in effect when they filed the application, while Allied argues "ever" refers to the applicant's entire insurance history.

When policy language "is clear and unambiguous," the language of the policy is given its plain meaning. Beam v. Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind.2002). When the language is ambiguous, it is "construed strictly against the insurer" and is "viewed from the standpoint of the insured." Id. at 528. But there is ambiguity "only if reasonable persons would differ as to the meaning of its terms." Id. In insurance policies, "an ambiguity is not affirmatively established simply because controversy exists and one party asserts an interpretation contrary to that asserted by the opposing party." Id.

"Ever" means "at any time." Webster's Third. New Int'l Dictionary 788 (1976). See also Home Ins. Co. v. Cavin, 162 Miss. 1, 137 So. 490 (1931) (home insurance policy voided because insured falsely denied that he had ever sustained a fire loss; the court found the language of the query to be unambiguous, and the insured's incorrect interpretation of "ever" did not relieve him from the penalty of his false assertion). In the contract, "ever" modified the words "declined, canceled, and non-renewed." (App. at 7940.) "Decline" is "to refuse to undertake, undergo, engage in." www. merriam-webster.com/ dictionary/decline (last accessed September 9, 2010). "Cancel" is defined as "to destroy the foree, effectiveness, or validity of." www.merriam-webster.com/dictionary/ cancel (last accessed September 9, 2010). "Renew" means "to grant or obtain an extension of." www.merriam-webster.com/ dictionary/renew (last accessed September 9, 2010).

The Goods claim "ever" refers only to the policy in effect when they filed the application-that is, the application was asking if the MetLife homeowners' policy Linda had when she applied for the Allied policy had ever been declined, cancelled, or not renewed. The cancellation question could not have been limited, as the Goods argue, to the "current company." (App. at 667.) It is not possible that the current insurer had "refuse[d] to undertake, undergo, engage in" insuring the applicant for the current policy. Under the Goods interpretation, there could be no "current company." Similarly, if the "current company" had "destroy[ed] the force, effectiveness, or validity of" the Goods' coverage, it could not be their "current company," because the Goods would no longer have a contract of insurance with that company. As there could be no current company if coverage had been canceled or denied, we decline their invitation to so interpret the application's language. See Utica Mut. Ins. Co. v. Precedent Compamies, LLC, 782 N.E.2d 470, 474 (Ind.Ct.App.2003) ("When interpreting an insurance policy, we give plain and ordinary meaning to language that is clear and unambiguous.").

Because "ever" means "at any time," we hold the query, "Coverage ever declined, cancelled, or non-renewed," (App. at 667), refers to any policy the Goods "ever" applied for or had "at any time" in the past.

Linda answered "no" to that query on the application, and her answers in a deposition and an interrogatory designated as evidence in support of Allied's motion for summary judgment show that answer was false. In her deposition, Linda acknowledged at least one insurer, and possibly three, had cancelled policies she and Randall had held:

Q: Oh, you don't think-I thought you said before Met cancelled you for the gas leak?

A: We got cancelled, but we got another policy through them. Maybe it-I think it was West-, Westfield that can-celled us. Then we got Met Life, then we switched from Beauchamp & MceSpadden because we'd been talking to other people and their policies were cheaper and we thought we'd get a better buy if we went to WIA.

(Id. at 416.) In her response to the interrogatory, "Have you ever had insurance coverage cancelled for any reason?" Linda replied, "Meridian cancelled us sometime in 1994 or later. I don't remember exactly when they cancelled us. Scheerer Insurance was the agency. Westfield Insurance cancelled us I believe in 1999. Beauchamp and MeSpadden was the insurance company." (Id. at 679.) The Goods did not designate any evidence that contradicted Linda's statements designated by Allied. There was no genuine issue of fact about whether Linda misrepresented the Goods' cancellation history on the application.

We next turn to whether that misrepresentation was material. A misrepresentation on an application for an insurance policy is "material" if the fact misrepresented, had it been known to the insurer, would have reasonably entered into and influenced the insurer's decision whether to issue a policy or to charge a higher premium.⁴ Am. Nat. Fire Ins. Co. v. Rose Acre Farms, Inc., 107 F.3d 451, 458 (7th Cir.1997) (applying Indiana law). A material misrepresentation or omission of fact in an insurance application, relied on by the insurer in issuing the policy, renders the coverage voidable at the insurance company's option. Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 672 (Ind.1997). An insurance company has no right to rescind a policy "where it had knowledge of the facts notwithstanding the material misrepresentations, or where a reasonable person would have investigated further." Id. at 674. However, "the insurer may rely on representations of fact in the application without investigating their truthfulness," and has "no duty to look beneath the surface" of the representations on the application.⁵ Id.

In Guzorek, our Indiana Supreme Court identified two approaches to determining whether a misrepresentation is material. Generally, "[uJnder either view, the materiality of the representation or omission is a question of fact to be resolved by the factfinder unless the evidence is such that there can be no reasonable difference of opinion." Id. (citing Prudential Ins. Co. of Am. v. Winans, 263 Ind. 111, 115, 325 N.E.2d 204, 206 (1975)).

The first approach, which applies in this cireumstance, considers whether the insurer would have refused to write a policy for the insured or would have charged a higher premium had it known of the misrepresentation. Guzorek, 690 N.E.2d at 672-73. Even an innocent misrepresentation will render a policy voidable, unless the insurer was on notice of the misrepresentation and a reasonable person would have inquired further. Id. at 673.⁶

In support of its motion for summary judgment, Allied designated an affidavit from one of its underwriters that stated: "If Linda and Randall Good had disclosed the fact that they had coverage canceled by prior insurers (in this case multiple cancellations), Allied would not have issued the subject policy or would have charged a higher premium." (App. at 659.) The Goods did not designate any evidence to the contrary, and thus there was no genuine issue of material fact about the materiality of the misrepresentation made by Linda on the application for insurance: Allied relied on it to determine eligibility for a policy, and Allied would not have sold the policy had it known the truth. 'We also note that, although we found no Indiana decision addressing the materiality of a misrepresentation about an applicant's cancellation history, numerous jurisdictions have held such misrepresentations are, as a matter of law, "material misrepresentations." See, e.g., Wilson v. State Farm Fire and Cas. Co., 761 So.2d 913, 918 (Miss.App.2000) (false statement regarding renewal status of prior policy was material misrepresentation); Graphic Arts Mut. Ins. Co. v. Pritchett, 220 Ga.App. 430, 469 S.E.2d 199, 202 (1995) (co-insured's false statements regarding cancellation history voids entire policy); Nationwide Mut. Fire Ins. Co. v. Dungan, 634 F.Supp. 674, 682 (S.D.Miss.1986) (concealment of past cancellations on insurance application was material misrepresentation, and the insurance policy was therefore void ab ini-tio), Prudential Prop. and Cas. Co. v. Cole, 586 S.W.2d 433, 435 (Mo.Ct.App.1979) (insured's failure to disclose recent insurance policy cancellation was material misrepresentation); Globe Life and Acc. Ins. Co. v. Still, 376 F.2d 611, 614 (5th Cir.1967) ("Under the law of Georgia such a false statement about rejection or cancellation of other insurance is a material misrepresentation and voids the policy as a matter of law."); Hawkeye-Security Ins. Co. v. Gov. Emp. Ins. Co., 207 Va. 944, 154 S.E.2d 173, 176 (1967) (applicant's untrue answer to question regarding past cancellation history was material misrepresentation and rendered policy void ab timitio ).

Based on the designated evidence, there was no genuine question of fact regarding the Goods' misrepresentation of their past cancellation history or its materiality. Therefore, the trial court erred by denying Allied's motion for summary judgment.⁷ We reverse and remand for entry of judgment for Allied on all counts.

Reversed and remanded.

BARNES, J., concurs. BAILEY, J., dissents with separate opinion.

1 . As we reverse the denial of Allied's motion for summary judgment, we need not address whether the court erred in denying Allied's motions for judgment on the evidence.

2 . The policy states Allied will not provide coverage to "insureds" if, whether before or after a loss, an "insured" has "(1) Intentionally concealed or misrepresented any material fact or circumstance; (2) Engaged in fraudulent conduct; or (3) Made false statements; relating to this insurance." (App. at 308.) The contract defined "insured" as "you and residents of your household who are (1) your relatives." (Id. at 291-92.) Randall was therefore an "insured," so any misrepresentations, fraudulent conduct, or false statements by Randall would violate the terms of Allied's contract with Linda and absolve Allied of any contractual obligation to pay for Linda's damages.

3 . In that appeal, Allied did not raise and we did not address the denial of Allied's motion for summary judgment. See Allied Property, 919 N.E.2d at 151. Parties may challenge interlocutory orders on appeal from the final judgment. Bojrab v. Bojrab, 810 N.E.2d 1008, 1014 (Ind.2004).

4 . As explained below, Linda's misrepresentation was undoubtedly "material." Our opinion therefore should not, and cannot, be read to encourage, or even permit, parties to comb through insurance applications in hopes of finding any false statement in an effort to reduce premiums or avoid paying benefits. Only a "material" false representation could permit either result.

5 . There presumably are numerous resources available to insurance companies that would permit the insurers to conduct in-depth investigations, for a price, of persons applying for their policies. However, our Indiana Supreme Court's language in Guzorek leaves no doubt that insurers are not obliged to routinely undertake such investigation. Guzorek, 690 N.E.2d at 674 ("the insurer may rely on representations of fact in the application without investigating their truthfulness, unless there is some reason to believe the representations are false" and has "no duty to look beneath the surface of [an applicant's] representations). See also Chawla v. Transamerica Occidental Life Ins. Co., 440 F.3d 639, 647 (4th Cir.2006) (under Maryland law, insurer has no duty to investigate insured's statements on application); W. Coast Life Ins. Co. v. Hoar, 558 F.3d 1151, 1159-60 (10th Cir.2009) (under Colorado law, an insurer must investigate only if it has "sufficient information that would have put a prudent man on notice and would have caused him to start an inquiry"); Adriaenssens v. Allstate Ins. Co., 258 F.2d 888, 891 (10th Cir.1958) (under Oklahoma law, insurer has no duty to investigate absent "exceptional or unusual circumstances"); Co-lumbian Nat. Life Ins. Co. of Boston, Mass. v. Rodgers, 116 F.2d 705, 707-08 (10th Cir.1940) (under Kansas law, insurer must investigate only when pul on notice of cause or reason for inquiry); Twin City Bank v. Verex Assur. Inc., 733 F.Supp. 67, 71 (E.D.Ark.1990) (insurer has no duty to investigate insured's statements on application); Ingram v. Old Line Ins. Co. of Am., C98-2422 FMS, 1999 WL 430747 (N.D.Cal. June 21, 1999) (same); Great Lakes Reinsurance PLC v. Barrios, 08-20281-CIV-UNGARO, 2008 WL 6032919 (S.D.Fla. Dec. 10, 2008) ("The insured, not the insurer, has the duty to voluntarily disclose every material fact unknown to the insurer regardless of whether the insurer directly inquires about it."); Office Furnishings, Ltd. v. Am. Family Mut. Ins. Co., 04 C 6699, 2009 WL 3852375 (N.D.Ill. Nov. 18, 2009) (insurer has no duty to investigate insured's statements on application); Foremost Ins. Co. v. Bowden, 2:04CV174 BESGWF, 2006 WL 1966745 (D.Nev. July 12, 2006) (same); Mutual Ben. Life Ins. Co. v. Morley, 722 F.Supp. 1048 (S.D.N.Y.1989) (insurer is entitled to rely on statements of insured); Lewis v. Paul Revere Life Ins. Co., 80 F.Supp.2d 978, 999 (E.D.Wis.2000) (insurer has no duty to investigate insured's statements on application); In re Tri-State Armored Services, Inc., 332 B.R. 690, 721 (Bankr.D.N.J.2005) (" 'the applicant's duty to candidly fill out an insurance application is not in any way abated', whether or not an insurer performs an investigation." (citation omitted)); Amerson v. Gardner, 681 So.2d 570, 572-573 (Ala.Civ.App.1996) (insurer has no duty to investigate insured's statements on application); Hornback v. Bankers Life Ins. Co., 176 S.W.3d 699, 705 (Ky.Ct.App.2005) (same); Smith ex rel. Stephan v. AF & L Ins. Co., 147 S.W.3d 767, 777 (Mo.Ct.App.2004) (same); Crawford v. Manhattan Life Ins. Co. of New York, 208 Pa.Super. 150, 221 A.2d 877, 886 (1966) (same); Summit Ins. Co. v. Porcaro, CIV.A. 99-2521, 2004 WL 1067920 (R.I.Super. May 5, 2004) (same); Lane v. Travelers Indem. Co., 499 S.W.2d 643, 649 (Tenn.Ct.App.1973) (Before an insurer must investigate, "there must be a reason or cause for the further investigation and the insurer must be put upon inquiry by some fact or information in possession of the insurer."); Fireman's Fund Ins. Co. v. Knutsen, 132 Vt. 383, 324 A.2d 223, 231 (1974) (insurer has no duty to investigate insured's statements on application); Harper v. Fid. & Guar. Life Ins. Co., 234 P.3d 1211, 1218-19 (Wyo.2010) (same). We found no state or federal statutes or regulations that would require an insurance company to conduct such an investigation without notice of a defect in the statements made in the application.

6 , The second approach applies when "rescission is attempted after a loss has been incurred." Id. In Allianz Ins. Co. v. Guidant Corp., 884 N.E.2d 405, 415-16 (Ind.Ct.App.2008), reh'g denied, trans. denied, we determined this second approach applies only to an attempted partial rescission of a policy, and we limited use of this second approach to the context of automotive financial responsibility laws: "[i]t is apparent that 'the law' to which the [Guzorek ] court was referring was the financial responsibility law, not contract law, because general contract law plainly permits the complete rescission of a contract." Id. at 415. As Linda's policy with Allied was - homeowners insurance, not car insurance, the second approach does not apply.

7 . Linda requests appellate attorney's fees pursuant to Ind. Appellate Rule 66(E), which allows us to assess damages, including attorney's fees, if we find an appeal is frivolous or filed in bad faith. In light of our decision, we cannot so characterize Allied's appeal. Thus we decline Linda's request.