Virginia Mut. Ins. Co. v. State Farm Mut. Auto Ins. Co.

• Citation: 204 Va. 783,133 S.E.2d 277
• Decision Date: 02 December 1963
• Docket Number: No. 5666,5666
• Court: Virginia Supreme Court
• Parties: VIRGINIA MUTUAL INSURANCE COMPANY v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, ET AL. Record

Page 277

133 S.E.2d 277

204 Va. 783

VIRGINIA MUTUAL INSURANCE COMPANY v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, ET AL.

Record No. 5666.

Supreme Court of Appeals of Virginia

December 2, 1963.

Robert E. Taylor (M. Wallace Moncure, Jr.; Taylor, Comblos & Michie; Moncure & Cabell, on brief), for the plaintiff in error.

C. Armonde Paxson (Paxson, Marshall & Smith, on brief), for the defendants in error.

JUDGE: CARRICO

CARRICO, J., delivered the opinion of the court.

On August 7, 1962, Virginia Mutual Insurance Company filed a motion for declaratory judgment against State Farm Mutual Automobile Insurance Company, Harry A. Austin, Dorothy W. Austin, Gerald F. Kestner and Anna Kate Kestner.

The controversy arose out of an automobile accident in which the Austins were injured when their vehicle was in collision with one being operated by Anna Kestner. Following the accident, the Austins instituted actions for their injuries against the Kestners.

The motion for declaratory judgment, filed by Virginia Mutual, alleged that State Farm had issued a policy to the Kestners insuring them against liability and obligating State Farm to defend the actions brought by the Austins. However, the motion stated, State Farm had denied coverage under its policy and had refused to defend the actions. It was further alleged that Virginia Mutual had issued a policy to the Austins containing an uninsured motorist endorsement and that the Austins had asserted in their actions against the Kestners that if the State Farm Policy did not cover the accident, then Virginia Mutual was liable to the Austins under their uninsured motorist coverage.

The motion sought a declaration as to whether the State Farm policy was in force and effect at the time of the accident or whether Virginia Mutual was liable to the Austins under the uninsured motorist endorsement.

State Farm filed its grounds of defense, alleging that its policy, issued to the Kestners, had been declared void ab initio because of 'false and fraudulent statements' made by Gerald F. Kestner in the application for insurance.

The trial court heard the evidence and took the matter under advisement. Thereafter, an 'order of judgment' was entered which merely ordered that, 'judgment be awarded in favor of State Farm Mutual Automobile Insurance Company. ' We granted Virginia Mutual a writ of error.

The evidence, which is without serious conflict, shows that the Kestners were first insured by State Farm under a policy, covering a 1955 model automobile, which was effective from March 28, 1960, and which expired. In the latter part of October, 1961, the Kestners purchased another vehicle, a 1956 model Chevrolet, and Mrs. Kestner telephoned E. C. Mundy, State Farm's agent in Orange, advising him that insurance coverage was desired on the newly acquired vehicle. On November 2, Mr. Kestner alone visited the agent's office and an application was filled in by Mundy and signed by Kestner.

Question No. 19 on the application was:

'Has license to drive or registration been suspended, revoked or refused for the applicant or any member of his household within the past five years?'

The square marked 'No' was checked by Mundy in response to Kestner's statement to him. However, Mrs. Kestner had, in fact, been refused the issuance of an operator's license on at least two occasions.

On November 12, State Farm issued the policy to the Kestners which is in dispute here. The policy, effective from November 2, 1961, to May 2, 1962, in addition to providing liability coverage, also granted uninsured motorist, medical payments and death benefits coverage.

On December 10, 1961, Mrs. Kestner was involved in the collision with the Austins which gave rise to the present controversy. On December 11, Mr. Kestner reported the accident to Mundy. On the same date, the latter prepared and forwarded to State Farm a report of the accident and filed with the Division of Motor Vehicles an SR-21 form advising the Division that State Farm's policy was 'in effect' at the time of the accident and applied to Mr. and Mrs. Kestner.

On December 13, a claims representative of State Farm interviewed Mrs. Kestner as she was being discharged from the University of Virginia Hospital. He took from her a detailed written statement concerning the accident and also had her sign a 'non-waiver agreement.'

'We are not advised of the contents of the 'non-waiver agreement', since it was not introduced into evidence. However, Mrs. Kestner's statement is an exhibit. In it she set forth the details of the accident, including the fact that one of the tires on her vehicle 'blew out' just before her collision with the Austin vehicle. She also stated that she had never had an operator's license, although she had been driving for five years. She said she had tried several times, unsuccessfully, to pass the license examination.

Following the taking of Mrs. Kestner's statement, the claims representative of State Farm conducted a full investigation of the accident. He also discussed the accident with Virginia Mutual's attorney but never notified the latter that State Farm was denying coverage.

On December 28, State Farm received a request from the Kestners to change the address on their policy. This request was honored by State Farm.

On January 11, 1962, State Farm received a bill from the University hospital for Mrs. Kestner's care and treatment, which related to the medical payments coverage of the Kestner policy. Payment of this bill was not denied until March 9, 1962.

In January, the Kestners purchased another vehicle, a 1956 Pontiac, and contacted Mundy to have their insurance transferred to the newly acquired automobile. The agent forwarded to State Farm a transfer application, signed only by him, setting forth the names of the policyholders and information concerning the new vehicle.

On February 7, a representative of State Farm secured a further written statement from Mrs. Kestner and also a written statement from her husband. In her statement, the question of Mrs. Kestner's having been refused an operator's license was not mentioned. In his statement, Mr. Kestner said that he 'was aware' when he signed the application that his wife did not have an operator's license and that, 'she had tried to get a permit on several occasions.'

On February 12, State Farm issued to the Kestners a new policy, effective from February 12, 1962, to May 2, 1962, covering the Pontiac acquired in January.

On March 9, State Farm notified the Kestners that the policies which had been issued to them were rescinded as of the dates of issuance and should be treated as void from inception. The policies listed included the new policy issued in February, 1962, the one in dispute here issued in November, 1961, and the one issued in March, 1960. The reason given for the rescissions was the 'misrepresentations', in the applications for the March, 1960, and November, 1961, policies, with respect to Mrs. Kestner's having been refused an operator's license. The notice stated that a draft in the sum of $85.14, for return premiums, was enclosed, but it was not received by the Kestners. Another draft was sent them on April 17, but they had not cashed it at the time of the trial.

When Mr. Kestner applied for license plates in April, he listed State Farm's policy on the application which he sent to the Division of Motor Vehicles. He did this, he testified, notwithstanding the fact that he had been notified that his insurance had been rescinded, because he did not consider his policy void, 'until the premium was refunded.'

The Division of Motor Vehicles forwarded to State Farm a form for verification of Kestner's insurance coverage relating to his application for license plates. State Farm returned the form with the notation 'No record of policy', and on May 25 sent a letter to the Division stating that the policies of November 2, 1961, and February 12, 1962, 'were rescinded as of date of issuance. . . because of material misrepresentation. ' State Farm did not communicate with the Division concerning the SR-21 form it had filed on behalf of the Kestners.

The underwriting superintendent of State Farm testified that if question No. 19 on the application form had been answered 'Yes', the policy would not have been issued.

The contentions of Virginia Mutual which are pertinent to the disposition of this case are:

1. That the statements made by Mr. Kestner, relating to the status of his wife's right to drive, were not material to the risk assumed by State Farm.

2. That the actions of State Farm constituted a waiver of the policy defense.

State Farm, on the other hand, contends that the materiality of Kestner's statements was properly shown and that the evidence was insufficient to show that it had waived its right to rescind the policy of November 2, 1961.

These contentions will be discussed together because they are concerned in the basic and controlling question to be decided: Was State Farm entitled to rescind its policy of November 2, 1961?

Code, § 38.1-336 provides as follows:

'All statements, declarations and descriptions in any application for a policy of insurance or for the reinstatement thereof shall be deemed representations and not warranties, and no statement in such application or in any affidavit made before or after loss under the policy shall bar a recovery upon a policy of insurance, or be construed as a warranty, anything in the policy to the contrary notwithstanding, unless...