Cannon v. Travelers Indemnity Company

• Decision Date: 11 March 1963
• Docket Number: No. 17141.,17141.
• Citation: 314 F.2d 657
• Parties: Lenos G. CANNON and Harry Singleton, a Minor, by Rose Mary Singleton, Guardian Ad Litem, Appellants, v. The TRAVELERS INDEMNITY COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

314 F.2d 657 (1963)

Lenos G. CANNON and Harry Singleton, a Minor, by Rose Mary Singleton, Guardian Ad Litem, Appellants, v. The TRAVELERS INDEMNITY COMPANY, a Corporation, Appellee.

No. 17141.

United States Court of Appeals Eighth Circuit.

March 11, 1963.

Merle L. Silverstein, of Rosenblum & Goldenhersh, St. Louis, Mo., made argument for appellants and filed typewritten brief.

Paul V. Gilbert, St. Louis, Mo., made argument for appellee and filed brief with John F. Evans, St. Louis, Mo.

Before VOGEL, BLACKMUN and RIDGE, Circuit Judges.

VOGEL, Circuit Judge.

The Travelers Indemnity Company, a Connecticut corporation, brought this action for a declaratory judgment against Thomas Harris, Jr., Lenos G. Cannon, Harry Singleton, a minor, and Rose Mary Singleton, asking that a certain automobile liability insurance policy issued by it to Thomas Harris, Jr., be declared void ab initio and of no force and effect. From an adverse judgment, Lenos G. Cannon, Harry Singleton and Rose Mary Singleton brought this appeal. Harris did not appeal.

A recitation of the facts in some detail seems to be required. On February 2, 1960, Harris, a 38-year-old Postal employee made an application for a policy of automobile liability insurance. The application was taken on a typewriter with William A. Rogers, an agent for the St. Louis Postal Employees Credit Union, asking the questions and typing in the answers in Harris' presence. The agent testified that he specifically asked Harris about moving traffic violations in the preceding five years and gave speeding or stop-sign convictions as examples of such violations. He also stated that he informed Harris that the premium quoted him would apply only if he had no traffic violations or accidents in the past five years. The amount of the policy premium was substantially affected by an applicant's record of moving traffic violations. According to him, Harris replied that he had had none. Harris, in turn, testified that the agent inquired only of accidents and that no time limit was stated with reference to violations. At the end of the interview, Harris, having been given the most favorable rate, signed the application and made a $10.00 downpayment upon the yearly premium. On February 23rd he paid the balance of the premium.

The application for insurance was submitted to Travelers and on February 10, 1960, it issued a policy effective February 2nd. At the same time, a request for a moral hazard investigation was made to the Retail Credit Association.

On February 16, 1960, Harris was involved in an automobile accident with the appellants and with one other vehicle. Subsequently suits totalling $20,800 were filed against Harris by the appellants.

Somewhere between the 19th and 23rd of February the underwriting superintendent of Travelers learned that the Retail Credit investigation indicated traffic violations by Harris totalling ten points as based on Travelers' system of grading. The point system determined the premium charged. One point was allotted for speeding, three for reckless and careless driving and five points for driving while intoxicated. The underwriting superintendent testified that it was his rule that any application showing three points or more was to be personally referred to him. Included among Harris' alleged violations was one for driving while intoxicated and one for careless driving. The latter two convictions were subsequently fully admitted by Harris to be true. He made no definite statements as to the alleged violations involving speeding. The superintendent testified that to his knowledge his office had never accepted an application with more than a six point grading and had never accepted one which declared a violation involving drinking. He admitted, however, the possibility that such a ten-point application may have been accepted by one of his field underwriters.

During the same period that the underwriter was learning of Harris' driving record, he also was notified of the February 16th accident and resulting claims. He thereupon turned the matter over to the claim department of the company. At that time he advised them that he felt that the policy should be cancelled but did not know what to do about the claim. The underwriter stated that he never did make the ultimate decision to cancel.

After the claim department took over, an adjuster was sent to investigate the accident and claims on or about February 25th. The adjuster testified that all he did in connection with the investigation of the accident itself was to acknowledge appellants' lien letter and obtain a copy of the police report of the accident. He was shortly thereafter directed to stop investigating the accident and to investigate Harris' traffic record. Sometime during the first week in March the adjuster verified Harris' traffic record and reported to his company. A decision to cancel was subsequently made by the claim department on the advice of Travelers' attorney. On April 8, 1960, the adjuster visited Harris at his home and informed him that Travelers was disclaiming liability upon the policy because of fraudulent misrepresentations as to driving convictions made at the time of the application. He then offered to return the entire premium paid by Harris but the latter refused its tender. There was evidence introduced that the entire premium was sometimes returned after cancellation even when there has been coverage for a short period of time rather than bothering with carrying a small amount of earned premium on the books. The underwriting superintendent testified that he had never before cancelled a policy by declaring such as void ab initio.

At the close of the testimony, the District Judge, sitting without a jury, found that there had been fraud in the procurement of the policy and that the company had not waived and was not estopped from asserting this defense through any subsequent action on the policy or through any delay in denying coverage.

Following the trial court's written opinion, the appellants were granted leave to reopen and newly discovered evidence was introduced by stipulation to the effect that Harris had filed an accident report with the Safety Responsibility Unit of the State of Missouri indicating that Travelers was his liability insurance carrier; that on March 15th, said Unit had forwarded a SR-21 Form to Travelers requesting verification of such coverage; that appellants' attorney on June 21st was informed that Harris had complied with the Safety Responsibility Law; and that the company had never disclaimed the policy with the Safety Responsibility Unit. The trial court found that this additional evidence did not materially change the situation and reaffirmed its earlier opinion.

Appellants' first assignment of error concerns the question of fraud. They contend that Travelers failed to carry the burden of proof as to the following essential elements of fraud: A wilful misrepresentation, materiality, and reliance thereon by Travelers.

The second assignment of error involves an alleged unreasonable delay by Travelers in attempting to void the policy. Such delay, the appellants assert, resulted in a waiver and an estoppel of the defense of fraud. Along with the alleged unreasonable delay, appellants also assert that the trial court erred in not finding an estoppel or waiver through Travelers' failure to inform the Safety Responsibility Unit of the State of Missouri, which failure resulted in denial to the appellants of the protection of the law insofar as no enforcement of its alternative provisions, i. e., posting of cash or a bond by Harris or the suspension of the latter's driving license, was effectuated.

On the question of fraud, it would seem that the record includes substantial credible evidence from which the trial court could, as it did, find that there was wilful misrepresentation by Harris in applying for the insurance. There is, of course, conflict in the testimony, as the agent and Harris were in hopeless disagreement as to what was said. Certainly incentives on the part of Harris existed. He may have made the misrepresentations deliberately, believing that if his traffic violations were disclosed no liability insurance would be issued to him; and, secondly, he was aware that if his traffic violations were known the premium to be charged for the policy for which he was applying would have been very substantially increased. In addition, Harris signed the application denying that he had had any moving traffic violations within the preceding five years. The District Judge also points out that Harris, in his deposition of March 27, 1961, adhered to his position and stated that he had had no moving traffic violations since 1948, while the fact was that he had had at least four such traffic violations within the five-year period preceding the accident. The District Court concluded that Harris was intentionally concealing the violations when he made his application. That finding of wilful misrepresentation is supported by substantial evidence and may not be disturbed here on appeal. United States v. Skolness, 8 Cir., 1960, 279 F.2d 350. As to materiality, the conclusion of the trial court is likewise amply supported and may not be disturbed.

The only plausible argument here might be on the question of reliance. Neither the court nor the appellee treat that problem directly. The trial court states in his opinion:

"Materiality and reliance on misrepresentation are interrelated. As mentioned before, a misrepresentation is material by the Restatement definition `where (it) would be likely to affect the conduct of a reasonable man.\' Had the company or the underwriter known of the four actual violations totalling ten points, and particularly of the drunken driving charge, no policy would have been issued."

The court cites Minich v. M. F. A. Mutual Ins. Co., Mo.App., 1959, 325 S.W.2d 56, and Gooch v. Motors Ins. Co., Mo.App., 1958, 312 S.W.2d 605....