Aetna Cas. & Sur. Co. v. Guynes

• Decision Date: 09 September 1983
• Docket Number: No. 83-2022,83-2022
• Citation: 713 F.2d 1187
• Parties: 13 Fed. R. Evid. Serv. 1562 The AETNA CASUALTY & SURETY COMPANY, Plaintiff-Appellant, v. Hirschell L. GUYNES and Mable Ann Guynes, Defendants-Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1187

713 F.2d 1187

13 Fed. R. Evid. Serv. 1562

The AETNA CASUALTY & SURETY COMPANY, Plaintiff-Appellant, v. Hirschell L. GUYNES and Mable Ann Guynes, Defendants-Appellees.

No. 83-2022

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Sept. 9, 1983.

Joseph F. Nistico, Jr., Houston, Tex., for plaintiff-appellant.

Harry H. Walsh, III, Huntsville, Tex., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before BROWN, REAVLEY and JOLLY, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

From a judgment for the assureds in a diversity action on a $25,000 home fire insurance policy, the plaintiff-insurer, Aetna Casualty & Surety Company ("Aetna"), appeals the District Court's instructed verdict, denial of a new trial, and final judgment. We affirm.

Facts

In 1978 the assureds, Hirschell Lee and Mable Ann Guynes, bought a four-room frame house in wooded Onalaska, Texas off of Lake Livingston. ¹ In October of the following year, they applied for a $25,000 fire insurance policy on the house with Aetna. Aetna declined to inspect the house and issued the policy after the Guyneses paid the necessary premiums. In the early morning hours of June 7, 1980, the house burned to the ground. By then, Aetna still had not inspected the house.

Aetna suspected the worst. Its investigators eventually concluded that the fire had been intentionally set probably by someone using some type of flammable liquid. Moreover, early on in the investigation, the Guyneses gave wrong accounts of exactly how much they had originally paid for the house and of where Mr. Guynes had been on the night of the fire which they later corrected. Aetna decided not to pay on the policy and filed suit in the Southern District of Texas, seeking declaratory relief from liability on the affirmative defenses of arson and misrepresentation. The Guyneses counter-claimed for the total proceeds of the policy.

At trial, the District Judge instructed a verdict against Aetna on a motion by the Guyneses on the misrepresentation claim, finding that the conflicting statements had not been material to Aetna's liability under the policy. Then, after a two-day trial, the jury found that the Guyneses had not set the fire themselves nor had they caused anyone else to set the fire. The Court entered judgment against Aetna for $25,000, plus interest and costs of the court. Aetna moved for a new trial based on several alleged errors by the Court during trial and was denied.

Aetna appeals the decisions of the District Court in instructing verdict for the Guyneses, in denying Aetna's motion for a new trial, and in granting judgment for the total proceeds of the policy.

Instructed Verdict Against Aetna

Aetna had asserted that the Gyneses' statements made during the investigation of the loss of the house were willful misrepresentations of material facts or circumstances which, under the Guyneses' fire policy, ² relieved Aetna of liability. The Guyneses had said to Aetna's fire investigator shortly after the loss that they had paid $22,000 for their Onalaska house and Mr. Guynes had stated that, on the evening of the fire, he had been at their home in Cleveland alone. ³ At trial, the Guyneses correctly stated that they had paid $10,000 for the house (as the former owner of the house had testified) and Mr. Guynes said that he had been at a campaign victory party on the night of the fire. ⁴

At the close of plaintiff's case, counsel for the Guyneses moved for an instructed verdict on both the arson and misrepresentation issues. The Trial Judge denied the motion as to the arson claim but instructed a verdict against Aetna on its defense of material misrepresentation, on the grounds that the misrepresentations were not of facts material to Aetna's liability under the policy nor had they induced Aetna to originally issue the policy. ⁵

Looking to Texas Law--which is controlling in this diversity suit--it is clear we would enforce Aetna's misrepresentation clause absent a contrary State policy or statute. As this Court said in Chaachou v. American Central Insurance Co., 241 F.2d 889, 892 (5th Cir.1957) (footnote omitted), in upholding a similar insurance provision in Florida,

Clearly, in the absence of a statute, the law, which is founded on truth and justice, will not regard it as unsound that a person has lost the benefit of the contract by wilful, immoral, dishonest acts which the contract itself condemns.

The Guyneses point to Tex.Ins.Code Ann. art. 21.16 (Vernon 1981) ⁶ as stating the general rule in Texas. Article 21.16, though, is directed to misrepresentations made prior to the issuance of a policy, "in the application for ... or in the contract of insurance." See, e.g., Robinson v. Reliable Life Insurance Co., 554 S.W.2d 231, 234 (Tex.Civ.App.--Dallas), aff'd, 569 S.W.2d 28 (Tex.1977). Aetna alleges only that the Guyneses made misrepresentations which "after a loss" void the policy.

We may find such a contradictory statute or policy in Tex.Ins.Code Ann. art. 21.19 (Vernon 1981), ⁷ the consumer-oriented, "anti-technicality" statute directed to forfeiture clauses such as Aetna's here. Aetna argues that "in proofs of loss or of death," see note 7, supra, precludes misrepresentations made in anything other than such proofs. Thus, they argue, policy-holders giving false statements during an insurance company's investigation of the loss fall outside the protections of Article 21.19, and to avoid liability the company must only satisfy the general requirements that the false statements were "willfully made with respect to a material matter and with the intention of thereby deceiving the insurer." (citing 44 Am.Jur.2d Insurance § 1501 (1969)). In light of the available precedent on this question, we must disagree.

United States Fire Insurance Co. v. Skatell, 596 S.W.2d 166 (Tex.Civ.App.--Texarkana 1980, writ ref'd n.r.e.), an appeal from an action to collect insurance benefits for certain allegedly stolen pieces of jewelry, is the most recent case that extends Article 21.19 beyond its literal terms. There, the plaintiff had denied having a previous criminal record at an oral examination under oath conducted by the insurance companies during its investigation of the loss. Later, at another oral examination, he admitted a record of several offenses of fraud, hot checks, and theft by false pretenses. The insurance companies denied his claims, contending that the misrepresentation clauses in their policies ⁸ relieved them of liability. At trial, the jury found specifically that the jewelry had been stolen and that the plaintiff had concealed a material fact. Based on Article 21.19, the Trial Court disregarded the jury's findings of concealment and rendered judgment in full for the plaintiff. The Court of Civil Appeals affirmed.

Trying to escape the consequences of the statute, the insurance companies argued that a post-loss examination under oath did not come within Article 21.19. Chief Justice Cornelius for the Court held that such an examination, "although not a formal proof of loss, nevertheless is an elaboration upon and partakes of the nature of a proof of loss, and therefore comes within the statute even though not specifically mentioned." Id. at 169. Relying on this Court's decision in Vernon v. Aetna Insurance Co., 301 F.2d 86 (5th Cir.), cert. denied, 371 U.S. 819, 83 S.Ct. 33, 9 L.Ed.2d 59 (1962), the Court reasoned that,

if false statements in the more formal proof of loss will not void the policy unless they are fraudulent, material and harmful to the insurer, certainly the intent of the statute is that false statements of lesser consequence should not be allowed to void a policy unless they, too, meet such requirements.

Id. The District Court's disregard of the jury's finding of concealment was affirmed because there was "no allegation or proof ... that the false statements were fraudulently made, were material to the issue of liability, or caused the insurers to waive or lose any valid defense to the policies." Id.

The Court also relied on Fireman's Fund Insurance Co. v. Reynolds, 85 S.W.2d 826 (Tex.Civ.App.--Waco 1935, writ ref'd), which held that false statements by an insured, made during a post-loss examination required by the insurance company in connection with proofs of loss, fell within the scope of the predecessor to Article 21.19. There, through Chief Justice Gallagher, the Court stated that "The false statements relied on to work a forfeiture of the rights of the insured under a policy must have been willfully made and must not have resulted from inadvertance or mistake.... Our courts have uniformly required an insurer seeking to defeat liability on the ground of fraud and false swearing to fully meet the requirements of [the precedessor to Article 21.19].

Id. at 829. ⁹

Vernon, on which the Texas court in Skatell relied, was an appeal from an action on a personal property insurance policy for the loss of jewelry. After the suit was filed, the daughter of the assured-plaintiff gave a sworn statement to the insurer (Aetna) that the alleged burglary was a sham, staged by the daughter, her mother, and the plaintiff. On the eve of trial, she renounced the confession in another sworn statement. The District Court granted summary judgment for Aetna, finding that the daughter's two conflicting affidavits established "misrepresentation" in the words of the policy ¹⁰ as a matter of law.

In reversing the Trial Court's summary judgment, Judge Hutcheson for this Court but over a powerful dissent of then Chief Judge Tuttle looked to Articles 21.16 and 21.19 as they "bespeak the public policy of Texas in insurance matters." Id. at 89. Such statutes are "construed liberally to accomplish the legislative purpose, with the evil to be remedied kept clearly in view." Id. ¹¹

The policy plainly revealed by these provisions is one flatly opposed to the use of forfeiture clauses to avoid the...