Alfa Mut. General Ins. Co. v. Oglesby

• Decision Date: 19 December 1997
• Citation: 711 So.2d 938
• Parties: ALFA MUTUAL GENERAL INSURANCE COMPANY v. Jerry OGLESBY. 1960928.
• Court: Alabama Supreme Court

Page 938

711 So.2d 938

ALFA MUTUAL GENERAL INSURANCE COMPANY v. Jerry OGLESBY.

1960928.

Supreme Court of Alabama.

Dec. 19, 1997.

Rehearing Denied March 20, 1998.

Connie Ray Stockham and Stephanie Zohar Lynton of Stockham & Stockham, P.C., Birmingham, for appellant.

Thomas W. Harmon of Brooks & Harmon, Anniston, for appellee.

SHORES, Justice.

Alfa Mutual General Insurance Company ("Alfa") appeals from a judgment entered on a jury verdict for Jerry Oglesby on his claim alleging breach of contract. Alfa initiated the litigation by suing for a declaratory judgment and for rescission of a contract between the parties. We affirm.

Jerry Oglesby purchased a homeowner's insurance policy from Alfa in December 1989. On December 28, 1989, the policy went into effect; it provided coverage of $35,000 for Oglesby's dwelling, $24,500 for the contents of the dwelling, and $10,500 for the loss of use of the dwelling. The policy was renewed annually. The last renewal policy went into effect on January 10, 1994; it provided increased coverage of $43,000 for the dwelling, $30,000 for the contents, and $12,900 for the loss of use.

On February 16, 1994, Oglesby's house was completely destroyed by fire. On February 28, 1994, Oglesby filed a sworn proof of loss statement with Alfa. During its investigation of the fire, Alfa discovered that before he had bought the insurance policy Oglesby had been arrested for indecent exposure. Alfa filed this action for a declaratory judgment seeking to rescind the contract between Alfa and Oglesby, alleging that the company should not be liable to Oglesby on his homeowner's policy because when he applied for the policy he failed to answer "yes" to the question "Has anyone in the household ever been arrested for any reason?" On May 23, 1994, Oglesby answered and counterclaimed, alleging breach of contract.

Alfa moved for a summary judgment, contending that Oglesby had made material misrepresentations in his application by not disclosing that he had pleaded guilty in Georgia to four counts of public indecency. Alfa argued that information of Oglesby's arrests was material to its acceptance of the risk and that if it had known of Oglesby's arrests it would not have issued the policy of insurance. The trial court denied the motion.

The case was tried on September 24, 1996. The jury returned a verdict in favor of Oglesby for $82,500. Alfa moved for a new trial on October 25, 1996; its motion was denied by operation of law.

Alfa raises the following issues: whether the trial court erred (1) in directing a verdict for Oglesby on Alfa's claims of misrepresentation under § 27-14-7, Ala.Code 1975; (2) in failing to charge the jury on misrepresentation made by Oglesby during the application process and before the fire loss; (3) by allowing evidence to be offered to show that there had not been a criminal prosecution of Oglesby for arson; (4) in denying Alfa's motion for summary judgment; (5) by not allowing complete testimony and evidence regarding Oglesby's prior arrests and convictions; (6) in denying Alfa's motion for new trial; and (7) in calculating the prejudgment interest award.

Alfa first argues that the trial court erred in granting Oglesby's motion for a directed verdict. During the trial, the Alfa agent who sold the policy testified that the question on the application about prior arrests had been asked of Oglesby and that Oglesby answered it "No." The trial court refused to allow Alfa to introduce evidence of the facts surrounding the arrests and/or convictions. At the close of Alfa's evidence, Oglesby moved for a directed verdict as to Alfa's claim of misrepresentation under § 27-14-7, based on the case of State Farm Gen. Ins. Co. v. Oliver, 658 F.Supp. 1546 (N.D.Ala.1987). The trial court granted Oglesby's motion and directed a verdict on Alfa's claim of misrepresentation under § 27-14-7. Section 27-14-7(a) provides:

"All statements and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefor, by, or in behalf of, the insured or annuitant shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:

"(1) Fraudulent "(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or

"(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise."

Because the court directed a verdict for Oglesby on this issue, the jury was not charged on the law regarding misrepresentations in the application and misrepresentations before the loss.

The standard of review applicable to a motion for a directed verdict is stated as follows:

"The standard of review applicable to a motion for directed verdict is the 'substantial evidence rule.' See, § 12-21-12(a), Ala.Code 1975; Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 228 (Ala.1990). To withstand a motion for a directed verdict, a party must have presented 'substantial evidence' supporting each element of his cause of action or defense. Id. 'Substantial evidence' has been defined as 'evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989); see Ala.Code 1975, § 12-21-12. Also, we note that in reviewing a ruling on a motion for a directed verdict, we must view all the evidence in a light most favorable to the nonmovant and must entertain such reasonable inferences from the evidence as the jury would have been free to draw. Williams v. Allstate Insurance Co., 591 So.2d 38 (Ala.1991); Bailey v. Avera, 560 So.2d 1038 (Ala.1990)."

Hosea O. Weaver & Sons v. Towner, 663 So.2d 892, 894 (Ala.1995).

Alfa contends that the trial court erred in directing a verdict on Alfa's claim because, it says, there are questions of fact as to whether Oglesby made misrepresentations during the policy application and before the fire loss. Alfa argues that the trial court erred in holding that the federal district court decision in State Farm was dispositive of the misrepresentation issue. In State Farm, as in this present case, the insurer sought to deny benefits for a fire loss, on the basis of a misrepresentation in the insured's application. In that district court case, in reviewing State Farm's post-judgment motion for a judgment notwithstanding the verdict or, in the alternative, for a new trial, District Judge William Acker stated:

"The only 'policy or contract' here issued in response to Mr. Oliver's application of November 16, 1984, was not the 'policy or contract' which was in force at the time of the fire. The policy here involved was a renewal policy issued one year after November 16, 1984. When the Alabama Legislature provided that 'misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery ... unless ', it obviously was mandating a strict interpretation of its subsequent language in favor of the insured. If literally construed, § 27-14-7(a)(3) makes no reference to any 'policy or contract' except a 'policy or contract' issued in direct and immediate response to the false application."

State Farm, 658 F.Supp. at 1550. (Emphasis original.) The trial court directed a verdict for Oglesby on Alfa's claim that the contract should be rescinded because of Oglesby's alleged misrepresentation under § 27-14-7. The trial court, relying upon State Farm, held that § 27-14-7 does not apply to renewal policies and, because the policy in issue was a renewal policy, determined that a directed verdict was warranted.

We conclude that the legislature intended that § 27-14-7 apply to initial policies and the applications therefor. Therefore, the trial court properly directed a verdict for Oglesby on Alfa's claim for rescission based upon an alleged misrepresentation.

Alfa next argues that the trial court erred in refusing to include certain of Alfa's requested jury instructions (specifically Nos. 1-7 and No. 9) in its charge to the jury. Alfa attached copies of these requested charges as appendixes to its brief filed in this Court, but they were not included in the record on appeal. The record does indicate that the trial court charged the jury that a misrepresentation is an affirmative defense to a breach-of-contract claim. The trial court's charge in this regard was as follows:

"Alfa says that he is not entitled to recover under his insurance policy because he made certain misrepresentations after the loss. Alfa's answer raising misrepresentation is an affirmative defense. Therefore, the burden is upon Alfa to reasonably satisfy you from the evidence of the truthfulness of the following matters: That Jerry Oglesby concealed or misrepresented some material fact or circumstance relating to this insurance policy after the loss. If Alfa has proved to your reasonable satisfaction from the evidence the truthfulness of those averments, Alfa need not honor and pay pursuant to the contract of insurance, and the policy is void."

Alfa objected to the trial court's refusal to charge the jury on misrepresentation pursuant to § 27-14-7 and to the court's omission from charge No. 9 of language regarding the time of the alleged misrepresentation. As previously mentioned, the record does not contain a copy of the requested jury instructions. "This court cannot assume error, nor can it presume the existence of facts to which the record is silent. ...