American Fire and Indemnity Company v. Lancaster
| Decision Date | 15 September 1969 |
| Docket Number | No. 19474.,19474. |
| Citation | 415 F.2d 1145 |
| Parties | AMERICAN FIRE AND INDEMNITY COMPANY, Appellant, v. John G. LANCASTER, Mildred Bresley, Stephen Bresley, Allstate Insurance Company, a Corporation, Fred Orlando, Audrey Orlando, Al Burgdorf and Patricia Burgdorf, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Robert C. Ely, St. Louis, Mo., for appellant; David L. Campbell, Clayton, Mo., on the briefs.
Springfield Baldwin, St. Louis, Mo., for John G. Lancaster, made argument for appellees; Fred and Audrey Orlando, St. Louis, Mo., on the briefs.
Paul S. Brown, St. Louis, Mo., for Allstate Ins. Co.
Bart Mantia, St. Louis, Mo., for Mildred and Stephen Bresley.
Before VAN OOSTERHOUT, Chief Judge, and MEHAFFY and GIBSON, Circuit Judges.
The American Fire and Indemnity Company (American) filed a declaratory judgment action in the United States District Court for the Eastern District of Missouri seeking to have an automobile liability insurance policy issued to John G. Lancaster declared void due to alleged material misrepresentations by the insured on the application for insurance. The District Court held the policy valid, and American appeals. Diversity jurisdiction has been established.
The two basic issues presented are (1) whether the policy was written and procured by an agent of American or by a broker and (2) the effect and materiality of alleged misrepresentations contained in the application for insurance.
Lancaster had been insured by the La Salle Insurance Company under a policy procured by George Jennings, a vice president and employee of General Insurors Inc. (General), an insurance agency. Jennings suggested to Lancaster that automobile accident liability insurance could be obtained for a lower premium than what he was then paying. In pursuit of this Jennings prepared an application for Lancaster for insurance with American, a preferred risk insurance company, charging about 25 per cent less than regular line insurance companies. Policies were individually written on the basis of an insured's good driving record. Lancaster signed an undated application for insurance with American in October 1966, answering no to the questions on the application as to whether he had been involved in a traffic accident or received a traffic ticket for a moving violation in the previous 36 months. The application was not dated because he was negotiating for the purchase of a 1966 Mustang automobile and did not wish his new insurance to come into force until the purchase was consummated.
On November 5, 1966 Lancaster was involved in an accident with a parked car owned by Tom Vaughn. Lancaster reported the accident to Jennings who discussed the accident with Vaughn. Vaughn claimed $250 damages, but Lancaster believed the damages to be less than $50. Since the amount was small, Lancaster asked Jennings not to report the accident to La Salle. Jennings did not report the accident to La Salle nor did he alter Lancaster's application to American nor did he tell anyone connected with American or General about the accident. Jennings testified that he had a duty to report the accident but that he failed to make a note of the accident because it involved less than $50 in damages which is not ordinarily considered sufficient to require a report, and that he was not blessed with the best memory.
Lancaster purchased the Mustang on December 23, 1966 and telephoned Jennings to advise him of the purchase. Jennings told Lancaster he was covered as of that moment, dated the application, sent it in to American, canceled the policy with La Salle, and sent a binder to Lancaster showing coverage as of December 23, 1966. Evidently the application was not discussed during the December 23rd telephone call.
On January 1, 1967 Lancaster was involved in another accident with an automobile driven by Stephen Bresley. As a result of this accident, Allstate Insurance Company, which insured Bresley, claimed damages against American in the amount of $1,395.66 for damages to Bresley's car. Mildred Bresley, a passenger in the car, claimed bodily injury and sued Lancaster for $10,000, the policy limit.
American contends that Lancaster's application contained two material misrepresentations; namely, that he had not been involved in an accident in the previous 36 months, and that he had not been convicted of a traffic violation other than illegal parking in the previous 36 months. American as a preferred risk company contends these misrepresentations are material to the risk it accepted, that it would not have issued the policy had it been aware of the accident of November 5, 1966, and feels the policy should be declared void ab initio.
Lancaster and the other defendants claim Jennings' knowledge of Lancaster's November accident should be imputed to American since Jennings was American's agent, and claim the alleged misrepresentation regarding the traffic violation was not proven to be fraudulent or material to the risk. Defendants make several other arguments, largely of a technical nature, which we find it unnecessary to reach.
It is undisputed that Lancaster was involved in an automobile accident on November 5, 1966. It is also undisputed that the application, though in this regard truthful when signed, contained a false statement when delivered — that Lancaster had not been involved in an automobile accident in the previous 36 months.
The law in Missouri is that a material misrepresentation in an application for insurance is a valid ground for avoiding the policy, even though the misrepresentation is innocently or inadvertently made. Pittman v. West American Ins. Co., 299 F.2d 405 (8th Cir. 1962); Minich v. MFA Mut. Ins. Co., 325 S.W.2d 56 (Mo.App.1959); Dixon v. Business Men's Assurance Co., 365 Mo. 580, 285 S.W.2d 619 (1955). The test for materiality is stated in Miller v. Plains Ins. Co., 409 S.W.2d 770, 774 (Mo.App.1966):
"A representation made to an insurer that is material to its determination as to what premium to fix or to whether it will accept the risk, relates to a fact actually material to the risk which the insurer is asked to assume."
We assume that American would not have accepted the risk here involved if it had known of Lancaster's then recent accident record. Thus the eventually incorrect statement that the insured had not been involved in an automobile accident in 36 months was material to the risk. The correct information on the accident was, however, fully disclosed to Jennings who, according to the finding of the District Court and on surface appearances, was an agent of American.
American had a contract with General Insurors Inc. entitled Agency Contract. Under the contract American appointed General its agent "For the purpose of procuring applications for insurance policies * * * collecting premiums thereon, and performing such other duties as are usually required of agents * * *." Paragraphs 4 and 9 of the contract implied that General also had the power to issue policies but the addendum to the contract clearly provided that applications for insurance policies were to be submitted to American, and if accepted, issued by American. The addendum did give General the actual authority to issue temporary coverage pending, and subject to, American's investigation. It is clear that General was the agent of American for the purpose of procuring insurance business though this agency agreement had some restrictions and limitations.
Jennings was an employee of General. He solicited applications for insurance, in essence sold insurance; he was a vice president, as probably were all the salesmen; and he was a member of General's Board of Directors and held a license as an insurance broker.
Since Jennings had no contract directly with American his scope of authority was strictly derivative of American's agency agreement with General. His actual authority, express and implied, is not entirely clear, though he undoubtedly possessed actual authority to solicit applications for insurance with American. As the District Court pointed out, "A corporation may act only through the actions of individuals." Therefore, to the extent of soliciting insurance business at least, he must have been the agent of American.
In Fulbright v. Phoenix Ins. Co., 329 Mo. 207, 44 S.W.2d 115, 120 (1931) the Missouri Court said that a person with authority similar to that possessed by Jennings was the company's "agent in...
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