American Standard Ins. Co. of Wisconsin v. Forsythe, 89-2497
| Decision Date | 11 December 1990 |
| Docket Number | No. 89-2497,89-2497 |
| Parties | AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN, Appellee, v. Randy FORSYTHE; Michael McCormick; Wayne Scott Miller; Shirley Ann Nichols; Peggy Page; Dennis C. Smith; Jamie Lynn Smith, By and Through her Guardian and Conservator Dennis C. Smith; Leonard Freese, Appellees, State Farm Insurance; Cameron Mutual Insurance Company, Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
David C. Ruyle, Neosho, Mo., for appellants.
Gary R. Cunningham, Springfield, Mo., for appellee American Standard Ins. Co. of Wisconsin.
Glenn R. Gulick, Jr., Joplin, Mo., for appellees Nichols, Page, Smith and Smith.
Before ARNOLD, WOLLMAN, Circuit Judges, and HANSON, * Senior District Judge.
Cameron Mutual Insurance Company (Cameron) appeals from a final order entered in the District Court 1 for the Western District of Missouri, declaring judgment in favor of the appellees, American Standard Insurance Company of Wisconsin (American Standard), Jamie Lynn Smith, Dennis Smith, Peggy Page, Shirley Ann Nichols, and Leonard Freese. For the reasons discussed below, we affirm the judgment of the district court.
This lawsuit arises from an automobile collision in Missouri on September 25, 1987. Randy Forsythe was driving a vehicle owned by Wayne Scott Miller. It collided with a vehicle occupied by Greg Smith and his exwife, Bonnie Smith. The Smiths were killed in the accident. They were survived by their two-year-old daughter, Jamie Lynn Smith. Bonnie Smith was also survived by her parents, Leonard Freese and Shirley Ann Nichols, and her paternal grandparents, Robert Freese and Mary Ellen Freese. Greg Smith was survived by his parents, Dennis Smith and Peggy Page.
American Standard brought this declaratory judgment action seeking a determination that there was no liability coverage under its policy. Cameron filed a cross claim against Leonard Freese, Shirley Nichols, and Jamie Lynn Smith seeking a declaration that no uninsured motorist coverage was available under its policy with Robert and Mary Ellen Freese.
The trial court declared that (1) American Standard's policy was void ab initio; (2) Bonnie Smith was an "insured" under the policy because she was a resident of the Robert and Mary Ellen Freese household; and (3) stacking is available under the Freese policy. Declaratory judgment was entered stating that coverage existed under the Cameron policy in the amount of $150,000. Cameron now appeals all aspects of the district court's judgment.
The district court held that the American Standard policy issued for Miller's automobile was void ab initio because of the misrepresentations made by Miller at the time he applied for the policy. Cameron challenges the court's decision, arguing that American Standard is estopped from asserting such a defense.
In 1981, Wayne Scott Miller (Scott Miller) was adjudged incompetent by a Missouri state court. His brother, Melvin Miller, was appointed to be Scott's guardian. The state court order is still in effect.
Scott Miller pleaded guilty to several counts of deviate sexual assault against teenage boys in 1983. Randy Forsythe, who was driving the car involved in the accident, was one of these youths.
On July 6, 1987, accompanied by his guardian, Scott Miller obtained insurance for a 1972 Oldsmobile Cutlass from American Standard. He stated to the insurance agent that he had no mental or physical impairments and that he had never been arrested for anything other than a motor vehicle violation.
In early September 1987, Scott Miller purchased a 1987 Chevrolet Camaro. With his guardian's permission, he secured insurance for the Camaro from the same insurance agent that processed his Oldsmobile insurance. Scott Miller stated that nothing had changed from the last application, and paid the premium with a check imprinted "Melvin D. Miller, GDN." The signature on the check read "Melvin D. Miller."
On September 24, 1987, a small group of people met at Scott Miller's house where they drank a substantial quantity of alcohol and smoked marijuana. Shortly before the accident, Forsythe asked Miller to drive him home. Forsythe testified that Miller stated he was too tired and told Forsythe to take the Camaro and return it in the morning. Forsythe left with the car, and the collision occurred.
A misrepresentation on an application for insurance may void an insurance policy if the statement is both false and material. Galvan v. Cameron Mutual Insurance, 733 S.W.2d 771, 773 (Mo.Ct.App.1987). The test of materiality is whether the answer, if truthful, might reasonably influence an insurer to reject a risk or charge a higher premium. Haynes v. Missouri Property Insurance Placement Facility, 641 S.W.2d 497, 499 (Mo.Ct.App.1982). There is no dispute that Miller's misrepresentations made to the American Standard agent, denying a criminal record and physical or mental impairments, were material and sufficient to void the policy.
Cameron asserts that American Standard knew or should have known that the misrepresentation defense was available before paying Miller for property damage done to the car. Before issuing a check to Miller and the lienholder, American Standard had a copy of Miller's driving record which provided at least constructive notice of his driving violations. If American Standard knew there were misrepresentations regarding the driving record, appellant urges this court to find that American Standard should have known that there were or might have been other material misrepresentations, such as those relating to his felony convictions and incompetence. Since a check was issued after being put on inquiry notice, Cameron argues that American Standard is now estopped from asserting a misrepresentation defense. 2
An insurer cannot be prevented from asserting a defense if it has a legitimate reason why it did not know and could not have known of a defense. State ex rel. Shelter Mutual Insurance Company v. Crouch, 714 S.W.2d 827, 829 (Mo.App.1986). In the present case, the district court found that the existence of Miller's driving record was not sufficient to put a prudent person on notice that material misrepresentations existed on the policy application, nor was there anything about the driving record itself that required American Standard to conduct an investigation beyond that which concerned the accident itself. See Prudential Property and Casualty Insurance Company, Inc. v. Cole, 586 S.W.2d 433, 436 (Mo.Ct.App.1979) (); see also Fox v. Ferguson, 765 S.W.2d 689, 691 (Mo.Ct.App.1989) (). The trial court also found that the initials "GDN" printed after Melvin Miller's name were not adequate to put American Standard on notice regarding Miller's guardianship.
The district court held that American Standard was not estopped from relying on a misrepresentation defense since it was not aware of the defense at the time it made payment to Miller on the policy. It concluded that because the misrepresentations regarding Miller's criminal record and guardianship were material, the policy was void ab initio.
A district court's ruling will be overturned only if the determination is clearly erroneous. Inwood Laboratories Inc. v. Ives Laboratories Inc., 456 U.S. 844, 857-58, 102 S.Ct. 2182, 2190-91, 72 L.Ed.2d 606 (1982). The district court's findings of fact were not clearly erroneous, and its application of the relevant law was correct.
Since Miller's policy is void, the issue of uninsured motorist coverage must be addressed. Cameron asserts that the district court erred both in allowing uninsured motorist coverage to apply and in calculating the amount of that coverage.
Cameron is the issuer of a policy held by Robert and Mary Ellen Freese. That policy provides uninsured motorist coverage for any resident of the insureds' household as well as the named insureds. Bonnie Smith was the granddaughter of the Freeses. Jamie Lynn Smith is their great-granddaughter. At the time of the accident, Jamie Lynn Smith was living with the Freeses, and Bonnie Smith was attending an eight-week training program in St. Louis.
Whether a person is a resident of any particular household depends on the facts of each case. Cobb v. State Security Insurance Company, 576 S.W.2d 726, 738 (Mo.1979) (en banc) (); Watt by Watt v. Mittelstadt, 690 S.W.2d 807, 815-16 (Mo.Ct.App.1985) (). However, two general guidelines have emerged: first, a court should consider whether the living arrangement is permanent or temporary, and second, whether the household acts as a unified family unit. American Family Mutual Insurance v. Brown, 657 S.W.2d 273, 275 (Mo.Ct.App.1983).
Appellant argues that the district court erred in finding that Bonnie Smith was a resident of the Freese household. We disagree. Bonnie Smith was at school at the time of the accident. While she hoped to establish her own household after she finished school, she intended to return to the Freese home until she could support herself and her child. She kept her personal belongings with her grandparents, her two-year-old daughter was living there, and she listed the Freese address as her own when completing applications and forms. Essentially, Bonnie Smith considered the Freese home as her own. Under the circumstances of this case, Bonnie Smith's plan to set up her own household and to leave her grandparents after she finished school does not make her a "temporary" resident, nor does...
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