Casey Enterprises, Inc. v. American Hardware Mut. Ins. Co.

Decision Date08 September 1981
Docket NumberNo. 80-7148,80-7148
PartiesCASEY ENTERPRISES, INC. and d/b/a Pendley Hills Hardware and Minit Check Grocery, Fite H. Casey, Jr., Plaintiffs-Appellees, v. AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, Defendant-Appellant. . Unit B
CourtU.S. Court of Appeals — Fifth Circuit

Paul M. Talmadge, Jr., T. Cullen Gilliland, Stephen E. O'Day, Atlanta, Ga., for defendant-appellant.

C. James Jessee, Jr., Barry L. Roseman, George E. Duncan, Jr., Atlanta, Ga., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before TJOFLAT and FRANK M. JOHNSON, Jr., Circuit Judges, and SCOTT *, District Judge.

CHARLES R. SCOTT, District Judge:

Fite H. Casey, Jr. and Casey Enterprises, Inc. brought three actions in the Superior Court of Dekalb County in the state of Georgia against American Hardware Mutual Insurance Company (hereinafter 'American Hardware' or 'insurer') to recover on a Special Multi-Peril insurance policy for a fire loss. These cases were consolidated and, upon petition by the insurer, removed to the United States District Court for the Northern District of Georgia. The insurer denied liability claiming that the policy was void as a result of material misrepresentations in the policy application and proof of loss statement. The district court found that the insurer had waived its defense of material misrepresentation by making payments for the fire loss pursuant to the policy and collecting premiums on the policy after becoming aware of the alleged misrepresentations. The district court, therefore, granted plaintiffs' motion for summary judgment and awarded plaintiffs the sum of $455,522.73 in damages including $147,522.73 in interest.

Fite H. Casey, Jr. owned commercial property in Georgia which he leased to his closely-held corporation, Casey Enterprises, Inc. On July 15, 1971, Mr. Casey, as president of Casey Enterprises, Inc., submitted an application to an American Hardware agent for a Special Multi-Peril insurance policy to cover the commercial property. The agent made notes concerning the application information and subsequently transferred this information to the application forms.

On the policy application, the Dekalb County Federal Savings and Loan Association was listed as the mortgagee of the insured premises. The holder of the second mortgage in the amount of $214,000 was not listed. Although the title to the insured property was in the name of Fite H. Casey, Jr., Casey Enterprises, Inc. was listed as the insured and owner on the application. The application indicated that all property and liability losses in the past three years should be listed. Mr. Casey noted only a burglary loss when in fact there had been several other losses during that period. After the application was completed, the insurer's underwriter obtained a copy of Mr. Casey's previous Special Multi-Peril insurance policy with the Insurance Company of North America (hereinafter 'I.N.A.') on which both Fite H. Casey, Jr. and Casey Enterprises, Inc. were named insureds. On August 9, 1971, the underwriter received information on all losses that had been paid under Mr. Casey's previous insurance policy with I.N.A. The insurer's underwriter subsequently approved the issuance of the policy effective July 15, 1971 and expiring on July 15, 1974. On July 7, 1973 a fire occurred on the insured premises. Plaintiffs notified American Hardware of the fire and filed a claim of $478,131.94 for damages and lost earnings. During July or August of 1973 the insurer discovered that title to the insured property was in the name of Fite H. Casey, Jr. On August 23, 1973 the insurer paid $100,000 to "Casey Enterprises, Inc., et al" on the fire loss. The insurer did not request a proof of loss statement as required under the policy. In August and September of 1973, the insurer approved expenditures by the insured from the $100,000 advance payment on the fire loss to prepare the property for rebuilding. In November of 1973 the insurer discovered that a second mortgage existed on the insured property. American Hardware, thereafter, continued to collect monthly installment payments from the insured toward the annual premium on the policy until the expiration of the policy on July 15, 1974. During this time the insurer never indicated that the policy was void due to material misrepresentations.

On January 23, 1974 Mr. Casey submitted a proof of loss although such a statement had not been requested by the insurer. The proof of loss statement indicated that only a first mortgage existed on the insured premises. On April 6, 1974 Mr. Casey's attorney responded by letter to the insurer's counsel in regard to the insurer's objection to the sufficiency of the plaintiffs' proof of loss statement. The letter addressed the insurer's objections to the proof of loss and indicated that a second mortgage existed on the insured property. In March, May and June of 1974 American Hardware made crime coverage payments on claims submitted by Mr. Casey under the policy.

Plaintiffs commenced suit on July 2, 1974 seeking the balance of payments due on the fire loss under the Special Multi-Peril policy. American Hardware filed a counterclaim contending that the entire policy was void and that it was entitled to restitution of all payments made on the policy. In support of its position, the insurer asserted that Mr. Casey had made material misrepresentations and omissions in the policy application including the failure to list Fite H. Casey, Jr. as the owner of the insured property, the omission of several prior insurance claims, and the omission of the second mortgage held on the property. The insurer also contended that Mr. Casey had made material misrepresentations and omissions in the proof of loss including the omission of the second mortgage and an overstatement of the loss.

The district court concluded as a matter of law that the omission of Fite H. Casey, Jr. as owner and a named insured was a mutual mistake and ordered the policy reformed to include Fite H. Casey, Jr. as a named insured. The district court further held as a matter of law that the insurer waived any defense based on the misrepresentation of prior insurance losses by issuing the policy with actual knowledge of those losses. Similarly, the district court determined as a matter of law that the insurer waived any defense based on nondisclosure of the second mortgage in the policy application by collecting premiums after it had actual knowledge of the second mortgage. Finally, the district court held as a matter of law that the insurer could not rely on errors in the proof of loss because the proof of loss was submitted gratuitously and there was no evidence that the misstatements in the proof of loss were fraudulent. The court dismissed the insurer's counterclaim for recission and restitution and granted plaintiffs' motion for summary judgment with an award of damages in the amount of $455,522.73 including $147,522.73 in interest.

A motion for summary judgment may be granted only when "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether a motion for summary judgment should be granted, the trial court must resolve all reasonable doubts in favor of the party opposing the motion. Aulds v. Foster, 484 F.2d 945, 946 (5th Cir. 1973); Pennsylvania v. Curtiss Natl. Bank, 427 F.2d 395, 401 (5th Cir. 1970).

Applying this standard to the case before us, we conclude that the district court properly granted plaintiffs' motion for summary judgment. No material factual issues were presented and plaintiffs were entitled to a judgment as a matter of law.

In determining the applicable substantive law in this diversity suit we must look to the Georgia conflict of laws rule. Ranger Ins. Co. v. Culberson, 454 F.2d 857, 860 (5th Cir. 1971); Maryland Cas. Co. v. Williams, 377 F.2d 389, 293-93 (5th Cir. 1967). Under Georgia law the place of the delivery of the insurance contract controls. Ranger Ins. Co. v. Culberson, supra; Pink v. AAA Highway Express, Inc., 191 Ga. 502, 13 S.E.2d 337, aff'd, 314 U.S. 201, 62 S.Ct. 241, 86 L.Ed. 152 (1941). The insurance contract at issue in this case was executed and delivered in the state of Georgia and, therefore, Georgia law governs the determination of the substantive issues.

Georgia law provides that:

Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:

1) Fraudulent; or

2) Material to the acceptance of the risk, or to the hazard assumed by the insured; or

3) The insurer in good faith would ... not have issued the policy or contract ... if the true facts had been known to the insurer as required either by the application for the policy or contract or otherwise.

Ga.Code § 56-2409. An insurer is not required to establish fraud to prevent an insured from recovering where the misrepresentation, omission, concealment or incorrect statement in the insurance policy...

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