Edwards v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 17 September 1980
• Docket Number: No. 64046,64046
• Citation: 296 N.W.2d 804
• Parties: Mike EDWARDS, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 804

296 N.W.2d 804

Mike EDWARDS, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 64046.

Supreme Court of Iowa.

Sept. 17, 1980.

George A. Wilson, III of Dreher, Wilson, Adams & Jensen, Des Moines, for appellant.

Tom W. George of Christianson, Hohnbaum & George, Des Moines, for appellee.

Considered by REYNOLDSON, C. J., and LeGRAND, HARRIS, McCORMICK and LARSON, JJ.

LARSON, Justice.

This plaintiff brought suit against defendant insurance company to recover for the loss of an automobile alleged to be by theft. The plaintiff, Mike Edwards, had advertised his automobile for sale. One Steven J. Davis responded to the ad and after some negotiations on price, agreed to buy it. Edwards signed the title and gave it to Davis, along with the possession of the car. Davis gave him a check for $3400 which was returned marked "insufficient funds." Apparently neither Davis nor the car has been seen since. Edwards sought recovery under the "comprehensive" coverage of his policy insuring against loss by theft. The insurer contended the loss was not by "theft" and alternatively, the loss was not covered because the policy excluded coverage if the vehicle was under a "conditional sale, purchase agreement, mortgage or other encumbrance." The trial court concluded the loss was not by "theft" as that term was used in the policy and that, in any event, the exclusions were applicable. Following a trial on stipulated facts, the court entered judgment for the insurer. We reverse and remand for entry of judgment for the plaintiff.

I. "Theft" coverage. The policy provided comprehensive coverage as follows:

COVERAGE D-COMPREHENSIVE

(1) The Owned Motor Vehicle. To pay for loss to the owned motor vehicle EXCEPT FOR LOSS CAUSED BY COLLISION but only for the amount of each such loss in excess of the deductible amount, if any, stated in the declaration applicable thereto. The deductible amount shall not apply to loss caused by a fire or by a theft of the entire vehicle. Breakage of glass, or loss caused by missiles, falling objects, fire, theft, larceny, explosion, earthquake, windstorm, hail, water, flood, malicious mischief or vandelism, riot or civil commotion or colliding with birds or animals shall not be deemed to be loss caused by collision. (Emphasis added.)

The trial court found that the acquisition of the car was by fraudulent means but held this was not theft under the policy. It relied in part on case law from other jurisdictions holding that

the popular definition of "theft" carries the import of a trespass and is not applicable where one intends to voluntarily transfer not merely possession but title to property.

Great American Indemnity Co. v. Yoder, 131 A.2d 401, 403 (D.C.Mun.App.1957); see Boggs v. Motors Insurance Co., 139 A.2d 733, 734 (D.C.Mun.App.1958). The trial court further supported this viewpoint by referring to Cedar Rapids National Bank v. American Surety Co., 197 Iowa 878, 195 N.W. 252 (1923), where the court held that a theft provision in an insurance policy did not encompass a loss occurring as a result of a fraudulent act:

(I)f the wrongdoer fraudulently induce the injured party to surrender to him, not simply the temporary possession of the property, but the absolute title to and possession of the property, then his offense is that of obtaining property by false pretense, and not that of larceny.

Id. at 882, 195 N.W. at 254-55.

At the outset, we note that the Cedar Rapids National Bank case was expressly overruled in Steinbach v. Continental Western Insurance Co., 237 N.W.2d 780, 783 (Iowa 1976). In that case a forged check had been received for cattle sold and a claim was made under the seller's "blanket" farm policy providing this coverage:

(i) Theft: Coverage on property insured in this form is extended to include direct loss by theft, excluding mysterious disappearance, inventory shortage, wrongful conversion, embezzlement and escape.

In Steinbach, as in this case, the insurer contended theft was synonymous with larceny and did not encompass the taking for use of a fraudulent check. The court concluded that loss of the cattle was by theft within the coverage of the policy. The court noted the split of authority on whether theft was to be applied in such cases in a broader sense than the traditional common-law concepts requiring a trespass. In concluding that theft under the policy covered loss by trick or false pretenses, it cited authorities in other jurisdictions, and also quoted with approval from Long v. Glidden Mutual Insurance Association, 250 N.W.2d 271, 273 (Iowa 1974) where this court said "the term 'theft' is not defined in the policy. It thus has its popular meaning as a word of general and broad connotation covering any wrongful appropriation of another's property to the use of the taker."

A perusal of the case law from other jurisdictions also reveals this split of authority. See generally Annot., What Amounts to Theft Property or Pilferage Within Automobile Theft Policy, 48 A.L.R.2d 8 (1956). Generally, the cases relied upon by the trial court, Great American Indemnity Co. and Boggs, represent the traditional, restrictive interpretation of theft, while more recent cases have broadened its definition. See Modern Sounds & Systems, Inc. v. Federated Mutual Insurance Co., 200 Neb. 46, 262 N.W.2d 183 (1978); Ruduloph v. Home Indemnity Co., 138 N.J.Super. 125, 350 A.2d 285 (1975); Gomez v. Security Insurance Co. of Hartford, 314 So.2d 747 (La.1975); Farm Bureau Insurance Co. v. Carr, 215 Kan. 591, 528 P.2d 134 (1974); State Farm Automobile Insurance Co. v. Valentine, 29 Ohio App.2d 174, 279 N.E.2d 630 (1971); Munchick v. Fidelity & Casualty Co. of New York, 2 Ohio St.2d 303, 209 N.E.2d 167 (1965).

The diversity of views, including that of our own court in Cedar Rapids National Bank and Steinbach, demonstrates that the question of what constitutes theft is a troublesome one, and that the term has some fluidity in its application. Our legislature now has placed all similar acts including fraudulent practices into the general category of theft. Chapter 714, The Code. While it may be argued this definition has no bearing here since the act was passed but not effective at the time of this event, it at least shows the amenability of the term theft to a broader application than mere larceny.

In the policy in question, theft is not defined. Lay persons cannot reasonably be expected to have a uniform understanding of how broadly the term will be applied when courts do not even agree on it. This is, in fact, the common thread running through the cases such as Steinbach. When the insurance company drafting and furnishing the policy of insurance had an opportunity to adequately define theft and failed to do so, it ran the risk that a court would adopt from those alternatives available the one which is most favorable to the insured. See Steinbach, 237 N.W.2d at 782; City of Spencer v. Hawkeye Security Insurance Co., 216 N.W.2d 406, 408 (Iowa 1974). Most lawyers, we assume, would discern a difference between the traditional concept of theft and obtaining money by fraudulent practices. Many would, perhaps, assume a loss through fraud would not be covered as a theft. But an average insured contemplating the loss of property through a fraudulent scheme could reasonably view this as a theft. If the insurance company had desired to avert such reasonable expectations, it should have said so clearly and understandably in the policy. See C. & J. Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169, 177 (Iowa 1975).

When an insurer has failed to clearly proscribe coverage for loss through fraud, it will likely be bound by a broad interpretation of theft:

Insurance against theft must be given a fair and reasonable interpretation to cover the risks which the parties had reason to anticipate and to believe would be met by the policy; and where the word "theft" is used in an insurance policy, without definition, it should be interpreted as liberally as possible to protect the insured. The word "theft" in an insurance policy against loss by burglary, larceny or theft, is a broader term than "larceny," and includes any wrongful deprivation of property of another, including embezzlement or swindling.

Specifically, with regard to the risks covered by the insurance, the taking of insured property or jewelry from the insured by trick or fraudulent representation is held to be...