Employers Commercial Union Ins. Co. of America v. Great Am. Ins. Co.

• Decision Date: 26 November 1973
• Parties: EMPLOYERS COMMERCIAL UNION INSURANCE COMPANY OF AMERICA v. GREAT AMERICAN INSURANCE COMPANY et al.
• Court: Virginia Supreme Court

Page 560

200 S.E.2d 560

214 Va. 410

EMPLOYERS COMMERCIAL UNION INSURANCE COMPANY OF AMERICA v. GREAT AMERICAN INSURANCE COMPANY et al.

Supreme Court of Virginia.

Nov. 26, 1973.

G. Kenneth Miller, Richmond (May, Garrett, Miller & Parsons, Richmond, on brief), for plaintiff in error.

J. Alvernon Smith, Jr., Richmond (Paul, Smith & Blank, Richmond, on brief), for defendants in error.

Before SNEAD, C.J., and I'ANSON, HARRISON, COCHRAN, HARMAN, and POFF, JJ.

POFF, Justice.

As the result of a collision on September 15, 1970 between a car driven by William Tiney Howard, Jr., and a car driven by Lee Clayton Travers, Travers lost his life. When the administrator of his estate asserted claim for wrongful death against Howard, Great American Insurance Company (Great American), which had issued Howard an automobile liability insurance policy, denied coverage. Employers Commercial Union Insurance Company of America (Employers), which had issued Travers an automobile liability insurance policy providing uninsured motorists' coverage, moved the trial court pursuant to Code §§ 8--578 to 8--585 (Repl.Vol.1957) (Declaratory Judgments), ¹ to declare that 'Great American Insurance Company does owe coverage' to Howard and joined Howard and Travers' administrator as interested parties defendant. By letter opinion dated February 29, 1972 and final order entered April 18, 1972 the trial court declared the Great American does not owe coverage to Howard. Employers appeals from the declaration of the trial court.

On August 3, 1970 Great American issued Howard's policy. On the printed application filed with Robert F. Burke, III of C. F. Scott, Inc., an insurance sales agency in Petersburg, Howard attested by signature that he had not 'been convicted of a moving traffic violation during the past 36 months', and Burke heard him say that 'he had never had any convictions or violations of any type'. ² The application and Howard's $42.00 annual premium payment were mailed to Mabrey Melvin Hall, Great American's senior personal lines underwriter, in Raleigh, North Carolina. Thereafter on September 2, 1970, in response to his request, Hall received from the Virginia Division of Motor Vehicles a report of Howard's driving record. That report showed that in 1969 Howard had been convicted in Texas of two speeding violations. Hall mailed Burke a copy of the report attached to a printed form instructing Burke to cancel Howard's policy. Burke received Hall's letter on September 4, 1970. Although Burke was empowered by company policy to 'cancel flat', i.e., rescind Ab initio, he filed the papers and took no action. At the foot of the printed form was the handwritten notation, 'Talked to Mel Hall 9/16/70--Is covered'. September 16, 1970 was the date Burke's office received notice of the accident.

On September 17, 1970, two days following the collision, Hall's Raleigh office mailed Howard a notice cancelling his policy prospectively effective September 28, 1970 and enclosed a check for $28.00 representing a refund of premium for the policy term subsequent to the date of cancellation. The same day, Great American's claims office in Richmond mailed standard form SR--21 certifying Howard's insurance coverage to the Division of Motor Vehicles and the next day notified Howard by letter that in 'undertaking to investigate' the accident Great American 'does not waive any of its rights to disclaim coverage' on account of Howard's misrepresentations. On October 30, 1970 the Richmond office denied coverage on the claim for wrongful death and on November 18, 1970 wrote to the Division of Motor Vehicles requesting return of the form SR--21. This form was subsequently returned. On October 12, 1971, by handwritten notation on an office memorandum, Great American indicated that the policy had been 'cancelled flat for claim reason' and refunded to Howard the remainder of his premium payment.

Employers contends that after knowledge of Howard's misrepresentation Great American affirmed its contract of insurance for a period embracing the date of the accident and thereby waived its right to cancel Ab initio for fraud in the inducement, or became estopped by its conduct to do so. Great American contends that such waiver occurs only upon proof of both actual knowledge of the fraud and knowing intent to waive; that such estoppel occurs only when one alleging estoppel proves prejudice resulting from the other's conduct; and that Employers failed to bear its burden of proving actual knowledge of fraud, intent to waive, or prejudice.

Waiver and estoppel In pais are often confused. Because one appears to partake of the nature of the other, the two are sometimes treated as convertible terms. But, the two should be recognized and applied as distinct legal doctrines, each serving distinct functions. Waiver, a doctrine at law, is voluntary action or inaction with intent to surrender a right In esse with knowledge of the facts and circumstances which gave birth to the right. Estoppel, as a doctrine in equity, is the consequence worked by operation of law which enjoins one whose action or inaction has induced reliance by another from benefiting from a change in his position at the expense of the other.

In waiver, both knowledge of the facts basic to the exercise of the right and the intent to relinquish that right are essential elements. May v. Martin, 205 Va. 367, 137 S.E.2d 860 (1964). In estoppel, intent to relinquish is not an element, and knowledge of the facts basic to the exercise of the right may be presumed when the facts are such as to put a reasonably prudent person upon inquiry and prompt him to pursue the inquiry and acquire knowledge. J. Appleman, Insurance Law and Practice, § 9081 (1968).

Confusion between the two doctrines results from the use of such terms as 'quasi waiver', 'constructive waiver' and 'implied waiver', i.e., waiver inferred from a course of action or inaction. Since knowing intent to waive is an essential element of true waiver, it can never arise constructively or by implication. A waiver implied is more precisely an estoppel applied. 'Estoppel by waiver', a term often used interchangeably with the term 'implied waiver' is another form of estoppel applied.

Yet another form of estoppel is that descriptively labelled 'estoppel by inconsistent positions'. One who has, with knowledge of the options open to him, elected to assume one position is thereafter estopped to assume an inconsistent position to the prejudice of another who has been led to rely upon his first...