Erie Ins. Exchange v. Lane

• Decision Date: 13 March 1967
• Docket Number: No. 177,177
• Citation: 246 Md. 55,227 A.2d 231
• Parties: , 27 A.L.R.3d 840 ERIE INSURANCE EXCHANGE v. Lola B. LANE, etc.
• Court: Maryland Court of Appeals

Page 55

246 Md. 55

227 A.2d 231, 27 A.L.R.3d 840

ERIE INSURANCE EXCHANGE v. Lola B. LANE, etc.

No. 177.

Court of Appeals of Maryland.

March 13, 1967.

Robert J. Thieblot and T. Benjamin Weston, Baltimore (Rollins, Smalkin, Weston & Andrew and Allen, Thieblot & Hughes, Baltimore, on the brief), for appellant.

Norman N. Yankellow, Baltimore, for appellee.

Before HAMMOND, C. J., and HORNEY, MARBURY, BARNES and FINAN, JJ.

MARBURY, Judge.

A petition for declaratory judgment brought by Lola B. Lane, an alleged insured motorist, prayed for a judgment declaring that a specified policy of automobile liability insurance issued by the appellant, Erie Insurance Exchange (Erie), was valid and in effect on April 10, 1961, and that Erie was obligated to defend against certain claims arising out of an automobile accident. From a judgment in favor of the petitioner-appellee entered in the Superior Court of Baltimore City, Judge Cullen presiding without a jury, Erie has appealed.

On March 27, 1961, appellee made application in the name of Lola B. Lane for a policy of automobile liability insurance with Erie. A policy was issued to appellee covering a certain automobile registered in the name of 'Lola B. Lane.' Shortly thereafter, on April 10, 1961, while being driven by appellee, the vehicle described in the policy skidded and collided with an abutment of a bridge over Weems Creek in Anne Arundel County, Maryland. Two passengers in the car, Eugene M. Lane and Lawrence W. Gilbert, and the appellee-driver allegedly sustained injuries. The two passengers made claims against appellee.

After the accident, an investigation was made by Erie and a statement was taken from appellee in which she stated that she was not in fact married to Eugene M. Lane. In her statement she revealed that she was married to Clifton Hall from whom she had been separated since 1952, but was not divorced. At the present she was living with Eugene M. Lane, one of the injured passengers. By letters dated June 5, 1961, and June 27, 1961, Erie notified appellee that it was treating the policy of insurance which it had issued to her as void from its inception by reason of her misrepresentation of her name and marital status in the application for the policy. Erie also tendered her the premium paid therefor. Following this disclaimer, appellee filed suit against Erie for a declaration that the policy was in full force and effect on the date of the accident and that Erie be required to defend the claims against her and pay any judgments that might be obtained thereon.

At the trial, appellee testified that she had signed the name Lola Lane to the application for the policy. Erie had been recommended to her by her daughter, who worked as a secretary for an agent of Erie. At the time the application was made out, appellee had not seen Clifton Hall since 1953. She did not know if she was still married to him since she had never received any divorce papers. She assumed the surname Lane in 1953 because she liked it, and she has been using it ever since. She maintained the same social security number, but had the surname on her card changed to Lane. She testified that when she took employment she used the name Lola B. Lane and received statements in that name, but she never indicated to her employers whether she was married or single. She has lived with Eugene M. Lane since 1953; however, she testified that she had never held herself out as his wife.

A witness for the insurer, an underwriter employed by it, testified that if he had known the true marital status of the applicant, a policy of insurance would not have been issued to her. He indicated that the morality of its insureds was of great importance to Erie. He pointed out that in the circumstances of this case, there was a material increase in the risk due to the fact that the usual prohibition against one spouse suing another for tort would not apply where there was no legal marriage between them.

Appellant contended that the use of the name Lola Lane in an application for a policy of automobile liability insurance by a married woman living with, but not married to Eugene M. Lane, was a material misrepresentation that justified a rescission of the insurance policy. Erie also contended that appellee made other false warranties in the application justifying a rescission.

A misrepresentation by the person insured, in the application for a policy of insurance covering the owner or his automobile against liability or damages, will not affect the validity of the policy, unless the representation relates to some matter which is material to the risk, or prejudicial to the company, or was not made in good faith by the applicant, or unless, by virtue of the terms of the application and policy, it is made an affirmative warranty. 7 Blashfield, Automobile Law and Practice, Section 301.4. The representation must also be untrue, must have been made in bad faith, with knowledge of its falsity or recklessly without any knowledge whether it was true or false, with intent to defraud or deceive, and must have been relied on by the insurance company. 7 Blashfield, supra. See Sun Ins. Office v. Mallick, 160 Md. 71, 153 A. 35.

The application for the automobile liability insurance policy was filled out by agent and was signed 'Lola Lane' by the appellee on the second page in the place provided for the applicant's signature. In the space on the first page of the application for the name of the subscriber, there was a box checked for 'Mrs.' which was followed by the name 'Lola B. Lane.' On the second page of the application, it was indicated that appellee used the automobile 100% of the time (no other person was named as a driver) and that she was married. Other than a space provided for additional remarks, there were no spaces provided for questions and answers regarding the name of the husband and whether appellee was living with or apart from him. Nor was there any inquiry as to the husband's address.

The general rule is that the inquiry directed to the applicant must be reasonably designed to elicit from him information which he possesses material to the risk as a condition precedent to the application of the rule that a failure to disclose may provide a basis for avoidance of the policy. Harris v. State Farm Mutual Automobile Insurance Co., 232 F.2d 532 (6th Cir. 1956) cert. den. 352 U.S. 827, 77 S.Ct. 40, 1 L.Ed.2d 49 (1956); Government Employees Insurance Company v. Cain, 226 F.Supp. 589 (D.Md.1964). The question in Harris v. State Farm Mutual Automobile Insurance Co., supra, was whether the insured made a false representation in his application for the policy of automobile insurance in a negative reply to a question whether he had any physical defect. The insurance company introduced evidence that Harris suffered from epilepsy. Harris contended that epilepsy was not a physical defect, but was a disease. The insurance company contended that it was a physical defect. The insured was never asked if he suffered from epilepsy. The application was not attached, or incorporated in, or referred to in the policy. The Court found that epilepsy was a disease and not a defect. The Court in reversing the lower court and finding in favor of Harris said 232 F.2d at page 541:

'It is our conclusion that there was no proof that the insured, by any statement in his application, was guilty of fraudulent misrepresentation inducing the contract of insurance; that the statement that the insured had no physical defect was not a part of the insurance contract relied upon by the insurer; * * *.'

A problem similar to that in Harris was faced in Government Employees Insurance Company v. Cain, supra. The insurance company sought to rescind an automobile insurance policy on the ground of misrepresentation. In the application for the policy, it was asked, 'Are you or any operator of the automobile physically or mentally impaired? (One eye, leg, arm, paralysis, etc.).' The reply was negative. After an accident involving the wife of the insured, the insurance company learned that the wife, whom the insured had described as the only operator of the car in addition to himself, suffered from epilepsy and that the accident occurred as the result of an epileptic seizure. The court cited the rule that a material misrepresentation made by an applicant for insurance, in reliance upon which a policy is issued to him, renders the policy voidable as against the applicant and all who stand in no better position, whether such misrepresentation be made intentionally, or through mistake and in good faith. The court held that the portion of the question directed to mental impairment was not incorrectly answered by insured, because it was not designed to elicit from him the information which he possessed concerning his wife's epilepsy. The court denied relief to the insurance company. See State Farm Mutual Automobile Ins. Co. v. West, 149 F.Supp. 289 (D.Md.1957), where material misrepresentations were made by the...