Farber v. American Automobile Ins. Co.

• Decision Date: 06 April 1915
• Docket Number: No. 13914.,13914.
• Citation: 177 S.W. 675,191 Mo. App. 307
• Parties: FARBER v. AMERICAN AUTOMOBILE INS. CO.
• Court: Missouri Court of Appeals

177 S.W. 675

191 Mo. App. 307

FARBER v. AMERICAN AUTOMOBILE INS. CO.

No. 13914.

St. Louis Court of Appeals, Missouri.

April 6, 1915.

Rehearing Denied May 1, 1915.

Appeal from St. Louis Circuit Court; J. Hugo Grimm, Judge.

Action by Alice Farber against the American Automobile Insurance Company. From a judgment for plaintiff, defendant appeals. Reversed and remanded.

Stewart, Bryan & Williams, of St. Louis, for appellant. James M. Rollins, M. A. Halter, and Burr S. Goodman, all of St. Louis, for respondent.

NORTONI, J.

This is a suit on a policy of fire insurance. Plaintiff recovered, and defendant prosecutes the appeal.

The subject-matter, an automobile, was destroyed by fire about three months after it was insured. The policy was issued and delivered to plaintiff on the 7th day of March, 1912, and by its provisions defendant insured her in the amount of $1,750 against the loss of the automobile by fire. About three months thereafter, while plaintiff and a party of her friends were riding in the automobile on a country road near St. Louis, it suddenly became enveloped in flame and was totally destroyed. Defendant declined to pay the loss because, it is said, plaintiff made a false and fraudulent representation material to the risk with respect to the cost of the automobile, which induced the issuance of the policy in the first instance, and also because the policy stipulates a warranty in respect of the matter of its actual cost. No written application was executed by plaintiff prior to the issuance of the policy, but a schedule of statements indorsed thereon is invoked and as parcel of this a statement appears therein as follows: "Actual cost to assured, including equipment—$2,000." It is said that this statement was fraudulently made on the part of plaintiff with a view of inducing the issuance of the policy in the first instance as a deception practiced to that end, and, moreover, that it constitutes a warranty with respect to a fact material to the risk, in that it appears in the schedule of statements indorsed on the policy; for the policy recites that it was issued in consideration of the premium mentioned and the statements set, forth thereon, which the assured makes and warrants to be true by accepting the policy. In its answer defendant sets forth two affirmative defenses as above stated. The first defense pleaded and relied upon is that plaintiff made a false and fraudulent representation to defendant, to the effect that the actual cost of the automobile to her was $2,000, with a view of inducing the issuance of the insurance policy thereon by which indemnity against fire is vouchsafed in the amount of $1,750 when in fact and in truth the actual cost of the automobile was less than $1,500, also that the fact so misrepresented was material to the risk insured against, and that defendant believed and relied upon such statement and issued the policy accordingly. It is therefore averred that the policy was void in the first instance because of such fraud in the inducement. In connection with this defense the premium paid is tendered to and deposited in court for plaintiff. The second affirmative defense pleads the same matter as a warranty in respect of a fact material to the risk, and avers that defendant is discharged of liability on the policy because of its breach.

The trial court declined to reckon with with either of the defenses thus stated, and peremptorily directed a verdict in favor of plaintiff for the full amount of the insurance vouchsafed in the policy, in the view that any statement made by the assured concerning the actual cost of the subject of the insurance was unavailing as a matter of defense because of our valued policy statute which becomes parcel of the policy. In other words, the court entertained and expressed the view that, under our valued policy statute a representation as to the cost of the automobile could be regarded as material to the risk only as a criterion for the fixing of the amount of the insurance to be vouchsafed in the policy, and that as the amount of the insurance stipulated is conclusively established, perforce of the statute, as not exceeding three-fourths of the value of the property insured, no representation in respect of that matter may be regarded as material to the risk. Generally speaking, we believe this view to be sound in so far as it pertains to a policy issued as a result of fair dealing between the parties, and not contaminated in the first instance by fraud as through deceit practiced by means of misrepresentations relative to the value of the property which, for that reason, are material as matter of inducement to the contract by which the parties stipulate and agree upon the value of the property under the influence of the statute. Such representations, falsely made, with a fraudulent intent to influence an over-valuation of the property to be insured, ought to be regarded as material to the risk if believed by the insurer and relied upon by him in issuing the policy and thus fixing the value by writing the amount of the insurance therein. The statute (section 7030, It. S. 1909), among other things, provides:

"No company shall take a risk on any property in this state at a ratio greater than three-fourths of the value of the property insured, and when taken, its value shall not be questioned in any proceeding."

This statute, it has been frequently said, applies to insurance written on personal as well as on real property. It is said that it becomes a part and parcel of every policy of fire insurance issued in the state. It appears to be something more than what is usually regarded as a valued policy statute, in that it carries an inhibition against every insurance company in taking a risk at a ratio greater than three-fourths of the value of the property. Such being true, it estops the insurer, after the issuance of a valid policy, from disputing that the subject-matter of the insurance was of a value, at the time the policy was issued, not only equal to the amount of the insurance written thereon, but one-fourth more as well. See Gibson v. Ins. Co., 82 Mo. App. 515; Stevens v. Ins. Co., 120 Mo. App. 88, 96 S. W. 684; Crossan v. Ins. Co., 133 Mo. App. 537, 113 S. W. 704.

But obviously the statute intends that the contract valuation of the property so fixed by the amount of the insurance written in the policy shall be a valid one. There is nothing in the face of the statute to suggest otherwise, and, indeed, the implication is to the contrary. The statute contemplates and reckons with an insurance company in taking a risk through issuing its policy on property. In this connection it says, "when taken, its value shall not be questioned in any proceeding." Obviously the words "when taken" imply that the negotiations antecedent thereto shall be honest and fair—that is, free from covin and deceit—with respect to material matters, to the end that a valid contract in respect of such value may be had. Although the question here made was not in decision there, our Supreme Court, in giving judgment upon the validity of our valued policy statute, which pertains to real estate alone, intimated that the question of fraud in the inducement to the valuation fixed remained open; that is, was in no wise concluded thereby. See Daggs v. Orient Ins. Co., 136 Mo. 382, 395, 38 S. W. 85, 35 L. R. A. 227, 58 Am. St. Rep. 638. Then, too, in the same case in the Supreme Court of the United States, the judgment sustaining the statute was predicated in part in this view. In speaking of the parties entering into an insurance contract under the influence of the valued policy statute involved there, the court said:

"It leaves them to fix the valuation of the property upon such prudence and inquiry as they choose. It only ascribes estoppel after this is done—estoppel, it must be observed, to the acts of the parties, and only to their acts in open and honest dealing. Its presumptions cannot be urged against fraud, and it permits the subsequent depreciation of the property to be shown. We see no risk to insurance companies in this statute. How can it come? Not from fraud and not from change, because, as we have seen, the presumptions of the statute do not obtain against fraud or change in the valuation of the property."

See Orient Ins. Co. v. Daggs, 172 U. S. 557, 565, 19 Sup. Ct. 281, 43 L. Ed. 552.

It seems to be entirely clear that the statute is designed only to conclude the matter of the value of the subject of insurance stipulated in a policy contract fairly entered into with respect to such valuation. In other words, false and fraudulent representations of fact, not mere expressions of opinion, designedly made with sinister motive relative to the value of the property as an inducement to the contract of insurance fixing the valuation, if believed and acted upon by the insurer so as to cause the company to issue a policy considerably in excess of the true value of the property at the time, should be regarded, not only as material to the risk, but sufficient to render the contract void from its inception. In this view such matter may be shown in defense notwithstanding the valued policy statute. See Ætna Ins. Co. v. Simmons, 49 Neb. 811, 69 N. W. 125; Hartford Ins. Co. v. Redding, 47 Fla. 228, 37 South. 62, 67 L. R. A. 518, 110 Am. St. Rep. 118. See, also, 1 May on Insurance (4th Ed.) § 30.

Such is true, too, in respect of a statement concerning the "cost to the insured" of the subject of the insurance, for a representation as to such cost is material to the risk when considered apart from the valued policy statute entirely. This, no doubt, is because of the element of hazard which attends a situation where one may buy an article at a certain price and then insure it for an amount exceeding the price paid in order to destroy it, and thus realize a profit. Crad-dock, Vinson & Co. v. Ins. Co., 160 Ky. 519, 169 S. W. 1015. Here, the representation as to...